In this decision the Ontario Court of Appeal upheld Justice Belobaba’s dismissal of a securities class action on a motion for summary judgment on the basis that the defendant issuer had not made a misrepresentation by omission.
The respondent, Pretium Resources (Pretium) is a mineral exploration company listed on the TSX and NYSE that undertook a mining project in northern B.C. The project’s feasibility was predicated on a mineral resource estimate. Pretium hired Snowden Mining Industry Consultants (Snowden) to prepare the estimate. In turn Snowden recommended that Pretium extract a large bulk sample to validate the estimate. Pretium hired another mining consulting firm, Strathcona Mineral Services Inc. (Strathcona) to oversee and report on the bulk sample. Ultimately Strathcona recommended and Pretium agreed that Strathcona would test only small fraction of the mined material using a “sample tower” as processing the bulk sample would be delayed. However, assays of the samples processed at the sample tower prior to the excavation, milling and testing of the entire bulk sample led Strathcona to advise Pretium that a feasibility study that it had commissioned was based upon inaccurate and unreliable information. Strathcona urged Pretium to make certain disclosures to the market, which Pretium resisted.
The central allegation in the action was that Pretium made an actionable misrepresentation by failing to disclose Strathcona’s concerns about the sample tower results, and this failure rendered its previous disclosures about the project misleading. News releases eventually disclosed Strathcona’s resignation and the reasons behind it, causing the stock price to fall by over half. The appellant’s claim alleged common law and statutory misrepresentations by omission in Pretium’s continuing disclosures: the failure of the respondents to disclose what were alleged to have been material facts in seven of its public disclosure documents between July and October, 2013. Even though leave to pursue the claim under s. 138.8 had been granted by Justice Belobaba and it had been certified as a class action on consent, the action was dismissed summarily by Justice Belobaba based upon a more developed evidentiary record than what had been made available to him on the leave motion.
The Court of Appeal determined that Justice Belobaba had not erred in concluding that Strathcona’s “unsolicited, inexpert, premature, and unreliable” concerns did not constitute a material fact requiring disclosure. This characterization was “firmly anchored in the evidence”. Strathcona had based its opinion on limited data. Snowden, which was tasked with interpreting the sampling results and adjusting the resource estimate and feasibility study, did not share Strathcona’s concerns. The objective unreliability of Strathcona’s concerns, as well as their prematurity and the fact that they were expressed by Strathcona outside “its own lane”, were relevant to whether a reasonable investor would have viewed the information as having significantly altered the total mix of information, which is at the crux of the test for materiality of an omitted fact.
Further, Justice Belobaba had not misapprehended the evidence or made any palpable or overriding error in the factual findings with respect to the alleged misrepresentation. He had taken into account the entire context. The appellant was unable to point to anything specific in the impugned documents that was misleading as a result of the failure to communicate Strathcona’s concerns. In fact, communicating Strathcona’s premature negative opinion would have overwhelmed the investor and required him or her to sort out what was and wasn’t material. Contrary to the appellant’s submissions, Justice Belobaba’s decision was not based on an inappropriate acceptance of the respondent’s post hoc subjective views, nor did he defer to Pretium’s business judgment. Rather, his decision was based on correspondence from the time, Snowden’s contemporaneous views and affidavit evidence that added an important objective dimension.
This decision confirms that the reliability of information is a factor in the materiality analysis and emphasizes the important role that evidence plays on a motion for summary judgment. The same judge who readily granted leave for the claim to proceed later dismissed it summarily based on a more extensive affidavit record that strongly favoured the issuer:
“The motion judge reasonably concluded that the objectively unreliable and erroneous opinion of Strathcona, which was offered prematurely and outside “its own lane”, was not a material fact that was required to be disclosed in the context of the disclosures already made. The motion judge did not reach his conclusion by changing the legal test from the leave stage to the summary judgment stage. Rather, the appellant’s evidence, which was sufficient to make out a reasonable possibility of success at the leave stage, did not withstand the higher burden of proof on the summary judgment motion. The motion judge did not err in finding, on a preponderance of the evidence, that there were no omissions of material fact and thus no misrepresentations to ground a claim