Ontario’s top court overturns decision refusing leave to proceed with misrepresentation claim against mining company
In a decision released on May 24, 2023 in Markowich v. Lundin Mining, the Court of Appeal for Ontario overturned a Superior Court of Justice decision refusing leave to proceed under Part XXIII.1 of the Securities Act for a proposed class action brought by investors in mining company relating to its failure to publicly disclose information about pit wall instability and a rockslide at one of its Chilean open pit mines. A unanimous appeal panel found that the decision below had been overly restrictive in how it defined what amounts to a material change sufficient to impose a positive duty on a public company to immediately disclose an event or risk being held liable for any resulting shareholder losses. In particular, the Court of Appeal panel found that Justice Glustein of the Superior Court of Justice had erred in law in being overly narrow in his interpretation of “change”, “business”, “operations” and “capital” in the context of the Securities Act definition of material change and, as such, that he erred in refusing leave to proceed under the Securities Act.
The background to this decision and the Superior Court decision denying leave to proceed is discussed in our previous article about the decision below. Briefly, the Superior Court decision refusing leave to proceed found that the instability at the Chilean mine owned by Lundin and the subsequent rockslide did not constitute a “change in the business, operations or capital” of Lundin, as required by the definition of “material change” under s. 1(1) of the Securities Act. In reaching this conclusion, the motion judge relied on evidence that pit wall instability and rockslides are common occurrences in open pit mining and that these events did not affect Lundin’s viability as a company.
In overturning the decision below, the Court of Appeal outlined the regime under the Securities Act relating to material changes and disclosure obligations. In particular, Section 75(1) of the Securities Act requires a reporting issuer to “forthwith issue and file a news release” in circumstances “where a material change occurs in the affairs of [the] reporting issuer” (emphasis added). In addition, s. 75(2) requires the reporting issuer to “file a report of such material change in accordance with the regulations as soon as practicable and in any event within ten days of the date on which the change occurs”. Section 1(1) of the Securities Act defines “material change” in relation to a reporting issuer as: (i) a change in the business, operations or capital of the issuer that would reasonably be expected to have a significant effect on the market price or value of any of the securities of the issuer. The Court of Appeal disagreed with the motions judge that the events at issue could not be something that affects the “business, operations or capital” of Lundin, found that he had been overly restrictive in his interpretation of those words and ordered that the plaintiffs should be permitted to proceed with their claim:
“At trial, with the benefit of better evidence on the immediate aftermath of the pit wall instability and rockslide, there is a reasonable possibility that Mr. Markowich could establish that these were changes in Lundin’s operations. More importantly, given that the motion judge was satisfied that these events, even though he did not accept they were changes to Lundin’s business, operations or capital, could reasonably be expected to affect stock prices, I am satisfied that there is a reasonable possibility that Mr. Markowich could succeed at trial in demonstrating that these were material changes that Lundin should have disclosed forthwith.”
As such, leave to proceed was granted under Part XXIII.1 of the Securities Act and the Court of Appeal referred the matter back to the Superior Court for a decision on certification under the Class Proceedings Act, 1992 consistent with its decision on leave.
The significance of this decision could extend beyond the specific facts of this case and even beyond the issue of what amounts to a “material change” under the Securities Act. In particular, the trend over the past several years has been for courts to make it more difficult for plaintiffs to meet their onus under Part XXIII.1 of the Securities Act to show a reasonable possibility of success at trial. In this decision, the Court of Appeal emphasized that the leave requirement does not require a “mini trial” and prescribed that the court should consider the fact that leave motions are brought at an early stage and without access to documentary and oral discoveries that might uncover additional evidence needed to prove their case at trial:
“To be clear, the motion judge’s duty to scrutinize the entire record is not restricted to a review of the evidence filed on the motion. The motion judge is also obligated to consider what evidence is not before her. She must be cognizant of the fact that, at the leave stage, full production has not been made and the defendant may have relevant documentation that has not been produced or relevant evidence that has not been tendered. Consideration of these evidential limitations of the leave stage is important because they can work to the prejudice of plaintiffs who have potentially meritorious claims.” [Emphasis added]
It remains to be seen what impact, if any, the decision might have on the willingness of future plaintiffs to pursue other claims under Part XXIII.1 of the Securities Act.
