Reporting issuers across
On
Background
In October of 2017, LMC received reports that a pit wall instability was detected at its largest mine in
Rather than disclosing these events when they occurred, LMC announced them one month later in a November news release. The day following the release, the price of LMC's securities fell by 16 percent on the
The plaintiff, a shareholder of LMC, brought a proposed class action seeking leave to commence a secondary market securities class action against LMC under Section 138.8 of the Securities Act for failing to make a timely disclosure of the pit wall instability and the subsequent rockslide. The plaintiff also sought certification of a class action under the Class Proceedings Act, 1992 on behalf of certain LMC shareholders.
The plaintiff's motions were dismissed at first instance as the motion judge was not satisfied that there was a reasonable possibility of showing that the pit wall instability and rock slide were "material changes" in the business of LMC. The motion judge was convinced by evidence showing that pit wall instabilities and rockslides are common occurrences in open pit mining and therefore could not constitute a "change" in the business, operations or capital of LMC.
The Court of Appeal unanimously overturned the motion judge's decision, finding that what constitutes a "material change" was interpreted too narrowly and that leave should have been granted for the plaintiff's motions.
According to the
In making this determination, the
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whether a change in the business, operations or capital of the issuer has occurred; and
- if there was a change, whether it could reasonably be expected to have a significant impact on the market price for the issuer's shares.
In Danier, the Supreme Court noted the deliberate and policy-based distinction under securities laws between material changes, which require disclosure "forthwith", and material facts, which must be disclosed in the course of the issuer's periodic disclosure.
In Danier, warmer than normal weather had led to poorer than expected intra-quarterly results. The
According to the motion judge, because pit wall instabilities and rockslides are common occurrences in open pit mining, the fact they occurred in this instance did not constitute a change in the business, operations or capital of LMC. The Court of Appeal disagreed with this narrow interpretation of "change", concluding the only constraint on the definition of "change" is that it cannot be external to the corporation.
The Court of Appeal further asserted that a change does not need to rise to the level of affecting a company's ability to conduct its business, but losing the ability to physically operate is one consideration among many that may constitute a change in the operations of the issuer. The Court of Appeal found the determination of a change to be purely qualitative, and considerations of the significance of the change should be left to the second step of the Danier test when determining if the change could reasonably be expected to impact the market price of the issuer's securities. The Court of Appeal also found that a change in the "operations" of a company is a very broad concept and should not be limited to a change in the location or what a business produces, but can also refer to an interruption or change in scheduling due to an accident or equipment failure. Last, the
Key takeaways for reporting issuers
Reporting issuers should be cautious when deciding whether to disclose a material change and contextually evaluate each possible change on an ongoing basis. The decision of the Supreme Court to grant leave to appeal the
Lundin is a case of two competing interpretations of the word "change". It remains to be seen whether the Supreme Court will adopt the narrow interpretation of the motion judge or the
Using the
The question then arises as to what constitutes an external change. The Court of Appeal in Lundin appears to distinguish Danier by saying the unstable pit wall and subsequent rockslide were internal to the operations of LMC, while the unusually warm weather in Danier was wholly external. Both events could be seen as natural phenomena, but in Lundin, the unstable pit wall and subsequent rockslide were the impetus for further changes in LMC's operations, including shutting down the open pit mining operation for a period of time and modifications to LMC's schedule for the phasing of the mining project, all of which together led to reductions in the production of copper. In Danier, the warmer weather did not incite changes to the business, operations or capital of the company, only a reduction in its expected results.
The more expansive interpretation of "change" outlined by the
Lundin was a motion for leave to bring the asserted claim by the plaintiff and, as such, the
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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