Until recently, Ontario courts had not considered on the merits a class action under the secondary market misrepresentation provisions of the Ontario Securities Act. There was therefore some uncertainty about how courts would apply the different evidentiary standards that plaintiffs must meet at the various stages of a securities class action (i.e., leave to proceed, certification and trial). In Wong v. Pretium Resources, 2021 ONSC 54, Justice Belobaba summarily dismissed the plaintiff’s claim, finding that the defendants had not made any misrepresentation by omission and that, in any event, the defendants had a valid reasonable investigation defence. Justice Belobaba held that while the plaintiff was able to meet the test for leave to proceed, they did not prove on a balance of probabilities that there was a misrepresentation or reliance.
The plaintiff alleged that the mining company Pretium Resources Inc. (“Pretium”) had made a misrepresentation by omission by not disclosing in a timely manner a negative opinion from one of its consultants, Strathcona, regarding the company’s mineral resource estimate prepared by another mining consultant, Snowden. Pretium considered Strathcona’s concerns and decided that they were unreliable and wrong, and decided not to disclose their opinion to the market. Ultimately, Strathcona resigned, and Pretium issued a news release disclosing the resignation and the reasons for it. The plaintiff alleged that this disclosure revealed the earlier misrepresentation by omission.
Test for Leave vs. Merits Stage
Justice Belobaba confirmed at the outset the distinction between the evidentiary standard at leave versus on the merits. He noted that he had granted the plaintiff leave because there was enough evidence provided at that stage to meet the “reasonable possibility of success” hurdle. At the leave motion, he found that Pretium’s subjective view of Strathcona’s concerns did not displace the objective finding of an experienced mining consultant. It was also not clear at that stage that Pretium would be able to prove the reasonable investigation defence.
However, as Justice Belobaba noted, while the leave motion is “more than a speed bump, it is not the Matterhorn”. On the merits, the plaintiff must meet the higher standard of a “balance of probabilities.” At the summary judgment motion, the defendants presented additional evidence – including three affidavits of company executives and three affidavits of independent expert witnesses, including Snowden – that convinced the court on a balance of probabilities that there was no omission of any material fact. In contrast, the plaintiff only led substantive evidence from one witness, and notably did not file any evidence from Strathcona. Justice Belobaba also noted that the plaintiff’s “somewhat disturbing” examination transcript indicated that the plaintiff was not aware of any of the impugned documents contained the alleged representations until class counsel approached him about bringing an action.
Based on the evidence presented at the summary judgment motions, Justice Belobaba found that Strathcona’s opinions were beyond their area of expertise, outside of their assigned duties, and proven wrong by Snowden, a more qualified expert on the issue. He thus held Pretium was under no obligation to disclose information it reasonably and objectively thought was “premature, unreliable, and incorrect.” Furthermore, Justice Belobaba held that even if Pretium had been found guilty of misrepresentation, it had a reasonable investigation defence under s. 138.4(6) of the Securities Act, because the company had extensive internal discussions and made efforts to evaluate the objective value of Strathcona’s concerns. There judge also noted that the findings in the parallel class action in the U.S., which was dismissed, were persuasive and reinforced his conclusion on the evidence in the Ontario action.
While this case does not materially alter the existing law on the standards to be applied at the various stages of a securities class action, it is a useful demonstration of how success at leave may not necessarily lead to success on the merits. The case also emphasizes the importance of the reliability of information (including the expertise of the party providing it) in determining whether the information is in fact “material” under the Securities Act. As Justice Belobaba stated, unreliable information is not a material fact that must be disclosed. In discussing the reasonable investigation defence, the Court also confirmed that a public issuer can take the time it needs to properly investigate an allegation before making statements to the market which may ultimately turn out to be wrong.