Adam Goldenberg 00:00
Welcome to Appealing Briefs, a podcast with brief updates on cases from Canada's courts of appeal. I'm Adam Goldenberg. In 2017, pit wall instability caused a rock slide at a copper mine in Chile. The mine was owned by Lundin Mining Corporation, a public company that's listed on the TSX.
Adam Goldenberg 00:25
After the rock slide, the company disclosed what had happened, but not right away. Once it made that disclosure, its stock price fell by 16%. One of Lundin's investors commenced a lawsuit against the company under Ontario's securities legislation. It alleged that Lundin had failed to make timely disclosure of a material change in its business operations or capital, and I'll tell you why those words are important in a moment.
Adam Goldenberg 00:52
Should the lawsuit be allowed to proceed? That was the question that went to the Supreme Court of Canada in Lundin Mining Corporation against Markowich. And in the court's November 2025 judgment, the answer was yes. This was the first securities law case to reach the Supreme Court in a decade, and this episode briefs you on the court's decision, and on what it means for investors and for public companies in Canada.
Adam Goldenberg 01:18
Before we begin, a brief disclaimer. This episode contains legal information, not legal advice. Now, let's start with a brief primer on securities law, and in particular, on a public company's ongoing reporting obligations under the Ontario Securities Act.
Adam Goldenberg 01:36
Section 75 sub 1 of the Securities Act requires reporting issuers, in other words, public companies, to make timely disclosure of any material change in their business operations or capital. This requirement aims to give investors a fair opportunity to make investment decisions on the basis of timely and accurate information.
Adam Goldenberg 01:57
But here's where things get a bit complicated, at least if you're not a securities lawyer. In a public company of any size or complexity, stuff happens all the time. But not everything needs to be disclosed right away. Only material changes do. So what makes a change material, requiring prompt disclosure?
Adam Goldenberg 02:17
According to the Securities Act, the question is whether the event, the stuff, would reasonably be expected to have a significant effect on the market price or value of the company's security.
Adam Goldenberg 02:31
If a change in the company's business, operations, or capital would reasonably be expected to have a significant effect on the value of a stock or other security, even if not on its price, then it is a material change, and it must be disclosed within 10 days under Section 75 Sub 1 of the Securities Act. If an issuer fails to report a material change, then they will have breached their ongoing disclosure obligations under the Act.
Adam Goldenberg 02:57
Investors who traded in the company's securities during that window of time between when the change happened and when the company disclosed it may have a claim against the company under the Securities Act.
Adam Goldenberg 03:09
That's the type of claim that was brought against Lundin Mining in the Markowich case. It's called a secondary market misrepresentation claim, and an investor who wants to bring this type of claim must first obtain permission from the court to do so. That's because the Ontario legislature has determined that companies and their current shareholders shouldn't be put to the expense of defending against claims that don't have some merit and that weren't brought in good faith.
Adam Goldenberg 03:34
To obtain leave to proceed, as it's called, an investor must first persuade the court that there is a reasonable or realistic chance that their proposed claim will prevail at a trial, and that must be based on a plausible analysis of the legislation and on some credible evidence. Now, let's talk about what exactly happened in the Lundin Mining case.
Adam Goldenberg 03:57
The rock slide at the mine in Chile led to a partial shutdown and a reduction in the company's production forecast by 20% for the following year. Lundin disclosed that these developments had occurred, but it only did so a month after the rock slide in its regular periodic updates. The day after it made that disclosure, as I said before, the company's share price, well, slid by 16%. A proposed claim under the Securities Act followed.
Adam Goldenberg 04:27
By an 8-1 majority, the Supreme Court of Canada ruled that leave to proceed should be granted, the claim should be allowed to continue toward trial. The court concluded that there was a reasonable chance that the plaintiff-investor, Mr. Markowich, could prove at a trial that the pit wall instability and the rock slide had amounted to a material change that ought to have been disclosed sooner than it was.
Adam Goldenberg 04:51
In reaching this conclusion, the court interpreted the term material change in the Securities Act broadly and flexibly. The court emphasized that the terms change, business, and operations were intentionally left without definitions in the statute. This, according to the majority, means that these terms should not be read narrowly.
Adam Goldenberg 05:13
According to the majority, a change is, well, a change. Any internal development at a company, not just a major transformation or a fundamental shift. And whether a change is material, according to the court, does not depend on how significant the change itself is, but rather on whether the change could reasonably be expected to significantly affect the market price or value of the company's securities.
Adam Goldenberg 05:40
Even an operational disruption, like a partial shutdown of a copper mine, for example, could plausibly be a material change if proven at trial. That, according to the majority, was enough to justify granting leave to proceed in the Lundin mining case. So, what does the Supreme Court's decision mean for Canadian investors and public issuers?
Adam Goldenberg 06:02
I asked my McCarthy Tétrault colleagues, Owais Ahmed and Valérie Lord. Owais is a partner and the co-head of securities litigation at our Firm. He's based in Vancouver. Valérie is a senior litigation associate based in Toronto who represented an intervener before the Supreme Court of Canada in the Lundin Mining case.
Adam Goldenberg / Owais Ahmed / Valérie Lord 06:22
Owais, Valérie, thank you both very much for joining me. Great to be here. Thanks for having us, Adam. Owais, let me start with you. Has there been a material change to the interpretation of the term material change? I don't think so, Adam. I don't view this case as a significant change in the law. This case was an opportunity for the Supreme Court of Canada to provide evidence
Owais Ahmed 06:46
further clarity and precision or otherwise provide guidance to issuers trying to meet their disclosure obligations. I don't think it really did that. It could have, for example, provided guidance to the market with respect to what is meant by business, operations, or capital. And I'm referring, obviously, to the definition of a material change, those three terms that
Owais Ahmed 07:10
show up in the definition. It could have provided clarity with respect to what those mean, and the court purposely did not. It purposely did not, and the court instead concluded that those terms are purposely broad, that their meaning should not be limited by dictionary definitions, and
Owais Ahmed 07:30
And the reason being that these are terms that are going to apply for a whole variety of different businesses in different industries in different circumstances. And so there's good reason not to define those terms and to leave them as they are.
Owais Ahmed 07:46
But the result of that for issuers making public disclosure decisions is there's not a whole lot of guidance coming out of this decision. They're going to continue to have to make judgment calls based on their common sense and the overriding principle that where there is doubt, better to disclose. For that reason, I don't view this case as representing a big change. There's one other point I'd make on that, which is,
Owais Ahmed 08:13
The court also had an opportunity to provide clarity on what is a change? What does that mean? We all know that the distinction between a material fact and a material change is, was there a change in the business operations and capital of the company? It's an important distinction, but the Supreme Court of Canada disagreed with the Mosen's judge that a change has to have a particular significance to the company in question.
Owais Ahmed 08:41
And instead, it said that the Ontario Court of Appeal got it right when it said, a change is a change. That was a quote from the Ontario Court of Appeal and the Supreme Court of Canada said they got it right.
Owais Ahmed 08:52
But that doesn't leave us with much guidance. If a change is not tied to any particular significance, then there is a concern about, well, what's the difference between a change and a material fact? And that sort of feeds into the dissent in this case. That's really the concern that arises out of the dissent. I just make this one further point, is that for most Canadian issuers,
Owais Ahmed 09:17
listed on the TSX, whether the senior or the venture exchange, this distinction between material fact and material change doesn't have a whole lot of practical significance anyway. And the reason for that is the exchange itself requires that any material information be disclosed forthwith. And material information is defined to include both material fact and material change.
Owais Ahmed / Adam Goldenberg / Valérie Lord 09:44
And so the exchange has already collapsed the definition. So that's an important factor to keep in mind for Canadian issuers. Interesting. Now, Valérie, the Supreme Court takes a broad interpretation of the word change and says that really it's the materiality threshold that's going to do the work in determining whether disclosure has to be made right away.
Adam Goldenberg / Valérie Lord 10:07
What does that mean in terms of the leave test for a securities class action under Part 23.1 of Ontario's Securities Act and comparable legislation? Yeah, so the test for leave under Section 138.8 of the Securities Act has always said that there's two requirements for plaintiffs bringing these types of cases, that the action has to be brought in good faith and
Valérie Lord 10:31
And that there has to be a reasonable possibility that the action will be resolved at trial in favor of the plaintiff.
Valérie Lord 10:39
The Supreme Court in Lundin offered this sort of much needed clarification that indeed the plaintiffs must offer both a plausible analysis of the applicable legislation and some credible evidence. And really, all that means is to say is that the plaintiff has to apply the correct interpretation of this of the statute.
Valérie Lord / Adam Goldenberg 11:01
And so it means that the plaintiffs will continue to need to put their best foot forward in terms of marshalling credible evidence at the certification stage. And there won't be this lower bar at certification. It's really going to be what's your best evidence, both at certification as it would be presented on a trial at the merits. Valérie, Owais, thank you so much for taking the time to speak with me today. Thank you for having us. Thanks, Adam.
Adam Goldenberg 11:28
Owais Ahmed is co-head of securities litigation at McCarthy Tétrault, and Valérie Lord is a senior litigation associate. Thanks to Logan Dillon, an articling student in our Toronto office, for his work on this episode. We hope you found this brief appealing. Thanks for listening.
