The case is about whether to certify a proposed class-action lawsuit against Lundin Mining Corp. on the basis that the company should have more quickly disclosed a rock slide that led to the temporary partial closing of its Chilean copper mine in late 2017.Adrian Wyld/The Canadian Press
At some point in 2025, the Supreme Court of Canada is expected to make a decision that could cause turmoil in Canadian capital markets.
In a case involving Lundin Mining Corp. LUN-T, the country’s highest judicial body will weigh in on what, exactly, constitutes a “material change,” which refers to something important enough to warrant disclosure by a public company. Starkly contrasting lower court rulings have left the definition of material change unclear.
Unless the Supreme Court can provide clarity, securities law experts warn the consequences could include a deluge of class-action lawsuits against public companies and an even sharper decline in the number of companies willing to operate in public markets at all.
The case is about whether to certify a proposed class-action lawsuit against Lundin on the basis that the company should have more quickly disclosed a rock slide that led to the temporary partial closing of its Chilean copper mine in late 2017. Lundin waited more than a month to disclose the event, at which point the company’s stock fell 16 per cent, wiping out more than $1-billion in market value in a single trading day.
Paul Conibear, then chief executive officer of Lundin, publicly apologized to investors shortly afterward for having “not communicated well enough.”
In 2022, the Ontario Superior Court of Justice declined to certify the proposed class action filed against Lundin, ruling the rock slide did not meet the legal definition of material change requiring timely disclosure. The Ontario Court of Appeal unanimously overturned the lower court ruling in May, 2023, utilizing a much broader definition of material change and allowing the class-action lawsuit – which is seeking more than $180-million – to proceed.
Lundin appealed that decision and in March, 2024, the Supreme Court agreed to hear that case.
“Most lawyers, when they first saw the appeals court decision, were somewhat alarmed,” Frank Sur, head of the Canadian corporate practice at law firm Gowling WLG and who is not involved in the case, said in an interview. “The fact that the Supreme Court took it up is significant because that means not all the Supreme Court judges agree with the appeals court decision, so now that the court has granted leave to appeal, everyone is holding their breath.”
Understanding what qualifies as a material change and what does not is crucial for capital markets to function properly, as public companies often have to walk a fine line between ensuring they disclose enough without disclosing too much.
“If you over disclose, you run the risk of being seen as a market manipulator and getting sanctioned by the securities commissions for disclosing things that aren’t actually material,” said Sarah Gingrich, co-leader of the capital markets and mergers and acquisitions practice at Fasken LLP. “But if you under disclose, you run the risk of exactly what happened here, where a minority shareholder is seeking to launch a class action against Lundin for a lack of disclosure.”
If the Supreme Court ends up allowing the class action to go ahead and Lundin loses at trial, Mr. Sur said, “companies will have to become way less conservative in disclosure and will have to just benefit-of-the-doubt disclose everything.”
“There will be a lot more disclosure to the point of information overload, and then really important material changes will end up getting lost in the shuffle,” he said.
According to securities acts across Canada, a material change is defined as something that occurs to “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.”
Whenever a material change does occur, the law gives companies a maximum of 10 days to issue a public statement.
Lundin declined to comment for this story. In its court filings, the company contends there is “no reasonable possibility of success” that the rock slide could be established at trial as a “change” to the company’s “business, operations or capital.”
“In this case, nobody died or got hurt and no equipment was damaged, but hindsight is always 20/20 because that disclosure triggered a 16-per-cent drop in Lundin’s stock price,” Mr. Sur said.
“The issue now is, if this goes to trial and Lundin loses, there are going to be so many more class-action lawsuits popping up.”
In a September, 2024, op-ed authored by Ms. Gingrich and two of her colleagues, the Fasken lawyers argued that “too low or ambiguous a standard of material change can only encourage speculative litigation.”
More than that, they warned such a standard “can only reduce the appeal of being public.”
Canadian public markets have already experienced a massive decline of publicly listed operating businesses in recent decades as many companies choose to stay private for longer. If the Supreme Court fails to provide clarity in this case, Ms. Gingrich is concerned that the trend could get worse.
“One of the things that drives whether companies list or stay private, is whether they can see themselves operating in that environment,” she said. “When there is uncertainty, regulatory uncertainty, you’ve created a problem.”
Making matters worse, Ms. Gingrich said, is that the two court decisions issued in the case thus far have defined material change at “opposite ends of the spectrum.”
“We are hoping that whatever comes out now will clarify the standards rather than create standards that are impossible to interpret,” she said. “That could create more market volatility, or make it harder for companies to become publicly listed or stay publicly listed.”