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CIVIL LIABILITY - Misrepresentation in a prospectus

Thursday, July 02, 2020 @ 9:32 AM  

Lexis Advance® Quicklaw®
Appeal by the plaintiff from the dismissal of his application to certify his action as a class proceeding and the dismissal of the action. The proposed investor class action arose from the sudden collapse of a proprietary derivatives-based exchange-traded fund created and managed by the respondent. Investors lost nearly $40 million. The respondent eventually closed the fund. The prospectus for the fund contained a warning that units in the fund were highly speculative and involved a high degree of risk. The plaintiff alleged, on behalf of all persons who owned units of the fund, that the respondent was negligent and had made misrepresentations in its prospectus. The certification judge found the statement of claim did not disclose a reasonable cause of action as the respondent did not owe the class a duty of care and the class did not have a cause of action under s. 130 of the Securities Act.

HELD: Appeal allowed. There was an arguable relationship of proximity between the respondent and the class. The plaintiff had a reasonable prospect of demonstrating the claim fell within a recognized duty of care under the category of negligent performance of a service. It was not clear the claim disclosed no reasonable cause of action in negligence. The certification judge erred in concluding all units held by the class were to be treated as secondary market purchases such that only s. 138.3 of the Securities Act applied. The plaintiff was permitted to amend the claim so that it could proceed under s. 130 of the Securities Act. The matter was remitted to the certification judge to determine whether the remaining criteria for certification were met.

Wright v. Horizons ETFS Management (Canada) Inc., [2020] O.J. No. 2431, Ontario Court of Appeal, P.D. Lauwers, C.W. Hourigan and J.A. Thorburn JJ.A., June 1, 2020. Digest No. TLD-June292020007