Court File and Parties

COURT FILE NO.: CV-18-00611078-00CP CV-19-00612521-00CP CV-19-00614086-00CP DATE: 2019/06/19

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: TRACEY ROGERS Plaintiff

• and - APHRIA INC., VICTOR NEUFELD and CARL MERTON Defendants

AND BETWEEN: GARRI MIRZOIAN Plaintiff

• and - APHRIA INC., VICTOR NEUFELD and CARL MERTON Defendants

Michael Robb and Garett M. Hunter for the Plaintiffs Tracey Rogers Michael Robb and Garett M. Hunter and David Rosenfeld for the Plaintiff Garri Mirzoian

AND BETWEEN: VECCHIO LONGO CONSULTING SERVICES INC. Plaintiff

• and - APHRIA INC., VICTOR NEUFELD, and CARL MERTON, COLE CACCIAVILLANI, CLARUS SECURITIES INC., CANACCORD GENUITY CORP, CORMARK SECURITIES INC., HAYWOOD SECURITIES INC. AND INFOR FINANCIAL INC. Defendants

Proceeding under the Class Proceedings Act, 1992

Douglas Worndl and Peter Jervis for the Plaintiff Vecchio Longo Consulting Services Inc.

HEARD: May 16, 2019

PERELL, J.

REASONS FOR DECISION

A. Introduction and Overview

[1] Under the Class Proceedings Act, 1992, this is a fight for carriage between:

(1) the Class Counsel consortium for the proposed Representative Plaintiffs Garri Mirzoian and Tracey Rogers and in an action against Aphria Inc., Victor Neufeld, and Carl Merton (the “Mirzoian-Rogers Action”); and,

(2) the Class Counsel for the proposed Representative Plaintiff Vecchio Longo Consulting Services Inc. in an action against Aphria Inc., Victor Neufeld, Carl Merton, Cole Cacciavillani, Clarus Securities Inc., Canaccord Genuity Corp., Cormark Securities Inc., Haywood Securities Inc., and Infor Financial Inc. (the “Vecchio Action”).

[2] Class Counsel for the Mirzoian-Rogers Action are Koskie Minsky LLP and Siskinds LLP. Class Counsel for the Vecchio Action are Rochon Genova, LLP.

[3] There are many factors to consider when making a carriage choice, but the ultimate and overriding factor is what is in the best interests of the class. In the immediate case, most of the best-interest factors are neutral, balanced one against the other, ameliorative, or non-determinative, and in the immediate case, the Class Members would be equally well-served by the proposed Representative Plaintiffs. It is also the case that Class Members would be well served by either rival Class Counsel. In terms of competence and experience, the rival Class Counsel are equals and, indeed, from time to time they have been co-counsel together in other class actions. This time around, however, they are rivals, and it is the court’s unenviable but necessary task to choose between them.

[4] With the host of best-interest factors being non-determinative, in the immediate case, case theory, a very important factor, is the theatre of war chosen by the rival Class Counsel in their fight for carriage.

[5] In regard to case theory, both actions allege misrepresentations in the secondary market for the sale of Aphria’s shares and both actions advance oppression remedy claims pursuant to of the Ontario Business Corporations Act.

[6] The case theory of the Vecchio Action, which I shall label the Nuuvera+LATAM Theory, divides the Class Members into three groups; namely: (1) Group A, Class Members who purchased Aphria shares in the secondary market between January 29, 2018 and July 17, 2018; (2) Group B, Class Members who purchased Aphria shares pursuant to a June 2018 prospectus; and (3) Group C, Class Members who purchased Aphria shares in the secondary market between July 17, 2018 and November 30, 2018. The Class Period for the Vecchio Action is thus between January 29, 2018 and November 30, 2018.

[7] In contrast, the case theory of Mirzoian-Rogers Action, which I shall label the LATAM Theory, defines its class to be only Group C. The Class Period for the Mirzoian-Rogers Action is between July 17, 2018 and December 3, 2018, and thus is a shorter period with an end date a few days later than the end date of the Class Period in the Vecchio Action.

[8] With different class periods, both the Mirzoian-Rogers Action and the Vecchio Action advance: (1) an oppression remedy claim pursuant to of the Ontario Business Corporations Act; (2) the misrepresentation in the secondary market statutory cause of action pursuant to Part XXIII.1 of the Ontario Securities Act; and (3) a common law negligent misrepresentation claim. The Vecchio Action also advances a misrepresentation in a prospectus statutory cause of action pursuant to Part XXIII, s. 130 of the Ontario Securities Act.

[9] The explanation for the difference in the constitution of the classes is that the Nuuvera+LATAM Theory in the Vecchio Action theorizes that the $1.1 billion stock loss that occurred in December 2018 can be traced back to two overvalued asset purchase transactions in which there is an alleged breakdown in corporate governance and internal controls; i.e., (1) the $485 million Nuuvera Transaction, which was announced in January 2018, and (2) the $280 million LATAM Transaction, which was announced in July 2018. In contrast, the LATAM Theory in the Mirzoian-Rogers Action is that the $1.1 billion stock drop is attributable only to the LATAM Transaction.

[10] Class Counsel in the Mirzoian-Rogers Action have excoriating criticism of the case theory of the Vecchio Action. The thrust of their criticism of the Nuuvera+LATAM Theory is that they submit it is a fatal flaw with substantial adverse consequences for the Vecchio Action to include the Groups A and B Class Members as claimants. Class Counsel in the Mirzoian-Rogers Action submit that the Group A and B Class Members have no legally viable claim associated with the Nuuvera Transaction and that they cannot coattail their claims on the claims of Group C who have claims based on the LATAM Transaction.

[11] In contrast, Class Counsel in the Vecchio Action have little bad to say about the LATAM Theory, and rather only defend their own theory, the Nuuvera+LATAM Theory, as better because it includes claimants that the Mirzoian-Rogers Class Counsel have excluded. Class Counsel in the Vecchio Action reject the excoriating criticism as being ill-advised and as mistaken assistance by Class Counsel in the Mirzoian-Rogers Action to the real enemy, the defendants in the proposed class action.

[12] Thus, the rival Class Counsel are in accord that the Group C Class Members should be included in the class definition, but they have diametrically opposed opinions about the advantages and disadvantages of including Group A and B as Class Members.

[13] As I shall explain below, in my opinion, in accordance with the aims of class proceedings, namely access to justice, behaviour modification, and judicial economy, there are more advantages than disadvantages in including all of Groups A, B, and C as Class Members, and it is in the Class Members’ best interests to use the Nuuvera+LATAM Theory proposed for the Vecchio Action. Further, there are flaws in the excoriating criticism of the Nuuvera+LATAM Theory, and I, therefore, grant carriage to Class Counsel in the Vecchio Action, Rochon Genova, LLP.

B. The Test for Carriage

[14] The Class Proceedings Act, 1992, confers upon the court a broad discretion to manage the proceedings. Section 13 of the Act authorizes the court to "stay any proceeding related to the class proceeding", and s. 12 authorizes the court to "make any order it considers appropriate respecting the conduct of a class proceeding to ensure its fair and expeditious determination". Section 138 of the Courts of Justice Act, directs that "as far as possible, multiplicity of legal proceedings shall be avoided."

[15] Where two or more class proceedings are brought with respect to the same subject-matter, a proposed Representative Plaintiff in one action may bring a carriage motion to stay all other present or future class proceedings relating to the same subject-matter. Setterington v. Merck Frosst Canada Ltd., 2006 ONSC 2623, at paras. 9-11; Ricardo v. Air Transat A.T. Inc., leave to appeal dismissed [2002] O.J. No. 2122 (S.C.J.). There should not be two or more class actions that proceed in respect of the same putative class asserting the same cause(s) of action, and one action must be selected. Vitapharm Canada Ltd. v. F. Hoffman-Laroche Ltd..

[16] The court will grant carriage to the putative Class Counsel whose proposed action is better for the interests of the putative Class Members while being fair to the defendants and promoting the prime objectives of class proceedings, which are access to justice for plaintiffs, class members, and defendants, behaviour modification, and judicial economy. Sharma v. Timminco Ltd., 2009 ONSC 58974, at para. 14; Setterington v. Merck Frosst Canada Ltd., 2006 ONSC 2623, at para. 13; Vitapharm Canada Ltd. v. F. Hoffman-La Roche Ltd., at para. 48. Although the determination of a carriage motion will decide which counsel will represent the plaintiff, the task of the court is not to choose between different counsel according to their relative resources and expertise; rather, it is to determine which of the competing actions is more, or most, likely to advance the interests of the class. Simmonds v. Armtec Infrastructure Inc., 2012 ONSC 44, leave to appeal to Div. Ct. granted, 2012 ONSC 5228, affirmed 2013 ONSC 331 (Div. Ct.); Tiboni v. Merck Frosst Canada Ltd., 2008 ONSC 37911, [2008] O.J. No. 2996 (S.C.J.), sub. nom Mignacca v. Merck Frosst Canada Ltd., leave to appeal granted 2008 ONSC 61238, [2008] O.J. No. 4731 (S.C.J.), aff'd 2009 ONSCDC 10059, [2009] O.J. No. 821 (Div. Ct.), application for leave to appeal to C.A. ref'd May 15, 2009, application for leave to appeal to S.C.C. ref'd [2009] S.C.C.A. No. 261.

[17] Courts generally consider a list of overlapping and non-exhaustive factors in determining which action should proceed; including: Agnew-Americano v. Equifax Canada Co., 2018 ONSC 275; Kaplan v. Casino Rama Services Inc., 2017 ONSC 2671; Kowalyshyn v. Valeant Pharmaceuticals International, Inc., 2016 ONSC 3819; Mancinelli v. Barrick Gold Corp., 2014 ONSC 6516 aff’d ONSC 2015 ONSC 2717 (Div. Ct.), aff’d 2016 ONCA 571; Wilson v. LG Chem Ltd., 2014 ONSC 1875; McSherry v. Zimmer GMBH, 2012 ONSC 4113; Smith v. Sino-Forest Corporation, 2012 ONSC 24; Sharma v. Timminco Ltd., supra; Genier v. CCI Capital Canada Ltd., supra; Gorecki v. Canada (Attorney General); Ricardo v. Air Transat A.T. Inc., supra.

[10] Quenneville v. Audi AG, 2018 ONSC 1530.

[18] It is useful to note that: factors (1) to (3) concern the qualifications of the proposed Representative Plaintiffs; factors (4) to (8) concern the qualifications of the proposed Class Counsel; and factors (9) to (17) concern the quality of the litigation plan for the proposed class action. Thus, nine of the factors are about or are connected to case theory, which is understandable, because at the very heart of the test for determining carriage is a qualitative and comparative analysis of the case theories of the rival Class Counsel. Kowalyshyn v. Valeant Pharmaceuticals International, Inc., 2016 ONSC 3819, at para. 146.

[19] In the immediate case, as I have already indicated above, the crucial and critical factor in the immediate case is the case theory factor and in the discussion that follows, I shall focus my attention on this factor. I have considered the other criteria, but, as also noted above, on balance, the other factors even out and in the circumstances of the immediate case, they are neutral or they do not tip the balance of the analysis.

C. Factual Background

[20] For the purposes of this carriage motion it is sufficient to describe the factual background to the proposed class actions and to this carriage motion in broad-brush terms.

[21] Aphria is a cannabis company incorporated under the Ontario Business Corporations Act. Its shares trade on the Toronto Stock Exchange (“TSX”) and, since November 2018, also on the New York Stock Exchange (“NYSE”).

[22] Between January 2018 and December 2018, Aphria’s periodic financial disclosure, and accompanying MD&A and CEO and CFO certificates (NI 52-109 Certificates) represented to the market that: (a) Aphria’s filings were free from misrepresentation; (b) Aphria’s interim and annual financial statements complied with IFRS (International Financial Reporting Standards); (c) Aphria’s interim and annual financial statements and the other financial information contained in its other filings, fairly presented in all material respects the financial condition of the company; and, (d) Aphria’s ICFR (Internal Control Over Financial Reporting) and DC&P (Disclosure Controls and Procedures), including governance controls that were directed at avoiding conflicts of interest, were designed and operating effectively.

[23] On January 29, 2018, Aphria announced that it was taking over. i.e., it was purchasing the shares of Nuuvera Inc., another public cannabis company for approximately $485 million. The purchase price was by way of the issuance of new Aphria shares. The transaction closed in March 2018.

[24] In the Vecchio Action, it is alleged that the Nuuvera Transaction was a scheme by Aphria insiders, including the defendants Victor Neufeld, Carl Merton and Cole Cacciavillani, to transfer wealth from non-insider Aphria shareholders to themselves and to family members. It is alleged that by their self-dealing, Messrs. Neufeld, Merton and Cacciavillani made millions of dollars for themselves. Further, it is alleged that Aphria was managed in a manner that was oppressive to the interests of non-insider Aphria shareholders and that violated statutory and common law duties. Further, it is alleged that Aphria repeatedly made misrepresentations in required financial and other disclosure documents regarding IFRS compliance and about the integrity of Aphria’s internal controls and governance and management practices.

[25] In the Vecchio Action, it is alleged that Aphria made misrepresentations in press releases in January, February and March 2018 about the Nuuvera Transaction; namely: (1) Aphria misrepresented the profitability of Nuuvera; (2) Aphria represented that Nuuvera was a leading, global cannabis company, when it was a fledgling start-up company with annual revenues of $36,756 and a net loss of $37.5 million in its first and only year of operations; (3) Aphria failed to disclose that the Nuuvera Transaction was a related-party transaction in which Aphria insiders, including Messrs. Neufeld, Merton, and Cacciavillani personally profited; (4) Aphria misrepresented the value of Nuuvera's assets, which were worth a small fraction of the approximately $485 million in consideration being paid; (5) Aphria misrepresented its compliance with IFRS, which misrepresentation was tied to the value of the assets acquired in the Nuuvera Transaction; (6) Aphria misrepresented that its ICFR and DC&P were properly designed and operating effectively.

[26] For what follows below in the discussion and analysis section of these Reasons for Decision, it shall be very significant to note and keep in mind that in the Vecchio Action, it is alleged that the misrepresentations about the Nuuvera Transaction were partially corrected by corrective disclosures made to the public between March and May 2018.

[27] In particular, in the Vecchio Action, in regards to corrective disclosure, it is pleaded that:

(a) a March 21, 2018 report by the investment firm Hindenburg Research disclosed that Nuuvera was worth less than the consideration paid by Aphria and that the Nuuvera Transaction was initiated by a Mr. DeFrancesco;

(b) a March 25, 2018 Globe and Mail article revealed that Messrs. Neufeld, Merton and Cacciavillani held undisclosed interests in Nuuvera at the time of the Nuuvera Transaction; and,

(c) a May 30, 2018 Business Acquisition Report filed by Aphria to regulators confirmed that the March 21 Hindenburg Report and the facts revealed by the March 25 Globe and Mail article were accurately reported.

[28] On June 22, 2018, Aphria issued approximately 19 million common shares pursuant to a prospectus. The underwriters were the Defendants Clarus Securities Inc., Canaccord Genuity Corp., Cormark Securities Inc., Haywood Securities Inc. and Infor Financial Inc.

[29] In the Vecchio Action, it is alleged that Aphria made the same misrepresentations in the prospectus as it made in its secondary market disclosures. It is alleged that the financial statement incorporated into the prospectus contained misrepresentations that Aphria was IFRS compliant and that appropriate DC&P and ICFR were in place.

[30] In the Vecchio Action, it is alleged that the Underwriter Defendants certified that the prospectus constituted full true and plain disclosure of all material facts relating to the securities offered. It is alleged, however, that the prospectus failed to disclose that: (a) the Nuuvera Transaction involved a gross overvaluation of the acquired assets, which personally enriched Aphria insiders at the expense of non-insider shareholders; (b) Aphria’s financial statements, which were incorporated by reference in the prospectus were not IFRS compliant; and (c) Aphria’s disclosure regarding the integrity of its internal controls including its governance practices, which were designed to avoid conflicts of interest, were not effective. It is alleged that the Underwriter Defendants are liable under Part XXIII, s. 130 of the Ontario Securities Act.

[31] On July 17, 2018, Aphria announced in a press release the LATAM Transaction. Pursuant to this Transaction, Aphria acquired companies that had operations and interests in the Latin American cannabis industry in Jamaica, Argentina and Colombia. To pay for the acquisition, Aphria issued approximately 15.7 million new shares with a value of about $274 million. It was later revealed that like the Nuuvera Transactions some insiders were self-dealing and lining their own pockets at the expense of the non-insider shareholders and that the LATAM Transaction involved Aphria purchasing assets at a gross overvalue.

[32] On December 3, 2018, two investment firms, Hindenburg Research and Quintessential Capital Management issued a report: Aphria: A Shell Game with a Cannabis Business on the Side. The release of the Report was accompanied by a presentation by Quintessential Capital Management principal, Gabriel Grego at a short sellers’ conference which was broadcast on YouTube. The presentation was called “The Black Hole”.

[33] The Hindenburg-Quintessential Report revealed that: (a) the assets underlying the LATAM Acquisition had been acquired by Andy Defrancesco; (b) these assets were then purchased by Canadian shell companies under the control of Mr. Defrancesco and of Aphria insiders, including Messrs. Neufeld, Cervini and Cacciavillani; (c) the purchasers attempted to cover-up their ownership and control of the shell companies; (d) the shell companies agreed to be acquired by Scythian Biosciences Corp, which then sold the companies to Aphria at a large markup; (e) Mr. Defrancesco and the Aphria insiders received cash and Scythian shares and Scythian got cash and Aphria shares; (f) Aphria acquired assets worth were far less than their purchase price; and (g) the nature, extent and caliber of the operations of the LATAM assets was vastly overstated.

[34] The plaintiffs in the Mirzoian-Rogers Action allege that the Hindenburg-Quintessential Report constitutes a corrective disclosure that revealed four undisclosed material facts about Aphria and the LATAM Acquisition that constitute actionable misrepresentations: namely: (1) the value of the LATAM Transaction assets was not commensurate with the substantial consideration paid by Aphria; (2) Aphria insiders obtained an undisclosed windfall in the form of an indirect distribution of Aphria shares, cash and a promissory note; (3) during the Class Period, Aphria did not have disclosure controls and procedures ("DC&P that were properly designed and operating effectively to provide reasonable assurance that disclosure of material information relating to Aphria was made; and (4) during the Class Period, Aphria did not have internal controls over financial reporting ("ICFR that were properly designed and operating effectively to provide reasonable assurance of the reliability of financial reporting and the preparation of financial statements in accordance with applicable accounting standards.

[35] The plaintiff in the Vecchio Action makes similar allegations about the LATAM Acquisition, but it treats the revelations of the Hindenburg-Quintessential Report as not only a corrective disclosure of the misrepresentations and oppressive conduct associated with the LATAM Transaction but as also completing the corrective disclosure of the misrepresentations and oppressive conduct associated with the Nuuvera Transaction.

[36] In making the corrective disclosure connection between the December 2018 revelations and the Nuuvera Transaction misrepresentations, Class Counsel in the Vecchio Action find allusions in the Hindenburg-Quintessential Report to the Nuuvera Transaction and also references in the reports of other market observers and analysts. For example, on December 3, 2018, the Globe and Mail wrote:

Aphria shares plunge as short-seller report questions recent deal. Aphria Inc. paid nearly $300-million to buy allegedly worthless foreign assets that had been owned previously by firms with apparent ties to a key investor in the cannabis grower, a short-seller report claims. The company’s stock plunged nearly 28 per cent to $7.60 on Monday […] In March, The Globe reported that seven Aphria executives and directors had personally owned shares in Nuuvera in January when they orchestrated a deal for the company. Those holdings were not disclosed to investors. Under Ontario corporate law, the Aphria insiders weren’t required to disclose their Nuuvera shares to the market unless Aphria deemed their holdings to be material, which it didn’t. The shares were worth $5 million, five times what the insiders initially invested months earlier.

[37] It is the submission of Class Counsel in the Vecchio Action that analyst commentary in December 2018 connected the price drop in Aphria’s shares with the loss of confidence in the integrity of Aphria Management in light of the Nuuvera Transaction, as well as the LATAM Transaction. For another example of analyst commentary, Class Counsel in the Vecchio Action rely on the fact that in explaining the stock drop, a BMO analyst reported:

The concerns largely surround the value of the assets acquired [in the LATAM Transaction]. In addition, according to press disclosure at the time of the acquisition of these assets, a group of Aphria directors and senior management had a combined 2% interest in Scythian, which was the holding company from which Aphria acquired these assets. […] We believe there is likely heightened investor concern surrounding Aphria’s acquisitions due to the Company’s previous purchase of Nuuvera, a Canadian Cannabis company, in March 2018. The transaction value was about $450 million and a number of senior officers and directors were shareholders of Nuuvera (combined stake under 1%).”

[38] On November 30, 2018, the last trading day before the weekend, Aphria’s share price was $10.51. Following the Hindenburg-Quintessential Report, on December 3, 2018, on heavy trading volume, Aphria’s share price fell to $7.60. On December 4, 2018, the price fell to $5.99. There was a drop in Aphria’s market capitalization of approximately 43% or approximately $1.13 billion.

[39] On December 6, 2018, Aphria announced that its Board of Directors had appointed a special committee of independent directors to review the LATAM acquisition.

[40] On December 18, 2018, Koskie Minsky LLP commenced a proposed class action on behalf Ms. Rogers and what I have described as Class C.

[41] On December 27, 2018, Aphria announced that Mr. Neufeld was being replaced as Chair of the Aphria board.

[42] On January 11, 2019, Aphria announced that Messrs. Neufeld and Cacciavillani would be transitioning out of their executive roles with Aphria in the coming months but they would remain on the board of directors.

[43] On January 14, 2019, Siskinds LLP commenced a proposed class action on behalf of Ms. Mirzoian and what I have described as Class C.

[44] On January 18, 2019, Koskie Minsky, LLP and Siskinds, LLP agreed to form a consortium to prosecute the Mirzoian-Rogers Action together.

[45] On February 7, 2019, Rochon Genova, LLP commenced a proposed class action on behalf of Vecchio Longo Consulting Services Inc. and what I have described as Classes A, B, and C.

[46] On February 15, 2019 Aphria announced the conclusion of the special committee's review of the LATAM Acquisition. The Committee’s report disclosed that several non-independent directors of the Company had conflicting interests that were not fully disclosed to the board of directors. On the same day, Aphria announced the resignation of Messrs. Cacciavillani, Neufeld and Cervini from their directorships and executive positions effective March 1, 2019. Aphria also announced that it would adopt new corporate governance and management practices.

[47] On February 19, 2019, Aphria issued a Material Change Report that reported the results of the Special Committee investigation into the LATAM Transaction. The Report announced that Messrs. Neufeld and Cacciavillani were out as executives and that they were also no longer members of the board of directors effective March 1, 2019. In addition, it was announced that Mr. Cervini was removed from the board but would remain with the company only in a non-executive operational capacity. Mr. Cervini was among the Aphria Directors who had previously undisclosed financial interests in the Nuuvera Transaction. He personally made approximately $965,000 on that transaction.

[48] On April 5, 2019, the plaintiffs in the Mirzoian-Rogers Action moved for an order consolidating their individual actions and for leave to file a Fresh as Amended Statement of Claim.

[49] On April 15, 2019, Aphria issued a press release announcing its Q3/2019 financial results. The press release disclosed that, at the instance of the Ontario Securities Commission, Aphria was taking a write-down of $50 million on the value of its LATAM Transaction assets.

D. The Experts

[50] So far, Class Counsel in the Mirzoian-Rogers Action have retained: (a) Cyrus F. Khory, the Managing Director of Froese Forensic Partners; (b) Dr. Michael Hartzman of Hartzmark Economics Litigation Practice, LLC; and (c) Professor Richard LeBlanc.

[51] So far, Class Counsel in the Vecchio Action have retained: (a) Michaela Freedman (b) Professor Gordon Richardson; and (c) Gregg Edwards of Forensic Economics Inc.

[52] For present purposes, it is not necessary to comment about Ms. Freedman, Mr. Khory, or Professor LeBlanc.

1. Professor Gordon Richardson

[53] Professor Richardson is the KPMG Professor of Accounting at the Rotman School of Management at the University of Toronto. He was retained in the Vecchio Action to provide a preliminary opinion about the adequacy of Aphria’s public reporting during the relevant period and about the accounting treatment of the Nuuvera Transactions and the LATAM Transaction and the assets acquired in those transactions.

[54] Professor Richardson opined that Aphria’s financial reporting following the Nuuvera Transaction and continuing through the LATAM Transaction was materially non-compliant with IFRS. He stated that Aphria was required to disclose its insiders’ involvement in the Nuuvera Transaction. He stated that this information was material to Aphria’s non-insider shareholders, and the failure to disclose the insiders’ involvement was a material departure from IFRS. He said that there was a failure to file a Material Change Report on a timely basis, as required by MI 61-101 and NI 51-102.

[55] Professor Richardson opined that Aphria’s internal controls designed to avoid conflicts of interest were not functioning effectively throughout the Class Period. He concluded that the failure by the Aphria’s directors who had a financial stake in Nuuvera, to abstain from voting on the Nuuvera Transaction constituted a waiver of Aphria’s own Code of Conduct and Ethics. He stated that Aphria was required to disclose this waiver so that non-insider shareholders (and its independent Directors) could consider the potential overpricing of the Nuuvera assets. He said Aphria’s failure to disclose violated NP 58-201.

[56] Professor Richardson concluded that Aphria failed to fully disclose the extent of insider shareholdings involved in the LATAM Transaction. He said that this failure was material to Aphria’s non-insider shareholders and constituted a departure from IFRS. He said that the failure to disclose the full extent of Aphria directors’ conflicts of interest in respect of the LATAM acquisition violated MI 61-101.

[57] In his opinion, Professor Richardson, stated:

[Aphria public disclosure suggests that] the Nuuvera goodwill was not tested for impairment at the end of the 2018 fiscal year [i.e., May 31], contrary to the requirements of IAS 36, paragraph 96. [...] A proper impairment test for goodwill would have required that Aphria obtain a valuation of the Nuuvera goodwill at year end. This was crucial, given that the Nuuvera acquisition was a [related party transaction] and both the Company and its auditors were aware by the 2018-year end of ‘red flags’ apparent in the financial press that value may not have been received for the Aphria total consideration given up.” […] It is my preliminary opinion that, at year end 2018, Aphria likely violated IFRS (IAS 36) with respect to goodwill impairment testing related to the Nuuvera acquisition.

2. Gregg Edwards

[58] Forensic Economics Inc. is a leading U.S. firm of financial economists. Mr. Edwards was retained in the Vecchio Action to provide an opinion on the economic materiality of the pleaded misrepresentations and damages caused under both misrepresentation and oppression causes of action.

[59] Mr. Edwards opined that the $1.1 billion stock drop on December 3-4, 2018 was corrective of misrepresentations relating to both the Nuuvera Transaction and the LATAM Transaction, and that the Vecchio Class Members suffered damages before the July 17, 2018 LATAM announcement and likely as early as the January 29, 2018 with the Nuuvera Transaction announcement. Disagreeing with the economic evidence of Dr. Hartzmark, the expert for the Mirzoian-Rogers Action, Mr. Edwards concluded that there was artificial inflation in Aphria’s stock price related to the Nuuvera Transaction.

[60] Mr. Edwards analyzed the impact of the December 3-4, 2018 correction on the Aphria share price and concluded that some of the inflation in the Aphria share price, which was eliminated as a result of the corrections on December 3-4, was present throughout the Vecchio Class Period, starting with the announcement of the Nuuvera Transaction on January 29, 2018.

[61] Unlike Dr. Hartzmark, Mr. Edwards concluded that there was a connection made by market traders between the corrective information and the identified problems involving insider self-dealing, overvaluation of acquired assets, and failures in Aphria’s internal controls and corporate governance going back to the Nuuvera Transaction and continuing through the LATAM Transaction.

3. Dr. Michael Hartzmark

[62] Dr. Hartzmark is an economist who was retained in the Mirzoian-Rogers Action to opine on materiality and damages. He opined that: (a) a review of analyst commentary in relation to the December 3, 2018 corrective disclosure does not indicate a meaningful linkage between the alleged corrective disclosure and the Nuuvera Transaction; and (b) Class Members in the Vecchio Action who purchased Aphria common stock prior to July 17, 2018 did not suffer any damages.

[63] Relying on an event study methodology, Dr. Hartzmark concluded that none of the three Nuuvera partial corrective disclosures pleaded in the Vecchio Action Statement of Claim resulted in a statistically significant change in the price of Aphria shares.

[64] He said that on March 21-22, 2018, Aphria's share price responded to the Hindenburg-Quintessential Report by declining by a statistically insignificant amount, which meant that the market reacted to the announcement as if the information was not material or had been anticipated.

[65] He said that on March 26-27, 2018, Aphria's share price responded to the Globe and Mail article by declining by a statistically insignificant amount, which again meant that the market reacted to the information as if the information was not material or had been anticipated.

[66] He said that on May 30-31, 2018, Aphria's share price responded to the release of Aphria’s Business Acquisition Report by declining by a statistically insignificant amount which again meant that the market reacted to the information as if the information was not material or had been anticipated.

E. Discussion and Analysis

[67] In this carriage motion, the crucial and decisive best-interest factor is case theory.

[68] In broad brush terms, the LATAM Transaction Theory of the Mirzoian-Rogers Action theorizes that the factual footprint of the LATAM Transaction presents three causes of action; namely: (1) an oppression remedy claim under the Ontario Business Corporations Act; (2) a statutory misrepresentation cause of action under Part XXIII.1 of the Ontario Securities Act; and (3) a common law misrepresentation action.

[69] In broad brush terms, the Nuuvera+LATAM Theory of the Vecchio Action theorizes that the factual footprint of both the Nuuvera Transaction and also the LATAM Transaction presents four causes of action; namely: (1) an oppression remedy claim under the Ontario Business Corporations Act; (2) a statutory cause of action pursuant to Part XXIII, s. 130 of the Ontario Securities Act; (3) a statutory misrepresentation cause of action under Part XXIII.1 of the Ontario Securities Act; and (4) a common law misrepresentation action.

[70] With respect to the LATAM Transaction, the case theory of the Mirzoian-Rogers Action and of the Vecchio Action are, for all practical purposes, identical, and, thus, the hot point of the fight for carriage is whether Class Counsel in the Mirzoian-Rogers Action are correct in their excoriating criticism of the Nuuvera+LATAM Theory, which case theory Class Counsel in the Mirzoian-Rogers Action submits is both fatally flawed and also toxic to the claims that are based on the LATAM Transaction.

[71] To use one of the metaphors that was bandied about in the written and oral argument, Class Counsel in the Mirzoian-Rogers Action submit that in the class action train to access to justice only the shareholders affected by the LATAM transaction should get on board the train. Further, Class Counsel in the Mirzoian-Rogers Action submit that to have issued boarding tickets to the shareholders affected by the Nuuvera Transaction is to lead to altercations between the passengers, who will have conflicting interests about the distribution of damages, and worse, the overcrowding of the train will lead to its derailment, and the train will crash short of its access to justice destination for all the passengers.

[72] In their excoriating criticism of the Nuuvera+LATAM Theory in the Vecchio Action, Class Counsel in the Mirzoian-Rogers Action submit that Class Counsel in the Vecchio Action have doomed the Vecchio Action to failure by pleading that there was a partial corrective disclosure of the misrepresentations associated with the Nuuvera Transaction, which is to say that after those disclosures, traders in the secondary market of Aphria securities were no longer being deceived about the Nuuvera Transaction. It is submitted that this is a lethal mistake because the corrective disclosure produced a statistically insignificant reaction from the marketplace, and thus revealed that the Class A and Class B purchasers had suffered no damages from having purchased Aphria shares under the influence of the misrepresentations made by the defendants.

[73] Class Counsel in the Mirzoian-Rogers Action submit that the expert evidence for the carriage motion reveals that the reaction of the market to the corrective disclosure that occurred between March and the end of May 2018 did not have a statistically significant effect on the price, which is to say the value, of the Aphria shares. Class Counsel submits that once the misrepresentations were revealed, the market reaction was to yawn and move on. Class Counsel in the Mirzoian-Rogers Action submit that a claim based on the Nuuvera Transaction is thus doomed to fail.

[74] Their excoriating criticism continues with the argument that if there are no damages associated with the Nuuvera Transaction misrepresentations, then the Class Members who comprise Groups A and B should not join their non-existent claims with the claims of those of Group C, who were genuinely affected by the LATAM transaction.

[75] Class Counsel in the Mirzoian-Rogers Action submit that unlike the Group A and B Class Members, the Group C Class Members have viable claims as demonstrated by the aftermath of the corrective disclosures that came with Hindenburg-Quintessential Report, where the market reacted not with yawns but with screams of investor pain.

[76] Class Counsel in the Mirzoian-Rogers Action submit that the Group A and B claimants cannot base their claims on the Hindenburg-Quintessential Report being corrective disclosures for the Nuuvera Transaction. Further, the excoriating criticism continues with the submission by Class Counsel in the Mirzoian-Rogers Action that that the Group A and B Class Members cannot grasp victory from the clenched jaws of defeat by the attempt after the delivery of their Statement of Claim in the Vecchio Action; i.e. in the factum for the carriage motion to restructure their claims by better making the connection between the December 2018 corrective disclosures and the Nuuvera Transaction.

[77] Class Counsel in the Mirzoian-Rogers Action, submit that the disclosures of the Hindenburg-Quintessential Report are not corrective disclosures of the misrepresentations associated with the Nuuvera Transaction for the several reasons that: (a) the Hindenburg-Quintessential Report corrective disclosures are only about the LATAM Transaction; (b) the corrective disclosures of the Hindenburg-Quintessential Report are not semantically connected to the Nuuvera Transaction; and (c) the corrective disclosure with respect to the Nuuvera Transaction misrepresentations had already occurred.

[78] Class Counsel in the Vecchio Action disagree with all these criticisms and submit that Class Counsel in the Mirzoian-Rogers Action are wrong. Class Counsel in the Vecchio Action submit that the Hindenburg-Quintessential Report’s corrective disclosures do connect to the LATAM Transaction misrepresentations.

[79] At first blush, the excoriating criticism of the Nuuvera+LATAM theory seems overwhelming, making the Mirzoian-Rogers Action the obvious choice for carriage. However, a closer analysis reveals that there are problems with the arguments made by Class Counsel in the Mirzoian-Rogers Action against the Vecchio Action, which like all arguments are only sound if all the premises are true.

[80] Upon closer analysis, it appears that some of the underlying premises of the attack arguments are not true and upon closer analysis it appears that there are counterarguments or defences to the excoriating criticism of the Nuuvera+LATAM Theory.

[81] Upon closer analysis, it emerges that one of the somewhat hidden premises of the arguments against the Nuuvera+LATAM Theory may not be true or correct. It is a premise of these arguments that all four causes of action advanced in the Vecchio Action are doomed to failure because of the pleaded corrective disclosures that occurred between March and the end of May 2018, which disclosures the expert evidence suggests did not have a statistically significant effect on the price of Aphria’s shares. The fallacy of this premise, however, is that the notion of corrective disclosure is a constituent element only of the statutory cause of action under Part XXIII.1 of the Ontario Securities Act and it is not an operative factor in the other three causes of action.

[82] A corrective disclosure is certainly not an constituent element of the common law misrepresentation claim or of the oppression remedy claim and it is debatable whether it can be imported as an element of the statutory claim about misrepresentations in the primary market. Thus, it is arguable that even if Class Counsel in the Mirzoian-Rogers Action are correct that Class Counsel made an enormous error in pleading what it is described in the Statement of Claim as a partial corrective disclosure, this error does not metastasize and effect the legal health of the other claims for which there ought to be access to justice.

[83] Visualize, because of the insider dealings associated with Nuuvera Transaction the shareholders of Aphria, or at least some of them, have an oppression remedy claim that is a mutually exclusive alternative to their misrepresentation claims in the primary or secondary market.

[84] I say at least some of them would have oppression remedy claim regardless of the misrepresentation claims, because I appreciate that there is an argument that those shareholders who purchased after the disclosures may have bought into the company with knowledge and, therefore, these shareholders may be precluded from alleging oppression. Ford Motor Co of Canada v. OMERS, 2006 ONCA 15, at paras. 114-115, 122-123 (C.A.). However, at this juncture, it is not clear that this buying into the oppression defence, which is a matter for the defendants to raise, exists or if it exists, whether it is refutable. And, at this juncture, it is not clear whether the prospect of this defence would cause much attrition of the Class Members who do have oppression remedy claims.

[85] The point to emphasize (and this point is also true with respect to the oppression remedy claims that are based on the insider self-dealing associated with the LATAM transaction) is that a corrective disclosure (regardless of whether it is a statistically significant one) is not a constituent element of the oppression remedy claim nor is it a constituent element of the common law negligent misrepresentation claim, Queen v. Cognos, 1993 SCC 146, [1993] 1 S.C.R. 87. nor is it a constituent element of the s. 130 claim under Part XXIII of the Ontario Securities Act. Kerr v. Danier Leather Inc., 2004 ONSC 8186, reversed on other grounds with no consideration of damages: 2005 ONCA 46630, 77 OR (3d) 321 (C.A,); [2007] 3 SCR 3314. See also LBP Holdings Ltd v. Hycroft Mining Corp., 2017 ONSC 6342. These claims are mutually exclusive from the statutory claim, and they do not have a corrective disclosure as a constituent element.

[86] It follows that even if there is merit to the criticism of the Part XXIII.1 claim associated with the corrective disclosure problem, nevertheless, the Nuuvera+LATAM Theory is better than the LATAM Theory for including the other claims and for providing access to justice for the Group A and B Class Members.

[87] Similarly, upon closer analysis, it emerges that another of the premises of the arguments against the Nuuvera+LATAM Theory may be unsound. It is a premise of these arguments that all four causes of action advanced in the Vecchio Action have the same measure of damages; i.e., the measure of damages specified by Part XXIII.1 of the Ontario Securities Act, which scheme for the measure of damages requires a statistically significant response to the corrective disclosure.

[88] Once again, the fallacy of this premise, however, is the idea that a statistical significant corrective disclosure is an element of the damages calculation of the other causes of action; rather, this articulation of damages is only for the statutory cause of action under Part XXIII.1 of the Ontario Securities Act. Thus, it does not follow that the artificially designed measure of damages for an artificially designed cause of action applies to the common law misrepresentation claims or to the statutory oppression remedy, which has a notoriously adaptable and flexible remedial scope to rectify wrongdoing. BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 SCR 560.

[89] Further, it follows, once again, that the Nuuvera+LATAM Theory is better than the LATAM Theory for including these claims and for providing access to justice for the Group A and B Class Members who may have differently calculated damages arising from the liability of the defendants if proven.

[90] Moving on it the analysis of the case theories, there are other problems with the arguments made by Class Counsel in the Mirzoian-Rogers Action against the Vecchio Action.

[91] The deeper analysis reveals that the major premise of the attack argument is that the corrective disclosures pleaded to have been made in the March to the end of May 2018 portion of the Vecchio’s Class Period foreclose the Part XXIII.1 statutory cause of action. The submission is that the Part XXIII.1 claims are foreclosed because the expert evidence is that the corrective disclosures did not have a statistically significant impact on the market price of Aphria shares.

[92] The major premise, even if it is correct, however, raises a fundamental tautological dilemma in the operation of Part XXIII.1 of the Ontario Securities Act in the circumstances of the immediate case. The dilemma is that a corrective disclosure has been defined in the case law to be one that has a statistically significant impact on market prices, but the pleaded corrective disclosures in the immediate case are just the opposite and the expert evidence is that they did not affect the market price of the Aphria shares. Does this mean, as Class Counsel in the Mirzoian-Rogers Action would have it, that there can be a corrective disclosure that forecloses claims as opposed to being a constituent element of establishing them? At these early days of the development of Part XXIII.1 of the Ontario Securities Act, the answer to that question is unclear.

[93] There is a further problem about the major premise of the attack made against the Vecchio Action. At this stage of the development of the law about what counts as a corrective disclosure, it is not clear what is the relationship between the semantic analysis and the statistical analysis in determining whether of not there has been a corrective disclosure. In Drywall Acoustic Lathing and Insulation, Local 675 Pension Fund (Trustees of) v SNC-Lavalin Group Inc., 2016 ONSC 5784, at para. 45, I stated at paras. 45-47:

45 … the determination of whether a corrective disclosure is corrective depends not only on a semantic analysis of what the public correction means but also on an analysis of how the words would be understood in an efficient market and also a statistical analysis of the effect of those words on the market’s evaluation of the value of the securities that had been misrepresented to the marketplace. Put somewhat differently, a semantic analysis of whether a corrective disclosure was made is necessary, but it is not sufficient to determine the existence or non-existence of a corrective disclosure. What is required is an analysis of the literal meaning of the words, which is in any event not a purely mechanical exercise but one that involves evidence, opinion, and argument, and also an analysis of the perceived or effective meaning of the words in the secondary market, which once again is not a mechanical exercise, but rather one that involves evidence, opinion, and argument. The determination of this complex issue is not appropriate for a summary judgment motion.

46. … the key point is that what is both necessary and sufficient for a determination of whether a corrective disclosure exists is a genuine issue requiring a trial. The SNC-Lavalin Defendants are mistaken in thinking that the existence of a corrective disclosure can be determined just by a mechanical exercise of interpreting and comparing documents; a trial is required.

47. To determine whether a corrective disclosure exists, expert evidence about a variety of matters is necessary, … the corrective disclosure issue requires a full-fledged trial. I conclude that in the immediate case - indeed in every case - the issue of whether or not there has been a public correction of a misrepresentation cannot be resolved by a purely semantic argument of interpreting statements.

[94] I would add the issue of whether or not there has been a public correction of a misrepresentation cannot be resolved by a statistical analysis alone. Just as the semantic analysis is not mechanical and involves an interpretative exercise, the statistically analysis is not mechanical and involves interpretation. For present purposes, the point is that while the argument of Class Counsel in the Mirzoian-Rogers Action is quite attractive and may be correct, a carriage motion is not the occasion to decide the point about what was the effect of the alleged corrective disclosures made in March 2018 to the end of May 2018.

[95] In other words, it is in the interests of the development of the law to allow the Nuuvera+LATAM Theory and its notion of partial corrective disclosures that crystalize later into an operative corrective disclosure to undergo a concrete test and not be tested and determined in the abstract context of a carriage motion debate about case theories.

[96] Put still differently, nothing ventured - nothing gained; or, to borrow from Alfred Lord Tennyson, “… tis better to have pleaded and lost than never to have pleaded at all” … . If the Class A and Class B claims under Part XIII.1 are ultimately unsuccessful, then that will have been proven in the crucible of battle and not prejudged on a carriage motion.

[97] In my opinion, this analysis about the uncertainty in the law favours a class action that takes on the Group A and Group B claimants’ claims, which, in turns, favours granting carriage to the Vecchio Class Counsel who appear brave enough to take on the litigation risk.

[98] This analysis of the corrective disclosure problems of the Nuuvera+LATAM Theory also suggests that it is not clear whether the Group A and B Aphria shareholders cannot base their claim on the corrective disclosure that occurred in December 2018 about which there is no dispute that there was a statistically significant effect on the value of Aphria shares.

[99] Class Counsel in the Mirzoian-Rogers Action submit that while the Hindenburg-Quintessential Report refers to the Nuuvera Transaction there is no new information disclosed and the corrective disclosure was completed by the information reveal in March to the end of May 2018 about the Nuuvera Transaction. However, what counts as new may depend on context, and it is not beyond peradventure that the Hindenburg-Quintessential Report may be a corrective disclosure for the misrepresentations associated with the Nuuvera Transaction, and it is not beyond peradventure that emphatic repetition does not count as a corrective disclosure. In this regard, in their Reply Factum for the carriage motion, Class Counsel in the Vecchio Action submit:

May 30, 2018 was not the last date on which any new information about the Nuuvera misrepresentations was disclosed. To the contrary, the December 3-4, 2018 revelations disclosed a pattern of self-dealing and corporate misconduct that could not have been apparent in either March or May 2018. It was this pattern which included both Nuuvera and LATAM revelations, which completely corrected the Nuuvera misrepresentations and resulted in the sharp stock price decline. This pattern of incorrigible corporate misconduct was not evident before December 3-4, 2018. As noted by the Hindenburg/QCM Report and market commentators: “They’re at it again”; “This isn’t the first time”; “Its Déjà vu All Over Again”.

[100] Thus, it remains to be determined whether there is a credible link between the Nuuvera Misrepresentations and the December 3, 2018 Hindenburg-Quintessential Report. It is not appropriate in the context of a carriage motion in a proposed class action, where: (a) the LATAM transaction is a clone of the wrongdoing of the Nuuvera Transaction; (b) both transactions involved insider malfeasance and oppressive conduct by the same alleged miscreants; (c) both transactions involved Aphria paying more for assets than they were worth; and (d) both transactions involved misrepresentations of commission and omission made in the secondary market, to decide that on these particular facts that the corrective disclosure that occurred in December 2018 cannot be used by all of Groups A, B, and C.

[101] Further, this analysis of the corrective disclosure problems leaves open the questions of whether if they were granted carriage, Class Counsel in the Vecchio Action could or should amend the Vecchio Statement of Claim to better plead what is the effect of a partial corrective disclosure or perhaps not plead a corrective disclosure at all and leave it to the Defendants to raise the issue by way of defence. For present purposes, I need not answer these last questions and simply say that it has not been demonstrated to me, as submitted by Class Counsel in the Mirzoian-Rogers Action, that the Nuuvera+LATAM Theory is fatally flawed or toxic.

[102] Still moving on it the analysis of the case theories, there are still other problems with the arguments made by Class Counsel in the Mirzoian-Rogers Action against the Vecchio Action. As already noted, the effect of their arguments is that the Group A and B Aphria shareholders are not included as Class Members. Now, although generally speaking, it is to err on the side of caution to make a class overinclusive rather than underinclusive, nevertheless, it is not an error to exclude persons who inevitably will just be disappointed or who may have conflicts of interest with their fellows who have genuine claims. Thus, in the immediate case, Class Counsel in the Mirzoian-Rogers Action, in essence, are submitting that it would be purposeless and disruptive to include the Group A and B Aphria shareholders.

[103] The fallacies in this argument made by Class Counsel in the Mirzoian-Rogers Action, however are that: (a) as demonstrated above, welcoming the Group A and B shareholders on board would be purposeful; and (b) at this juncture, there are no disruptive conflicts of interest amongst Groups A, B, and C.

[104] At this juncture of the proposed class proceeding, Groups A, B, and C are unified in their aspiration of proving the four pleaded causes of action. At this juncture of the proceeding, the success of any cause of action does not entail the failure of another cause of action. If the action proceeds to a common issue trial or individual issues trials, then the distribution of the spoils of the action will be sorted out by the judgments. If the action settles, then it will be for the court to approve a distribution plan that is reasonable and fair to the Class Members. This distribution plan will take into account that there may be different measures of damages for Group A, B, and C Class Members.

[105] I do not see any prejudice to the Group C Class Members, who are the only claimants who would achieve access to justice in the Mirzoian-Rogers Action, to have common cause with the Group A and B claimants. Their grievances are similar, and the facts of the Nuuvera Transaction are more than a background to the LATAM Transaction. In short, in my opinion, and it is not a close call, the Nuuvera+LATAM Theory is the better case theory, win, lose, or draw in the proposed class action.

F. Conclusion

[106] For the above reasons, I grant carriage to Rochon Genova, LLP. Order accordingly. There shall be no order as to costs.

Perell, J.

Released: June 19, 2019

COURT FILE NO.: CV-18-00611078-00CP CV-19-00612521-00CP CV-19-00614086-00CP DATE: 2019/06/19

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: TRACEY ROGERS Plaintiff

• and – APHRIA INC., VICTOR NEUFELD and CARL MERTON Defendants

AND BETWEEN: GARRI MIRZOIAN Plaintiff

• and - APHRIA INC., VICTOR NEUFELD and CARL MERTON Defendants

AND BETWEEN: VECCHIO LONGO CONSULTING SERVICES INC. Plaintiff

• and – APHRIA INC., VICTOR NEUFELD, and CARL MERTON, COLE CACCIAVILLANI, CLARUS SECURITIES INC., CANACCORD GENUITY CORP, CORMARK SECURITIES INC., HAYWOOD SECURITIES INC. AND INFOR FINANCIAL INC. Defendants

REASONS FOR DECISION PERELL J.

Released: June 19, 2019