A recent decision in the Ontario Superior Court of Justice will allow a class action to proceed against Gammon Gold; its senior officers and/or directors; and BMO Nesbitt Burns Inc., Scotia Capital Inc. and TD Securities Inc. - members of the syndicate that underwrote the securities offered under Gammon's prospectus. The representative plaintiff, Ed McKenna, alleged that the defendants made misrepresentations in the prospectus and other public filings, overestimating the production rate at Gammon's Mexican mines and misrepresenting the real state of Gammon's business.
In addition to the question of whether this suit should be certified as a class action under the Securities Act, two additional issues arose:
- Under common law, must a plaintiff claiming negligent misrepresentation prove that he or she actually relied on the alleged misrepresentation?
- Was it appropriate to certify this proceeding as a global class action on behalf of all purchasers of Gammon securities everywhere?
Justice George Strathy certified the primary market purchasers as a class proceeding against both Gammon and the underwriters under section 130 of the Securities Act. The act does not require that plaintiffs actually relied upon misrepresentations made by the defendants. He also allowed an additional claim for unjust enrichment against the underwriters to proceed.
He dismissed the plaintiff's common-law suit asserting negligent misrepresentation, negligence and reckless misrepresentation, on the basis that legal precedents for such charges require proof of the plaintiff's reliance on the misrepresentation.
He also limited the class to residents and non-residents who acquired Gammon shares through the underwriters in Canada and under the prospectus, based on a recently amended jurisdictional test requiring a real and substantial connection between Ontario and the plaintiff's claim, and between Ontario and the defendant.
To read the complete decision, go to http://www.canlii.org/en/on/onsc/doc/2010/2010onsc1591/2010 onsc1591.html.
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An Alberta jury recently ordered Home Hardware Stores Limited to pay $500,000 in aggravated and punitive damages to an employee fired on the basis of unsubstantiated accusations of sexual harassment. He will also receive $60,000 in damages based on his claim against the complainants for defamation, a 24-month notice period (approximately $89,000), pre-judgment interest of almost $80,000, and costs and disbursements of $198,000.
Daniel Elgert, a management employee in Home Hardware's Edmonton-area distribution centre with more than 16 years of experience with the company, was dismissed for just cause in May 2002 based on allegations from two women known only as C.B. and D.S.
The incidents were said to have occurred several months before they were reported, and only became known following Elgert's negative assessment of C.B. and her reassignment to a job she disliked. In the intervening months, C.B. continued to work under Elgert's supervision.
Elgert argued that Home Hardware had conducted a flawed investigation, claiming:
- There was no written policy on harassment and no investigation or complaint process.
- C.B.'s father was in a senior management position within the company and the head of the distribution centre. Despite this fact, Home Hardware did not discuss the use of an independent investigator nor did they look to establish a process so that the investigation would proceed objectively.
- There was no emphasis on confidentiality nor an attempt to protect either the complainants or the respondent.
- Elgert was not advised that there was a complaint made regarding his conduct, much less any particulars (including who had complained about him) prior to Home Hardware interviewing other witnesses. The first time Elgert was told that he was alleged to have committed sexual harassment or sexual assault was at the meeting where he was suspended.
- At the time of the suspension, there was no written complaint received from either C.B. or D.S., who had not even been interviewed.
- None of the employees who provided their names as possible support for Elgert were interviewed.
- Company officials refused to interview Elgert in the company of his lawyer.
- Home Hardware and their investigators did not address the possibility of a motive behind the complaints.
The company defended its actions for eight years, until November 2009, when it offered to settle for $165,000. Elgert refused the offer.
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In a recent case before the Human Rights Tribunal of Ontario, an adjudicator awarded a woman $35,000 in damages after she was fired on her first day of work for revealing that she was pregnant. The award included compensation for lost wages, maternity leave benefits, pre-judgment interest and $15,000 for injury to her dignity, feelings and self-respect. Jessica Maciel, 20, a recent graduate with a business diploma, was hired to work as a receptionist for two related hair salons in the Erin Mills Town Centre, west of Toronto. She was just over four months pregnant at the time. According to the evidence provided, Maciel informed her employer about her pregnancy on her first day on the job and was fired shortly thereafter. The employer did not deny firing Jessica on her first day but claimed it had nothing to do with her being pregnant.
The tribunal adjudicator was not persuaded by the employer's evidence during the hearing and ruled that Maciel had made out a prima facie case of discrimination on the basis of sex (pregnancy), contrary to the Ontario Human Rights Code. The adjudicator noted that under Section 45.2(1) of the code, the tribunal is authorized to order compensation for injury to dignity, feelings and self-respect, and notably, that there is no ceiling on the amount of such compensation that can be awarded.
The employer was also ordered to prepare a written policy on accommodating pregnant employees and maternity/parental leave practices consistent with their obligations under the code and the Employment Standards Act.
You can read this verdict at: http://www.canlii.org/en/on/onhrt/doc/2009/2009hrto1804/2009hrto1804.html.
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Atlas Cold Storage settles class action for $40 million
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In July 2008, the Ontario Superior Court of Justice approved a $40-million settlement plan between Atlas Cold Storage Income Trust, named directors and officers and certain other defendants, and plaintiff unit holders who filed the class action in 2004. The class members alleged that the defendants misrepresented the trust's earnings in a publicly filed prospectus document by overstating its net income for the 2002 and 2003 fiscal years; consequently, the trust units of Atlas traded at artificially high prices. The settlement applies to all persons who purchased or acquired Atlas Cold Storage Income Trust units between March 1, 2002 and August 29, 2003.
As part of the approved settlement, the defendants did not admit any wrongdoing or liability.
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Livent co-founders liable for $36-million default judgment
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While the ongoing criminal fraud proceedings continued against Garth Drabinsky and Myron Gottlieb this summer, the pair must now pay $36.6 million to investors who lost their money when the Livent entertainment empire went bankrupt in 1998. In 1998, Livent investors commenced a class action against Drabinsky and Gottlieb in New York State. The suit alleged that misrepresentations regarding Livent's financial situation were contained in a 1997 registration statement filed with the U.S. Securities and Exchange Commission in support of a distribution of unsecured notes, which became worthless after Livent filed for bankruptcy.
Drabinsky and Gottlieb were charged criminally with fraud in the U.S. in 1999 and in Canada in 2002. Once indicted in Canada, they could not be extradited to the U.S. to face charges there.
However, the class action continued in the U.S., and the plaintiffs secured a substantial default judgment.
In July 2007, the plaintiffs applied to the Ontario Superior Court of Justice for enforcement of the U.S. judgment. The court agreed, but Drabinsky asked the Ontario Court of Appeal to overturn the ruling.
The appeal court heard the case in May 2008. Drabinsky argued that the defendants were denied a full opportunity to defend the U.S. proceedings because outstanding criminal charges effectively precluded them from testifying in the U.S. civil case.
The appeal court ruling in July upheld the lower court order for enforcement of the U.S. default judgment.
You can read this verdict at http://www.ontariocourts.on.ca/decisions/2008/july/2008ONCA 0566.htm.
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B.C. strata ordered to pay $12,000 for seeing eye dog
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The British Columbia Human Rights Tribunal has ordered a Sidney, B.C. strata council (the condominium board) to pay a blind man $12,000 after rejecting his safety dog. In 2006, Trevor Jones, considered legally blind, decided to sell his bungalow and look for a one-level townhouse. He found the perfect location on Amelia Street in Sidney, B.C. and made an offer. Jones had a large Labrador Retriever dog that had been providing him with assistance as his sight began to fail, but she was not a registered guide dog. The bylaws of the Strata Plan 1571 allowed only companion animals up to 15 kg. The strata rejected the offer on the townhouse, refusing to recognize the dog's assistance role to Jones, despite witnesses' evidence of the dog's role and a doctor's letter confirming the importance of the dog's assistance to Jones's health and safety. As a result, Jones was forced to seek another property, delaying his move and incurring additional expense.
After seeking legal advice, Jones filed a complaint alleging that the owners of Strata Plan 1571 and individual members of the council discriminated against him in his attempt to purchase the Amelia Street property because of a physical disability. On May 29, 2008 the tribunal issued its decision agreeing with Jones and awarded compensation for his expenses in securing alternative living accommodations in the amount of $12,000.
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D&O insurer must pay pollution defence costs
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Ontario's appeal court has upheld a trial court verdict that ordered a directors and officers (D&O) insurer to pay a substantial sum toward its client's legal expenses. In 1998, a tailings pond owned by Boliden Ltd.'s Spanish subsidiary collapsed, resulting in shareholder class actions against Boliden's directors and officers alleging misrepresentations in an earlier prospectus. After settling the class actions, Boliden sought more than $3 million in defence costs from its D&O insurer, Liberty Mutual Insurance Co.
The trial court examined the policy wording and concluded that exclusions for "pollution-related losses" are not the same thing as exclusions for "pollution-related claims."
Because there were allegations in the claim related to pollution loss and allegations that related to other loss, the court ruled that an allocation endorsement in the policy applied and ordered the insurer to cover 80 per cent of all the insured's defence costs.
The appeal court unanimously concluded that there was no reviewable error by the trial court judge and upheld the trial court ruling.
You can read this verdict at http:// www.canlii.org/en/on/onca/doc/2008/2008onca288/2008onca288.html.
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Breach of fiduciary duty damages against officer of private company set aside
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In the Winter 2006 News Board, we reported on the Supreme Court of British Columbia ruling that the founder of a corporation breached his fiduciary duties to the corporation and its shareholders and ordered him to pay damages of $1,088,995. Tae Soo Woo, founder, director and vice-president of Olive Hospitality Inc., was found to have intentionally injured the company's business and employed unlawful means to do so. His conduct constituted interference with the companys business, causing its eventual destruction.
The court ordered Woo to pay damages, including $1,088,995 for breach of fiduciary duty.
On appeal, the Court of Appeal for British Columbia set aside the award of damages against Woo. The appeal court agreed that Woo's breach of fiduciary duty caused harm by materially damaging the plaintiff's reputation and interfering with the firm's economic relations such that it was unable to obtain financing and maintain good relations.
However, the court held that the plaintiff failed to prove the present monetary value of the financial advantage the company might have expected to realize, taking into consideration all other business contingencies it faced, if Woo had not breached his fiduciary duty. Thus, the amount of damages awarded by the trial court for such breach was set aside. See http:// www.courts.gov.bc.ca/jdb-txt/ca/07/03/2007bcca0355.htm
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Supreme Court verdict - Good news for Danier, bad news for directors and officers
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The Supreme Court of Canada has written the final chapter in the Danier Leather Inc. class action In 1999, Danier and certain of its directors and officers were served with a statement of claim under the Class Proceedings Act (Ontario), which made allegations about the accuracy and disclosure of certain information contained in a financial forecast issued by the company as part of an initial public offering (IPO) prospectus released in May 1998. The suit sought damages in the millions.
In October 2001, the class action was authorized against the defendants, based on erroneous financial forecasts in contravention of section 130 of the Ontario Securities Act, and the trial commenced in the Ontario Superior Court of Justice in May of 2003.
The trial wrapped up in January 2004. In May 2004 the trial judge issued a judgment against the company and two of its senior officers, awarding substantial damages to Canadian shareholders as well as legal costs of $7 million, including a $1-million costs premium to be paid by the defendants to the plaintiffs' class action counsel.
The company and two senior officers filed a notice of appeal in June 2004. The Ontario Court of Appeal heard the appeal in June 2005 and ruled in favour of the appellants in December 2005. The ruling set aside the trial decision, dismissed the class proceeding and relieved Danier from any damages, interest or costs awarded by the trial judge.
The plaintiffs filed an application for leave to appeal to the Supreme Court of Canada. The court heard the appeal in March 2007 and handed down its ruling in October 2007.
The Supreme Court unanimously upheld the Ontario Court of Appeal's decision in favour of Danier and ordered the plaintiffs to pay the company $1 million toward their legal costs. Lawyers Weekly estimated the plaintiffs' own legal fees at somewhere between $2 million and $3.5 million.
While not good news for investors and the lead plaintiff, paragraph 55 of the ruling did offer a huge consolation for investors moving forward. Justice William Binnie wrote that directors and officers are bound solely by disclosure rules set by the provincial securities acts when they make decisions about whether or not to publicize significant or material changes to their business. They are not subject to the "business judgment" rule that underpinned the Ontario Court of Appeal's reversal of the lower court ruling.
Before the Supreme Court decision, many were arguing that the Ontario Court of Appeal had set a new and less onerous disclosure precedent for directors and officers of public companies. However, paragraph 55 of the Supreme Court ruling has reset the bar to a much tougher, objective test that requires public companies to report all significant or material business changes. Chief litigation counsel of the Ontario Securities Commission said during a recent interview, "Our job will be simpler now!"
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Officer of private company must pay $1,155,318 for fiduciary duty breach
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The Supreme Court of British Columbia has ruled that the founder of a corporation breached his fiduciary duties to the corporation and its shareholders, and ordered him to pay substantial damages. Tae Soo Woo, a founder, director and vice-president of Olive Hospitality Inc., was in charge of the financial management, including banking and accounting, for the company. Following a 22-day trial, the court found that Woo intended to injure the company's business and employed unlawful means to do so, and that his conduct constituted interference with the company's business, causing actual injury to and eventual destruction of the business.
For Woo's defamation of the plaintiffs and breach of fiduciary duty, the court ordered him to pay the plaintiffs $1,155,318, including general damages of $50,000; damages for breach of fiduciary duty in the amount of $1,088,995; repayment of funds improperly obtained of $6,323; and punitive damages of $10,000.
You can read this verdict at: http://www.courts.gov.bc.ca/jdb-txt/sc/06/15/2006bcsc1554err1.htm
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$18-million D&O lawsuit heading to Supreme Court of Canada
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The Supreme Court of Canada has agreed to hear the appeal of a huge class action lawsuit by shareholders of Danier Leather Inc. of Toronto. In 1999, shareholders of Danier commenced a class action against the company and its officers and directors.
The lawsuit made allegations about the accuracy and disclosure of certain information contained in a financial forecast issued by the company as part of an initial public offering (IPO) prospectus released in May 1998, and sought damages in the millions.
The class action was authorized in October 2001, and the trial commenced in the Ontario Superior Court of Justice in May 2003. Following a 43-day trial, the judge ruled in favour of the plaintiffs.
The company and two of its senior officers were ordered to pay substantial damages to shareholders and $7 million for plaintiffs' legal costs. The court subsequently awarded a further $1-million costs premium to be paid by the defendants.
Danier and two senior officers filed a notice of appeal in June 2004. The appeal court heard five days of arguments in June 2005 and brought down its ruling in December 2005. The appeal court ordered that the trial court decision be set aside, thus dismissing the class proceeding and relieving Danier from liability for any damages, interest or costs awarded by the trial court. But it's not over yet. In February 2006, the plaintiffs filed an application for leave to appeal to the Supreme Court of Canada (SCC). The SCC granted the application in June 2006 and will hear the appeal some time in 2007.
Danier's 2005 financial statement indicates that they have made an $18-million provision to reflect the trial judge's decision. The provision does not take into consideration any amounts that may be recoverable from their D&O insurance. They have indicated that this provision will remain on their books until the outcome of the case is finally resolved by the SCC.
Defending any lawsuit can be time-consuming and costly. By the time the SCC brings down its ruling some time next year, Danier will have vigorously defended this class action for eight years. That's a long time to have allegations of this nature and substance hanging over the heads of the company and its officers and directors.
Ontario's new Bill 198 provides new and easier access to the courts for shareholders to bring class actions against public issuers, based on timely and accurate disclosure.
You can read this appeal court verdict at: http://www.ontariocourts.on.ca/decisions/2005/december/C41880.htm
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Court approves US$50-million D&O settlement against Hollinger
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A court in Delaware recently approved a US$50-million (Cdn$56.5- million) settlement in a lawsuit brought by shareholder Cardinal Value Equity Partners against Hollinger International Inc., according to The Toronto Star. Sun-Times Media Group Inc., as Hollinger is now known, said the settlement will be funded by its D&O insurers.
The 2003 lawsuit accused Hol-linger's directors of failing to stop an alleged looting of the company by then-CEO Conrad Black and others. It also alleged that the board failed to question $53 million in non-competition payments made to Black and his allies after the sale of Hollinger's Canadian newspapers to CanWest Global Communications Corp. They claimed that the money should have gone to the company instead of the Black group.
This settlement "is significant because it shows that shareholders will take action against a company, and that courts will take a sympathetic view," said Richard Powers, assistant dean of the Rotman School of Management at the University of Toronto. "The bar has been raised. While having high-profile people on boards gives a sense of legitimacy, it would certainly raise the question of whether these people were asleep at the switch. It doesn't matter who you are. The courts are determining that you have to do your job."
As part of the settlement, Cardinal's claims are dismissed without prejudice, and the settlement does not contain any admission of wrongdoing or liability. Sun-Times Media said the dismissal without prejudice enables them to pursue their claims against Black and the others. Hollinger has sued the former CEO and newspaper baron for more than $425 million. Black also faces U.S. criminal charges, including money laundering and racketeering. His trial is set for March 2007.
During its peak in the late 1990s, Hollinger controlled Canada's dominant group of big-city newspapers, the Telegraph of London and The Jerusalem Post.
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IMAX first firm sued under Ontario's new Bill 198
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A lawsuit seeking more than $500 million in damages has been commenced against IMAX Corporation, Co-Chairman and Co-CEO Richard Gelfond, Co-CEO Bradley Wechsler and former CFO Francis Joyce. The statement of claim alleges that the company's 2005 earnings were misrepresented in a February 17, 2006 news release, and in subsequent IMAX disclosures, by recognizing revenue from theatres that had yet to open. It also alleges that as a result, IMAX's shares traded at artificially inflated prices.
This is the first case to seek remedies under Ontario's new investor protection legislation, Bill 198, which came into effect on December 31, 2005.
Bill 198 amends the Ontario Securities Act to introduce provisions imposing civil liability upon public issuers to purchasers of their securities for misrepresentations in public disclosure and/or failure to make timely disclosure. Liability also extends to certain of the public issuer's directors, officers, experts and influential persons.
While this change in directors and officers liability in Ontario has been celebrated by the Ontario plaintiff's bar, it is of great concern to directors and officers of public companies.
Prior to Bill 198, there was little recourse for investors who suffered damages due to misrepresentation in the secondary market, other than common-law remedies, which were very difficult for the average investor to access.
While this new legislation will encourage public issuers to maintain accuracy in their public disclosure, it also ushers in a new era of securities class action litigation in Ontario, making it much easier for shareholders to sue companies and their executives. We expect that similar legislation will soon be introduced in the rest of Canada.
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B.C. to pay in landmark sexual abuse case
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B.C.'s Court of Appeal has ordered British Columbia to pay a landmark award of $1 million to four men who were sexually abused by a man who ran a provincially funded group home for boys in the early 1970s.
The man who ran the group home was sentenced to 17 years in prison in 1992 after he pleaded guilty to assaulting many adolescent boys over a 30-year period. He died in jail three years later.
This may be the first time a senior court has found a government liable for the actions of an employee in a sexual abuse case.
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