Ontario Court Of Appeal Provides Guidance On Identifying "Material Change"

• Published date: 07 July 2023
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Securities, Shareholders
• Law Firm: Burnet, Duckworth & Palmer LLP
• Author: Ms Mardi McNaughton and Jay Reid

The Ontario Court of Appeal (the ONCA) recently released two decisions that discuss the meaning of "material change" (and other terminology) in the context of the Securities Act (the Act).¹ In both cases, the plaintiffs were seeking leave (i.e. permission) to advance a statutory cause of action in court (with leave being the first hurdle a plaintiff needs to clear before an action can proceed under the relevant sections of the Act).

While factually diverse, each case dealt with a plaintiff shareholder challenging a corporation's decision not to publicly disclose forthwith certain events that had transpired, arguing that those events constituted material change in the business and thus triggered a disclosure requirement.² In Markowich v. Lundin Mining Corporation (Markowich),³ the ONCA overturned the ruling of the Ontario Superior Court (the lower court or the motion judge), granting leave for the action to proceed, whereas in Peters v. SNC-Lavalin Group Inc. (Peters),⁴ the ONCA upheld the lower court's ruling, denying leave for the action to proceed.

The Law⁵

The Act defines a "material change" as "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".⁶ A "material fact" is "a fact that would reasonably be expected to have a significant effect on the market price or value of the securities".⁷ Material changes must be disclosed "forthwith" (i.e. immediately) whereas material facts do not have the same requirement but rather are to be disclosed in the regular course of (periodic) disclosure.⁸

The two-part test to determine whether there has been a material change is as follows:

1) There must be a change in the business, operations or capital of the issuer; and

2) The change must be material (i.e. it would reasonably be expected to have a significant effect on the market price or value of the securities of the issuer).⁹

Markowich

Background

The plaintiff (Markowich) was a shareholder of the defendant company (Lundin), a Canadian TSX-listed mining company with operations around the world. One of Lundin's mines in Chile was responsible for 55-60% of its sales revenue for the relevant time frame.¹⁰

Lundin detected pit wall instability and evacuated personnel from the area. Six days later, the unstable wedge failed, causing a rockslide that shut down operations for a (contested) period of time. Lundin did not publicly disclose the pit wall instability nor the rockslide until a month later. The announcement caused a one-day drop of 16% in the price of its securities, totalling a $1...