The Court of Appeal for Ontario has rejected a disgruntled investor’s appeal to get a class action suit certified against a group of underwriters and Philip Services Corp.

The investor, Joseph Menegon, sought to bring a class action against Philip Services, and its underwriters, Salomon Brothers Canada Inc., Merrill Lynch Canada Inc., CIBC Wood Gundy Securities Inc., Midland Walwyn Capital Inc., Gordon Capital Corp., RBC Dominion Securities Inc., TD Securities Inc., First Marathon Securities Ltd., and its auditor, Deloitte & Touche.

Menegon was seeking damages for negligent misrepresentation arising out of the purchase of shares in the open market.

Menegon purchased 300 shares of Philip Services on the open market, on Nov. 28, 1997. The firm subsequently became insolvent. In 1998, he claimed damages against the respondents for alleged misrepresentations contained in a prospectus, and the audit opinion of Deloitte & Touche.

Menegon conceded before the motions judge that he personally did not have a cause of action under the Securities Act since only purchasers who purchase shares offered by the prospectus during the period of distribution, not after, can make a claim.

Still, he maintained that he could be the representative for the class of purchasers who had a cause of action. Hence, the motion turned on the viability of the action at common law.

Menegon argued that a duty of care arose as a result of the reasonable foreseeability that purchasers of shares in the secondary market, before and after the public offering under the prospectus, would rely on the document to hold, buy or sell Philip shares.

He submitted that the respondents’ duty of care should not be delimited at the pleading stage on the basis of policy concerns about limitless liability. The motions judge rejected this argument.

On appeal, Menegon argued that the motions judge erred. His argument focused entirely on the reasoning of a decision released after the motion was heard in this case.

The appeals court upheld the lower court decision. “In my view, the pleadings in this case fall far short of setting out material facts which could give rise to a duty of care to Menegon on the part of the auditors or the Canadian Underwriters,” the court said. It dismissed the appeal with costs.