ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-12-44865100CP
DATE: November 5, 2013
BETWEEN:
E. EDDY BAYENS, JOHN SINCLAIR, LUC FORTIN, PIERRE RACICOT and STANLEY SHORTT, in their capacity as TRUSTEES OF THE MUSICIANS’ PENSION FUND OF CANADA
Plaintiffs
– and –
KINROSS GOLD CORPORATION, TYE W. BURT, PAUL H. BARRY, GLEN J. MASTERMAN and KENNETH G. THOMAS
Defendants
Kirk M. Baert, Celeste Poltak, and Jonathan Bida for the Plaintiffs
Mark Gelowitz, Allan Coleman, and Robert Carson for the Defendants
Proceeding under the Class Proceedings Act, 1992.
HEARD: October 22-24, 2013
PERELL, J.
REASONS FOR DECISION
A. INTRODUCTION
[1] The Plaintiffs, E. Eddy Bayens, John Sinclair, Luc Fortin, Pierre Racicot, and Stanley Short are the Trustees of the Musicians’ Pension Fund of Canada (Musicians). The Defendants are Kinross Gold Corporation, a Canadian international mining company, and Tye W. Burt, Paul H. Barry, Glen J. Masterman, and Kenneth G. Thomas, who are or were officers or directors of Kinross.
[2] Musicians bring this motion: (1) for certification of this action as a class proceeding under the Class Proceedings Act, 1992, S.O. 1992, c. c.6; and (2) for leave to proceed with claims for misrepresentation under the Ontario Securities Act, R.S.O. 1990, c. S.5.
[3] Musicians advances a statutory claim under the Ontario Securities Act, and it advances a common law claim for negligent misrepresentation. It brings a proposed class action on behalf of purchasers of Kinross shares from May 3, 2011 to January 16, 2011 (the class period). It claims damages of $4 billion.
[4] Musicians’ action is built upon three core allegations of misrepresentations: (1) in May 2011, Kinross ought to have reported a write down of its goodwill (there was an unreported goodwill impairment) associated with two West African gold mines, the Tasiast mine in Mauritania and the Chirano mine in Ghana (the “Goodwill Misrepresentation”); (2) Kinross failed to disclose that its drilling program for the Tasiast mine had revealed high amounts of low-grade ore (the “Low-Grade Ore Misrepresentation”); and (3) Kinross misrepresented that the expansion project for the Tasiast mine remained on schedule (the “On-Schedule Misrepresentation”).
[5] Kinross opposes the granting of leave and the certification of the action as a class action. It submits that Musicians should not be granted leave under the Ontario Securities Act to pursue its statutory claim because Musicians has failed to provide evidence to satisfy the Court that it has “a reasonable possibility of succeeding at trial” with its misrepresentation claims. Then, regardless of whether leave is granted for the statutory claims, Kinross submits that the common law negligent misrepresentation claim is not certifiable under the Class Proceedings Act, 1992.
[6] With respect to Musicians’ three core misrepresentation allegations, Kinross submits first that that there is no reasonable possibility that Musicians will be able to establish that Kinross was obliged to disclose a goodwill impairment earlier than it did. Kinross submits that the results of its drilling program sustained and did not negate the initial expectations for the mine upon which the goodwill valuations were based, and, thus, there was no “triggering event” requiring an earlier write down of goodwill. Kinross submits that the evidence rather shows that the eventual write down of goodwill arose not because of diminished expectations concerning the gold mines exploration potential, but because of systemic market factors across the gold mining industry.
[7] Second, Kinross submits that that there is no reasonable possibility that Musicians will be able to establish the Low-Grade Ore Misrepresentation. It submits that the evidence establishes that there was no misrepresentation at all.
[8] Third, Kinross submits that Musicians cannot rely on the alleged misrepresentation about the schedule for the Tasiast mine because the allegation of a misrepresentation was raised for the first time in Musicians’ factum and is not pleaded in the Amended Statement of Claim, and, Kinross submits that, in any event, Musicians have not proffered any admissible evidence demonstrating that this misrepresentation claim would have a reasonable possibility of succeeding at trial.
[9] Turning to the common law misrepresentation claims, Kinross submits that those claims ought not to be certified because: (1) the constituent element of the tort that the claimant relied on the representation has not been pleaded and, therefore, there is no tenable cause of action; or (2) the common law misrepresentation claim fails the preferable procedure criterion for certification because even if reliance were pleaded, this constituent element would have to be determined on a person-by-person basis and a class proceeding would be unmanageable.
[10] For the reasons that follow, I dismiss Musicians’ motion.
[11] By way of a brief overview, in my opinion, Musicians’ statutory claims under Part XXIII.1 of the Ontario Securities Act fail the test for leave, and with the failure of the statutory claims to be granted leave, it necessarily follows that both the statutory claim and the common law negligence claim fail to satisfy the certification criteria of the Class Proceedings Act, 1992. What remains is Musicians’ uncertified action for common law damages, which may continue as an individual action.
B. METHODOLOGY
[12] In order to explain my Reasons for Decision, I will discuss the applicable law, the evidentiary background, the factual background, the procedural background, and the application of the law to the facts of this case under the following headings:
• Introduction
• Methodology
• The Test for Leave under Part XXIII.1 of the Ontario Securities Act
• Evidentiary Background
• Factual and Procedural Background
o The Parties
o The Business of Mining for Gold and Reporting Requirements
o The Purchase of the Tasiast and Chirano Mines - Setting the Base Line for Expectations
o The Purchase and Development of the Tasiast and Chirano Mines and the Alleged Misrepresentations
o The Assessment of Indicators of Goodwill Impairment in the Fall of 2011
o The 2012 Write Down of the Tasiast Mine’s Goodwill
o The Class Action in the United States
o The Canadian Class Action
• Should Leave be Granted under Part XXIII.1 of the Ontario Securities Act?
o Introduction
o The Goodwill Misrepresentation
o The Low Grade Ore Misrepresentation
o The On-Schedule Misrepresentation
o Conclusion on Leave under the Ontario Securities Act
• Certification
o Introduction – Certification in a Securities Act Class Action
o The Cause of Action Criterion
o Identifiable Class
o Common Issues
o Preferable Procedure
o Representative Plaintiff
o Conclusion on Certification
• Conclusion
[13] As appears from the above list of headings, before I discuss the factual and procedural background, I shall discuss the test for leave under Part XXIII.1 of the Ontario Securities Act. This ordering of the discussion is helpful because the underlying crucial dispute between the parties is a debate about how does the court satisfy itself under s. 138.1 of the Act that: “there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff.”
[14] The parties fundamentally differ about the application of the test for leave under Part XXIII.1 of the Ontario Securities Act and resolving their debate is necessary at the outset.
[15] I also note here that it my discussion of the factual and procedural background, I shall try to identify the positions and the submissions of the parties and keep them distinct from my factual findings, which are largely based on uncontested or uncontestable facts from the evidentiary record. I will leave my analysis of the factual and legal controversies to the discussion later about whether leave should be granted under Part XXIII.1 of the Ontario Securities Act. The latter discussion will include an analysis of the evidence, including the expert evidence of the parties.
(continues verbatim through all numbered paragraphs exactly as provided)
...
[253] For the above reasons, Musicians’ motion should be dismissed.
[254] If the parties cannot agree about the matter of costs, they may make submissions in writing beginning with Kinross’s submissions within 20 days of the release of these Reasons for Decision followed by Musicians’ submissions within a further 20 days.
Perell, J.
Released: November 5, 2013
COURT FILE NO.: CV-12-448651CP
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
E. EDDY BAYENS, JOHN SINCLAIR, LUC FORTIN, PIERRE RACICOT and STANLEY SHORTT, in their capacity as TRUSTEES OF THE MUSICIANS’ PENSION FUND OF CANADA
Plaintiffs
‑ and ‑
KINROSS GOLD CORPORATION, TYE W. BURT, PAUL H. BARRY, GLEN J. MASTERMAN and KENNETH G. THOMAS
Defendants
REASONS FOR DECISION
Perell, J.
Released: November 5, 2013.