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Securities - Securities Act - Material Change/Fact. Kraft v. Ontario (Securities Commission) [NCOB]
In Kraft v. Ontario (Securities Commission) (Ont Divisional Ct, 2025) the Divisional Court dismissed an appeal, here from "two decisions of the Capital Markets Tribunal (the “Tribunal”) in regulatory proceedings brought under the Securities Act, R.S.O. 1990, c. S.5 (the “Securities Act” or the “Act”) by the respondents the Ontario Securities Commission (the “OSC”) and the Chief Executive Officer of the OSC".
The court considers what constitutes a "material fact", here in a Securities Act context:[71] Section 1(1) of the Securities Act defines “material fact”, when used in relation to securities, to mean “a fact that would reasonably be expected to have a significant effect on the market price or value of the securities”. Whether a fact is a material fact is a question of mixed fact and law, since it requires the application of a legal standard to the facts: see Donald (Re), 2012 ONSEC 26, 35 O.S.C.B. 7383, at paras. 28-29; Canada (Director of Investigation and Research) v. Southam Inc., 1997 CanLII 385 (SCC), [1997] 1 S.C.R. 748, at para. 35. The standard of review is palpable and overriding error unless the error relates to an extricable legal principle, which is reviewable on a correctness standard: Housen, at paras. 26-37.
[72] At previously noted, the Tribunal found that the planned expansion transaction (including the terms of the draft Transaction Documents) constituted a material fact that Mr. Kraft selectively disclosed to Mr. Stein. The Tribunal also found that “the fact of and terms of the Draft Lease, considered alone, constituted a material fact that … had not been generally disclosed”: Merits Decision, at para. 196.
[73] In its analysis of whether the information was a material fact, the Tribunal, at paras. 106-7 of the Merits Decision, stated:In determining whether the information would reasonably be expected to have a significant effect on the market price or value of a security, the Tribunal applies an objective “market impact test” and views materiality from the perspective of the trading markets, that is, the buying, selling, or holding of securities.
Materiality is assessed objectively from the perspective of a reasonable investor and prospectively through the lens of expected market impact. [Citations omitted.] ....
[80] We see no palpable and overriding error in the Tribunal’s conclusion that the information Mr. Kraft conveyed to Mr. Stein constituted a material fact, a finding of mixed fact and law that is entitled to deference. We also find no extricable error of law in the Tribunal’s analysis. . Peters v. SNC-Lavalin Group Inc.
In Peters v. SNC-Lavalin Group Inc. (Ont CA, 2023) the Court of Appeal considered (and held) that a change in 'risk' could constitute a "material change" for Securities Act disclosure duties under s.75(1):[91] As a starting point, it is important to note that SNC does not dispute that a change in risk in its business, operations or capital could constitute a material change for the purpose of the Securities Act. In effect, this position is consistent with the decision in Rex Diamond Mining Corporation et al., 2008 ONSEC 18, aff’d 2010 ONSC 3926 (Div. Ct.), cited by the motion judge and cited in other Superior Court decisions to explain the scope and meaning of “material change”: see e.g., Cornish, at para. 56; Mask, at para. 57; Coffin v Atlantic Power Corp., 2015 ONSC 3686, 127 O.R. (3d) 199, at para. 105; Paniccia v. MDC Partners Inc., 2018 ONSC 3470, 142 O.R. (3d) 421, at para. 77. In Rex Diamond, the defendant (“Rex”) was a diamond mining company. Rex had received several warning letters indicating that its leases for diamond mines in Sierra Leone were going to be cancelled if it failed to comply with certain terms. The notices gave rise to “a very possible risk” (emphasis added) that the leases would be cancelled: Rex Diamond, at para. 211. However, these notices were not disclosed to securities holders.
[92] The Ontario Securities Commission (the “OSC”), as affirmed by the Divisional Court, found that the final notice constituted a material change and triggered statutory obligations to disclose forthwith pursuant to s. 75 of the Securities Act. The OSC explained that the letters demonstrated a significant possibility that the operations on the property would be halted. This significant possibility was reinforced by the notice of tender and the commencement of the tender evaluation process. Since “the loss of the Sierra Leone Leases eliminated any potential for Rex to generate future revenue from these operations”, the OSC concluded that the final notice constituted a change in operations: Rex Diamond, at para. 218. . Markowich v. Lundin Mining Corporation
In Markowich v. Lundin Mining Corporation (Ont CA, 2023) the Court of Appeal canvasses some Securities Act duties, here with respect to disclosure of "material changes" in the affairs of the listed company [s.75(1)]:(2) Disclosure obligations under the Securities Act and right of action
[41] Section 75(1) of the Securities Act requires a reporting issuer to “forthwith issue and file a news release” in circumstances “where a material change occurs in the affairs of [the] reporting issuer” (emphasis added). In addition, s. 75(2) requires the reporting issuer to “file a report of such material change in accordance with the regulations as soon as practicable and in any event within ten days of the date on which the change occurs”.
[42] Section 1(1) of the Securities Act defines “material change” in relation to a reporting issuer as:(i) a change in the business, operations or capital of the issuer that would reasonably be expected to have a significant effect on the market price or value of any of the securities of the issuer [Emphasis added.] [43] Section 1(1) of the Securities Act also defines “material fact”. In contrast with “material change”, a “material fact” is “a fact that would reasonably be expected to have a significant effect on the market price or value of the securities”.
[44] The disclosure requirements in the Securities Act for material facts and material changes are different. The Act imposes various disclosure obligations on issuers with respect to material facts, but, unlike material changes, does not require that issuers disclose material facts “forthwith”.
[45] In Kerr v. Danier Leather, 2007 SCC 44, [2007] 3 S.C.R. 331, at para. 32, the Supreme Court emphasized that the Securities Act is “remedial legislation” that is to be given a broad interpretation. The Act protects investors by imposing disclosure obligations. At the same time, it limits the burden placed on issuers by requiring disclosure “forthwith” of material changes but not of material facts. In Kerr, at para. 38, the Supreme Court also stated that the distinction between a material change and a material fact is “deliberate and policy-based”.
[46] The issue of whether there has been a material change requires a two-step analysis. First, the court must determine whether there has been a change in the business, operations or capital of the issuer. Second, the court must determine whether the change was material, in the sense that it would be expected to have a significant impact on the value of the issuer’s shares: Theratechnologies Inc. v. 121851 Canada Inc., 2015 SCC 18, [2015] 2 S.C.R. 106, at para. 40; Cornish v. OSC, 2013 ONSC 1310 (Div. Ct.), para. 46. This case focuses on the first step of the analysis. I address the specific meaning of “a change in the business, operations or capital” and the relevant case law further below. At paras 51-89 the court extensively considers the interpretation of "change in the business, operations or capital" and related case law.
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