I. Introduction

What counts as a “material change” in a company’s “business, operations, or capital” and when must it be disclosed? The answer isn’t always clear, and that very question lies at the heart of Lundin Mining¹, a case that was dismissed, appealed, and went before the Supreme Court of Canada (the “SCC“) on January 15, 2025. The anticipated decision, which has yet to be released, could result in a material change to disclosure obligations of public companies.

II. Background

Lundin Mining centers on allegations that Lundin Mining Corporation (“Lundin“) failed to promptly disclose significant operational issues at its mine in Chile; namely, a pit wall instability, which arises when the sides of an open pit mine become weak or start to move, and frequently results in a rockslide.²

Lundin shareholder, Dov Markowich (“Markowich“), sought leave under section 138.8 of the Securities Act³ to initiate a statutory cause of action against Lundin and its officers and directors, claiming they neglected to make timely disclosures of the pit wall instability and subsequent rockslide (the “Statutory Claim“). Additionally, Markowich aimed to certify the lawsuit as a class action under s. 5 of the Class Proceedings Act⁴, (the “Common Law Claim“) advancing claims on behalf of certain shareholders of Lundin.⁵

i. A Timeline of Events

The following timeline outlines the undisputed key events that have shaped the proceedings thus far:

• October 25, 2017, Lundin detects pit wall instability in a localized area of its open pit operations at its Candelaria copper mine located in Chile (the “Pit Wall Instability“)⁶.
• October 31, 2017, an estimated 600,000 to 700,000 tonnes of waste material of the Candelaria mine moved down slope (the “Rockslide“)⁷.
• Between November 15, 2017, and November 27, 2017, Markowich purchased 10,000 securities in Lundin, at an average price of $9.156, for a total of $91,560⁸
• On November 29, 2017, Lundin issued a news release advising its investors about the Pit Wall Instability which resulted in the Rockslide, among other updates¹⁰.
• On November 30, 2017, the price of Lundin’s shares on the Toronto Stock Exchange closed at $7.52, a decline of $1.44, or 16%, from the closing price of $8.96 on November 29, 2017. This one-day drop represented a loss of over $1 billion of market capitalization.

III. Defining Material Change

i. The Current Legislative Framework

Assessing the materiality of information is a fundamental element of securities laws in Canada and occurs in a number of different contexts. However, this assessment is complicated by the fact that there are no bright line rules.

Currently, a “material change” is defined in s. 1(1) of the Securities Act as a “change in the business, operations, assets, or ownership of the company that could have a significant impact on the price or value of securities.”¹¹ One of the most important questions to consider when determining the materiality of information is “would a reasonable investor’s decision on whether or not to buy, sell or hold securities of the reporting issuer be influenced or changed if the information were omitted or misstated?”¹² If the answer to this question is yes, then the information is likely material, in which case a reporting issuer must immediately issue and file a news release disclosing the details of the change.

ii. Superior Court of Justice – Ontario: the Restrictive Interpretation

The motion judge at the Superior Court agreed with Lundin’s position, finding that Markowich had no reasonable possibility of establishing at trial that the Pit Wall Instability and/or the Rockslide caused a change to “Lundin’s lines of business, how it conducted its operations, or its capital structure.”¹³ In dismissing the motion for leave and declining to certify the Statutory Claim, the motion judge also concluded that the Common Law Claim was not suitable for certification because a multitude of mini-trials would be required to address the issue of reliance.¹⁴

iii. Court of Appeal – Ontario: the Expansive Interpretation

The Court of Appeal overturned the motion judge’s decision on the basis that the motion judge’s interpretation of “change”, “business”, “operations” and “capital” was applied too narrowly and inconsistent with existing case law and the purpose of the Securities Act, particularly in the context of a motion for leave.¹⁵ According to the Court of Appeal, Markowich only needed to demonstrate a “reasonable possibility of success” based on a “plausible interpretation of the [Securities] Act and the evidence.”¹⁶

In making this determination, the Court of Appeal referred to a two-step test to determine if a material change had occurred. The test, originating from the SCC’s decision in Theratechnologies¹⁷ is as follows:

1. whether a change in the business, operations or capital of the issuer has occurred; and
2. if there was a change, whether it could reasonably be expected to have a significant impact on the market price of the issuer’s shares.

With regard to the first part of the test, the Court of Appeal acknowledged the uncontested evidence that as a result of the Rockslide, Lundin had to modify its operations. Based on this, the Court of Appeal found there to be a reasonable possibility that Markowich could have established a change had in fact occurred in Lundin’s operations.¹⁸ The Court of Appeal noted that the motion judge incorrectly read a “magnitude” requirement into the first part of this test, when questions of magnitude should be reserved for the second part of the test, which focuses on determining whether the change is material¹⁹.

In answering the second part of the test, the Court of Appeal considered whether this change could reasonably be expected to have a significant impact on the market price of Lundin’s securities. The motion judge and the Court of Appeal were both satisfied that this change could reasonably be expected to affect stock prices²⁰.

The Court of Appeal held that had the motions judge applied a less restrictive definition of a “change in the business, operations or capital”, then he would have found there to be a reasonable possibility that the action would have been resolved in Markowich’s favour at trial. As such, the Court of Appeal allowed the appeal and granted leave for the action to proceed²¹.

Lundin appealed the decision to the SCC, to which the SCC granted leave to appeal in March 2024²².

iv. SCC – the Pending Interpretation

The issue at the heart of this appeal centers around whether there is a reasonable possibility that Markowich’s action will be resolved in his favour at trial, which in turn depends on how the SCC interprets “material change.”

In the current landscape, Theratechnologies²³ and Danier²⁴ are widely cited for their rulings on “material change” in the context of securities laws.

The key holding in Danier is that a material change under securities law refers specifically to a change in the business, operations, or capital of an issuer, not just any material fact that might affect the market. In this case, the SCC emphasized that the Securities Act is “remedial legislation” that is to be given a broad interpretation. The Securities 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. The SCC also stated that the distinction between a material change, and a material fact is “deliberate and policy-based²⁷.”

The key holding in Theratechnologies is that it clarified the test for materiality in the context of selective disclosure and secondary market liability. The SCC emphasized that information is material if it would be expected to have a significant effect on the market price of a security.

The upcoming SCC decision will add to the body of jurisprudence, offering clarity on what constitutes a material change, shaping both how public companies disclose information and how investors assess that information moving forward.

IV. Conclusion

This decision underscores the necessity for companies to promptly disclose operational changes that could significantly impact their stock price, even if such events are common in their industry. Importantly, until the SCC decision is issued, the Court of Appeal’s ruling establishes a binding precedent on material change disclosure during this interim period. Reporting issuers are reminded to carefully assess when a material change occurs to ensure compliance with securities legislation.

If you would like to discuss Lundin Mining or need any further information, please contact any member of our Capital Markets and Securities Group.

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1  Markowich v Lundin Mining Corporation, 2023 ONCA 359 [Lundin Mining].

2.  Ibid at paras 1-3.

3.  Securities Act, RSO 1990, c S5, s 138.8 [Securities Act].

4.  Class Proceedings Act, 1992, SO 1992, c 6, s 5.

5. Lundin Mining, supra note 1 at paras 1-3.

6. Ibid at para 16.

7. Ibid at para 19.

8.  Ibid at para 11.

9.  Ibid at para 23.

10.  Ibid at para 24.

11.  Securities Act, supra note 3, s 1(1).

12.  Ontario, Ontario Securities Commission, Companion Policy 51-102CP, Unofficial consolidation current to 2015-06-30 (2015).

13.  Markowich v Lundin Mining Corporation, 2022 ONSC 81 at para 29.

14.  Lundin Mining, supra note 1 at para 5.

15.  Ibid at para 82.

16. Ibid at para 7.

17.  Theratechnologies Inc v 121851 Canada Inc, 2015 SCC 18, [2015] 2 SCR 106 at para 40 [Theratechnologies].

18.  Lundin Mining, supra note 1 at para 87.

19. Ibid at para 84.

20. Ibid at para 88.

21. Ibid at paras 86-90.

22. Lundin Mining Corporation, et al v Dov Markowich, 2024 CanLII 25743 (Can).

23. Theratechnologies, supra note 17.

24. Kerr v Danier Leather Inc, 2007 SCC 44, [2007] 3 SCR 331 [Danier].

25. Lundin Mining, supra note 1 at para 82 citing Danier, supra note 24 at para 47

26. Danier, supra note 24 at para 32.

27. Ibid at para 38.

_{This publication is intended for general information purposes only and should not be relied upon as legal advice.}