After a brief hiatus, our creative juices are flowing again, and have we got a story for you.

Recall the heady days of 1996. The PSLRA had just become law and a number of plaintiffs started choosing to file their cases in state, instead of federal court. One of the reasons often cited for this move - to avoid the PSLRA's discovery stay. With the passage of SLUSA in 1998, that issue largely faded away, only to be revived in more recent years when parallel derivative or ERISA suits were filed along with a more traditional securities class action. While the cases on allowing securities plaintiffs access to the ERISA or derivative discovery (or even staying discovery in those parallel cases) have had mixed results, there appears to be a new fight on the horizon.

According to a story in The Globe and Mail today, an Ontario Superior Court judge has just dropped a bombshell on the defendants in the securities class action pending there against IMAX Corporation and several directors and officers.

The case was filed under "Bill 198," the revised provincial class action legislation enacted late in 2005. In such cases, the investor plaintiff must obtain leave from the Court to proceed with their suit. The standard as to whether a plaintiff is granted such leave is relatively modest - a reasonable probability that the plaintiff would prevail at trial.

In order to rule on whether a plaintiff has met the standard, the court relies on affidavits filed by the plaintiff and each of the named defendants. These affidavits outline the positions of the parties and the material facts on which they intend to rely if the case goes forward. The parties are then allowed to engage in "cross-examination," a/k/a discovery.

In what appears to be a case of first impression, Madam Justice Katherine van Rensburg ruled on how broad that examination will be.

She held that the test is whether the information sought in cross-examination has a "semblance of relevance" to the allegations. This is the same threshold used in formal discovery in Canadian cases, but that discovery generally comes substantially later in the litigation. And just as in the US courts, the discovery burden is a lower threshold than the burden for introducing evidence at trial.

But, going a step further, Madam Justice van Rensburg also held that anyone being cross-examined would be required to answer questions that are potentially relevant even if it "might also reveal some other potential issues or wrongdoing not currently contemplated by the statutory claim."

This raises a new battleground for cases, such as IMAX, with a cross-border component to them. Recall that in addition to the securities class action pending in Ontario, IMAX is the subject of a securities class action in the Southern District of New York, where a motion to dismiss the latest complaint is currently pending.

Siskinds LLP and Sutts, Strosberg LLP are counsel for the plaintiffs in the Ontario IMAX litigation, and McCarthy Tétrault LLP is counsel for IMAX.

A prior ruling by Madam Justice van Rensburg on a motion to compel in this matter is available here.

Coupled with the international "arms race" we have blogged about before, this raises the specter of cases being filed cooperatively in Canadian and US courts, with discovery in the Canadian action possibly being allowed to be used in the US action.

Very special thanks to Rob Patton at NERA for sending the IMAX story to us.