The Court of Appeal’s decision in Wong v Pretium Resources Inc., 2022 ONCA 549, confirms that the reliability of information can be relevant to determining the materiality of information under the Ontario Securities Act (OSA). The much-anticipated appeal from the first merits decision of a class action under the secondary market liability provisions of the OSA provides important insights for issuers and class action litigants alike.
The lower court’s decisions
The plaintiff commenced a common law and statutory secondary market misrepresentation class action against Pretium Resources Inc. (Pretium), in which it alleged that Pretium made misrepresentations by omission in its continuous disclosure. The alleged omission was the failure to disclose as a material fact “concerns” raised by Pretium’s consultant about its mining project, concerns Pretium believed were premature and unfounded.
In 2017, the motion judge granted leave to proceed1 under section 138.8 of the OSA, after concluding that there was a “reasonable possibility that the action would be resolved in favour of the plaintiff” at trial. The action was certified on consent in 2019, and it proceeded to summary judgment in 2020.
Despite having concluded at the leave stage that the plaintiff “established a reasonable possibility of success at trial,” the motion judge ultimately granted summary judgment in favour of Pretium and dismissed the action2. The “key determinant” on summary judgment was his finding, on a balance of probabilities, that there was no omission of a material fact in the issuer’s continuous disclosure because “unreliable information is not a material fact that must be disclosed.” In the motion judge’s view, the defendants were not obliged to disclose the “negative opinion” —there was no omission of any material fact—and the defendants were not obliged to disclose information that they reasonably and objectively believed was “premature, unreliable and incorrect, indeed ‘dead wrong’.”
The Court of Appeal’s decision
Justice van Rensburg, writing for the Court of Appeal, upheld the motion judge’s decision. In rejecting the plaintiff’s argument that the motion judge “inject[ed] a new and irrelevant factor of ‘reliability,’” the Court confirmed that reliability was a relevant factor in concluding that the consultant’s concerns, which were the expression of an opinion, did not constitute a material fact that needed to be disclosed.
The Court also held that the motion judge did not err in his analysis of materiality. Relying on the reasonable investor test rather than on the statutory ‘move the market test’ for materiality and liability, the Court posited that the central question is whether a reasonable investor would consider the information important in making an investment decision3. This determination must be made in context. Although reliability may not be relevant in every case, “[i]n determining the materiality of such an opinion to a reasonable investor it was relevant to consider, among other things, its objective reliability”.
The plaintiff advanced several other arguments relating to the motion judge’s improper reliance on the respondent’s “post hoc, subjective views” and his error in failing to find a misrepresentation based on the drop in the price of Pretium’s shares. The Court rejected these arguments. Instead, it held that the motion judge’s decision was fact-driven and based on a proper assessment of all the evidence in the proper context.
This decision demonstrates that although the bar for leave to proceed with an action under the OSA is high, it does not guarantee that a plaintiff will be successful. Plaintiffs still bear the burden of proving that the impugned information was material and was required to be disclosed in the face of what is likely to be a more robust evidentiary record.
This decision also provides helpful clarity to issuers on relevant factors to consider when assessing their disclosure obligations, particularly when dealing with the expression of an opinion. The overarching question for an issuer evaluating materiality is to be approached as the Divisional Court put it in an earlier case: “materiality should be assessed objectively from the perspective of an investor and prospectively through the lens of expected market impact4.” Information that is objectively unreliable is less likely to be material to an investor. Indeed, as the Court of Appeal reminds us in this case, the disclosure of facts that are objectively unreliable—such as the opinion expressed in this case—only serves to perpetuate “the kind of mischief … that the disclosure obligations under the OSA seek to obviate”.
A future appellate court will need to determine the role of the reasonable investor test in assessing materiality in the context of the ‘move the market’ statutory requirement for disclosure and for liability for disclosure breaches. At footnote 5, the Court left that issue for another case.
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