Summary

Keywords

Evidence — Hearsay — Case splitting — Securities — Does the Court’s standard of credible evidence in support of the reasonable possibility of success test require admission of hearsay or speculative evidence in a petition for leave to bring a statutory secondary market liability claim — Does the balancing related to granting leave to bring a statutory secondary market misrepresentation claim require a potential plaintiff to put its best foot forward – Securities Act, R.S.B.C. 1996, c. 418, ss. 140.3 and 140.8.

Summary

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As part of a proposed class action, the respondents/plaintiffs brought a petition under s. 140.8 of the Securities Act, R.S.B.C. 1996, c. 418 (the “Act”) for leave to commence a secondary market claim against the applicant under s. 140.3 of the Act. The plaintiffs alleged a scheme whereby certain consultants bought shares issued by private placement at a publicly disclosed share price on the undisclosed condition that the issuer would pay them consulting fees for services that were never rendered. The plaintiffs alleged that the total amounts paid to the consultants constituted a significant portion of the proceeds of the private placements and, as a result, the applicant had misrepresented both the price at which the shares were acquired and the proceeds available to the issuer as working capital. The plaintiffs alleged they suffered losses by purchasing shares at a price higher than they would have paid but for the scheme, which later eroded in value after it was disclosed. The plaintiffs sought damages or disgorgement of proceeds on the basis of claims of unlawful conspiracy, statutory damages and fraudulent or negligent misrepresentation. The Supreme Court of British Columbia dismissed leave on the basis that, while the action was being brought in good faith, given the exclusion of certain evidence pursuant to previous court decisions, the evidence supporting the claims was thin and there was not a reasonable possibility that the action will be resolved in the plaintiffs’ favour. The Court of Appeal for British Columbia allowed the appeal in part, reversing previous orders to now admit some affidavit evidence and to grant leave to commence a statutory claim for secondary market misrepresentation against the applicant.

Lower Court Rulings