Court weighs merits of secondary market liability claim in securities class action for first time

A recent securities case offers insight to litigants in class proceedings alleging secondary market misrepresentations who are deciding whether to pursue settlement after leave was granted or keep defending the claim on the merits, a law firm blog has said.

“The decision in Pretium highlights the interplay and delta between the ‘reasonable possibility’ standard applicable on the test for leave under section 138.8 of the OSA, and the more stringent ‘balance of probabilities’ standard applicable to the ultimate adjudication of an action on the merits,” said the post written by Lara Jackson, Christopher Horkins and Joseph Hamaliuk of Cassels Brock & Blackwell LLP.

In Wong v. Pretium Resources, 2021 ONSC 54, the Superior Court of Justice of Ontario was dealing with cross-motions for summary judgment on certified common issues. Back in 2017, Justice Edward Belobaba gave the plaintiff leave to begin an action for secondary market misrepresentation under s. 138.8 of the Securities Act, RSO 1990, c S.5, then certified the action on consent as a class proceeding. The Superior Court determined on the basis of the reasonable possibility test that the plaintiff may succeed at trial, noting that the defendants could still prevail in the full litigation if they presented sufficient evidence to meet the balance of probabilities standard.

In the 2021 case, the Superior Court said that summary judgment was appropriate under Rule 20.04(2)(b) of the Rules of Civil Procedure because nearly all the evidence was documentary in nature, including affidavits and cross-examination transcripts, and because there were no credibility issues or other genuine issues needing a trial.

The court granted the defendants’ motion for summary judgment and dismissed the plaintiff’s cross-motion for summary judgment. The court ruled that there were no misrepresentations or omissions of any material fact on the part of the defendants.

The main issue before the court was whether the defendant gold mining company’s failure to disclose the negative opinions of one of its mining consultants was an omission of a material fact and an actionable misrepresentation under Part XXIII.1 of the Securities Act.

The court found on a preponderance of the evidence that the defendants did not have the obligation to disclose information that they reasonably and objectively believed was misleading and bad. The mining consultant’s opinions were not material facts, given that they were unsolicited, unreliable, inexpert and premature, said the court.

The court found, upon considering the additional evidence the defendants adduced, that the documents that the defendants released in July and October 2013 did not contain misrepresentations and that the defendants acted properly throughout and were relieved of liability under the reasonable investigation defence. The court noted that the defendants also presented compelling submissions for two other statutory defences under s. 138.4(9) and s. 138.4(11) of the Securities Act.

The blog post by Cassels said that this case also showed how being granted leave to proceed would not ensure that the plaintiff would fulfill the stricter evidentiary standard for a hearing on the merits and confirmed that reliability of information was a required precondition to materiality.

“Given the Court’s decision in Pretium, plaintiffs may now be hesitant to take their claims to the merits stage for fear of having them dismissed at trial or summary judgment,” the blog said.