Overview
After over a decade of lying in wait for trial, the provisions for secondary market liability in Ontario’s Securities Act[1] were put to the test in the first merits-based decision of its kind in Canada.[2] In Wong v Pretium Resources,[3] the Ontario Superior Court of Justice dismissed the plaintiff’s motion for summary judgment seeking relief against a mining issuer for an alleged misrepresentation by omission.[4] This case serves as a reminder of the necessity for mining issuers to carefully consider their disclosure obligations and assemble a strong team of executives and experts.
Facts
Pretium Resources Inc. (Pretium), a gold mining company, had hired two external consultants, Snowden and Strathcona, in relation to its mining operation at the Brucejack mine (the Project). Pretium received conflicting advice from these experts. On several occasions, Strathcona advised Pretium that it disagreed with Snowden’s mineral resource estimate, despite the fact Strathcona had not been hired to make such an assessment. Pretium actively considered Strathcona’s concerns, but did not agree and declined to disclose Strathcona’s contradictory opinion to the market. It was not until after Strathcona resigned from the Project that Pretium issued a public statement about the disagreement. In the days following the disclosure, Pretium’s share price fell by over 50%.
The plaintiff, Mr. Wong, alleged that Strathcona’s findings and concerns were material facts that should have been disclosed to the market earlier. He brought an action against Pretium for its alleged failure to make timely disclosure of a material fact. Pretium argued that it had acted properly throughout the relevant period, having disclosed all material facts as required, and in any event was shielded by the due diligence or reasonable investigation defence available under securities law. The Ontario Superior Court ultimately agreed.
Decision
The plaintiff was granted leave to commence the action in 2017 after establishing a reasonable possibility of success at trial. After being certified as a class proceeding, the parties brought cross-motions for summary judgment. The main issue for the Court’s consideration was whether, as a public issuer, Pretium’s failure to disclose Strathcona’s opposition amounted to an omission of a material fact and was thus actionable. The Court held that there was no omission of any material fact, finding that the defendants were not obligated to disclose information that they “reasonably and objectively believed was premature, unreliable and incorrect, indeed ‘dead wrong’.”[5]
In the alternative, the Court found that Pretium had successfully raised the due diligence defence. Each time Strathcona advised Pretium of its concerns, Pretium discussed the matter both internally and with its other mining consultant Snowden, with both parties concluding Strathcona’s opinion was incorrect. Pretium “vetted Strathcona’s concerns with the company’s Disclosure Committee,” “discussed them in full at two Board meetings,” and had the benefit of its senior executives’ wealth of industry expertise.[6] Pretium also made clear in its public disclosures on what conditions and when it would disclose the results of its mining tests.
Takeaways
Obtaining leave to commence an action is just that
As can be seen by the facts of this case, demonstrating a reasonable possibility of success at a proceeding does not guarantee success at that proceeding. The evidentiary threshold for obtaining leave to commence an action is lower than the requirements for proving a case on a balance of probabilities. Not only was the plaintiff’s evidence – consisting mainly of the opinions of an outside expert with “no involvement in the relevant events” – unconvincing, but Pretium adduced evidence to rebut it.[7] Plaintiffs pursuing relief for secondary market liability would do well to evaluate the strength and weaknesses of their own evidence and consider whether pursuing a case that has a reasonable possibility of success, is worth the time and expense where there is a low probability of success.
Materiality and disclosure obligations
This judgment offers guidance on the standard of materiality in disclosure for public companies. Objectively unreliable information is not material and therefore need not be disclosed. Similarly, “bad and misleading information” need not be disclosed.[8] In this case, the disagreement over Strathcona’s opinion was not enough to make it a material fact. The Court goes so far as to suggest Pretium may not have ever been obligated to publicly disclose Strathcona’s concerns or explain why it disagreed. Therefore, it is arguably just as important to determine what should not be disclosed as it is to ensure the timely disclosure of material facts. As the Court stated, “nothing is achieved by flooding the market with unhelpful information.”[9]
The due diligence defence
This decision is not predicated on the fact that Pretium was correct in its assessment of Strathcona’s unsolicited opinion. Regardless of whether Pretium was right in its assessment, Pretium’s conduct was correct, and as such Pretium was able to successfully argue the due diligence defence due to its reasonable investigation. If nothing else, Pretium’s active consideration of Strathcona’s opinions would have kept it safe from liability. This serves as a lesson that mining issuers would do well to take their disclosure obligations seriously, choose executives with strong industry experience, and use consistent internal procedures to evaluate advice from various experts.
To learn about British Columbia’s secondary market liability regime, see our blog post Secondary market liability: Holding experts and mining executives accountable
[1] RSO 1990, c S5.
[2] The secondary market liability regime is substantially similar across all provinces of Canada, though differences exist in respect of the rules of civil procedure relating to class actions. Ontario’s regime is in some ways more favourable to plaintiffs than British Columbia’s, which is likely why this action was brought in Ontario despite Pretium being a British Columbia company with operations in BC.
[3] 2021 ONSC 54.
[4] The plaintiff has filed a notice to appeal this decision, but as of the date of this publication, it is not yet known whether the appeal will be heard.
[5] Para 5.
[6] Para 56.
[7] Para 18.
[8] Para 59.
[9] Para 64.
