“What does it mean to suspend and then resume the running of a limitation period in the context of a class proceeding?
Back in November 1997, Philip Services Corp. made a public offering of its common shares in the U.S. and Canada, which was underwritten by a group of Canadian underwriters. The prospectus contained statements from the underwriters and financial statements from Philip’s auditor, Deloitte & Touche. In early 1998, a series of press releases disclosed inaccuracies in the prospectus and the previously released Philip financial statements. Unsurprisingly, Philip’s share value tanked and proposed class actions sprouted both north and south of the border. In Canada, on May 5, 1998, Joseph Menegon commenced a proposed class action against Philip, Deloitte, and the Canadian underwriters. Menegon purchased Philip shares in the secondary market and not from the primary distribution. Here is where too much pleading, like many things, is not necessarily a good thing. As it were, Menegon’s class action, asserted two causes of action: (1) on behalf of all purchasers following the primary distribution based upon a claim under s.130 of the Ontario Securities Act and (2) on behalf of purchasers, like Menegon, that purchased in the secondary market asserting a common law action for negligent misrepresentation.
The problem: Unlike Menegon, Coulson was not part of the initial group that contacted the plaintiff class law firm.
He contacted them later, but it was conceded that any misrepresentations on which Coulson’s claim under s.130 of the Ontario Securities Act was based were known by the spring of 1998. On August 27, 1999, Menegon’s action was certified as a class action as against Philip, and thereafter settled with Philip in November 1999. Menegon then forged ahead against the auditor and the underwriters, but on March 6, 2001, Justice Gans dismissed not only Menegon’s motion to certify the class proceeding, but his claim altogether. Justice Gans ruled that since Menegon had not purchased under the prospectus, he did not have a common law cause of action for misrepresentation; therefore, he could not represent the s.130 claimants and assert their cause of action. Justice Gans further refused a request for an adjournment so that a new plaintiff with a s.130 claim could be joined as a proposed representative plaintiff. Menegon appealed the judgment that he did not have a common law claim, and while conceding that he could not represent s.130 claimants, he also appealed Justice Gans’ ruling refusing an adjournment. On January 9, 2003, the Court of Appeal dismissed Menegon’s appeal. Menegon then sought leave to appeal to the Supreme Court of Canada on the ground that the Court of Appeal erred on the issue of lack of standing to pursue a common law action for misrepresentation. On July 8, 2003, while Menegon’s leave application was pending before the Supremes, Coulson, who was a purchaser in the primary distribution, started a different class action for the s.130 claimants. On July 17, 2003, the Supreme Court of Canada dismissed Menegon’s leave application. About six and half years later, Coulson sought to have the class action certified, while the auditor and the underwriters opposed the application on the ground that it was statute barred, and in the alternative, that Coulson’s claim was suitable for certification as a class action.
Justice Perell dismissed Coulson’s proposed class action as statute barred. But for the limitation period problem, Perell, J. would have found that Coulson’s action satisfied the criteria for certification, albeit the class definition and the litigation plan still required revision. Justice Perell’s cogent legal analysis spans a number of key legal issues and the reader is encouraged to read the decision in its entirety (i.e. I’m not providing case analysis gratis for ungrateful Big Law students and associates who visit my blawg and don’t give me credit in their memos or law review articles. No more free rides).
On the interplay between the limitation periods under s.138 of the Ontario Securities Act and s.28 of the Class Proceedings Act, 1992, which suspends the running of limitation periods, Perell, J. held:
“ For the purpose of the analysis that will follow about whether Mr. Coulson’s claims are statute barred, a key point to emphasize is that Mr. Menegon’s proposed class action expressly asserted claims under s.130 of the Ontario Securities Act against the auditor and against the underwriters. These are the claims that Mr. Coulson now asserts in his statement of claim in the case at bar.
 Purchasers of Philip shares now had knowledge of facts giving rise to a cause of action, and, thus, they were confronted with the running of limitation periods, including s.138 of the Ontario Securities Act, which applies to claims under s.130 of the Act.
 Section 138 of the Ontario Securities Act precludes the commencement of an action to enforce a right for rescission more than 180 days after the transaction, and precludes an action for damages more than the earlier of: (a) three years after the transaction; or (b) 180 days after the events giving rise to the s.130 claim were known. Section 138 of the Act states:
138. Unless otherwise provided in this Act, no action shall be commenced to enforce a right created by this Part more than,
(a) in the case of an action for rescission, 180 days after the date of the transaction that gave rise to the cause of action; or
(b) in the case of any action, other than an action for rescission, the earlier of,
(i) 180 days after the plaintiff first had knowledge of the facts giving rise to the cause of action, or
(ii) three years after the date of the transaction that gave rise to the cause of action.
 It may be noted here that s. 19 (1) of the Limitations Act, 2002, S.O. 2002, c. 24, Schedule B provides that “a limitation period set out in or under another Act that applies to a claim to which this Act applies is of no effect unless the provision establishing it is listed in the Schedule to this Act.” Section 138 of the Ontario Securities Act is among the limitation periods listed in the Schedule”
According to the learned motion judge:
“ The Menegon action was timely. Using November 28, 1997 as the date of his transaction and March 5, 1998 as the date on which Mr. Menegon first knew about the facts underlying his claim, his May 5, 1998 action was commenced with seven days remaining for the rescission claim, and there were 120 days remaining for the other causes of action, which was the balance of the 180 days after knowledge of facts giving rise to the cause of action. The date of knowledge of facts was earlier than three years after the date of the transaction, and, thus, 180 days from March 5, 1998 was the applicable limitation period for the claim for damages under s. 130 of the Ontario Securities Act.
 Section 28 of the Class Proceedings Act, 1992 suspends in favour of a class member the running of limitation periods that are applicable to a cause of action asserted in the class proceedings until, among other events, the claims are dismissed and all rights of appeal have been exhausted or expired. Thus, the commencement of Mr. Menegon’s proposed class action suspended the running of the limitation period for the claims asserted on behalf of the putative class members, which would include Mr. Coulson”
Quaere: if the Menegon action was “timely” (para. 37 above), then why is there a limitation period issue at all? After all, if the action was commenced on time, then the denial of certification should not dictate whether putative class members may sue in a separate proceeding. It is arguable that Coulson simply suffered for the sins of Menegon.
Would the outcome have been different had Coulson been represented by a different law firm?:
“ Interestingly, the evidence for the motions now before the court reveals that the July 8, 2003 date was intentionally chosen by Mr. Coulson’s lawyers, who were concerned that Mr. Menegon’s application for leave to appeal did not continue to suspend the running of the limitation period. The date July 8, 2003 is 180 days after the Court of Appeal’s decision. Perhaps, Mr. Coulson’s lawyers realized that, given the nature of the grounds for appeal, which would have to be of national importance for leave to be granted, Mr. Menegon’s class action was no longer asserting a claim under s. 130 Ontario Securities Act and, therefore, the limitation period had resumed running with the Court of Appeal’s decision. Unfortunately, they miscalculated. They apparently regarded the Court of Appeal’s decision as a restart of the limitation period ignoring the fact that the running of the limitation period for the misrepresentation claim would resume, not restart. Applying the Defendants’ methodology for reckoning the running of the limitation period, Mr. Coulson’s action was out of time.
 Applying the stricter methodology, which I outlined above, Mr. Coulson’s action was out of time.
 The ultimate conclusion is that Mr. Coulson’s action was barred by an ultimate limitation period at the time of its commencement. Thus, he did not have a cause of action and cannot be a representative plaintiff.
 Further, a statement of claim fails to disclose a reasonable cause of action if its claim is barred by a limitation period: Allen v. Aspen Group Resources Corp.,  O.J. No. 5213 (S.C.J.) at para. 43-45; Pearson v. Boliden Ltd. 2002 BCCA 624 (CanLII), (2002), 222 D.L.R. (4th) 453 (B.C.C.A.), leave to appeal to S.C.C. ref’d  S.C.C.A. No. 29. It follows from the above analysis that Mr. Coulson’s statement of claim does not disclose a cause of action, and, therefore, his action does not satisfy the first of the five criterion for certification as a class proceeding found in s. 5 (1) of the Class Proceedings Act, 1992.
 And it further follows that the Defendants’ motions under rules 21.01 (1)(a) and 51.06 should be granted and Mr. Coulson’s action should be dismissed”
On the issue of choice of law, Perell, J. observes:
“ The fundamental point is that persons who cannot rely on s.130 of the Ontario Securities Act must rely, if at all, on the securities legislation of other provinces, but this legislation has not been pleaded in the case at bar. See Pearson v. Boliden Ltd. 2002 BCCA 624 (CanLII), (2002), 222 D.L.R. (4th) 453 (B.C.C.A.), leave to appeal to S.C.C. ref’d  S.C.C.A. No. 29″
Once again, the pleadings not only frame the action, but dictate the result. Whether the Coulson decision has broader implications for national or world-wide class actions, with different or non-existent limitation periods, is doubtful. The decision in Pearson v. Boliden Ltd., 2002 BCCA 624 (CanLII), 2002 BCCA 624 previously dealt with the issue of whether the proposed class should include (1) purchasers of shares from Alberta, which has no securities legislation limitation period; New Brunswick, which had no statutory cause of action, and the Territories, which had no securities legislation; and (b) non-Canadian purchasers who bought 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 U.S. or European securities laws. Further ,compare the approach to limitation periods taken by Strathy, J in McKenna v. Gammon Gold Inc., 2010 ONSC 1591 (CanLII), also a recent securities class action certification motion:
“ Prior to the hearing of the certification motion, counsel for the Underwriters sought leave to bring a motion for, among other things, summary judgment dismissing the plaintiff’s s. 130 Securities Act claim on the ground that it was time-barred. I refused the request on several grounds. In particular, I was not satisfied that hearing the motion prior to certification would promote litigation efficiency: McKenna v. Gammon Gold Inc.,  O.J. No. 5151.
 There is no doubt that a putative class action can be dismissed, even prior to certification, where the claim of the proposed representative plaintiff is time-barred on the face of the pleading: Stone v. Wellington County Board of Education 1999 CanLII 1886 (ON C.A.), (1999), 120 O.A.C. 296,  O.J. No. 1298 (C.A.); Farquar v. Liberty Mutual Insurance Co. (2004), 43 C.P.C. (5th) 361,  O.J. No. 148 (S.C.J.). I note that in both these cases, however, while the motion was brought prior to certification, the defendants had delivered statements of defence pleading the limitations issue.
 Where the resolution of the limitations issue depends on a factual inquiry, such as when a plaintiff knew or ought to have known of the facts constituting the action, the issue should not be resolved at certification: Serhan (Trustee of) v. Johnson & Johnson reflex, (2006), 85 O.R. (3d) 665,  O.J. No. 2421 (Div. Ct.) at paras. 140-145. Accordingly, it is not plain and obvious in this case that the claims of the class generally, or of Mr. McKenna personally, are statute barred due to limitations.
 If the defendants consider that the limitation period is an issue that can be resolved on a common basis, they may move to have it added as a common issue. Alternatively, the defendants may bring a motion for summary judgment on this issue, if so advised, at a future date. If necessary and appropriate, the plaintiff may move to add another representative plaintiff.”