The Supreme Court of Canada has given the go ahead to a proposed investor class action against a mining company over whether it disclosed an incident at one of its mines quickly enough. With the decision, the high court dismissed an appeal from the company, Lundin Mining Corp., seeking to overturn an Ontario Court of Appeal decision.
In a majority decision — Justice Côté dissented — the court ruled that investors can sue the company for its alleged failure to immediately disclose the issue to the market.
The incident in question was the company’s discovery of instability in a pit wall that was followed by a rockslide, which resulted in the company shutting down part of the mine and cutting its production forecast by 20%. When the company disclosed the issue in its routine filings about a month after it happened, the share price dropped 16%, and an investor class action was later brought alleging that the company breached its obligations under securities law by not disclosing the issue immediately.
Initially, the motion judge dismissed the proposed class action, ruling that there was no way that the investor could establish that the incident in the mine represented a “material change” that had to disclosed immediately.
However, that decision was overturned on appeal, with the Ontario Court of Appeal ruling that investors could argue that the company breached its disclosure obligations, based on a broader interpretation of what constitutes a material change.
The company then appealed that ruling, seeking to have that decision overturned, and the potential class action denied.
However, the Supreme Court has now sided with the appellate decision, finding that “the motion judge erred by relying on restrictive definitions of ‘change’, ‘business’, ‘operations’ and ‘capital’, and then by applying those definitions to determine whether there was a reasonable possibility that there had been a material change,” the majority said in its ruling.
The court said that the Ontario legislature “intentionally left these terms undefined to allow the legislation to be applied flexibly and contextually to a wide range of industries and corporate structures.” It also warned that adopting specific “regulatory or judicial definitions for the intentionally undefined terms “business, operations or capital” would ossify the Securities Act and would undermine the purpose of continuous disclosure obligations under securities legislation.”
Additionally, the court found that if the motion judge had “correctly interpreted a change in business, operations or capital, and applied that interpretation to the evidence on the motion, he would have concluded that there was a reasonable possibility that [the investor] could show that the pit wall instability and rockslide resulted in a change in Lundin’s operations.”
The Supreme Court said that it agreed with the Court of Appeal that “there was a reasonable possibility” that a class action could succeed “in showing that there were material changes that Lundin” that should have been disclosed more quickly. As a result, it said that the investor should have been granted leave “to commence an action for the alleged breach of Lundin’s timely disclosure obligations.”