The Ontario Court of Appeal has reversed a lower court decision and will allow three major securities class actions seeking almost $4 billion in damages against the Canadian Imperial Bank of Commerce to go to trial.
The 120-page judgment by a five-judge panel is significant because it broadens the scope of class action proceedings by shareholders, says Peter Jervis, senior counsel at Rochon Genova and a co-lead on the class action
"What this ruling says is that the court has taken an expansive interpretation of the ability of investors to use the courts to seek compensation from public issuers that allegedly have misrepresented, causing substantial declines in share prices for the investors," he said.
The actions against the bank, its president and CEO, Gerald McCaughey, and other senior directors and officers seek damages arising from alleged non-disclosure of CIBC's exposure to the U.S. subprime market.
In an interview with CBC's The Lang & O'Leary Exchange, Jervis said the allegations centre around a period in 2007 when CIBC held $8.5 billion in investments in subprime instruments but allegedly did not acknowledge the size of the exposure to analysts or investors.
It is alleged in the class action suits that the subsequent disclosure of this exposure in December 2007 caused massive losses to shareholders.
Jervis said Canadian markets have rules to enforce disclosure.
"For companies the rules are simple. Public disclosure obligations say you disclose material information when it becomes material or when it becomes available," he said.
"If you don’t do it, your investors may have the ability to effectively bring class actions to protect the investors from the failure of companies to make proper disclosure," Jervis added.
The ruling does not prove the shareholders' case, but does clear the way for the class actions to go to trial.
CIBC sent an email statement in response to a request for comment by CBC.
"We are confident that, at all times, our conduct was appropriate and that our disclosure met applicable requirements. CIBC denies these allegations and plans to vigorously defend this action," the statement read.
"As you know, this was a procedural step and not a ruling on the merits of the case," it added.
Jervis said the next step is examination of internal documents and examination of bank employees, followed by a trial. Courts will then decide whether or not there was misrepresentation by CIBC, he added.
"It’s good news for the investors. It’s also good news for the integrity of our capital markets because the whole system is designed to ensure that Ontario and other capital markets operate at the highest level of integrity which is good for everybody," Jervis said.