In October last year, we looked at an ongoing legal case involving Lundin Mining Corporation.

The case dealt with Lundin’s detection of “pit wall instability, arising from an unstable wedge, in a localized area of its open pit operations,” and a subsequent rock slide, within a few days of each other in October 2017; the company didn’t disclose anything of these events until a general update press release about a month later. The plaintiff in the case, seeking to obtain leave of the court to commence an action for breach of timely disclosure obligations, alleged the events were “material changes” to Lundin’s “business, operations or capital” as defined by Ontario securities law, so that the company should have disclosed them immediately by a news release, followed up by a “material change report” within ten days. But the motion judge concluded otherwise, the judgment stating:

• There is no evidence of any change to Lundin’s business, operations, or capital arising from the events. The only effect was that 15,200 tonnes of copper mining was deferred until 2020 or 2021, with some increased costs and decreased revenues arising from milling lower quality copper. The deferred copper represented less than 5% of Lundin’s annual production, which was already scheduled to be reduced (by a lower amount) due to previously planned resequencing.
• There was no evidence that either the Pit Wall Instability or the Rock Slide raised any threat to Lundin’s economic viability…At all times, Lundin was able to continue its business, operations and capital as a worldwide mining corporation.

The motion judge accordingly dismissed the motion for class certification. I wrote at the time:

• There was a time in my career when I spent a fair bit of time fussing over the definition of “material changes” and whether public companies had interpreted their obligations correctly, and I’m sure at that time I would have been among those rolling their eyes (or worse) at the Lundin decision. Securities law aside, the decision seems even more regressive if judged against present-day realities, in which the hunger for information and (possibly AI-related) capacity to respond to it are ramped up way beyond what was once imaginable. Maybe there was a time when the quaint mechanism of the material change report was important in assisting investors to structure their review of a company’s disclosure record, but that certainly isn’t the case now; if the decision were to be judged appropriate as an application of existing requirements (not impossible I suppose, as it wasn’t exactly dashed off during a lunch break), it would only speak to the near-comic irrelevance of those requirements.

The judgment was appealed to the Supreme Court, which only recently delivered its decision. Disaster has been averted: the motion judge was overruled, allowing the action to continue. Here’s some of what the Court had to say:

• The motion judge erred by relying on restrictive definitions of “change”, “business”, “operations” and “capital”, and then by applying those definitions to determine whether there was a reasonable possibility that there had been a material change. The Ontario legislature intentionally left these terms undefined to allow the legislation to be applied flexibly and contextually to a wide range of industries and corporate structures. Moreover, the test for leave under s. 138.8(1) of the Securities Act requires a plausible analysis of the applicable legislative provisions and some credible evidence in support of the claim. A plausible analysis is not a plausible statutory interpretation, but rather a plausible application of the legislation to the facts. The uncontested evidence in the instant case was that the pit wall instability and rockslide impacted the company’s operations at its mine. Accordingly, a plausible analysis of the applicable legislative provisions and evidence on the motion showed a reasonable or realistic chance that the action could succeed; as a result, the investor should have been granted leave to commence an action for the alleged breach of the mining company’s timely disclosure obligations.

The opinion notes: “Whether there has been a material change in a given case is a highly contextual question of mixed fact and law. While disclosure decisions are a matter of legal obligation, there is no bright line test and the determination is a matter of judgment and common sense applied to the unique circumstances of each case. The contextual exercise of identifying a material change is guided by the purpose of disclosure obligations to level informational asymmetry between issuers and investors, which serves to maintain the integrity of the securities system and protect the public interest.”

The Court seems to be implying that the motion judge was not merely misguided but also somewhat intellectually arrogant in thinking he could impose his own thinking on the meaning of “material change” and the other aforementioned terms. One member of the Supreme Court dissented though, commenting that the majority’s decision may “encourage over‑disclosure or premature disclosure beyond what is required by the statute…carrying with it an increased regulatory burden and risks to the efficiency of capital to frustrate the goal of directing capital to the most deserving issuers, which may stunt efficiency and the allocation of capital within the market, ultimately reducing overall returns for investors.” How’s that for a runaway analysis! 

The opinions expressed are solely those of the author.