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British Columbia: Call for Comment on Secondary Market Liability Legislation Raises Spectre of Forum Shopping
In previous issues, we reviewed the differences between the secondary market liability legislation in effect in Ontario, Alberta and Manitoba and the secondary market liability regime proposed in the unproclaimed British Columbia 2004 Securities Act. These differences include different remedies for primary and secondary market investors, different liability standards depending on the nature of the misrepresentation, a presumption of director liability in the proposed B.C. legislation that does not exist in Ontario, a cap on damages in Ontario that does not exist in the proposed B.C. legislation and the absence in the B.C. class action legislation of the loser-pay costs provision that exists in Ontario.
In June 2006, the B.C. Attorney General requested consultation and comment on the implementation of secondary market liability in B.C. and specifically on the proposed 2004 Securities Act. Comments provided in response to the Attorney General’s request, particularly from public issuers, have hit hard at the B.C. proposal and have raised the concern that different liability regimes within Canada will encourage ‘forum shopping.’ This concern has reached a level where there is open speculation that a lack of uniformity in civil liability will lead to companies deciding not to become reporting issuers in B.C. This issue is a difficult one for the B.C. government, which passed the 2004 Securities Act but has never proclaimed it into law. However, the resolution of the issue is vital to the British Columbia Securities Commission (BCSC).
The BCSC has taken a very public position in support of principles-based securities regulations and differs from other Canadian regulators over the need for uniform national legislation administered by a single regulator. A decision by B.C. to adopt the Ontario model for secondary market liability would be seen as a setback to the BCSC and would call into further doubt whether the 2004 Securities Act will ever be proclaimed.
McCarthy Tétrault Notes:
Is there reason to fear forum shopping? The proposed B.C. regime is more shareholder-friendly. B.C. has no-cost class action legislation and the proposed secondary market legislation does not have a statutory cap on damages. Both of these features would be reasons for plaintiffs to litigate in B.C. However, B.C. class action legislation is more limited in application than the equivalent legislation in Ontario and requires non-residents to opt in to an action if they want to participate. This requirement has been a disincentive to plaintiffs who bring national class actions. Ontario, which has an opt-out provision for non-residents, has been the forum of choice for many of the recent Canadian actions. In that sense, forum shopping is already a feature of class action litigation in Canada. Should B.C. decide to stay with the proposed secondary market regime in its 2004 Securities Act, it is unlikely that the floodgates will open to shareholder class actions in B.C.
More important perhaps is the signal that will be sent by the B.C. government when it announces its decision on secondary market liability. If B.C. adopts the Ontario model, a question will arise as to whether the government will continue to support the principles-based regulatory model advocated by the BCSC. This decision may reveal whether B.C. is still prepared to go it alone in the face of a growing consensus on the need for harmonized national securities regulation.
