COURT OF APPEAL FOR BRITISH COLUMBIA

Transcription

1 Citation: Pearson v. Boliden Ltd. Date: BCCA 624 Docket: CA CA CA BETWEEN: AND: COURT OF APPEAL FOR BRITISH COLUMBIA DONALD PEARSON, ELIZABETH MATUS and KENNETH ELLIOTT as representative plaintiffs BOLIDEN LIMITED, TRELLEBORG INTERNATIONAL BV, TRELLEBORG AB, ANDERS BÜLOW, JAN PETTER TRAAHOLT, KJELL NILSSON, LARS OLOF NILSSON, ALEX G. BALOGH, ROBERT K. McDERMOTT, ROBERT R. STONE, FREDERICK H. TELMER and NESBITT BURNS, INC. RESPONDENTS (PLAINTIFFS) APPELLANTS (DEFENDANTS) Brought under the Class Proceedings Act, R.S.B.C. 1996, c. 50 Before: The Honourable Chief Justice Finch The Honourable Madam Justice Newbury The Honourable Madam Justice Saunders E.M. Myers and D. Kent R.J.R. Hordo, Q.C. D.G.S. Rae, Q.C. and A.D. Borrell Counsel for the Appellants Boliden Limited, Trelleborg International BV, Trelleborg AB, Anders Bülow, Jan Petter Traaholt, Kjell Nilsson, Lars Olof Nilsson and Robert K. McDermott Counsel for the Appellants Alex G. Balogh, Robert R. Stone and Frederick H. Telmer Counsel for the Appellant Nesbitt Burns, Inc.

2 D.A. Klein Place and Date of Hearing: Counsel for the Respondents Vancouver, British Columbia October 1, 2002 Written Submissions Received: October 23 and 28, 2002 Place and Date of Judgment: Vancouver, British Columbia November 21, 2002 Written Reasons by: The Honourable Madam Justice Newbury Concurred in by: The Honourable Chief Justice Finch The Honourable Madam Justice Saunders Reasons for Judgment of the Honourable Madam Justice Newbury: [1] This appeal arises in the context of a procedural dispute about the definition of subclasses of plaintiffs under the Class Proceedings Act, R.S.B.C. 1996, c. 50, but it raises broader questions about the regulation of securities in Canada. The first series of questions concerns the jurisdiction underlying the Securities Acts of the provinces (which is grounded for constitutional purposes in "Property and Civil Rights in the Province") and its relationship to conflicts of laws rules applicable to a cause of action created by those statutes. Who may advance a claim created by a provincial Securities Act for alleged misrepresentations contained in a prospectus filed in connection with a distribution of shares made across Canada? Where the legislation of one province does not provide for the cause of action, may a plaintiff in that province, or even outside Canada, rely on the legislation of another province or provinces? [2] Questions of this kind are rare because the Securities Acts of most of the provinces are so similar. (See Securities Act, R.S.B.C. 1996, c. 418; Securities Act, S.A. 1981, c. S-6.1; Securities Act, 1988, SS. 1988, c. S-42.2; Securities Act, R.S.M. 1988, c. S50; Securities Act, R.S.O. 1990, c. S.5; Securities Act, R.S.Q., c. V-1.1; Securities Act, R.S.N.S. 1989, c. 418; Security Frauds Prevention Act, R.S.N.B. 1973, c. S-6; Securities Act, R.S.P.E.I. 1988, c. S-3; and Securities Act, R.S.N. 1990, c. S-13, all as amended, herein referred to as the "Acts".) Most of the Acts create a "closed system" of securities trading and thereby regulate initial distributions of shares to the public, takeover bids, insider trading and the disclosure of information relating to publicly-traded shares. (See generally D. Johnston and K.D. Rockwell, Canadian Securities

3 Regulation (2nd ed., 1998) Ch. 5, and M. Gillen, Securities Regulation in Canada (2nd ed., 1998) at ) Most require the registration or licensing of brokers, dealers and other market intermediaries, and establish securities commissions or similar bodies which have rulemaking, investigative and adjudicative functions. [3] In connection with the subject-matter of this case, a distribution of shares of a corporation by its controlling shareholder, most of the Acts require that a prospectus be filed with and accepted by provincial securities authorities before the distribution may proceed. Nine of the Acts, including British Columbia's, require that the prospectus contain full, true and plain disclosure of all material facts relating to the distribution; and in Quebec, the Securities Act requires that the prospectus not contain any misrepresentation likely to affect the value or market price of the shares. A copy of the prospectus must be provided to any purchaser of a security offered thereby, failing which the purchaser is not bound to proceed with the purchase. [4] In broad terms, eight of the Acts provide that if the prospectus contains a misrepresentation, a person who has purchased the offered securities "during the period of distribution" or "in a distribution" has a cause of action for damages against the issuer or seller of the securities, the underwriters thereof, and other specified persons. (A possible exception is Manitoba, where the cause of action is not expressly limited to purchases made during the period of distribution.) These Acts deem any such purchaser to have relied on the misrepresentation indeed, the Manitoba Act states expressly that the purchaser may sue whether he or she received the prospectus or not. Proof of "due diligence" is not a defence for the issuing or selling company. That fact, the 'automatic' right of action against the specified defendants, and the presumption of reliance are obviously important advantages for plaintiffs over the common law action for misrepresentation or deceit: see, e.g., Hercules Management Ltd. v. Ernst & Young [1997] 2 S.C.R. 165, and Carom v. Bre-X Minerals Ltd. (1999) 46 O.R. (3d) 315 (Ont. Ct., Gen. Div.); and John J. Chapman, "Class Proceedings for Prospectus Misrepresentations", (1994) 73 Can. Bar Rev. 492, at [5] British Columbia's s. 131 is typical of the provisions creating the cause of action for misrepresentation in a prospectus. The material parts state: 131 (1) If a prospectus contains a misrepresentation, a person who purchases a security offered by the prospectus during the period of distribution (a) is deemed to have relied on the misrepresentation if it was a misrepresentation at the time of purchase, and

4 (b) has a right of action for damages against (i) the issuer or a selling security holder on whose behalf the distribution is made, (ii) every underwriter of the securities who is required under section 69 to sign the certificate in the prospectus, (iii) every director of the issuer at the time the prospectus was filed, (iv) every person whose consent has been filed as prescribed, and (v) every person who signed the prospectus. (2) A person referred to in subsection (1)(b)(iv) is liable only with respect to a misrepresentation contained in a report, opinion or statement made by the person.... (6) A person is not liable under subsection (1) with respect to any part of the prospectus purporting (a) to be made on the person's own authority as an expert, or (b) to be a copy of, or an extract from, the person's own report, opinion or statement as an expert unless the person (c) failed to conduct a reasonable investigation to provide reasonable grounds for a belief that there had been no misrepresentation, or (d) believed that there had been a misrepresentation. (7) A person is not liable under subsection (1) with respect to any part of the prospectus not purporting (a) to be made on the authority of an expert, and (b) to be a copy of, or an extract from, a report, opinion or statement of an expert

5 unless the person (c) failed to conduct a reasonable investigation to provide reasonable grounds for a belief that there had been no misrepresentation, or (d) believed that there had been a misrepresentation. (8) Subsections (5) to (7) do not apply to the issuer or a selling security holder. (9) An underwriter is not liable for more than the total public offering price represented by the portion of the distribution underwritten by the underwriter. (10) In an action for damages under subsection (1), the defendant is not liable for all or any part of the damages that the defendant proves does not represent the depreciation in value of the security resulting from the misrepresentation. (11) The liability of all persons referred to in subsection (1)(b) is joint and several as between themselves with respect to the same cause of action.... (13) The amount recoverable by a plaintiff under this section must not exceed the price at which the securities purchased by the plaintiff were offered to the public. (14) The right of action for rescission or damages conferred by this section is in addition to and not in derogation from any other right the purchaser may have. (The other provincial counterparts to these provisions are reproduced at Schedule A to these Reasons.) [6] Most of the provinces impose a limitation on actions brought under these sections in terms similar to British Columbia's s It states: 140 Unless otherwise provided in this Act or in the regulations, an action to enforce a civil remedy

6 created by this Part or by the regulations must not be commenced... (b) in the case of an action other than for rescission, more than the earlier of (i) 180 days after the plaintiff first had knowledge of the facts giving rise to the cause of action, or (ii) 3 years after the date of the transaction that gave rise to the cause of action. [7] But there are differences among the Securities Acts which may be critical in this appeal. First, the New Brunswick Act contains no provision like s Thus a person who is subject to that statute and who has purchased shares in a distribution pursuant to a prospectus that contains a misrepresentation is limited to his or her common law remedies. The Alberta Act contains a provision similar to British Columbia's s. 131, but establishes a shorter limitation period than that established by the other Acts. In the case at bar, the defendants contend that the Alberta limitation period expired before the action was commenced. Thus the question arises which plaintiffs, if any, are subject to the Alberta or New Brunswick Acts and precluded, or possibly precluded, from pursuing a damage claim under s. 131 of the British Columbia Act or any of its counterparts. [8] A similar question arises in connection with persons who reside outside Canada, or who purchased their shares abroad, not on the basis of the prospectus filed in Canada, but on the basis of a different document prepared in accordance with securities laws in the United States or Europe. May such purchasers nevertheless advance a claim for misrepresentation based on a provincial Securities Act? FACTS The Boliden Distribution [9] The facts underlying this action, which the defendants conceded was appropriate for certification under the Class Proceedings Act, are fairly simple. On June 10, 1997, an initial public offering of 55 percent of the issued Common shares of Boliden Limited ("Boliden"), a Canadian corporation, was made by its parent company. For this

7 purpose, a prospectus was prepared in compliance with the Securities Acts of the ten Canadian provinces and was duly accepted for filing by their respective securities authorities. Shares were also offered outside Canada, either by offering memorandum for private placement in the United States or by "International Prospectus" for distribution in Europe; but these documents are not in evidence. [10] The prospectus disclosed that Boliden was engaged in the mining, processing and sale of metals and mineral products, principally zinc, cooper and gold. The company was a wholly-owned subsidiary of the defendant Trelleborg International BV, a Netherlands corporation, which in turn was a wholly-owned subsidiary of the defendant Trelleborg AB, a Swedish corporation. 50,816,560 Common shares of Boliden were being offered by the Dutch parent company at a price of $16 each, to be paid in two equal instalments. (Until payment of both instalments, shares were represented by "instalment receipts".) There is no doubt that the offering constituted a "distribution" in this case, a "trade in a previously issued security of an issuer from the holdings of a control person" as defined (in substantially similar terms) in the provincial Securities Acts. (See Schedule B hereto for the various statutory definitions of "distribution" and "trade".) [11] One of Boliden's subsidiaries was Boliden Apirsa SL, which at the time of the offering operated a mine in Spain. The mine required a tailings pond, which was created by using a tailings dam. The prospectus described the Spanish mining operations as follows: At Apirsa (Spain), Boliden discovered and brought the Los Frailes mine into production to replace the adjacent, now-depleted Aznalcóllar mine. As part of the transition from Aznalcóllar to Los Frailes, Boliden is completing an expansion and upgrading Apirsa's mineral processing facilities to increase capacity and to improve recovery rates and operating efficiencies. The total cost of the expansion and upgrading is approximately U.S.$163 million, of which approximately U.S.$130 million has been spent to March 31, Under the heading "Environment, Health and Safety", the prospectus continued: Boliden is well advanced in the establishment of a comprehensive environmental management system consisting of an environmental policy, codes of practice, audits, job descriptions and procedures, rules and responsibilities, employee training, public and employee reporting, emergency prevention and response, hazard analysis and community awareness. Environmental protection and pollution prevention are priorities at all operations....

8 As a condition of the mining concessions granted in connection with the development of its Los Frailes mine, Apirsa is required to satisfy certain conditions relating to environmental matters which involve estimated capital expenditures of approximately U.S.$4.6 million. These expenditures are included in the total capital expenditures of U.S.$163 million required to bring the mine into production and to upgrade the existing mill. Apirsa believes that it is able to comply with these provisions at a cost not in excess of such amounts and that it is otherwise in compliance with the environmental permits necessary to construct and operate the mine. [12] The prospectus contained a "Certificate of the Corporation" stating that the contents of the document constituted full, true and plain disclosure of all material facts relating to the offered securities and that it did not contain any misrepresentation likely to affect the value or market price of the shares. As required by the Acts, the certificate was signed by Boliden's President and CEO, its CFO and two directors on behalf of the Board. Also as required, the prospectus advised purchasers that in several provinces:... securities legislation... provides a purchaser with remedies for rescission or, in some jurisdictions, damages where the prospectus and any amendment thereto contain a misrepresentation or are not delivered to the purchaser, provided that such remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's province. Purchasers should refer to any applicable provisions of the securities legislation of their province for the particulars of these rights or consult with a legal advisor. [Emphasis added.] The prospectus also made it clear that the offering and sale of the shares in the U.S. and elsewhere would be carried out in accordance with the laws of those jurisdictions: The Common Shares represented by Instalment Receipts offered hereby have not been and will not be registered under the United States Securities Act of 1993, as amended (the "U.S. Securities Act") and, subject to certain exceptions, may not be offered or sold within the United States. Each Underwriter has agreed that it will not offer for sale or sell or deliver such Common Shares represented by Instalment Receipts within the United States except to "Qualified Institutional Buyers" in accordance with Rule 144A under the U.S. Securities Act and to a limited number of other institutional "Accredited Investors" and only if

9 permitted by the Underwriting Agreement, the Agreement Among Underwriters and applicable law. In addition, until 40 days after the commencement of the Offering, any offer or sale of the Common Shares represented by Instalment Receipts offered by this prospectus within the United States by any dealer (whether or not participating in the Offering) may violate the registration requirements of the U.S. Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A under the U.S. Securities Act. The distribution of this prospectus and the offering and sale of Common Shares represented by Instalment Receipts are subject to certain restrictions under the laws of certain jurisdictions outside of Canada and the United States. Each Underwriter has agreed that it will not offer for sale or sell or deliver the Common Shares represented by Instalment Receipts in any such jurisdiction except in accordance with the laws thereof. [Emphasis added.] [13] The registrar and transfer agent for the shares was stated to be Montreal Trust Company at its offices in Toronto, Vancouver, Calgary, Winnipeg, Montreal and Halifax, and at its agents' offices in New York and London. [14] The offering was underwritten by the defendant Nesbitt Burns, which organized a syndicate consisting of 13 other Canadian underwriters and seven investment dealers in the United States and Europe. In his affidavit (which was accepted by the Chambers judge for purposes of his Reasons), Mr. Allison of Nesbitt Burns described the mechanics of the offering, which was quickly over-subscribed: 10. The Prospectus was filed electronically with each Securities Commission of the ten Provinces using the SEDAR system and a receipt was subsequently issued by each Securities Commission In the present Offering, it was evident that there was greater demand for the shares at the price offered than there were shares to be distributed. By June 11, 1997, Nesbitt Burns had received communications from the Underwriters requesting a total of 90,403,928 shares for the purpose of distribution to retail and institutional purchasers The receipts from the Ontario and Quebec Securities Commissions had been received by 9:55 a.m. on June 11, 1997 and the receipts from the other provinces were to follow shortly. At that time, because the demand for the Offering was substantially greater than the shares available for distribution, Nesbitt Burns Inc. considered itself out of

10 distribution. As a result, Nesbitt Burns issued a telex to all members of the Investment Dealer's Association.... This is the standard form of telex which is sent to members of the Investment Dealer's Association to advise when an underwriter is out of distribution. As will be described in more detail below, trading of the instalments receipts then began trading on a when-issued basis. 14. An offering of the nature undertaken in relation to Boliden requires a closing when, among other things, the principal amount of the shares offered will be transferred to the lead underwriter. The shares are in turn pledged to secure the payment of the purchase price and the instalment receipt is issued representing the right to acquire the common shares on payment of the final instalment. The closing in relation to the Offering took place on June 17, Nesbitt Burns, as lead underwriter, obtained an instalment receipt in relation to 50,816,560 common shares at the closing of the Offering on June 17, The subsequent delivery of the instalment receipts to the Underwriters is effected through the facilities of the Canadian Depository for Securities ("CDS") which is an entity which facilitates the electronic transfer of securities between its members. The instalment receipt is deposited with CDS which then allocates the instalment receipts between the underwriters on the basis of the allocations determined by the lead underwriter. Nesbitt Burns had previously written to CDS on June 11, 1997 to request that it accept the Boliden Offering for distribution [utilizing] the New Distribution Service of CDS. It then delivered to CDS on June 12, 1999, the Direct Participant SSS Settlement Advice to advise of the allocation of the 50,816,560 instalment receipts among the Underwriters and the selling group As can be seen from Exhibit "D", Nesbitt Burns had committed to distribute 60,917,216 instalment receipts. The number of instalment receipts to be distributed exceeded the 50,816,560 received on June 17, 1997, by 10,118,656. This required the Underwriters to take a short position in the instalment receipts which means that it borrowed 10,118,656 instalment receipts. Short positions are quite common in offerings and virtually all Underwriting Agreements include an over-allotment option which permits the underwriters to acquire additional shares to cover an over-allotment. In this case, the Underwriters had the option of purchasing an additional 5,081,656 instalment receipts to cover overallotments. In this Offering, the short position was

11 greater than the over-allotment option which, again, is not unusual but required Nesbitt Burns on behalf of the Underwriters to acquire instalment receipts in the market to make up the difference. 17. In an effort to cover the short position and to support the instalment receipts in the days following the Offering Nesbitt Burns on behalf of the Underwriters purchased a total of 6,016,900 instalment receipts between the day when the instalment receipts first started trading on a whenissued basis and July 29, 1997 when it last acquired shares of Boliden. 18. The over-allotment option was exercised on July 18, 1997, at which time another 4,083,756 instalment receipts were issued to Nesbitt Burns thereby covering a substantial portion of the remaining short position. Now produced and shown to me and marked Exhibit "G" is to this my Affidavit is a document dated July 18, 1997 confirming the issuance of the 4,083,736 instalment receipts A number of the provincial Securities Commissions require information regarding the lot sizes and geographic distribution of shares distributed pursuant to offerings including offerings like the Boliden Offering. As a result, Nesbitt Burns obtained from each of the members of the Underwriters and the selling group, a certificate which indicates the lot sizes and geographic distribution of the securities distributed by them. Now produced and shown to me and marked as Exhibit "N" to this my Affidavit is a copy of the Distribution Certificate prepared by Nesbitt Burns which consolidates the information from the members of the selling group into a single document. 26. The Distribution Certificate sets out the distribution of the 54,900,316 instalment receipts acquired pursuant to the Underwriting Agreement (50,816,560 on June 17, 1997 and 4,083,756 on July 18, 1997) but does not include the 6,016,900 instalment receipts acquired in the market to cover the short position. The practice among underwriters is not to include in a Distribution Certificate securities acquired in the market to cover a short position but only those securities actually acquired pursuant to the Underwriting Agreement. For the purposes of the Distribution Certificate, the 6,016,900 instalment receipts acquired in the market were allocated to institutional purchasers in Ontario. In other words, in addition to the instalment receipts recorded in the Distribution Certificate, an additional 6,016,900 instalment receipts were distributed to institutional purchasers in Ontario.

12 [Emphasis added.] [15] Using the final distribution certificate, the Chambers judge at para. 17 of his Reasons calculated and summarized the distribution of the 60,917,216 instalment receipts according to the residence of purchasers as follows: (a) British Columbia 1,383,700 (b) Ontario 30,501,734 (c) Quebec 5,720,900 (d) All other Provinces 1,341,700 (e) Europe/United States 21,969,182 TOTAL 60,917,216 Since June 11, 1997, the instalment receipts, and then the shares, have traded on the Toronto and Montreal stock exchanges. The Alleged Misrepresentations [16] On April 25, 1998, several months after the Boliden offering had successfully closed, the tailings dam in Spain collapsed, sending some 7,000,000 cubic metres of toxic waste through the reservoir wall into the surrounding area. Approximately 10,000 hectares of land were reportedly contaminated by the waste. It is not yet known what the ultimate cost of remediation will be to Boliden and its Spanish subsidiary. The plaintiffs allege that Boliden may have to spend up to $250,000,000 for remediation efforts and that it has lost "tens of millions of dollars in production revenue." News of the collapse quickly became public, and by mid-november 1998, Boliden shares had fallen from their initial offering price of $16 to $5.35 each. [17] The plaintiffs are all persons who purchased Boliden shares in July On October 20, 1998, they brought their action in the Supreme Court of British Columbia pursuant to the Class Proceedings Act on their own behalf and "on behalf of all persons who acquired Boliden shares during the period of distribution or distribution to the public of Boliden's June 10, 1997 Initial Public Offering (the 'IPO'), other than the defendants, members of the defendants' immediate families and any entity in which a defendant has a controlling interest." All the individual defendants were directors or officers of Boliden at the time of the offering. [18] The plaintiffs alleged that the prospectus did not contain full, true and plain disclosure (contrary to the representation to that effect) and that it omitted material facts which were known, or should have been known, to the defendants. These include, inter alia,

13 allegations that the tailings dam had not been properly constructed or maintained and could not support the tailings generated by the Los Frailes mine; that a former Boliden engineer had warned Spanish authorities of deficiencies in the construction of the dam; and that a Spanish scientific publication had warned in 1996 that the leakage of residues from the related mine represented a "chemical time bomb" for a nearby national park. [19] In their initial pleadings, the plaintiffs sued for negligence, negligent misrepresentation, "breach of fiduciary or other duty", as well as breach of the statutory duty of full and accurate disclosure contained in the provincial Acts. However, they eventually abandoned all claims other than the statutory breach. Thus they now rely solely on the action for misrepresentation created by s. 131 of the British Columbia Act and its provincial counterparts. (See Schedule A.) Each of these Acts was specifically pleaded in the Statement of Claim. It was implicit in the arguments of all counsel that this pleading was effectively an invocation of the Court's choice of law rules, and I see no reason to take any different view. (See Professor E. Edinger, "Territorial Limitations on Provincial Powers", 14 Ott. L. Rev. 57, at 67.) As for whether the action was properly brought in British Columbia, as far as I am aware, no objection has been taken to the jurisdiction of the Supreme Court of British Columbia to hear it, and I make no comment on that subject. The Certification Order [20] The plaintiffs' application for certification of the action as a class proceeding came on for hearing in February 2000 before the pretrial management judge sitting in Chambers. The defendants had agreed that the "minimum threshold requirements" for certification contained in subparas. 4(1)(a) through (d) of the Class Proceedings Act had been met and had agreed on the formulation of the common issues to be certified. This left the definition of classes and subclasses of plaintiffs. [21] In order to forestall the expiration of some limitation periods, the Chambers judge made his Order (without the participation of counsel) on February 24, 2000 certifying the action as a class proceeding, dividing the plaintiff class into resident and nonresident subclasses, appointing Mr. Elliott as the representative plaintiff for all subclasses, and confirming the common issues. It was not until July 2001 that the Chambers judge issued his Reasons for Judgment explaining his formulation of the subclasses and addressing the arguments heard during the four-day hearing in early In the interim, the defendants filed their Notices of Appeal in this court. [22] In accordance with s. 6(1) of the Class Proceedings Act, the Order first divided the plaintiff class into resident and non-resident subclasses. Then, the resident subclass, or "British Columbia

14 Subclass", was defined as all persons who: (a) purchased common shares (the "Common Shares") of Boliden Limited ("Boliden") pursuant to the offering set out in the prospectus dated June 10, 1997 (the "Prospectus"); (b) purchased such Common Shares in British Columbia; (c) purchased such Common Shares during the Period of Distribution or distribution to the public of Boliden's June 10, 1997 Initial Public Offering; and (d) do not opt out of the action by June 1, 2000 (The "Opt Out Deadline"). [23] The Non-Resident Subclass was divided into four subclasses the Alberta Subclass, the New Brunswick Subclass, the Ontario Subclass, and the "Remaining Non-Resident Subclass." For the Alberta, New Brunswick and Ontario Subclasses, the definitions were essentially the same as the British Columbia Subclass, except for the name of the province. The Remaining Non-Resident Subclass was defined to mean purchasers of Common Shares of Boliden pursuant to the prospectus, who had purchased such shares other than in the four provinces previously named. In a later memorandum to counsel, the Chambers judge said he had not intended to exclude from this class persons who had purchased shares outside of Canada; but he added that this "initial certification" would be "without prejudice to any further arguments which can be made... at the time the form of Notice to members of all Subclasses is before me." [24] It is from the definitions of these subclasses that the defendants appeal, although they also take issue with the Chambers judge's directions, made in his Reasons, that they apply under R. 18A for the "final determination" of the subclasses. In the defendants' submission, it is "plain and obvious" that five groups or subclasses of plaintiffs should have been excluded either because none of the Acts applies to give them a cause of action, or because their claims are precluded by the wording and intent of the applicable Act. The defendants describe these subclasses as plaintiffs who: (1) purchased their shares in New Brunswick; (2) purchased their shares in Alberta; (3) purchased their shares in the Territories of Canada or outside Canada; (4) purchased their shares on the secondary market; or

15 (5) sold or disposed of all their shares before the failure of the tailings dam on April 25, 1998 became known. The Judgment Below [25] In his Reasons, the Chambers judge considered each of these subclasses separately and adopted the applicable law as that enunciated in Abdool v. Anaheim Management Ltd. (1995) 21 O.R. (3d) 453 (Ont. Ct., Gen. Div.) as follows: (a) All allegations of fact, unless patently ridiculous or incapable of proof, must be accepted as proved; (b) The defendant, in order to succeed, must show that it is plain and obvious beyond doubt that the plaintiffs could not succeed; [at 469] The Chambers judge also cited the test stated more commonly in British Columbia whether the pleadings raise or disclose a triable issue. (See Campbell v. Flexwatt Corp. (1996) 25 B.C.L.R. (3d) 329 (B.C.S.C.), at 343, aff'd in part at (1997) 44 B.C.L.R. (3d) 343 (B.C.C.A.).) He then continued: While Hutchison J. [in Campbell v. Flexwatt Corp.] did not say so, I am satisfied that the appropriate test would be in accordance with the decisions dealing with Rule 18 of the Rules of Court: is there a "bona fide triable issue": Estaban Mgmt. Corp. v. Eidelweiss Int. Hldg. Corp. (1990), 43 B.C.L.R. (2nd ed.) 235 (B.C.S.C.) at p. 339; Golden Gate Seafood (Vancouver) Company v. Osborn & Lange Inc. (1986), 1 B.C.L.R. (2nd ed.) 145 (B.C.C.A.); and Memphis Rogues Ltd. v. Skalbania (1982) 38 B.C.L.R. 193 (B.C.C.A.) or the decisions dealing with Rule 12(24) [sic; R. 19(24)] of the Rules of Court dealing with whether no "reasonable claim" is disclosed, a pleading is "frivolous or vexatious", or if a pleading is "otherwise an abuse of the process of the court". [para. 42] [26] Having thus formulated the applicable test, the Chambers judge considered whether "Alberta residents" (which he may have equated with the "Alberta Subclass" as defined in his Order) could be said to have raised a triable issue in the pleadings. (para. 43.) Although recognizing that the plaintiffs' action was not brought in tort or breach of contract, he approached the question as one of conflict of laws and analogized the claim to one brought in tort. He reasoned as

16 follows: At this stage, I am satisfied that there is a triable issue relating to the claims of residents of Alberta. While the Defendants have raised the issue of s.175 of the Securities Act of Alberta, I am also mindful of the broader issue of where the purchase of Boliden Common Shares took place. While it may well be the case that Alberta purchasers will be deprived of a cause of action where the lex loci delicti rule establishes that the Alberta Securities Act applies, it is not clear that Alberta residents who purchased the Common Shares of Boliden from a seller in another provincial jurisdiction are disentitled to the statutory cause of action and deemed reliance which is set out in the Securities Act of that other jurisdiction. While it is clear that a non-resident class member who has no connection to British Columbia must have his or her claim determined by the law of a jurisdiction other than British Columbia, it is not clear that the jurisdiction will necessarily be the province where that class member resides, where he or she placed the order or where the class member presently resides. In a tort action, the law to be applied is that of the place where the tort occurred: the lex loci delicti: Tolofson v. Jensen (1994), 120 D.L.R. (4th ed.) 289 (S.C.C.). However, it should be noted that La Forest J stated on behalf of the majority in that decision: There are situations, of course, notably where an act occurs in one place but the consequences are directly felt elsewhere, when the issue of where the tort takes place itself raises thorny issues. In such a case, it may well be that the consequences would be held to constitute the wrong. Difficulties may also arise where the wrong directly arises out of some transnational or inter-provincial activity. There, territorial considerations may become muted; they may conflict and other considerations may play a determining role. (at p. 305) This is neither a tort action nor a breach of contract action. Rather, it is an action founded on the breach of a statutory provision which creates a deemed reliance on misrepresentations made in documents such as the Prospectus. It remains to be seen whether the "territorial considerations" noted by La Forest J "become muted" so that "other considerations may play a determining role". [paras ; emphasis added.]

17 [27] Considering the "great flexibility" provided by the Class Proceedings Act for the resolution of common issues and the remedial purpose of both that statute and the "deemed reliance" provisions in most of the Securities Acts, the Chambers judge concluded that the question of whether the claims of plaintiffs who purchased Boliden shares in Alberta were statute-barred was one that could best be tried pursuant to R. 18A, the summary trial rule. He directed that such an application be set down before him as soon as possible. In the meantime, an "Alberta Subclass" was to be created out of the Non- Resident Subclass. The Alberta Subclass had been defined in his earlier Order as follows: (A) the "Alberta Subclass" comprises all persons who satisfy the following requirements. They: (a) purchased Common Shares of Boliden pursuant to the offering set out in the Prospectus; (b) purchased such Common Shares in Alberta; (c) purchased such Common Shares during the Period of Distribution or distribution to the public of Boliden's June 10, 1997 Initial Public Offering; and (d) opt in to this action by June 1, 2000 (the "Opt In Deadline"). [28] With respect to those plaintiffs who purchased their shares in New Brunswick, the Chambers judge declined to adopt what he understood to be the defendants' argument that the residence of a purchaser of shares at the time of purchase was the "lex loci delicti". (Counsel for the defendants advised this court that this has never been their position.) In the analysis of the Chambers judge, it was quite possible that the statutory breaches pleaded by the plaintiffs occurred in Ontario (which he said was the location of the "principal activities" involved in the Boliden offering) or that they occurred where the underwriters actually allocated the Boliden shares to their customers. In either event, the Chambers judge said he could not at that point exclude the potential claims of all persons who had purchased their shares in New Brunswick. He again suggested that the matter be fully argued in an application under R. 18A. In the meantime, the Order contemplated a "New Brunswick Subclass" in terms similar to those of the Alberta Subclass set forth above. [29] At paras of his Reasons, the Chambers judge considered the claims of persons residing outside Canada or who had purchased outside Canada. He noted the defendants' argument that the statutory provisions creating the cause of action refer to misrepresentations

18 "contained in a prospectus." He acknowledged that the word "prospectus" must refer to a prospectus filed under the applicable Securities Act and that it could not extend to Boliden's private placement memorandum used in the United States, nor to the "Internati+onal Prospectus" used elsewhere. However, the Chambers judge was again not satisfied that persons who had purchased their shares on the basis of those documents had no claim under any of the provincial Securities Acts. In his words: This may or may not be a case where "... territorial considerations may become muted", "they may conflict and other considerations may play a determining role" (per La Forest J. in Tolofson, supra, at p. 305). While it may be very difficult for the Plaintiff Class to establish the intention of Provincial Legislators to give protection to those where the lex loci delicti is shown to be outside Canada or even outside their own Province, I am presently not satisfied that this claim is so patently ridiculous that purchasers who purchased outside of Canada should be excluded from the "Remaining Non-Resident Subclass" at this time. [para. 67] The Chambers judge also included in the Remaining Non-Resident Subclass those purchasers who reside in Canada but who had purchased their shares in one of Canada's Territories, where there exists no legislation comparable to s. 131 of the British Columbia Act. [30] The final two aspects of the Chambers judge's Reasons and Order raised in this appeal do not have a constitutional law or conflict of laws aspect. The first concerns persons who purchased Boliden shares in what is called the "secondary market" i.e., shares (represented by instalment receipts pending payment of the entire $16 per share) not bought directly from the underwriters, but from other sellers in the market. As noted by the Chambers judge at para. 87 of his Reasons, trading in instalment receipts began as early as June 11, 1997 and it was conceivable there were purchasers (other than the underwriters) who bought instalment receipts prior to the official end of the "period of distribution". [31] The Chambers judge noted the defendants' arguments based on the definition of "distribution" in s. 1 of the British Columbia Act (with similar counterparts in the other provincial Acts), and the fact that the statutory remedy provided by the Acts is generally not available to secondary market purchasers. However, he concluded that the plaintiff class had established a bona fide triable issue on this point, at least until a determination could be made under R. 18A "about whether such purchasers are to be included within a subclass because they purchased instalment receipts during the period of distribution even though they did not purchase them as a result of the distribution made pursuant to the IPO." (para. 88.) On the other

19 hand, those who bought on the secondary market after the closing of the distribution were excluded from the action. [32] The last matter raised for determination was whether plaintiffs who sold their Boliden shares prior to April 25, 1998 (the date of the collapse of the tailings dam) should be excluded from the action. On this point, the defendants relied in particular on s. 131(10) of the British Columbia Act and its counterparts. Section 131(10) states: In an action for damages under subsection (1), the defendant is not liable for all or any part of the damages that the defendant proves does not represent the depreciation in value of the security resulting from the misrepresentation. [Emphasis added.] The defendants argued that such persons could not possibly be said to have suffered a depreciation in the value of their shares "resulting from the misrepresentation". They cited the decision of Winkler J. in Carom v. Bre-X Minerals Ltd. (1999) 44 O.R. (3d) 173 (Ont. Sup. Ct. J.), who on that occasion was dealing with causes of action framed in "negligence, negligent and fraudulent misrepresentation, conspiracy, breach of fiduciary duty and breach of the Competition Act" arising out of (now notorious) allegations of fraud. He ruled that those persons who had sold before the misrepresentations became publicly known had suffered no loss that could be attributed to the fraud. In Winkler J.'s words:... those who purchased and sold the shares prior to the disclosure of the fraud, regardless of whether or not they suffered a loss, must also be excluded from the class. Their losses do not arise from the causes of action pleaded and, thus, they cannot be included in the class. [at 185] This conclusion was affirmed by the Divisional Court at (1999) 46 O.R. (3d) 315. A. Campbell J. stated for that court: It is no part of the plaintiff's case that the market price before March 26, 1997 would have been any different if all the defendants' representations were true. It is common ground that those who sold before then could not have relied to their detriment on any representation. No shareholder loss before then could have been caused by any misrepresentation. Any loss before then was caused by the sale, not by the fraud. Winkler J. held that the losses did not arise from the delicts alleged in the causes of action pleaded, and therefore could not be included in the class.

20 He correctly held that a Bre-X shareholder who sold her shares before March 26, 1997 was always in the same identical position whether or not there was any gold. There is therefore no error in the temporal description of the class. [at 320; emphasis added.] An appeal was allowed on other grounds: see (2000) 51 O.R. (3d) 236 (Ont. C.A.). [33] The plaintiffs in the case at bar sought to distinguish Bre-X on the basis that, as noted by the Chambers judge, the failure of the tailings dam was "merely the catalyst for a review of the misrepresentations alleged in the Prospectus." In addition, they argued:... had the Prospectus revealed the true condition of the Tailings Dam, the shares would have commanded a price lower than $ Accordingly, the Plaintiff Class submits that, even class members who sold their shares before the failure of the Tailings Dam paid too much for their shares. The Plaintiff Class submits that it cannot be determined at this stage whether the "early sellers" received more for their shares than they would have if the Prospectus had contained a full disclosure. [para. 91; emphasis added.] [34] The Chambers judge ruled that whether the "early sellers" could advance a claim should also be deferred until the trial of the common issues, although the defendants were at liberty to bring on an application, presumably pursuant to R. 18A, to have the matter determined. In the meantime, he was of the view that the plaintiffs had established a triable issue regarding the claims of such persons, and no specific subclass was created for them. ON APPEAL Triable Issues [35] On appeal, the defendants contend that the five subclasses of plaintiffs described above must be excluded from the action because it is plain and obvious they do not have claims to advance under any of the Acts pleaded by them. In response, the plaintiffs say that it would be folly to "descend into a detailed examination of the merits of the claims for each subclass" at this stage of the certification process. They say the Chambers judge was correct to preserve the

21 right of a broader class of plaintiffs to the courts "by not muting their claims", and that the difficult issues of territorial jurisdiction and statutory construction raised by the plaintiffs should be determined at the time of trial of the common issues. They note in particular the Court's comments in Hollick v. Toronto (City) [2001] 3 S.C.R. 158, where McLachlin, C.J.C. observed in connection with a class action:... the certification stage is decidedly not meant to be a test of the merits of the action: see Class Proceedings Act, 1992, s. 5(5) ("An order certifying a class proceeding is not a determination of the merits of the proceeding"); see also Caputo v. Imperial Tobacco Ltd. (1997), 34 O.R. (3d) 314 (Gen. Div.), at p. 320 ("any inquiry into the merits of the action will not be relevant on a motion for certification"). Rather the certification stage focuses on the form of the action. The question at the certification stage is not whether the claim is likely to succeed, but whether the suit is appropriately prosecuted as a class action: see generally Report of the Attorney General's Advisory Committee on Class Action Reform, at pp [para. 16] [36] In response, the defendants note that the Court in Hollick also recognized that a class action should not proceed with "overbroad" classes of defendants (supra, para. 21). Counsel suggested that this is especially so where, as here, the primary defendant is a publiclytraded company whose financial well-being can be seriously affected by litigation, and particularly by the "most feared" stratagem of a statutory claim for misrepresentation. (See Chapman, supra, at ) [37] It is trite law that when considering whether a triable issue has been raised by a plaintiff's pleadings, the court assumes the truth of those pleadings and does not enter into the merits of the case. As stated by Wilson J. in Hunt v. Carey Canada Inc. [1990] 2 S.C.R. 959:... the test in Canada governing the application of provisions like Rule 19(24)(a) of the British Columbia Rules of Court is the same as the one that governs an application under R.S.C. O. 18, r. 19: assuming that the facts as stated in the statement of claim can be proved, is it "plain and obvious" that the plaintiff's statement of claim discloses no reasonable cause of action? As in England, if there is a chance that the plaintiff might succeed, then the plaintiff should not be "driven from the judgment seat". Neither the length and complexity of the issues, the novelty of the cause of action, nor the potential for the defendant to present a strong defence should prevent the plaintiff from proceeding with his or her case. Only if the action is

22 certain to fail because it contains a radical defect ranking with the others listed in Rule 19(24) of the British Columbia Rules of Court should the relevant portions of a plaintiff's statement of claim be struck out under Rule 19 (24)(a). The question therefore to which we must now turn in this appeal is whether it is "plain and obvious" that the plaintiff's claims in the tort of conspiracy disclose no reasonable cause of action or whether the plaintiff has presented a case that is "fit to be tried", even although it may call for a complex or novel application of the tort of conspiracy. [at 980] [38] The comments of McLachlin J.A. (as she then was) in a British Columbia case dealing with third-party claims, McNaughton v. Baker (1988), 25 B.C.L.R. (2d) 17 (B.C.C.A.), underline the fact that the determination is made on the basis of the pleadings, rather than evidence: To require a party seeking to bring a third party claim to adduce evidence supporting that claim in advance of trial, is to deprive him of his right to plead a cause of action first and defer proof of it until trial. It is to require him to produce evidence at the outset, without the aid of discovery or the other means afforded by the rules for obtaining evidence, under peril that if he does not do so his claim will be struck out. It confuses the function of pleading to outline the claim or defence and the purpose of the trial to determine whether, on the evidence, the claim or defence is made out. As a general proposition, a party should not be required to adduce evidence in support of a pleading before trial. ("Trial" includes, of course, a proceeding under R. 18A). It is sufficient that his pleading discloses a reasonable cause of action or defence. [at 25] Consistent with this reasoning, R. 19(27) expressly prohibits the admission of evidence for purposes of an application under R. 19(24) (a). Although that rule seems not to apply to a determination under s. 4(1)(a) of the Class Proceedings Act (s. 5 of which expressly contemplates the filing of affidavit evidence), the principle that the court does not enter into the merits of the case is in my view unaffected. [39] This court has ruled, however, that Hunt v. Carey does not mean that difficult questions of law should not be decided in an application to strike pleadings under R. 19(24): see the judgment of