Rex Diamond Mining v. Ontario Securities Commission, 2010 ONSC 3926
CITATION: Rex Diamond Mining v. Ontario Securities Commission, 2010 ONSC 3926
DIVISIONAL COURT FILE NO.: 474/08
DATE: 20100708
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
J. WILSON, SWINTON AND NORDHEIMER JJ.
BETWEEN:
REX DIAMOND MINING CORPORATION, SERGE MULLER and BENOIT HOLEMANS
Appellants
– and –
ONTARIO SECURITIES COMMISSION
Respondent
Alistair Crawley and Clarke Tedesco, for the Appellants
John Corelli and Jane Waechter, for the Respondent
HEARD at Toronto: July 8, 2010
ORAL REASONS FOR JUDGMENT
NORDHEIMER J. (orally)
[1] This is an appeal by Rex Diamond Mining and two of its executives from the decision of the Ontario Securities Commission dated August 28, 2009. In that decision, the Commission found the appellants had breached the Securities Act by failing to communicate material changes in the business of Rex and had acted contrary to the public interest by providing inaccurate and incomplete disclosure regarding the operations of Rex in Sierra Leone where Rex had leases for the purpose of mining for diamonds.
[2] It is agreed between the parties that the standard of review to be applied to the decision of the Commission is one of reasonableness. The appellants submit that the Commission erred in concluding that the leases in question were material to the business of Rex and therefore triggered statutory obligations of disclosure under s.75 of the Securities Act. The appellants also submit that, in reaching its decision, the Commission relied on uncorroborated hearsay evidence in preference to the evidence of the Rex executives who testified at the hearing.
[3] In our view, the appellants have failed to establish that the conclusions of the Commission are unreasonable. The Commissioners gave very lengthy and detailed reasons for the conclusions that they reached. In addition, whether a material change has occurred is a matter that is central to the expertise of the Commission.
[4] The submission that they relied on evidence emanating out of the Government of Sierra Leone that was unreliable hearsay ignores the fact that:
(i) the Commission is expressly entitled by statute to consider hearsay evidence;
(ii) hearsay evidence is not, in law, necessarily less reliable than direct evidence; and
(iii) the reality of the facts revealed by the various communications from the government officials was essentially confirmed by the responses of the executives of Rex to those communications.
[5] In particular, the actions of the executives of Rex belie the suggestion now advanced that the Sierra Leone leases were not material to the business of Rex. In fact, the contemporaneous evidence demonstrates the contrary. Not only had Rex spent six million dollars (U.S.) in Sierra Leone in connection with these leases, it consistently referred to the existence of the leases in Sierra Leone and their potential in promoting its business and its future. The company also actively pursued every avenue available to it to hold onto the leases when the Government of Sierra Leone threatened over many months to cancel the leases. Lastly, the company’s own Chief Geologist viewed the potential loss of the leases as material and so advised Mr. Muller, the CEO of the company, in January 2004.
[6] The fundamental flaw in the appellants’ position is that they attempt to replace the objective requirement for the determination of a material change under the provisions of the Securities Act with the subjective assessment of the Rex executives regarding the status of the leases. Regardless of the optimistic view of the outcome of the dispute that appears to have been taken by the Rex executives, the Commission reasonably concluded that public disclosure of the problems with the leases ought to have been made by the company so that individual investors could reach their own conclusions regarding the state of the business affairs of Rex armed with all of the relevant information.
[7] We also do not accept the submission that the market impact of the eventual disclosure of the loss of the leases proves that that loss was not material. First, the issue of market impact is only one consideration in determining materiality. Second, the determination of market impact is again a matter that is especially within the expertise of the Commission. Third, the argument over market price on April 1 and April 2 fails to take into account that there was a significant decrease in the share price directly after the announcement and also fails to take into account the very high, unusually high, volume of trades on the day of the announcement.
[8] In the end result, the totality of the evidence amply supports the conclusion reached by the Commission, at para. 215, that:
The fact that the leases along with their high potential was at risk of being lost should have been disclosed in a material change report.
[9] It also substantiates the consequential conclusions regarding the inaccurate and incomplete disclosure made by the company.
[10] The appeal is therefore dismissed.
WILSON J.
[11] Brief written cost submissions to be exchanged or filed by no later than August 4, 2010.
NORDHEIMER J.
WILSON J.
SWINTON J.
Date of Reasons for Judgment: July 8, 2010
Date of Release: August 6, 2010
CITATION: Rex Diamond Mining v. Ontario Securities Commission, 2010 ONSC 3926
DIVISIONAL COURT FILE NO.: 474/08
DATE: 20100708
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
J. WILSON, SWINTON AND NORDHEIMER JJ.
BETWEEN:
REX DIAMOND MINING CORPORATION, SERGE MULLER and BENOIT HOLEMANS
Appellants
– and –
ONTARIO SECURITIES COMMISSION
Respondent
ORAL REASONS FOR JUDGMENT
NORDHEIMER J.
Date of Reasons for Judgment: July 8, 2010
Date of Release: August 6, 2010