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Securities - Securities Act - Misrepresentation (2). Lundin Mining Corp. v. Markowich
In Lundin Mining Corp. v. Markowich (SCC, 2025) the Supreme Court of Canada dismissed an appeal, this brought against the allowing of an appeal by the Ont CA against a Superior Court order which "dismissed the motions for leave to commence an action under the Securities Act and for class certification".
Here the court considers the leave test for claims in misrepresentation [under SA s.138.8]:B. The Test for Leave To Commence an Action Under the Securities Act
[99] The second issue on this appeal concerns the test for leave under s. 138.8(1) of the Securities Act, which requires the court to be satisfied that “the action is being brought in good faith” and that “there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff”.
(1) Legislative and Policy Background
[100] This Court reviewed the background to the creation of a statutory cause of action for secondary market misrepresentation in both Theratechnologies and Green. Historically, investors in Canada had no statutory cause of action when they incurred losses as a result of breach of continuous disclosure obligations under securities legislation. The remedies available under the common law tort of negligent misrepresentation and under the Civil Code of Québec were difficult to obtain because they required investors to prove that they had relied on a misrepresentation or omission to their detriment. This could be extremely hard to prove in the context of secondary market transactions (Theratechnologies, at paras. 27-28; Green (SCC), at paras. 64-65).
[101] After several high-profile disclosure scandals in the 1990s, the Toronto Stock Exchange created the Allen Committee to re-evaluate the secondary market disclosure regime. The Allen Committee concluded that the regulatory sanctions available at the time were “inadequate” and that common law remedies were “so difficult to pursue that they are, as a practical matter, largely hypothetical” (Theratechnologies, at para. 29, quoting Toronto Stock Exchange Committee on Corporate Disclosure, Final Report — Responsible Corporate Disclosure: A Search for Balance (1997, Thomas I. A. Allen, Q.C., chairman) (“Allen Report”), at p. 5; see also Green (SCC), at para. 64). To address these shortcomings, the Allen Committee recommended creating a statutory cause of action for breach of continuous disclosure obligations that would relieve investors of the requirement to prove detrimental reliance on the misrepresentation or omission (Theratechnologies, at para. 29; Green (SCC), at para. 65). The goal was “improved deterrence”, with the expectation that “effective deterrence will logically reduce the need for investor compensation” (Green (SCC), at para. 65, quoting Allen Report, at p. vii).
[102] In 2000, the Canadian Securities Administrators, the umbrella organization for Canada’s provincial and territorial securities regulators, adopted the Allen Committee’s recommendation to create a statutory cause of action (Theratechnologies, at para. 30). At the same time, the Canadian Securities Administrators also recommended including a threshold “screening mechanism” requiring a plaintiff to obtain leave of a court to commence an action. This was seen as needed to deter U.S.-style entrepreneurial “strike suits”, or meritless litigation brought to coerce unjust settlements. The goal was to “try to ensure that unmeritorious litigation, and the time and expense it imposes on defendants, is avoided or brought to an end early in the litigation process” (para. 30 (emphasis deleted), quoting “Proposal for a Statutory Civil Remedy for Investors in the Secondary Market and Response to the Proposed Change to the Definitions of ‘Material Fact’ and ‘Material Change’”, CSA Notice 53-302, reproduced in (2000), 23 OSCB 7383, at p. 7390; see also Green (SCC), at paras. 65 and 68; Amaya inc. v. Derome, 2018 QCCA 120, at para. 89).
(2) Section 138.8(1) of the Ontario Securities Act
[103] In 2002, Ontario became the first province to adopt a statutory cause of action for breach of continuous disclosure obligations with a leave requirement. Ontario’s leave requirement, under s. 138.8(1) of the Securities Act, imposes two statutory prerequisites. The plaintiff must show that (1) the action was instituted in good faith; and (2) there is a “reasonable possibility” that the action will be resolved at trial in favour of the plaintiff. Other provinces and territories have adopted similar provisions (see Securities Act (B.C.), s. 140.8(1) and (2); Securities Act (Alta.), s. 211.08(1) and (2); The Securities Act, 1988 (Sask.), s. 136.4(1) and (2); The Securities Act (Man.), s. 191(1) and (2); Securities Act (Que.), s. 225.4; Securities Act (N.B.), s. 161.41(1); Securities Act (N.S.), s. 146H(1); Securities Act (P.E.I.), s. 129(1) and (2); Securities Act (N.L.), s. 138.8(1) and (2); Securities Act (N.W.T.), s. 129(1) and (2); Securities Act (Yukon), s. 129(1) and (2); Securities Act (Nu.), s. 129(1) and (2)).
[104] Section 138.8(1) of the Ontario Securities Act provides:138.8 (1) No action may be commenced under section 138.3 without leave of the court granted upon motion with notice to each defendant. The court shall grant leave only where it is satisfied that,
(a) the action is being brought in good faith; and
(b) there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff. (3) Applying the Test for Leave
[105] In Theratechnologies, this Court interpreted the test for leave under s. 225.4 of the Quebec Securities Act (paras. 38-39). In Green, the Court confirmed that the same test applies under the identical wording of s. 138.8(1) of the Ontario Securities Act (at para. 122, per Côté J., at para. 147, per Cromwell J., and at para. 212, per Karakatsanis J.).
[106] A leave motion under s. 138.8(1) involves a “preliminary merits test” (Theratechnologies, at para. 36, quoting Ironworkers Ontario Pension Fund (Trustee of) v. Manulife Financial Corp. (2013), 2013 ONSC 4083 (CanLII), 44 C.P.C. (7th) 80 (Ont. S.C.J.), at para. 36). For an action to have a “reasonable possibility” of success under s. 138.8(1), there must be a “reasonable or realistic chance that [it] will succeed” (Green (SCC), at para. 121, quoting Theratechnologies, at para. 38). To meet this threshold, a plaintiff must “offer both a plausible analysis of the applicable legislative provisions, and some credible evidence in support of the claim” (para. 121, quoting Theratechnologies, at para. 39). This approach “best realizes the legislative intent of the screening mechanism: to ensure that cases with little chance of success — and the time and expense they impose — are avoided” (Theratechnologies, at para. 39).
(a) Assessing Whether the Plaintiff Has Made Out a Reasonable Possibility of Success
[107] In assessing whether the threshold for leave has been met, courts must “undertake a reasoned consideration of the evidence to ensure that the action has some merit” (Theratechnologies, at para. 38). At the same time, a leave motion “should not be treated as a mini-trial” (para. 39); what is required is sufficient credible evidence to show a reasonable possibility that the plaintiff will succeed at trial:A full analysis of the evidence is unnecessary. If the goal of the screening mechanism is to prevent costly strike suits and litigation with little chance of success, it follows that the evidentiary requirements should not be so onerous as to essentially replicate the demands of a trial. To impose such a requirement would undermine the objective of the screening mechanism, which is to protect reporting issuers from unsubstantiated strike suits and costly unmeritorious litigation. What is required is sufficient evidence to persuade the court that there is a reasonable possibility that the action will be resolved in the claimant’s favour. [Underlining added; para. 39.] [108] I would underscore several points on how courts should apply the test for leave and regarding the admonition against lapsing into a “mini-trial”.
[109] First, because the standard on a leave motion under s. 138.8(1) involves a preliminary merits test, it is more stringent than the test for authorization or certification of a class action, which was not viewed as sufficiently safeguarding against unmeritorious actions regarding the disclosure obligations of securities issuers (Theratechnologies, at paras. 35-36; Green (SCC), at para. 76; Goldsmith v. National Bank of Canada, 2016 ONCA 22, 128 O.R. (3d) 481, at para. 31; see also Nseir v. Barrick Gold Corporation, 2022 QCCA 1718, at para. 40).
[110] Instead, s. 138.8(1) calls for a “qualitative evaluation of the proposed action” (Drywall Acoustic Lathing and Insulation (Pension Fund, Local 675) v. Barrick Gold Corporation, 2024 ONCA 105, at para. 28). The action must have “more than a mere possibility of success” (Theratechnologies, at para. 4). There must be a “reasonable or realistic chance that the action will succeed” (Theratechnologies, at para. 38, quoted in Green (SCC), at para. 121). This is a “relatively low merits-based threshold” that does not require proof on the balance of probabilities that the action will succeed at trial (Drywall Acoustic, at para. 37, quoting Mask (C.A.), at para. 45; Nseir, at paras. 38-41).
[111] Second, the plaintiff’s evidence on a leave motion must not only be “credible”, but must also demonstrate a realistic or reasonable chance that the action will succeed at trial (Theratechnologies, at para. 39). In other words, the “evidence must be credible, but even credible evidence may not be sufficient to show that there is a realistic or reasonable chance that a claim will succeed” (Drywall Acoustic, at para. 30; see also Rahimi v. SouthGobi Resources Ltd., 2017 ONCA 719, 137 O.R. (3d) 242, at para. 38).
[112] The requirement to “undertake a reasoned consideration of the evidence to ensure that the action has some merit” (Theratechnologies, at para. 38) inevitably requires a limited weighing of the evidence of both parties (SouthGobi, at para. 46; Drywall Acoustic, at para. 31; Mask (C.A.), at paras. 43-45; Graaf v. SNC-Lavalin Group Inc., 2024 QCCA 303, at para. 12). Both the credibility and reliability of the evidence must be evaluated on the motion, as aided by any cross-examinations that may have been conducted on affidavits filed (Drywall Acoustic, at para. 32, citing Bayens v. Kinross Gold Corporation, 2014 ONCA 901, at paras. 56 and 67; Goldsmith, at para. 33).
[113] The motion judge must also consider to some extent the comparative strength of the competing evidence tendered by the parties (Drywall Acoustic, at para. 33, citing Nseir, at para. 46; Mask (C.A.), at para. 43). At the same time, a motion judge improperly lapses into conducting a mini-trial if they attempt “to resolve realistic and contentious issues arising from [the] conflicting credible evidence” (Drywall Acoustic, at para. 38; see also SouthGobi, at para. 75; Badesha v. Cronos Group Inc., 2022 ONCA 663, 163 O.R. (3d) 481, at paras. 77-78; Nseir at paras. 45-50; Amaya, at paras. 98 and 105; Graaf, at para. 14).
[114] Third, a court must evaluate the evidence on the leave motion mindful that the motion will be decided before the plaintiff has had the benefit of documentary production or oral discovery. As a result, the court must, to some extent, consider evidence that is not before the court. Considering the evidentiary limitations at the leave stage is “important because they can work to the prejudice of plaintiffs who have potentially meritorious claims” (SouthGobi, at para. 48; see also Drywall Acoustic, at paras. 35 and 39; Nseir, at para. 43, quoting Amaya, at para. 108).
(b) A Plausible Analysis of the Applicable Legislative Provisions Does Not Equate to a Plausible Interpretation of Those Provisions
[115] Both the motion judge and the Court of Appeal read the requirement in Theratechnologies of a “plausible analysis of the applicable legislative provisions” as requiring a “plausible interpretation” of the legislative provisions (emphasis added). This suggested that statutory interpretation is conducted less stringently or in a more relaxed fashion on a motion for leave than at a trial on the merits. The motion judge referred to the need to show “a plausible interpretation of the Securities Act” (para. 217 (emphasis added)). The Court of Appeal similarly spoke of the plaintiff’s need to show “a plausible interpretation of the Securities Act” (para. 4 (emphasis added); see also paras. 7-8), and suggested that the terms “business”, “operations”, and “capital” “have not yet been definitively interpreted in the jurisprudence” (para. 7).
[116] I respectfully disagree with these approaches.
[117] Contrary to the Court of Appeal’s observation, the terms “business”, “operations”, and “capital” have been extensively interpreted in the jurisprudence. The issue is not the lack of definitive interpretation or novelty of the terms, but rather that these ordinary business terms acquire meaning by being applied in concrete factual circumstances in different industry contexts.
[118] In addition, statutory interpretation is not conducted less stringently on a motion for leave under s. 138.8(1). The interpretation of the provisions at issue must still be correct. Applying a less stringent standard to the interpretation of a statutory term at this stage of the proceedings would not promote the goal of preventing unmeritorious actions from proceeding to trial. Even the respondent acknowledged at the hearing before this Court that there is no room at this stage for “watered-down interpretation” (transcript, at p. 90).
[119] Instead, there must be a “plausible analysis”, or a plausible application, of the relevant legislative provisions, based on the limited evidence available at this early stage of the proceedings. A court must evaluate what might qualify as a “material change” on a leave motion — a factually suffused inquiry — with due recognition of the reality that such motions are brought before there has been documentary production or oral discovery.
(4) Summary
[120] Section 138.8(1) of the Securities Act requires a plaintiff to show that “the action is being brought in good faith” and that there is “a reasonable possibility that the action will be resolved at trial in favour of the plaintiff”. The leave motion involves a preliminary merits test, but does not require proof on a balance of probabilities that the action will succeed at trial. The plaintiff must establish a reasonable or realistic chance, and not merely a possibility, that the action will succeed at trial, based on a plausible analysis of the applicable legislative provisions and some credible evidence in support of the claim.
[121] A plausible analysis of the applicable legislative provisions is not simply a plausible interpretation of those provisions. Statutory interpretation is not conducted less stringently on a leave motion than at trial. Instead, the plaintiff must show a plausible application of the relevant legislative provisions, based on the limited evidence available at this early stage of the proceedings.
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