December 1, 2025Calculating...

Supreme Court provides guidance on meaning of “material change” for securities disclosure

Proper disclosure has been recognized by the Supreme Court of Canada as “the heart and soul of the securities regulations across Canada”1. Issuers are required to disclose two kinds of information to investors: “material facts” (which are to be disclosed periodically) and “material changes” (which are to be disclosed “forthwith”). But determining whether a particular event is a “material fact” or a “material change” is nuanced—in fact, it has been described as “perhaps the most difficult area of securities law”2. The inconsistent approaches courts have taken in trying to delineate between the two has resulted in uncertainty for both investors and issuers3.

In Lundin Mining Corp. v. Markowich4, the Supreme Court provided further guidance on both the interpretation of “material change” and the leave test for bringing a claim for failure to make timely disclosure, thereby adding to the Supreme Court’s jurisprudence on the related issues of mandatory disclosure and private enforcement in Canadian securities regulation5.

What you need to know

  • Determining the meaning of “material change” remains a two-step test, assessing (a) whether there is a change in the business, operations, or capital of the issuer, which does not implicate a materiality element such as “importance”; then, (b) whether that change is material.
  • The legislature intentionally left the definitions of “change”, “business”, “operations”, and “capital” undefined so that they could be applied flexibly and contextually to a wide range of industries and corporate structures. However, the Court made it clear that there are some important guardrails around the meaning of “material change”:
    • While a material fact is static, a material change is dynamic: it compares an issuer’s affairs at two different points in time.
    • A change is internal to the issuer. An issuer is not expected to “continually interpret external political, economic and social developments as they affect the affairs of the issuer” but must disclose changes to its business consequent on such political, economic and social developments.
    • While they may indicate some alteration or shift within the issuer, without more, routine matters, negotiations, or internal deliberations will not likely amount to a change for disclosure purposes.
  • Whether a material change has, in fact, occurred will often be apparent to issuers given their industry knowledge and familiarity with their company. The Court held that the materiality requirement of the two-step test should avoid burdening issuers with the obligation to evaluate every minor internal event as a material change, nor result in overabundant disclosure.
  • The analysis of whether a “material change” has occurred is assessed no less stringently when a party is seeking leave to bring an action under section 138.8(1) of the Securities Act than at later stages in a case. The party seeking leave must provide a plausible application of the legislation to the facts that are available at the leave stage.

The background of the dispute

The Ontario Securities Act (the Act) defines a “material change” as “a change in the business, operations or capital of the issuer that would reasonably be expected to have a significant effect on the market price or value of the securities of the issuer”6. The terms “change”, and “business”, “operation” and “capital” are not defined in the Act.

The facts

A Canadian mining company detected pit wall instability at a key open pit mine. A few days later, a rockslide occurred, requiring the company to shut down at least part of the mine and reduce its production forecast for the next year by 20%. The company disclosed these events to investors a month later. In one day, the share price dropped 16%, resulting in a loss of over $1 billion in market capitalization7.

An investor then applied for: (a) leave under section 138.8(1) of the Securities Act to bring an action alleging the company’s failure to provide timely disclosure; and (b) certification of a class proceeding.

The decisions below

The motion judge denied the investor’s requests for leave and class certification, concluding that the instability and resulting rockslide were material facts, not material changes, because they did not lead the mining company to change its line of business, stop operating the line, or to change its capital structure8. In reaching this conclusion, the motion judge applied a dictionary definition of “change”, concluding it meant “a different position, course, or direction”9.

The Court of Appeal allowed an appeal, finding that the judge had interpreted a material change to the business, operations or capital of the company too restrictively in the context of the leave test10. The Court of Appeal said that an applicant under section 138.8(1) need only show a “plausible interpretation” of the statutory provisions at issue and sufficient evidence to support granting leave11.

The Supreme Court’s decision

The majority of the Supreme Court dismissed the appeal, clarifying that the meaning of “material change” in the business, operations or capital (a) should be interpreted flexibly and contextually; and (b) is interpreted the same way at the leave and merits stages of an action. The majority agreed that there was a realistic chance that the pit wall instability and rockslide could constitute a material change, and that the applicant therefore met the threshold test for leave to bring a statutory cause of action12. The certification motion was referred to the lower court.

Justice Coté dissented, holding that the majority’s determination conflated “material change” with “material fact” and imposed too significant a burden on issuers.

A flexible and contextual understanding of “material change” to business, operations or capital

The Court reiterated that determining the meaning of “material change” is a two-step test: first, asking whether there is a change in the business, operations or capital of the issuer; and second, asking if it was material.

The majority agreed with the Court of Appeal that the motion judge erred by relying on overly restrictive definitions of “change”, “business”, “operations”, and “capital”. The Court explained that the Ontario legislature had intentionally left those terms undefined “to allow the legislation to be applied flexibly and contextually to a wide range of industries and corporate structures”13. In particular, the Court declined to qualify that a “change” must be “important” or “substantial”, or a “significant disruption and interference”. While these developments may be sufficient to constitute a change, they are not necessary14.

However, the Court’s view was that this flexible interpretation—when understood in context—would not lead to a flood of unnecessary disclosure, because:

  1. A change is dynamic, whereas a fact is static. A change must be assessed having regard to the evolution of the issuer’s disclosure. The change compares the issuer’s state of affairs at two different points in time: the then-existing disclosure record is compared to the new state of the issuer’s affairs.
  2. The change must be internal to the issuer. An external political, economic or social development will not in itself give rise to a material change, unless it causes a material change to the business, operations or capital of the issuer15.
  3. Without more, routine matters, negotiations or internal deliberations are unlikely to amount to a change. Negotiations and internal deliberations in themselves will not typically amount to a change in the business, operations or capital of the issuer, even if they are material16. This is because managers do not yet have reliable information about the likely outcomes of these processes17. Additionally, routine matters will not constitute a change in the company’s business, operations, or capital18.
  4. Issuers are well-positioned to assess whether a “change” is material. The Court was not concerned that declining to narrow the definition of “change” would require issuers to evaluate whether every minor internal event within a company needs to be disclosed. Rather, it concluded that issuers are in a good position to assess materiality of a change, “given their industry knowledge and intimate familiarity with their business, operations, and capital”19.
Leave test requires a plausible application of the legislation to the facts

The majority also clarified that the statutory interpretation process does not change in the context of the test for leave under section 138.8(1) of the Securities Act. The Supreme Court disagreed with the Court of Appeal that the leave stage required the applicant to put forward a plausible statutory interpretation, as suggested by the Court of Appeal. Rather, the applicant must put forward a plausible application of the legislation to the facts20. This means that the necessary analysis is “not conducted less stringently on a leave motion than at trial”21. A court determining whether to grant leave must evaluate what might qualify as a “material change”—without diluting the interpretation of that phrase—while recognizing the limited nature of the evidence available pre-discovery22.

Implications

This is a very important case in the development of securities law in Canada. It clarifies that the meaning of “material change” is not narrow or prescriptive (but has appropriate bounds), provides investors with further guidance on how issuers make their disclosure determinations and reinforces the importance of these determinations to investors and the markets.


To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

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