Canadian Securities Law Online : Canadian Securities Lawyer & Attorney : Stikeman Elliott Law Firm : Montreal, Ottawa, Calgary, Vancouver, Montreal, Toronto

On February 5, the Ontario Securities Commission published OSC Staff Notice 52-718 IFRS Transition Disclosure Review (the Notice), which summarizes the results of a review conducted by the OSC of the "extent and quality of International Financial Reporting Standards (IFRS) transition disclosures made by issuers" in light of guidance previously provided by the CSA. The review focused on IFRS transition disclosure provided in 2008 annual, and 2009 interim, MD&A. Staff of the OSC provide additional guidance under the Notice regarding expectations for future MD&A filings.

In summarizing the results of the OSC's review, the Notice states that 40% of reporting issuers reviewed did not provide IFRS transition disclosure. Of the 60% of issuers that did discuss an IFRS changeover plan in MD&A disclosure, half provided a generic description without direct application to the issuer's own circumstances. Ultimately, the OSC found that "reporting issuers are not adequately discussing, in MD&A, the key elements of their IFRS changeover plan or their progress towards achieving this plan."

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The Canadian Securities Administrators (CSA) have published a staff notice this morning addressing frequently asked questions as of February 5, 2010 relating to financial reporting requirements under the new NI 31-103 Registration Requirements and Exemptions. The notice supplements an earlier FAQ published on December 18, 2009.

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Silver v. IMAX Corporation et al. [2009] O.J. Nos. 5573 and 5585 (S.C.J.)

Simon Bieber and Jennifer Imrie

On December 14, 2009, Justice van Rensburg of the Ontario Superior Court of Justice handed down two related rulings in the Silver v. IMAX Corporation litigation. The first (the “Leave Decision”) granted the plaintiffs leave to proceed with their class action against IMAX Corporation and certain individual respondents (collectively, the “IMAX Defendants”) under section 138.8 of Ontario’s Securities Act (“OSA”), while the second (the “Certification Decision”) certified the action, including both statutory and common law claims, as a class proceeding.

The Leave Decision is the first to consider the leave requirements for a statutory misrepresentation claim under the secondary market liability provisions in Part XXIII.1 of the OSA, while the Certification Decision appears to accept the “efficient market” (or “fraud on the market”) theory for common law misrepresentation claims. Justice van Rensburg permitted certification despite the defendant’s argument that the claim as pleaded is deficient for not alleging individual reliance by each member of the proposed class and accepted the plaintiffs’ argument that certification should extend to a global class of plaintiffs consisting of all persons who acquired securities of IMAX Corporation (“IMAX”) during the defined “Class Period” of February 17, 2006 to August 9, 2006 and who continued to hold some or all of those securities at the close of trading on August 9, 2006.

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On February 1, the Canadian Securities Administrators (CSA) released its 2009 Enforcement Report. According to the report, 141 enforcement cases were concluded in 2009, resulting in over $153 million in fines and administrative penalties ordered and over $92 million in restitution, compensation and disgorgement. The fines and penalties assessed in 2009 represented a large increase from the $12 million ordered in 2008. The report also discusses the preventative measures employed by the CSA as well as the sharp increase in the use of reciprocal orders since 2008. Meanwhile, a number of case summaries are presented in the report to describe the main categories of violations and to illustrate the type of activity that constitutes each type of violation.

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Yesterday, the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commissions (IOSCO) announced the launch of a comprehensive review of financial market infrastructure standards, including payment systems, securities settlement systems and central counterparties. The review, which will be led by CPSS members (consisting of central banks, including the Bank of Canada), members of the IOSCO Technical Committee (which includes the OSC and AMF), the IMF and World Bank, is part of an initiative "to reduce the risks that arise from interconnectedness in the financial system."

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CDS Clearing and Depository Services Inc. (CDS) recently published proposed amendments to its rules regarding the processes for issuing, transferring and maintaining custody of money market securities in CDSX. Specifically, the amendments (i) clarify the process by which securities become eligible for CDSX; (ii) provide for an exception allowing CDS to release confidential information concerning a participant where the information concerns material risk events;  (iii) create a single, uniform qualification for all participants acting as issuer agents; and (iv) create new internal control standards for participant issuer agents.

CDS is accepting comments on the proposed amendments for 30 calendar days following the January 29th publication of the proposals.

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In response to last summer's British Columbia Court of Appeal (BCCA) decision in Shapray v. British Columbia (Securities Commission), the British Columbia Securities Commission (BCSC) has announced the rescission of BC Instrument 15-501 Disclosure of Investigation Information and its related policy, while also deleting section 2.6(d) of BC Policy 15-601 Hearings. In its place, the BCSC has announced a new BC Instrument 15-501 Disclosure of Investigation Information, which provides consent to disclose "any information or evidence obtained or sought to be obtained or the name of any witness examined or sought to be examined under section 143, 144 or 145 of the Securities Act."

In Shapray, the petitioner commercial litigation lawyer argued that section 148(1) of the British Columbia Securities Act, which restricted disclosure of information and evidence obtained pursuant to an investigation by the BCSC, was unconstitutional. Mr. Shapray claimed that the provision made it impossible for him to adequately defend allegations of misconduct under the Securities Act or to properly prepare witnesses. Section 148(1) of the Act, which is similar to provisions found in the securities laws of other provinces, states:

Without the consent of the commission, a person must not disclose, except to the person's counsel, any information or evidence obtained or sought to be obtained or the name of any witness examined or sought to be examined...

Ultimately, the BCCA struck down s. 148 of the Act as unconstitutional, but delayed the order of invalidity for a year so as to allow the Legislature to consider alternatives. The instruments and policies recently revoked, meanwhile, provided the BCSC's consent for the disclosure of investigation information under prescribed circumstances. The new instrument provides for a broader consent, effective December 3, 2009, until the earlier of July 8, 2010 and the date the legislature repeals section 148.

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On Wednesday, the U.S. Securities and Exchange Commission (SEC) approved the issuance of interpretive guidance respecting existing SEC disclosure requirements that apply to business or legal developments relating to climate change. While the guidance has yet to be published by the SEC, a speech by SEC Commissioner Luis A. Aguilar suggests that the SEC's release will clarify the responsibility of companies to discuss (i) the direct effects of existing and pending environmental regulation, legislation and treaties on a company's business, operations, risk factors and in MD&A; (ii) the indirect effects of such regulation on a company's business; and (iii) the effect on a company's business and operations related to the "physical changes to our planet caused by climate change". Commissioner Aguilar also suggested that companies should know their emissions information in order to evaluate risks and focus on investors when considering the materiality of information.

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Stikeman Elliott lawyer Simon Romano recently discussed the anticipated conversions of income trusts due to the impending tax changes on the Business News Network program Market Call. Once effective, the tax changes will essentially eliminate the comparative advantage of the income trust structure but for a narrow exemption for certain "qualifying" REITs. According to Mr. Romano, as the date for the upcoming tax changes approaches, "I think the pressure will mount to either sell yourself, convert, or decide, for all the reasons that make sense to you, to stay where you are in the status quo."

For more information on the options for income trust conversions and the upcoming tax changes, effective on January 1, 2011, see our 2010 Income Trust Conversion Guide.

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