Class action against two brokerages to proceed

The Divisional Court of Ontario has ordered that a proposed class-action lawsuit against a pair of brokerage firms should be certified.

In a Jan. 6 decision, the court reversed a judge’s Oct. 24, 2017, decision, which denied class-action certification against Cormark Securities Inc. and Dundee Securities Ltd., the underwriters of a secondary offering by Hycroft Mining Corp.

In 2017, the certification judge ruled that a class action was not the “preferable procedure” for pursuing a claim against the underwriters for negligent misrepresentation; a claim against Hycroft and a couple of its executives was certified.

The allegations have not been proven.

In its decision, the divisional court outlined why a class action is preferable in the Hycroft case.

“If the class action against the underwriters is not certified, the alternative is multiple trials across Canada,” the Divisional Court said in its reasons for decision.

“The issue of whether Hycroft made a misrepresentation and the six proposed common issues against the underwriters will have to be heard again and again,” the divisional court said. “This will have a deleterious effect on judicial economy and there is a clear risk of inconsistent results.”

Additionally, the divisional court found that deterrence to misconduct “is significantly weakened” if investors have to bring their own lawsuits, “because the loss amounts are smaller and because of access to justice issues.”

“If individual investors are left to their own devices to right these wrongs, there will be little financial incentive for underwriters to meet the standard of care required by the certificate mandated by the Securities Act,” divisional court added.

Ultimately, it concluded that it was a mistake to deny class-action certification.

The divisional court allowed the appeal and ordered that the plaintiff’s claim for negligent misrepresentation against the firms should be certified.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.