The Filing of Canadian Securities Class Actions Increased in 2016

The filing of securities class actions increased significantly last year in the U.S. In Canada the number of such actions filed also increased last year. Over the last two years in Canada however, the number of securities class actions filed has not matched that of earlier years. This is in “stark contrast” to the U.S., according to a new report by NERA Economic Consulting titled Trends in Canadian Securities Class Actions, 2016 Update (Feb. 22, 2017)(here).

Last year nine securities class actions were filed in Canada. That more than doubled the four brought in 2015. At the same time, it is less than the 13 brought in 2014, 11 in 2013, 10 in 2011 and 15 filed in 2010. This contrasts significantly with the U.S. where the number of these cases has increased significantly in recent years.

The risk of being named in a securities class action in Canada is also far less than in the U.S. Over the last six years 44 securities class actions were filed against TSX listed firms, according to NERA. That represents about 2.9% of the average number of firms listed on the exchange meaning that there is about a 0.5% chance of being named in such a suit. For firms listed on the TSX Venture Exchange, the risk is about 0.4%. In contrast, the risk of being named in such a suit for a firm listed on a major U.S. exchange, on average, is about 3.1% for the period from 2011 through 2016, the same time span used to compute the risk for the Canadian issuers.

Over the last 20 years a disproportionate number of the Canadian class action suits have been filed in Ontario. For the period 1997 through 2005 about 55% of those suits were filed in Ontario. For the period 2006 through 2016 that percentage increased to 62% of the suits filed.

Six of the nine Canadian cases filed in 2016 had a parallel action brought in the U.S. This is consistent with trends in earlier years in which the majority of the Canadian class actions had a parallel U.S. case. A key difference between the U.S. and Canada is the “responsible issuer” definition in the provincial securities laws. Under this provision an action was brought against Volkswagen AG in Canada last year although the firm’s shares are not listed there. The action parallels a U.S. filing where the firm’s shares are listed. Other, similar actions, have been filed. The “responsible issuer” cases cannot be brought in the U.S. Four Canadian firms were named in suits filed in the U.S. but not in Canada.

Canadian class actions were brought last year against firms engaged in a number of sectors. Those included consumer durables and services, health, technology and non-energy minerals. No suit was brought against a financial services firm last year. Three of the cases brought in 2016 involved the non-energy mineral sector. This is consistent with a trend observed last year, according to NERA – an increasing proportion of new cases involving firms in the minerals sector.

Finally, only two Canadian securities class actions settled last year. That is down significantly from the 7 in 2015, 6 in each of 2014 and 2013 and just above the 3 in 2012. Only one of the two settlements involved cross-border actions. Historically the domestic cases settle on average for about $6.2 million representing about 12.1% of the claimed compensatory damages. In contrast, the cross-border cases settle on average for about $21.9 million, according to NERA.