2010 D&O Symposium Symposium New York City ~ February 3 & 4, 2010 International D&O: Focus Canada

International D&O: Focus Canada MODERATOR: David B. Williams, Senior Vice President, Chubb Insurance Company of Canada PANELISTS: Justice Colin Campbell, Superior Court of Justice, Ontario Superior Court Jay (A.R.) Cassidy, Esq., Senior Vice President, FINPRO - Claims Advocacy Practice, Marsh Canada Limited Alan D’Silva, Partner, Stikeman Elliott Dimitri Lascaris, Esq., Partner, Siskinds LLP Rissa Revin, LL.B., Senior Vice President, Chief Claims Officer, Liberty International Underwriters Canada

Today’s Agenda I.Comparative Overview of Canadian & U.S.A. Securities Law II.Class Action Landscape In Canada III.IMAX Decision: A Discussion on Class Certification IV.Key Cases Impacting The Canadian Class Action Litigation Environment V.Closing Remarks

What ’ s your perspective?

Provincial Vs Federal

Class Certification in Canada In Canada, class actions may be pursued in either the Federal Court of Canada or in the courts of general jurisdiction of the Provinces The Federal Court of Canada’s jurisdiction is much narrower than that of the United States federal courts The vast majority of class actions are therefore pursued in the Provincial courts of general jurisdiction This sometimes results in two or more Provincial Courts certifying overlapping extraterritorial classes Due to the size of its population and economy, Ontario appears to attract more class actions than any other Province Ontario has an opt-out regime, but some Provinces, such as Alberta, have an opt-in regime

The Ontario Class Proceedings Act, (1) The court shall certify a class proceeding…if, (a) the pleadings… disclose a cause of action; (b) there is an identifiable class of two or more persons that would be represented by the representative plaintiff or defendant; (c) the claims or defences of the class members raise common issues; (d) a class proceeding would be the preferable procedure for the resolution of the common issues; and (e) there is a representative plaintiff or defendant who, (i) would fairly and adequately represent the interests of the class, (ii) has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and (iii) does not have, on the common issues for the class, an interest in conflict with the interests of other class members.

Main Distinctions between CPA Section 5 and FCRP 23 1.PREDOMINATION The Ontario CPA does not require that the common issues predominate over the individual issues, but only that a class action be the “preferable procedure” for resolving the common issues Ontario’s Courts have held that, if the resolution of the common issues would “significantly advance the litigation”, a class action can be the preferable procedure even where the individual issues predominate By contrast, Rule 23(b)(3) requires that “questions of law or fact common to class members predominate over any questions affecting only individual members”

The Significance of the Absence of a Predomination Requirement Personal injury class actions are routinely certified (Vioxx, Zyprexa, Medtronic (cardiac defibrillators)) Reliance-based claims are frequently certified (Bre- X, CP Ships)

Main Distinctions between CPA Section 5 and FCRP COSTS Under the Ontario CPA, costs are generally awarded to the prevailing party on an interlocutory motion On certification motions, Ontario’s Courts may decline to award costs in (i) a test case, (ii) cases raising a novel point of law, or (iii) cases involving a matter of public interest Ontario Courts now rarely exercise their discretion to award no costs to the defendants on an unsuccessful certification motion Not all Canadian Provinces award costs in certification motions (e.g. Quebec)

Main Distinctions between CPA Section 5 and FCRP COSTS (Cont’d) Costs awards are generally made on a “partial indemnity” basis, which generally means 30-40% of the prevailing party’s actual costs In certification motions, most costs awards range from $150,000-$300,000

Main Distinctions between CPA Section 5 and Rule Numerosity Under Rule 23, the class must be so numerous that joinder is impracticable In Ontario, there need only be 2 or more class members.

Part XXIII.1 of the Ontario Securities Act Called into force on December 31, 2005 Similar amendments have since been adopted in numerous other Provinces (Alberta, British Columbia, Quebec) Part XXIII.1 did not eliminate pre-existing causes of action: s states that “the right of action for damages…to an action under [Part XXIII.1] are in addition to, and without derogation from, any other rights…the plaintiff…may have in an action brought otherwise than under this Part”

Part XXIII.1 of the Ontario Securities Act Part XXIII.1Rule 10b-5 “Core” documents: negligence/reverse onus “Non-core” documents: knowledge, willful blindness or “gross misconduct” Scienter

Part XXIII.1 of the Ontario Securities Act Part XXIII.1Rule 10b-5 Liability is Capped: Issuer: 5% of market cap D’s & O’s: greater of $25,000 and 50% of total comp over prior 12 months Experts: greater of $1 million and 50% of revenues from issuer over prior 12 months Liability is Uncapped

Part XXIII.1 of the Ontario Securities Act Part XXIII.1Rule 10b-5 Defendants bear the burden of proving that a stock drop that is contemporaneous with a corrective disclosure was due to other factors Plaintiff bears the burden of proving loss causation

Part XXIII.1 of the Ontario Securities Act Part XXIII.1Rule 10b-5 Preliminary merits test: 1.Plaintiff is acting in good faith 2.Plaintiff has a reasonable possibility of success at trial The test is evidence based Preliminary merits test: Plaintiff must state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind The test is pleadings- based

Part XXIII.1 of the Ontario Securities Act Part XXIII.1Rule 10b-5 Plaintiff has a cause of action without regard to whether or not the plaintiff relied on the misrepresentation Reliance is a necessary element of the cause of action, but there is a rebuttable presumption of reliance in cases of market efficiency (fraud-on-the-market theory)

Part XXIII.1 of the Ontario Securities Act Part XXIII.1Rule 10b-5 Plaintiff is entitled to all non- privileged evidence having a semblance of relevance to the issues raised on the leave motion (Imax) BUT A Defendant may elect to remain silent in the face of the leave motion (CV Technologies) Stay of discovery pending resolution of a motion to dismiss

Part XXIII.1 of the Ontario Securities Act Barbarians at the Gate?

Part XXIII.1 of the Ontario Securities Act In the 4 years since Part XXIII.1 was called into force, approximately 16 class actions, or 4 class actions per year, have been filed under the new law. According to Cornerstone, over the same period there has been an average of 172 securities class actions filed in the U.S. Adjusted for the size of Canada’s capital market, this is equivalent to an average of 17 filings a year in Canada. Will the decision in Imax result in a level of filings that is comparable to that of the United States?

Questions?

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