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CIVIL LIABILITY - Misrepresentation in a prospectus

Friday, April 16, 2021 @ 6:12 AM  


Appeal by the proposed representative plaintiffs in a putative securities class action from the order of a motion judge granting them leave to proceed under s. 138.3 of the Ontario Securities Act with one proposed misrepresentation claim against Barrick and the individual respondents, but denying the appellants leave to proceed with all other claims they proposed to assert under Part XXIII.1 of the Act. The appeal arose out of secondary market misrepresentations allegedly made by Barrick during the construction of a multibillion-dollar gold mining project in Chile and Argentina. Barrick began work on the project in 2009. In 2013, Barrick concluded that the project was no longer financially viable and decided to shut it down. Over the proposed two-year class period, there were five negative disclosures of information that resulted in significant declines in Barrick’s share price. Shareholders lost billions of dollars. The alleged misrepresentations were made in annual financial statements, interim financial statements, management’s discussion and analysis, or in an annual information form. Some of the alleged misrepresentations were alleged untrue statements of material fact. Others were alleged misrepresentations by omission. The motion judge denied leave to proceed with most of the alleged misrepresentations because, even if they were misrepresentations, they were publicly corrected. The appellants argued that the motion judge erred in principle by determining the public correction issue without first examining all the evidence and determining whether there was a reasonable possibility that Barrick made a misrepresentation. They also argued the motion judge erred in principle by applying a narrow, purely textual, analysis of the alleged public corrections and by failing to consider evidence, including expert economic evidence, about the context in which the alleged public corrections were made and how the alleged public corrections would be understood in the secondary market.

HELD: Appeal allowed in part. The issue of whether leave should be granted in respect of the alleged capital expense and scheduling misrepresentations and the accounting and financial reporting misrepresentations was returned to the court below. The motion judge erred in principle by determining that there was no reasonable possibility that the trial court would find that there had been a public correction of the misrepresentation based on a purely textual analysis, without the requisite reasoned consideration of the evidence. A motion judge could assume that the alleged misrepresentations were made out and deny leave to proceed on the basis there was no reasonable possibility that a trial court would find there had been a public correction of those misrepresentations. However, assuming the falsity of the alleged misrepresentation did not relieve a motion judge of the obligation to engage in a reasoned consideration of the context in which the alleged public correction was made and how the alleged public correction would be understood in the secondary market if the alleged public correction did not, on its face, reveal the existence of the alleged misrepresentation. The motion judge’s analysis of the proposed public corrections was a purely textual one, limited to a fair reading of the proposed correction. The fact the alleged misrepresentations were misrepresentations by omission did not change the need for reasoned consideration of the evidence in the context of a motion for leave. The motion judge set the bar too high when stating that the alleged public correction, on a fair reading, must arguably reveal to the market the alleged omission of the material fact that was necessary to make the statement at issue not misleading considering the circumstances in which it was made. The motion judge did not err in denying the appellants leave to proceed with the four alleged misrepresentations by omission with respect to environmental compliance. The motion judge carefully considered the significant body of evidence relevant to the alleged environmental misrepresentations.

Drywall Acoustic Lathing and Insulation, Local 675 Pension Fund (Trustees of) v. Barrick Gold Corp., [2021] O.J. No. 781, Ontario Court of Appeal, A. Hoy, D.M. Brown and J.A. Thorburn JJ.A., February 19, 2021. Digest No. TLD-April12202100