By Angela Marion Lee
TORONTO — Canadian institutions this year gained the legal right to sue companies and their executives for misrepresentations made in documents or public comments.
Ontario Bill 198, which took effect Jan. 1, lets institutional investors for the first time opt for a class-action lawsuit to garner a percentage of losses produced as a result of fraudulent corporate communication.
Under the old common law system, class actions rarely succeeded in Canada because the law was so narrowly defined that it could rarely be used. Institutional shareholders had only a legislated right to sue over misrepresentations in proxy circulars for issues of new securities, excluding most common corporate documents.
"There has been no legal liability for ongoing disclosure," said Brian Gibson, senior vice president of public equities at the C$88 billion (US$77 billion) Ontario Teachers' Pension Plan, Toronto, the country's largest pension plan.
The law allows suits to be based on almost any communication, including inaccurate financial statements, misleading press releases and even misrepresentations in public speeches.
"The OTPP has been pressing for this law for a number of years," said Mr. Gibson. "And we've been lobbying very intensively with another number of large investors. So, we're quite happy to see that the law is finally proclaimed."
Bill 198 was first introduced in October 2002, in the wake of President Bush's signing of the Sarbanes-Oxley Act.