Securities Class Actions – Underwriter Duty Of Care: LBP Holdings V. Hycroft Mining

In LBP Holdings Ltd. v. Hycroft Mining Corporation, 2017 ONSC 6342, the Ontario Superior Court declined to certify a securities class action brought against underwriters1 on the basis the common law claim of negligence failed to disclose a cause of action and a class proceeding was not the preferable procedure.

What You Need To Know

This is the first reported Canadian case on the issue of whether underwriters owe investors who purchase securities under a prospectus a common law duty of care. The decision held that underwriters do not owe a general duty of care to prospective investors, either to perform due diligence or to properly price shares. The decision also applied the Supreme Court of Canada's 2013 direction2 regarding class action certification of common and individual issues, in considering the important issue of whether a lone common law misrepresentation claim against investors should be certified (it should not). Background

The plaintiff sued Hycroft Mining (formerly Allied Nevada) and two of its executives for primary market misrepresentation pursuant to section 130 of the Ontario Securities Act (and equivalent legislation) for alleged misrepresentations contained in a prospectus for a secondary public offering. The Hycroft defendants consented to certification.

The plaintiff originally brought the same statutory claim, in addition to common law claims, against the underwriters, who sold the shares in a bought deal. During the course of the motion for certification, the plaintiff abandoned its statutory claim against the underwriters and sought to certify only common law claims for negligence and negligent misrepresentation.

The basis of the plaintiff's negligent misrepresentation claim was that the prospectus contained misrepresentations notwithstanding the underwriters' certificate, indicating the prospectus made full, true and plain disclosure.

In respect of negligence, the plaintiff alleged the underwriters owed class members duties to properly price the shares and to perform due diligence to ensure comprehensive disclosure of material facts in the prospectus, and that those duties arose from the underwriting agreement between Hycroft and the underwriters.

Decision of the Superior Court

The Court dismissed the certification motion as against the underwriters.

The Court held that the cause of action criterion was satisfied for the negligent misrepresentation claim but not for the negligence claim. However, the action should...