Background Facts and Procedure
The plaintiff, a shareholder of Sona Nanotech Inc (“Sona”), commenced a proposed class proceeding in Nova Scotia. The case alleges that Sona’s disclosures for the third quarter of 2020, which were publicly released on September 29, 2020, misrepresented the quality and legitimacy of its clinical evaluation studies relative to a new COVID-19 antigen test it was developing at the time.[2] In response to the plaintiff’s motion for leave to proceed with the statutory misrepresentation claim under the Securities Act of Nova Scotia and for certification, the defendants filed a responding affidavit that clearly identified and relied upon discrete and specific key corporate documents, but declined to produce those documents in the proceeding.[3] The plaintiff filed a motion to compel production of documents relied upon in the affidavit, alleging that the defendants’ failure to disclose the foundational documents was prejudicial to the integrity of the evidence and cross-examination process.[4]
The Decision
The Court began its analysis by observing that unlike in a conventional action, a securities class action includes procedural hurdles in requiring leave and certification, which are designed to protect defendants from "strike suits."[5] The Court further noted that due to the added protection, defendants in a securities class action are not obliged to file a statement of defence or engage in discovery until after leave and certification have been granted; similarly, the defendants have no obligation to file any material in response to plaintiff's motion for leave and certification.[6] However, where defendants elect to respond to a motion for leave and certification with their own affidavit evidence, the Court held that certain disclosure obligations would have to arise in order to protect the plaintiff from various forms of procedural prejudice.[7] Balancing this consideration with other policy considerations that influence evidentiary obligations in a securities class proceeding, the court concluded that documentary disclosure may be compelled prior to cross-examinations in connection with a leave and certification motion if:
- The defendant elects to file affidavit(s) in response to the leave and certification motions;
- The requested document is plainly connected to material allegations contained in the Statement of Claim, which allegations must be sufficiently linked to the plaintiff’s cause(s) of action as to justify disclosure in advance of cross-examination;
- The plaintiff does not seek disclosure of background documents or categories of documents that are presumed to exist based on general statements in the affidavit;
- The requested disclosure is targeted, focussed, and based upon discrete documentation which is specifically acknowledged and explicitly described in a defendant affidavit; and
- The party seeking to avoid disclosure may argue (and bear the burden of proof) that the cost, burden, and delay associated with disclosure is disproportionate to the likely probative value of the document and its importance to the proceeding.[8]
Takeaway
This decision sets a key precedent with respect to parties’ disclosure obligations in securities class proceedings. In particular, it promotes even playing field between plaintiffs and defendants at the leave and certification stage by imposing proper disclosure requirements on defendants that have chosen to proffer affidavit evidence in response to a leave and certification motion.
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- [1] Pineo v. Sona Nanotech Inc., 2022 NSSC 85 (CanLII)
- [2] Ibid. at para 6.
- [3] Ibid. at paras 1, 7, 10.
- [4] Ibid. at para 1.
- [5] Ibid. at paras 19-21.
- [6] Ibid. at paras 20, 25.
- [7] Ibid. at paras 31-41.
- [8] Ibid. at para 42.