Member Article

On July 17, 2013, the Court of Appeal issued an unprecedented judgment in Quebec in the case of Theratechnologies inc. v. 121851 Canada inc.¹ Justice Clément Gascon, writing for the court, held, in a unanimous decision, that a judgment having authorized a class action for damages under section 225.4 of the Securities Act (Quebec)² (hereinafter the “S.A.”) can be appealed despite the rule laid down in the Code of Civil Procedure (Quebec) (hereinafter the “C.C.P.”) to the effect that judgments authorizing the institution of a class action are unappealable.

FACTS UNDERLYING THE DISPUTE

In this case, 121851 Canada Inc. (hereinafter “121CAN”) accused Theratechnologies, a corporation listed on the Toronto Stock Exchange, and its officers (hereinafter collectively “Thera”) of failing to disclose a “material change” through the publication of a press release, which Thera was required to do on the basis of its status as a reporting issuer under the S.A. and its related continuous disclosure obligations under sections 73 S.A. and 7.1 of the Regulation 51-102 respecting continuous disclosure obligations.³ Since 121CAN had held 190,000 common shares of Theratechnologies, it applied for an authorization to institute a class action.

PROCEEDINGS IN THE SUPERIOR COURT

In the Superior Court of Quebec, 121CAN filed a motion for authorization to institute a class action based only on the provisions of the C.C.P. Thera then filed an application for dismissal on the ground that the prior authorization required under subparagraph 1 of section 225.4 S.A. had not been obtained. Indeed, since Bill 19⁴ came into force, a specific civil remedy has been available allowing secondary market investors to bring an action in damages for verbal or written misrepresentation or the failure of the issuer to comply with its disclosure obligations.

At the hearing on the motion for dismissal filed by Thera, Justice Marc André Blanchard of the Superior Court authorized an amendment which allowed 121CAN to add a second motion for authorization under sections 225.4 and following of the S.A.⁵

Both motions were heard at a joint hearing at the end of which Justice Blanchard allowed both motions and authorized a class action for damages.⁶

THE JUDGMENT OF THE COURT OF APPEAL

In the Court of Appeal, acknowledging that the authorization under article 1003 C.C.P. could not be appealed since such an appeal is clearly prohibited by the second paragraph of article 1010 C.C.P., Thera applied for leave to appeal the authorization granted under section 225.4 S.A., arguing that such an appeal exists under the S.A.

Leave for appeal is normally dealt with by a single judge, but on account of the unprecedented nature of the issue, it was referred to a full panel of the Court.⁷

In a unanimous decision drafted by Justice Gascon, the Court of Appeal allowed the motion for leave to appeal filed by Thera, and then dismissed the appeal. In this bulletin, we will mainly consider the issue of leave to appeal an authorization judgment under section 225.4 S.A., rather than the reasons underlying the dismissal of the appeal on the merits.

Leave to appeal - Decision of Justice Gascon

As the basis for his analysis and decision on the issue, Justice Gascon reviewed in detail the context of the adoption of the liability regime implemented through the introduction of Bill 19 and sections 225.2 and following of the S.A. and the purpose of this new remedy.

Historically, to prevail in an action in damages under the S.A., the plaintiff was required to prove a fault, a loss and causation, as in any civil liability action. However, in the specific context of the financial markets, these requirements constituted nearly insurmountable barriers for investors, who had to demonstrate that they had relied on [translation] “false information or the failure to disclose a material change for the purchase of the security and that the change in the market price of the security resulted from the false declaration or the failure to disclose”.⁸ These requirements also made it very difficult to institute a class action because the facts having led to each of the investments by the members of the class could be different.