Court Confirms No Need For Defendants To Lead Evidence In Motion For Leave Under Part XXIII.1 Of The Ontario Securities Act


In the recent decision of Dugai, Murphy v. Manulife Financial Corporation (2013 ONSC 327), the Divisional Court confirmed the principle that defendants have no obligation to lead evidence on a motion for leave to assert a cause of action for secondary market misrepresentation under s. 138.8(1) of the Ontario Securities Act, R.S.O. 1990, c. S.5 (the “Act”).

In Dugai, the plaintiff investors proposed a class action alleging inadequacies in the defendant corporation’s Risk Management Policies and Practices, including a cause of action for secondary market misrepresentation under Part XXIII.1 of the Act (for which they require leave under s. 138.8(1)). After being advised that the defendants did not intend to file any affidavits on the leave motion (currently scheduled for March 2013), the plaintiffs summoned two Manulife employees under Rule 39.03 of the Rules of Civil Procedure to provide relevant evidence for use during the leave motion. The defendants brought a motion to quash the summonses, and the plaintiffs brought a cross-motion to compel the defendants to file affidavits. Belobaba J. granted the defendants’ motion and dismissed the cross-motion; the plaintiffs sought leave to appeal in the Divisional Court.

In upholding Belobaba J.’s decision and dismissing the plaintiffs’ application, Harvison Young J. agreed with his analysis that the two issues on motion – whether defendants are required to serve and file affidavits on a s. 138.1 motion, and the availability of Rule 39.03 summmonses in such circumstances – have already been fully adjudicated. Both judges drew particular attention to the decision of Lax J. in Ainslie v. CV Technologies (2008), 93 O.R. (3d) 200 (S.C.J.), one of the first actions brought under Part XXIII.1 of the Act. In Ainslie, FMC’s Robb Heintzman and Matthew Fleming successfully argued that the Act only requires a defendant to file an affidavit where it intends to lead evidence in response to a leave motion, and that allowing the plaintiffs to examine the defendants in the absence of such affidavit evidence would amount to an abuse of process, as it would afford the plaintiffs greater rights of discovery than in an action where it is unnecessary to obtain leave.

Harvison Young J. concluded that the number of recent cases which accepted and applied the reasoning in Ainslie “overwhelming supports the motion judge’s interpretation of s. 138.8 that it does not require the defendants to deliver affidavits or to be subjected to cross examination when they do not intend to lead evidence in response to the leave motion”.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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