A More Generous Approach To "Material Changes" Under The Securities Act

• Published date: 13 June 2023
• Law Firm: Torys LLP
• Author: Ms Colette Koopman, Stacey Reisman, Gillian Dingle and John Fabello

The Court of Appeal's recent decision in Markowich v. Lundin Mining Corporation, 2023 ONCA 359, provides a fresh analysis of what constitutes a material change under the Ontario Securities Act. In a unanimous decision in the context of a motion for leave under the Securities Act¹ and for certification under the Class Proceedings Act², the Court of Appeal rejected the lower court's more narrow interpretation and instead adopted a broader and "more generous" approach that focuses on the context and facts of each case.

What you need to know

• The Court rejected a narrow interpretation of a "change" to the "business, operations or capital" of a company under the Securities Act Instead, the Court adopted a "more generous approach" to these terms, which must be interpreted broadly and in the context of the facts of each case.
• A material "change" cannot be external to the company or simply an unexplained change in results absent a resulting change in the business, operations, or capital of the company.
• In the two-step analysis of whether a material change has occurred, the assessment of the magnitude of the change'its materiality'occurs at the second stage.
• The Court also reaffirmed that, at the leave stage of the proceedings, the plaintiff was only required to demonstrate that he had a reasonable possibility of success based on a plausible interpretation of the statute and the evidence. Here, the Court held that there was a reasonable chance that wall instability and a rockslide at an open pit mine constituted a material change to the issuer defendant company, despite there being no direct evidence regarding the immediate impact of the rockslide on the mine's operations.

The lower court's decision

The plaintiff brought a proposed class action seeking leave to commence a secondary market securities class action against Lundin Mining Corporation (Lundin) for its alleged failure to disclose "forthwith" a "material change" in its "business, operations or capital" as required under the Securities Act. The plaintiff also sought to certify a class action on behalf of certain shareholders of Lundin.

The alleged "material change" related to the discovery of pit wall instability and a subsequent rockslide at one of Lundin's open pit mines. On October 25, 2017, the company detected pit wall instability at its mine and evacuated personnel. The instability led to a rockslide, which restricted access to a phase of the mine. Lundin did not disclose the pit wall instability...