Silvercorp Metals: Ontario Court Of Appeal Confirms Robust Test For Leave In Securities Class Actions And Affirms Costs Award

Silvercorp Metals: Ontario Court of Appeal confirms robust test for leave in securities class actions and affirms costs award1

The Ontario Court of Appeal recently released an important decision in a securities class action that (1) summarized the law with respect to the "robust" statutory screening mechanism which plaintiff investors must meet, (2) affirmed a significant costs award against the unsuccessful investor. On August 24, 2016, the Ontario Court of Appeal released its decision in Mask v. Silvercorp Metals Inc. ("Silvercorp"),2 an appeal from a refusal to grant leave to proceed to a secondary market class action. In the wake of the Supreme Court's recent3 decisions4 in secondary market cases, the unanimous decision dismissing the appeal confirms that the robust screening mechanism of a leave to proceed motion permits weighing of competing factual and expert evidence. It also confirms that a motion judge's analysis of that evidence will be subject to appellate deference, and that unsuccessful plaintiffs on leave to proceed motions may, like unsuccessful defendants, face significant costs awards.

Background and Motion Decision

The claim in Silvercorp had its genesis in anonymous Internet postings. In two blog posts in September 2011, a short seller alleged that Silvercorp, a Vancouver-based company that owns and operates mining projects in China, was overstating the quantity and quality of its mineral reserves. Silvercorp's shares, which trade on the New York and Toronto Stock Exchanges, declined significantly in the aftermath of the postings. While Silvercorp's investors lost, the short seller cleared a profit of $2.8 million.5

The proposed representative plaintiff commenced an action against Silvercorp seeking leave to proceed with a claim for secondary market misrepresentation on the basis that the previous Technical Reports Silvercorp had filed were prepared negligently, and that the company had, in those reports and its other disclosure, misrepresented its production results and mineral reserves. The plaintiff delivered expert evidence to support those allegations. In response, Silvercorp delivered (1) independent expert evidence that the earlier Technical Reports were appropriately prepared, and (2) evidence from AMC Mining Consultants (Canada) Ltd., the author of Silvercorp's 2012 Technical Report, which the plaintiff alleged demonstrated inaccuracies of the company's earlier Technical Reports. The author of that report stated...