Ontario Court Of Appeal Clarifies Approach To Assessing Public Correction In Secondary Market Misrepresentation Claims

• Published date: 30 April 2021
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Litigation, Mediation & Arbitration, Financial Services, Class Actions, Securities
• Law Firm: Osler, Hoskin & Harcourt LLP
• Author: Mr Craig Lockwood

The secondary market liability provisions prescribed by the various provincial securities acts set out a framework for recovery of market losses attributable to misrepresentations contained in public disclosures. Broadly speaking, the amount of recoverable damages is measured with reference to the difference in share price between "the time when the document was released and the time when the misrepresentation contained in the document was publicly corrected".

Not surprisingly, the primary issue typically in dispute between the parties is whether the public disclosure in fact contained a "misrepresentation". However, the legal analysis also requires the parties to engage on when - and whether - a correction of the alleged misrepresentation has been issued to the market. This public correction is commonly referred to as corrective disclosure. Oftentimes, the existence and timing of corrective disclosure will be self-evident. Where the allegations relate to misrepresentations "by omission", however, the issue of corrective disclosure may be more complicated.

The Ontario Court of Appeal's recent decision in Drywall Acoustic Lathing and Insulation, Local 675 Pension Fund v. Barrick Gold Corporation, 2021 ONCA 104 ("Drywall"), rendered in the context of an appeal from a motion for leave to commence an action under s. 138.3 of the Ontario Securities Act, R.S.O. 1990, c. S.5 (the "OSA"), provides a roadmap of the Court's approach in assessing matters of corrective disclosure. In Drywall, the Court articulated the following three-part test for "proper" public correction:

• there must be some linkage or connection between the alleged misrepresentation and the alleged public correction;
• the public correction must share the same subject matter and in some way, relate back to the misrepresentation; and
• the public correction must be reasonably capable of revealing to the market the existence of an untrue statement of material fact or an omission to state a material fact.

In applying the test, the Court clarified that a "purely semantic and mechanical" analysis of the public correction is insufficient, even on a motion for leave to proceed. Rather, "reasoned consideration of the evidence" is required to determine whether proper public correction is dispositive of such motions. These principles, the Court emphasized, are equally applicable to alleged misrepresentations by omission.

Background

Drywall is an appeal from a decision that denied leave in part to proceed...