The Ontario Court of Appeal recently upheld the dismissal of a class action under the Ontario Securities Act (the “OSA”) secondary market disclosure provisions in Wong v Pretium Resources Inc, 2022 ONCA 549 (“Pretium”). Pretium is the first such action to receive leave and ultimately be decided on its merits. The decision serves as a reminder of the importance of building a strong evidentiary record to successfully argue a case in the highly fact-specific space of secondary market disclosure disputes.
Background
This class action arose from a four-month-long disagreement between Pretium, a mining exploration company, and Strathcona Mineral Services (“Strathcona”), one of their mining experts. Pretium did not wish to disclose Strathcona’s concerns arising from early test results estimating a project’s yield. Pretium’s refusal to disclose led Strathcona to resign from the project. When Pretium announced Strathcona’s resignation, Pretium’s stock price fell by over half. The representative plaintiff shareholder sued Pretium for alleged misrepresentations by omission of material facts.
Earlier decisions
In 2017, the plaintiff was granted leave, as required under s.138 of the OSA (2017 ONSC 3361). The motion judge found the parties’ evidence suggested this was a case of two respected mining professionals reasonably disagreeing on the interpretation and materiality of the test results. This met the threshold for leave as there was “a reasonable possibility” that the plaintiff would win at trial.
Following class certification in 2019, the parties brought cross-motions for summary judgment. The core issue to be decided was whether Pretium’s failure to disclose Strathcona’s concerns was an omission of a material fact under the OSA. With the benefit of additional evidence, the most probative of which came from Pretium, the motion judge found on a balance of probabilities in favour of the defence (2021 ONSC 54). It was reasonable for Pretium to have considered Strathcona’s concerns about the test results to be “unsolicited, inexpert, premature, and unreliable,” and therefore not material nor necessary to disclose.
The appeal decision
The main issue on appeal was the motion judge’s consideration of the reliability of Strathcona’s concerns and thus whether they were material facts.
The Court held that reliability is properly a factor going to materiality. While the evidence available on the leave motion was that Strathcona and Pretium had differing subjective views regarding the reliability of the test results, the new evidence provided on summary judgment suggested that Strathcona’s concerns were objectively unreliable.
When weighing this new evidence and given the higher burden of proof on summary judgment, there was no error in the earlier decision to dismiss the action. This is the case despite the fact that the Court reached a different conclusion on the leave motion years earlier.
Conclusion
This decision serves as a reminder to plaintiff’s counsel that the evidence they successfully rely on to gain leave will not on its own be sufficient to persuade a judge of the merits of the claim. Defendants, too, ought not conflate a successful leave motion with a guarantee that liability for secondary market disclosure will be found.
From a strategic perspective, the case reinforces the highly fact-specific nature of secondary market disclosure disputes and the importance of building a strong evidentiary record to successfully argue about the merits of a claim after leave is granted.
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