A potential $300-million securities class-action suit against Celestica Inc. could become the latest casualty of a court ruling that critics say places severe restrictions on shareholders looking to sue companies accused of making misleading statements.
The plaintiffs in the case, which was in court last week, allege in court documents that Toronto-based Celestica provided a “false picture” of financial results and inventory levels during its 2005-2006 restructuring, costing shareholders after the issues were later made public and the company’s stock sank.
But the allegations could be thrown out of court on a technicality, following an Ontario Court of Appeal ruling earlier this year that strictly interprets a three-year deadline for such cases under the Ontario Securities Act.
In this case, Celestica denies the allegations, which have not been proven. The company has filed a statement of defence arguing that its disclosure was “proper, complete, timely” and complied with all rules. The Ontario lawsuit has not yet been certified as a class-action.
In February, the Ontario Court of Appeal shocked both sides of the securities class-action bar with its landmark decision in a lawsuit against Timminco Ltd. The court ruled that plaintiffs in securities class actions who bought shares on a stock exchange must secure the leave, or permission, they need from a judge to proceed within three years of the alleged misrepresentation by the company.
Lawyers who act for plaintiffs in securities class-actions warned the new time limit would destroy dozens of existing cases and unfairly prohibit investors from filing new ones, as it would allow defendants to simply run out the clock. But litigators on Bay Street who defend corporations against securities class-actions argue the time limit frees companies from unproven allegations that can hang over them for years.
The ruling’s effects have already been felt. A potential multibillion-dollar class-action against Canadian Imperial Bank of Commerce that alleged the bank misled investors over exposure to U.S. subprime mortgages in 2007 was tossed out in July. But in August, Madam Justice Katherine van Rensburg of the Ontario Superior Court refused to throw out a massive shareholder lawsuit dogging Imax Corp. based on the time limit, instead issuing a retroactive ruling.
Last week, lawyers for Celestica argued in court that time was up for the plaintiffs, since the allegations date back to 2005 and 2006. Hearing the case is Mr. Justice Paul Perell, the judge who originally sided with the plaintiffs in the Timminco case.
Celestica lawyer Nigel Campbell, of Blake Cassels & Graydon LLP, declined to comment on the case. But in written arguments, he argued that the plaintiffs had essentially dragged their feet, pursuing a parallel lawsuit in the U.S. instead.
The plaintiffs’ lawyer, Kirk Baert of Koskie Minsky LLP, said the investors in the case originally pursued a lawsuit in the U.S. in 2007. But a controversial 2010 U.S. Supreme Court ruling now bans foreigners who bought stock on a foreign exchange from suing companies in U.S. courts. This forced the Canadian plaintiffs to file new actions here, only to run into yet another obstacle: the Timminco time-limit decision.
Mr. Baert calls the three-year limit “unworkable,” and unjust to investors. Not only does it put the fate of shareholder claims at the mercy of a clogged court system, he said, it rewards companies the longer they hide their financial problems.
“How are shareholders supposed to bring claims on misrepresentations where the truth doesn’t come out for more than three years and a day?” Mr. Baert said in an interview. “… I mean, the better you are at hiding it, the less likely you are to be sued.”