71 CBLJ 392

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CORRECT OR CONFOUND: MANAGING THE REVERSE ONUS

TO DISPROVE LOSS CAUSATION IN CANADIAN SECURITIES LAW

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Richard Lizius 

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ABSTRACT 

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Canadian securities statutes create statutory rights of action for primary and secondary market misrepresentations. If liability is established, these provisions impose a reverse onus on the defendant to disprove that the plaintiffs’ losses were caused by misrepresentation. These loss causation provisions have received scant judicial or academic consideration, but are a significant factor in driving millions of dollars in settlements. Their scope determines whether certain losses, which are difficult to prove or disprove in court, are assigned to plaintiffs or defendants by default. 

 

In an attempt to clarify the scope of these unsettled provisions, this article: (1) considers the language of the statutory scheme itself and argues that the loss causation defences should be interpreted broadly, despite ambiguous language that could be interpreted as limiting the scope of the secondary market loss causation defence; (2) provides an overview of the common analytical and economic tools that can be used to establish loss causation; (3) identifies the particular challenges raised by corrective disclosures which themselves contain confounding information (such as short reports or corrections bundled with unrelated positive news), suggesting solutions for those particularly challenging cases; and (4) argues that courts should not impose categorical analytical limits on loss causation analyses, but should instead treat loss causation as a fact specific exercise.