In Mask v. Silvercorp Metals Inc.​, the Ontario Court of Appeal upheld Justice Belobaba’s decision to refuse leave to commence an action pursuant to the secondary market misrepresentation provisions in the Securities Act.

The claim stemmed from the 2011 actions of a short seller who anonymously released false reports about Silvercorp’s prospects on the internet. The share price fell and the short sellers made $2.8 million, while Silvercorp’s shareholders lost $288 million in equity. Nearly two years later, shareholders launched a class action claiming that Silvercorp’s share price was artificially inflated by misrepresentations in its public disclosure documents and that the fall in share price was precipitated by “corrective disclosures”.

Justice Belobaba denied leave​ to commence the claim – as the Securities Act requires – holding that the plaintiffs had not presented “some credible evidence in support of the claim”. Rather, he held that the defendants had successfully proved that there was no overstatement in the disclosure documents. The Court of Appeal upheld this decision, and helpfully restated the principles related to the test for leave under section 138.8 of the Securities Act.

This case is notable for its analysis of the test for leave to bring a secondary market misrepresentation claim, but also for its broader significance related to short selling. Despite the only evidentiary basis for the claim appearing to be false reports being disseminated by short sellers, the defendants were forced to litigate for five years before the action was dismissed.