Filing of Canadian Securities Class Actions Declines Again

Increasing numbers of securities class actions have been filed in the U.S. in recent years. That trend contrasts sharply with Canada where the number of actions filed last year declined again, according to a new report prepared by NERA Economic Consulting. Trends in Canadian Securities Class Actions: 2017 Update (February 2018)(here).

Last year there were only six new securities class actions filed in Canada. That compares to nine in 2016, four in 2015 and 13 in 2014. This means that the litigation risk for companies listed on Canadian securities exchanges is not only generally lower than that of U.S. issuers, it is declining. Indeed, the risk of being named in a securities class action for issuers whose shares are listed on major U.S. exchanges compared to that of Canadian firms whose shares are listed on an exchange is that country is 10 times higher, according to NERA’s calculation.

The decline in litigation risk for Canadian public companies is reflected on both exchanges. On the TSX only 14 issuers have been named as defendants in a securities class action over the last three years. That represents about 0.94% of the listed companies over the period. In contrast, from 2008 through 2014 there were 57 suits filed against TSX listed companies. That represents about 3.7% of the listed firms. Companies listed on the Venture exchange where the market capitalization is lower have an even smaller chance of being named in a securities class action.

Four of the cases filed last year were so-called Statutory Secondary Market cases – those filed under provincial statutes. That is fewer than the 7 filed the year before and is the lowest number of those types of cases filed since 2008, although it does equal the number filed in 2015. Historically most of these actions are filed in either Ontario or Quebec.

Only one of the six new Canadian cases filed in 2017 involved a parallel class action filed in the United States. In contrast, of the 81 Statutory Secondary Market Cases filed since 2006, 36 or about 44% had a parallel U.S. class action. In general the number of parallel U.S. actions has risen over time.

Over the last five years (2012 – 2017) about 45% of the Canadian securities class actions have been brought against firms in the Energy and Non-Energy Mineral sectors. That compares to about 31% of the cases filed during the period 2008 through 2011 and 21% of those brought from 1997 through 2007. The proportion of new cases against firms in the finance sector has generally declined over the last six years, excluding those that provide financial services to reporting issuers.

Finally, four Canadian securities class actions settled, or tentatively settled pending court approval, last year. That is double the number from 2016 but fewer than in 2013 (4), 2014(6) and 2015 (7). All of the cases that settled last year were Statutory Secondary Market claims. The median settlement for 2017 was $17.8 million, less than the median of $27.1 million in 2016 but larger than in any year from 2012 through 2015. In fact, the median settlement from 1997 through 2017 was $13 million.

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