On
The Court also declined to certify common law negligent misrepresentation claims advanced by the proposed representative plaintiff. In doing so, the Court confirmed that, generally, common law negligent misrepresentation claims in securities cases are not suitable for certification.
Background
At issue in Markowich was whether (i) a pit wall instability detected on
The proposed representative plaintiff sought general and special damages against
The Parties' Positions
The proposed representative plaintiff argued that leave under the Securities Act should be granted because there was a reasonable possibility that
The plaintiff also argued that certification of its common law misrepresentation claims should be granted (regardless of the outcome of the leave motion) because it met the test for certification under the Class Proceedings Act.
The Decision
The Court found in favour of
In reaching that conclusion, the Court noted that a fact-specific inquiry is required to determine whether a change occurred. Following a fact-specific inquiry, the Court found that there was no evidence of any change to
There was also no evidence that the pit wall instability or rock slide raised any threat to
The Court cautioned that the concepts of "material change" and "material fact" must not be conflated - the distinction is deliberate and policy-based. Material facts, which need to be disclosed in the course of an issuer's periodic disclosure, are matters that may affect the issuer's business, operations, and capital whereas material changes, which require immediate disclosure, are changes that occur when the event results in a different position, course, or direction to a company's business, operations, or capital. In Markowich, while the pit wall instability and rock slide may each have been a material fact, there was no evidence to support that either of those events was a material change to
Finally, with respect to the motion for leave, the Court held that market impact is not determinative of a change (or materiality) and that it cannot "reason backwards" from a share price decline to find that a change had occurred to
In addition to dismissing the motion for leave, the Court declined to certify the plaintiff's common law negligent misrepresentation claim on the basis that the claim would not satisfy the preferable procedure requirement of the Class Proceedings Act. In that regard, the Court held that each investor's reliance, a required element of a negligent misrepresentation cause of action, could not be "deemed" or "inferred" based on an efficient market theory, rejecting the plaintiff's argument that precedent case law that found the efficient market theory inapplicable could be distinguished in the case of alleged omissions (as opposed to affirmative misrepresentations). As a result, "tens of thousands" of idiosyncratic trials would be required so that each class member could tender evidence on their own reliance, if any, on the alleged misrepresentations.
Looking Forward
This decision provides helpful commentary to issuers on the fact-specific inquiry to be used to determine which events constitute a material fact and which events constitute a material change. While the Court in this case reiterated that the requirement to make timely disclosure of a material change is not an obligation to provide a running commentary on the company's progress during the quarter or to comment on internal or external events that may impact performance, it did note that in cases where the decision is "borderline" the information should be considered material and disclosed.
Going forward, when considering disclosure, issuers should carefully evaluate whether the event under review may result in a different position, course, or direction to the company's business, operations, or capital.
A copy of the decision can be found here.
Footnote
1 2022 ONSC 81 (Markowich).
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