Supreme Court of Canada to Decide Scope of “Material Change” With Far-Reaching Consequences for Securities Class Actions

Written By Douglas Fenton, Marshall Torgov, Josephine Bulat and Kanwar Brar

The Supreme Court of Canada (SCC) is set to issue its decision in Lundin Mining Corporation v Dov Markowich (Markowich). This highly anticipated SCC decision regarding disclosure obligations could alter the landscape for securities-based class actions by allowing more investors to meet the leave test, subjecting public issuers to increased litigation.

Below is a summary of the key arguments made by the parties during the SCC appeal hearing, and the points to which the SCC paid close attention to during oral argument.

The Decisions Below

In the 2023 edition of Bennett Jones’ Class Actions: Looking Forward, we reviewed the Court of Appeal’s decision.

In summary, the issue was whether a significant rockslide at a mine owned by Lundin Mining constituted a “material change” in the company’s “business, operations or capital”. Following the rockslide, there was an interruption to the operations of the mine. Lundin Mining issued a press release approximately one month after the incident, advising the public of the rockslide and, separately, providing updated data on the mine’s productivity. Lundin Mining’s share price declined shortly thereafter.

The plaintiff, a minority shareholder of Lundin Mining, advanced a claim under section 138.3(4) of the Ontario Securities Act, which requires a company to disclose any “material change” in its “business, operations or capital” within ten days of the impugned event. Leave is required to pursue the claim. The test for leave under section 138.8(1) of the Securities Act requires that there is a “reasonable possibility” that the action will be resolved at trial in the plaintiff’s favour.

The Superior Court concluded that while the rockslide was “material” it did not constitute a “change” in Lundin Mining’s “business, operations or capital” such that its disclosure was required. The plaintiff could not succeed in showing that the rockslide was a “material change” and the Court denied leave to bring the action.

The Court of Appeal overturned the Superior Court’s decision, concluding that the term “material change” must be interpreted broadly, particularly in the context of a leave application under section 138.8(1) of the Securities Act, which only requires that the plaintiff put forward a reasonable possibility of success based on a “plausible interpretation” of the statute.

Leave to Appeal Granted

On March 28, 2024, the SCC granted Lundin Mining’s application for leave to appeal.

The SCC Hearing

The parties appeared before the full panel of the SCC judges on January 15, 2025.

Lundin Mining’s Arguments

The core of Lundin Mining’s argument was that the Court of Appeal erred by establishing a novel, two-part test for determining what constituted “material change”. Lundin Mining defended the lower Court’s interpretation at first instance, arguing that the Superior Court correctly recognized the distinction between “material fact” and “material change”, as well as the fact-specific nature for determining what constitutes a “material change”.

Lundin Mining also argued that the distinction between “material fact” and “material change” should not turn solely on whether the change was external to the company (i.e., a change outside of the company's control).

Regarding the test for leave, Lundin Mining argued that the Court of Appeal did not properly apply the reasonable possibility test in connection with the leave requirements such that it effectively “lessened the burden on a plaintiff” and, as such, leave to proceed with the proposed class action should not have been granted.

The Plaintiff’s Arguments

In response, the plaintiff’s written submissions highlighted the lower Court’s use of incorrect and overly restrictive statutory interpretations of “change”, “business”, “operations” and “capital.” He argued, instead, in favour of the Court of Appeal’s finding that “material change” is a flexible concept without a “bright line test”, and that the expansive approach adopted by the Court of Appeal should be upheld.

The plaintiff also asserted that Lundin Mining’s arguments pertaining to the internal versus external distinction regarding “material change” were irrelevant.

Finally, the plaintiff denied the suggestion that the Court of Appeal “lessened” the burden on plaintiffs seeking leave under section 138.3(4) and section 138.8(1) of the Securities Act. He argued that the process at the leave stage was meant to be a low standard without a rigid analysis. As such, leave to proceed with the class action was properly granted by the Court of Appeal.

Categories of Questions Asked by the Bench

During the parties’ submissions, the panel posed approximately 80 questions, including relating to the following issues:

Distinguishing Material Change from Material Fact: The distinction between “material change” and “material fact” was a key focus. The SCC asked Lundin Mining about the accessibility of public information versus private information (meaning information only known to the issuer). Indicating that a “material change” is based on private information whereas a “material fact” is based on public or private information, Justice Rowe probed whether Lundin Mining’s submissions conflated the two definitions. Meanwhile, questions for the plaintiff centered on the factors that differentiate a “material change” from a “material fact”.

Plausible Interpretation: The SCC considered the “plausible interpretation” aspect of the leave to proceed test. This raised questions about whether the Court should adopt a single approach to interpretation, and whether such an approach would raise the threshold for granting leave. Additionally, the Court examined whether Lundin Mining’s argument suggested that the test should focus on a plausible application of the facts, while the legal interpretation should be assessed on a correctness standard.

Contextualizing Disclosure: The SCC also asked the plaintiff about how to strike the appropriate balance between protecting investors and placing burdensome disclosure obligations on issuers. The SCC was particularly interested in exploring the point at which internal discussions within a public company could rise to the threshold of becoming a “material change”.

Looking Forward

At the time of publishing this review, the SCC continues to weigh the parties’ arguments in connection with this important concept to Canadian securities legislation.

A decision by the SCC to broadly define “material change” may place more onerous obligations on issuers to disclose a wider range of activities within their operations, which could result in more plaintiffs meeting the leave test under the Securities Act, and consequently, an increase in securities-related class actions.

A more restrictive definition may place more onerous obligations on the public to review disclosure more closely.

Whatever the outcome, the decision is sure to affect the behavior of issuers, and the expectations and reliance placed on disclosure by the public.

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