Shareholders seeking $540-million in a class-action lawsuit against insolvent metal-producer Timminco Ltd. have seen much of their claim tossed out by the Ontario Court of Appeal, which ruled that a legal time limit had run out.
Lawyers say the landmark ruling could also blow holes in similar cases launched against other companies by angry investors now before Ontario courts.
In a decision released Thursday, a three-judge panel of the Ontario Court of Appeal reversed a preliminary lower-court ruling that had favoured the investors' class action case against Timminco.
The lawsuit, filed in 2009, alleged the company had made "misrepresentations" to shareholders in 2008 about a new process to produce the silicon used in solar panels. The company filed for protection from its creditors last month.
The appeals court tossed out the lawsuit because the plaintiffs had failed to secure leave from a court to pursue their case in the three-year limitation period as required under the Securities Act.
The lower-court judge had ruled that this time limit was invalid because of more generous provisions in the Class Proceedings Act, which governs class-action cases.
Lawyers say the appeal decision has wide implications for potentially dozens of other cases.
"It's a significant decision, in that it provides direction to plaintiffs and defendants that these leave motions must be dealt with expeditiously," said Alan D'Silva of Stikeman Elliott LLP, who acted for Timminco. "You can't just sit on these claims and not deal with them."
But lawyers who represent plaintiffs in this kind of lawsuit say the ruling will make it harder for investors who claim to have been wronged to seek justice.
Dimitri Lascaris of Siskinds LLP in London, Ont., who acts for plaintiffs in class actions, said the Ontario Legislature needs to amend the Securities Act in order to close this time-limitation loophole.
"It creates enormous potential, in my respectful view, for injustice," said Mr. Lascaris, who was not involved in this case.
He said that a strict three-year time limit means that if shareholders discover some sort of misrepresentation and decide to sue a company, the defendants could draw out the process with legal wrangling and delays and simply run out the clock.
Plaintiffs with legitimate claims, he said, will "be defeated because there's a clogged court system, because the defendants are dragging their feet." He called this "completely irrational."
The ruling could affect 10 to 20 ongoing cases, he estimated, with claims for potential damages in the many billions.
Won Kim of Kim Orr Barristers P.C., who represented the plaintiffs in the Timminco case, could not be reached for comment.
Editor's note: The original newspaper version of this article and an earlier online version stated that the lawsuit against Timminco had been certified as a class action. This online version has been corrected.