On May 21, 2013, Perell J. certified a proposed class action against certain defendants in Zaniewicz v. Zungui Haixi Corp. based on misrepresentations in Zungui’s IPO offering documents and other disclosure documents, including its audited and unaudited financial statements (2013 ONSC 2959). Perell J. had previously heard and granted the plaintiffs’ motion for leave to assert a secondary market liability claim under s. 138.3 of the Ontario Securities Act against certain defendants (click here for a summary of that decision).
By the time of the certification hearing, the plaintiffs had reached two settlements covering all of the defendants except for those that comprised the underwriting syndicate for Zungui’s IPO (including CIBC World Markets Inc., Canaccord Genuity Corp., GMP Securities LP and Mackie Research Capital Corporation – collectively, the “Underwriter Defendants”). As such, the motions for certification were brought for settlement purposes and did not address the claims against the Underwriter Defendants.
In certifying the class action against the settling defendants, Perell J. noted that even in situations where certification is sought for settlement purposes, all of the criteria for certification under s. 5(1) of the Class Proceedings Act, 1992, S.O. 1992, c. 6 must still be met (though compliance with the criteria is not as strictly required because of the different circumstances associated with settlements).
It remains to be seen whether the plaintiffs will continue to pursue their claim against the Underwriter Defendants. Given Perell J.’s determination that the proposed class action against the settling defendants satisfied all of the certification criteria (albeit on a less strict evaluation than would be applied in a contested certification motion), it is more likely than not that the plaintiffs would be successful if they moved to certify against the Underwriter Defendants. On the other hand, the plaintiffs have yet to obtain leave to assert a secondary market liability claim against the Underwriter Defendants and, through the proposed settlements, have already recovered half of their estimated damages ($10M as against the plaintiffs’ estimate of $20M). The plaintiffs’ intentions will likely become clearer following the settlement approval hearings on August 26, 2013.