Finally ' The First Merits Decision In A Securities Class Action Alleging Secondary Market Misrepresentation

• Published date: 09 February 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Class Actions, Securities
• Law Firm: McCarthy Tétrault LLP
• Author: McCarthy Tetrault LLP and H. Michael Rosenberg

After years of waiting and several near misses, the Ontario Superior Court of Justice has finally decided the merits of a class action under the secondary market liability provisions of Part XXIII.1 of the Ontario Securities Act. Justice Belobaba's decision in Wong v. Pretium Resources Inc., 2021 ONSC 54 dismissed the plaintiff's claims, finding that there had been no misrepresentation, and in any event, the defendants were entitled to a reasonable investigation defence.

As the first of its kind, Wong provides valuable insight into the relationship between leave to proceed, certification, and judgment on the merits. The decision also provides clarity on the structure of the defences to statutory liability. The take-away is that clearing the hurdle of leave to proceed does not count for much in the final arithmetic.

By way of disclaimer, McCarthy Tétrault LLP represented the defendants throughout.

The facts

Wong concerned an allegation that a gold miner, Pretium Resources Inc. ("Pretium"), and its then-CEO failed to disclose an adverse opinion about its mineral resource estimate. The adverse opinion was tendered by Strathcona Mineral Services Ltd. ("Strathcona"). Pretium had engaged Strathcona to oversee a bulk sample program. However, Pretium had not engaged Strathcona to assess the resource estimate, which had been prepared by Snowden Mining Industry Consultants Pty Ltd. ("Snowden").

Pretium did not believe Strathcona was qualified to estimate the mineral content of the unique deposit at issue. Accordingly, Snowden remained engaged to update its resource estimate at the conclusion of the bulk sample program. Snowden considered Strathcona's concerns and advised Pretium that the existing resource estimate remained valid. Pretium's own technical team likewise concluded that Strathcona was wrong. Pretium communicated these views to Strathcona, which was unmoved. Frustrated that Pretium would not disavow Snowden's resource estimate, Strathcona resigned.

Pretium publicly disclosed Strathcona's resignation, and shortly thereafter it disclosed Strathcona's concerns about the resource estimate. The plaintiff alleged that these disclosures caused the price of Pretium's securities to fall, and that both disclosures constituted corrective disclosure of a material misrepresentation: namely, the omission of Strathcona's concerns about the resource estimate. The plaintiff advanced claims for both common law misrepresentation and statutory misrepresentation under Part...