Mask v. Silvercorp Metals Inc., 2015 ONSC 5348

CITATION: Mask v. Silvercorp Metals Inc., 2015 ONSC 5348

COURT FILE NO.: 13-480848-CP

DATE: 20151022

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: John Mask / Plaintiff / Moving Party

AND:

Silvercorp Metals Inc., Rui Feng and Meng Tang / Defendants / Responding Parties

BEFORE: Justice Edward P. Belobaba

COUNSEL: Joseph Groia, Kevin Richard and Matthew Stroh for the Plaintiff

Dana Peebles and Miranda Lam for the Defendants

HEARD: August 26, 27 and 28, 2015

Proceeding under the Class Proceedings Act, 1992

LEAVE AND CERTIFICATION DECISION

Belobaba J.

[1] Short-sellers posted negative information on the internet about a publicly-traded mining company. The next day the share price dropped by 20 per cent. The short-sellers made a huge profit; the shareholders lost millions. The mining company publicly denied the allegations in the internet postings and tried to show that no misrepresentations were made. To no avail. Class actions were filed in the U.S. and Canada, including this one in Toronto.

The motion for leave and certification

[2] The plaintiff, John Mask, says he lost money because he purchased Silvercorp Metals shares at prices that were artificially inflated by misrepresentations that were corrected by the anonymous internet postings. He now seeks leave to commence an action for secondary market misrepresentation under s. 138.8 of the Ontario Securities Act[^1] (“OSA”) and moves to certify the action as a class proceeding under s. 5(1) of the Class Proceedings Act[^2] (“CPA”).

[3] The parties also filed several evidentiary motions. My evidentiary rulings are set out in the attached Appendix. I refer to these rulings as necessary during the course of these reasons.

Background

[4] Silvercorp Metals, Inc. (“SVM”) is a Vancouver-based company that owns and operates mining properties in China. The largest property, and the focus of this proposed class action, is the Ying mining project which includes four mines: SGX, HRP, TLP and LM. SGX (and its silver deposit) is the most important, accounting for about 80 per cent of the Ying revenues.

[5] SVM is a “reporting issuer” in Ontario within the meaning of s. 1(1) of the OSA and a “responsible issuer” within the meaning of s. 138.1. The shares trade on the Toronto and New York Stock Exchanges. Mr. Feng is the CEO and Ms. Tang is the former CFO. Mr. Mask is a shareholder.

[6] During the proposed class period, March 1, 2010 to September 12, 2011, SVM released periodic public reports about the Ying mining project, including a technical report in each of 2010 and 2011, prepared by BK Exploration Associates. The BK Reports set out the company’s estimates of the silver, lead and zinc resources and reserves at the Ying project overall (“the BK 2010 Report”) and the SGX mine in particular (“the BK 2011 Report”).

[7] In September of 2011, SVM shares were targeted by short-sellers who were betting that the SVM share price was about to suddenly decline. Anonymous postings appeared on the internet questioning the company’s financial accounting as well as its mineral estimates, production numbers and mineral grade levels. For example, a posting on September 2, 2011, criticized the reported silver grade levels at SGX as being “too good to be true.” The SVM share price dropped about 10 per cent from $8.23 to $7.43.

[8] About two weeks later, on September 13, a second anonymous internet posting caused the SVM share price to drop a further 20 per cent. The gist of this lengthy posting questioned the use of the BK consulting firm (a two-man operation) and alleged that SVM overstated the quantity and quality of its mineral resources and reserves at the Ying project and engaged in questionable sales to related parties.

[9] SVM responded the next day with a press release that attempted to refute the allegations of “fraud” (SVM’s word). In the press release, the company provided detailed information about the taxes paid to the Chinese authorities, as documented by the issued tax certificates, and tried to show that the sales revenues (and related production numbers) were in fact correct. To this end, SVM attached a “Schedule 4” to the news release that reconciled production to revenue (as reported in the company’s financial statements) for the SGX and TLP mines for the calendar years 2006 to the middle of 2011. The importance of this Schedule 4 document will be explained in a moment.

[10] As a result of the September 13 internet posting and the 20 per cent drop in share price, the B.C. Securities Commission commenced an investigation into the company’s technical disclosures. The letters between SVM and the Securities Commission (which have been ruled admissible[^3]) show the following: (i) the Securities Commission identified a list of deficiencies “requiring correction” and asked that SVM respond within two weeks; (ii) SVM responded with a 19-page letter that explained the alleged deficiencies and noted the corrections that would be made; (iii) the Securities Commission found the SVM response “incomplete or inadequate,” advised SVM that if the remaining deficiencies were not resolved “in a timely manner” it could be placed on the “issuers in default list” and requested that the company retain an internationally recognized consulting firm to prepare new technical reports “within a reasonable period.”

[11] SVM retained AMC Mining Consultants. It appears that the Securities Commission was content and, in any event, the investigation was closed. AMC’s updated technical report was released by SVM in June, 2012 (“the AMC 2012 Report”). The AMC 2012 Report summarized SVM’s past reported ore production (over the time period 2005-2011) and updated the estimates of future ore production, based on new exploration and development work that had been completed by SVM since the release of the BK 2011 Report.

[12] As will shortly become evident, the gist of the plaintiff’s complaint is that the AMC 2012 Report shows that the earlier representations about mineral production and grade levels as set out in the BK 2010 and 2011 Reports and as further documented in Schedule 4, were over-stated and, in a word, untrue. The allegation of misrepresentation arises, in essence, from a comparison of the AMC 2012 Report with Schedule 4.

[13] In May 2013, the plaintiff commenced an action against SVM, its two executives and BK. The plaintiff released BK from this action in 2014 with the latter pledging co-operation but paying no settlement. The action continues against SVM and the two executives.

[14] The proposed Class Period, March 1, 2010 to September 12, 2011, stretches over some 18 months. It begins with the publication of the press release announcing the results of the BK 2010 Report and ends the day before the September 13 negative internet posting that caused the 20 per cent drop in the company share price.

[15] The plaintiff advances three claims: (1) a statutory and a common law claim for misrepresentation;[^4] (2) a statutory claim for failure to make timely disclosure; and (3) a common law claim in negligence alleging that SVM co-authored and published the BK 2010 and 2011 Reports that it knew or should have known had not been prepared in accordance with industry standards or properly audited.

[16] The defendants remind the court that the negligence simpliciter claim against SVM was not pleaded in the statement of claim. During the course of the hearing, the plaintiff asked for leave to amend his pleadings to add this claim. I will discuss this amendment request later in these reasons.

[17] I conclude this background narrative with a word about the short-sellers. As it turned out, the primary short-seller and author of the negative internet postings was an individual named Jon Carnes, who by his own admission, made $2.8 million the day after the September 13 share price collapse. Acting on a detailed complaint from SVM in February, 2013, the Executive Director of the B.C. Securities Commission charged Mr. Carnes with fraud and conduct contrary to the public interest.

[18] After a lengthy hearing, the Securities Commission dismissed the charges in May, 2015.[^5] The Commission acknowledged that the internet postings were “full of implication and innuendo” that were carefully crafted “to create the most damaging report to drive down the price of Silvercorp shares”[^6] and that the short-seller’s conduct was “unsavory” and “morally unsupportable”.[^7] In the end, however, the Securities Commission concluded that the conduct fell short of deceit or falsehood for the purpose of fraud and was therefore not a prohibited act. Both the fraud and public interest charges were dismissed.[^8]

Analysis

(1) The leave motion

[19] Section 138.3(1) of the OSA creates a statutory cause of action for secondary market misrepresentation available to any person who acquires or disposes of an issuer’s securities between the time that documents containing misrepresentations were publicly released and the time when the misrepresentations were publicly corrected.

[20] An action for secondary market misrepresentation under s. 138.3 requires leave of the court under s. 138.8. Leave will be granted if the court is satisfied that the action is brought in good faith and “there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff.”[^9]

[21] In most proposed securities class actions, the timing and content of the alleged misrepresentation and subsequent correction are not in dispute and the court’s focus is on the two-pronged leave provision – whether the plaintiff can show good faith and a reasonable possibility of success at trial. Here, however, there was considerable dispute about the misrepresentation and the public correction and thus, about the applicability of both ss. 138.3 and 138.8. I will therefore discuss each of them in turn.

(i) Section 138.3: Misrepresentation and public correction

[22] As I have already noted, s. 138.3 provides a statutory cause of action for damages sustained between two time-posts: the time that documents containing the alleged misrepresentations were publicly released by the defendant and the time that the misrepresentations were publicly corrected. It is obviously a matter of fairness to the defendant that both the start point (the misrepresentation) and the end point (the public correction) be identified with some precision.

[23] Indeed, Ontario law is clear that a plaintiff is required to specifically “identify and articulate” the “falsity” in the initial representation, which the court can then use as a “benchmark to determine when and whether there was a corrective disclosure”.[^10] The plaintiff must “link” that misrepresentation to a “pleaded public correction”, providing “full particulars” of “the necessary material facts with sufficient clarity and precision so as to give the other party fair notice of the case they are required to meet”.[^11]

[24] The defendants correctly point out that the pleadings do not identify which words or figures, in which documents, and on which dates, were untrue and are thus alleged to be misrepresentations. Instead, the statement of claim refers to about a dozen corporate disclosures over some 18 months.

[25] On the last day of the hearing, counsel for the plaintiff asked that the court to treat the alleged multiple misrepresentations as a single misrepresentation under s. 138.3(6) of the OSA.[^12] The defendant, to say the least, was not happy with the plaintiff’s eleventh-hour attempt to recast his claim in this manner, especially given the pleading deficiencies just noted. Nonetheless, I will accede to the plaintiff’s request. The dozen or so public disclosures as set out in the statement of claim all deal with mining resource estimates, production numbers or grade levels and therefore have “a common subject matter or content.” Further, there is an absence of any demonstrated prejudice to the defendants. As a result, I am prepared to exercise my discretion under s. 138.3(6) in favour of the plaintiff and treat the dozen or so multiple “misrepresentations” as a single (continuing) misrepresentation that first appears on March 1, 2010, the commencement of the Class Period.

[26] I now turn to the public correction. Here again the plaintiff’s pleading is less than satisfactory. For example, there is no attempt to link the alleged misrepresentations to the corrective disclosure. Nor is there any clear indication of what correction was actually made or when this was done. All that is pleaded is that the September 2, 2011 posting “rais[ed] questions” about “the accuracy of BK’s technical reports of the SGX Mine” and that the September 13, 2011 posting “criticized BK for performing its audits negligently”. Nothing is pleaded about any “truth” being revealed in any of the internet postings. And, it was only during the course of the hearing (when pressed by the court) that the plaintiff’s counsel specified that the corrective disclosure was either the September 14 news release that referred to the September 13 internet posting, or ideally the actual September 13 posting, which was not yet before the court.

[27] To rectify the latter problem, counsel for the plaintiff advised that he would bring a motion as soon as the hearing concluded asking that the September 13 posting be received in evidence. I have now reviewed this motion and the material filed by both sides. For the reasons set out in the Appendix, the plaintiff’s highly unusual post-hearing motion is granted. The September 13 posting is now properly before the court.

[28] Thus, the time-posts for the purposes of the Class Period and the operation of s. 138.3 are March 1, 2010 (the SVM press release announcing the results of the BK 2010 Report) and September 12, 2011 (the day before the September 13 internet posting and the resulting 20 per cent drop in share price.)

[29] Can an anonymous internet posting that alleges misrepresentation and causes a significant drop in share price qualify as a corrective disclosure? In my view, it can. The wrong targeted by Part XXIII.1 of the OSA is the misrepresentation. In order to provide a fixed time period for liability and the statutorily prescribed assessment of damages,[^13] section 138.3(1) requires the plaintiff to identify “the period between the time when the document was released and the time when the misrepresentation contained in the document was publicly corrected…” But the OSA does not define the phrase “publicly corrected”; nor does it require that the public correction be issued by the company itself.

[30] It is now commonplace in U.S. securities class actions that corrective disclosure “can take any of a number of forms” and “courts are not concerned with the source of the communication as long as the disclosure makes its way to the marketplace”.[^14] Sources of corrective disclosure can include credit ratings agencies,[^15] newspaper articles,[^16] market analysts[^17] and short-sellers.[^18] I agree with this interpretation of “corrective disclosure” and I have no difficulty concluding that internet postings, even anonymous internet postings, can constitute public corrections under s. 138.3 of the OSA.

[31] I now turn to the preliminary merits analysis under s. 138.8.

(ii) Section 138.8: The leave requirements

[32] As already noted, an action for secondary market misrepresentation under Part XXIII.1 of the OSA requires leave of the court. Leave will be granted under s. 138.8 if the court is satisfied that the action is brought in good faith and “there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff.”[^19]

[33] Very few OSA leave motions fail to clear the good faith requirement. Here, however, there was an extended skirmish on this very point. The defendants argued, based on the answers provided by the plaintiff at his cross-examination, that Mr. Mask had not shown an honest and reasonable personal belief in the merits of his own case. When questioned on this point, Mr. Mask said, somewhat surprisingly, that he had no opinion about the merits of the action.

[34] However, in his affidavit, Mr. Mask made clear that he was bringing this action

[i]n good faith … to recover the losses incurred by myself and the other class members as a result of acquiring SVM shares … [and] to ensure that SVM is held accountable for its behavior and to send a message to other mining and exploration companies that they too will be held accountable for any misrepresentations made to investors about their mining assets, including the quality of ore and production levels located in China.

[35] I am therefore satisfied that good faith has been established and the first prong of the test under s. 138.8 is met. The difficulty is with the second prong – whether the plaintiff has shown that there is a reasonable possibility that the action will be resolved in his favour at trial.

[36] In two recent decisions, Goldsmith v. National Bank[^20] and Coffin v. Atlantic Power,[^21] I set out my understanding of the “reasonable possibility” test. I noted that in Theratechnologies,[^22] the Supreme Court made clear that the leave test was more than a “speed bump” and that judges should undertake “a reasoned consideration of the evidence to ensure that the action has some merit.”[^23] The “reasonable possibility” threshold, said the Court, requires that there be a “reasonable or realistic chance that the action will succeed.”[^24] The Court explained as follows:

A case with a reasonable possibility of success requires the claimant to offer both a plausible analysis of the applicable legislative provisions, and some credible evidence in support of the claim... A full analysis of the evidence is unnecessary ... What is required is sufficient evidence to persuade the court that there is a reasonable possibility that the action will be resolved in the claimant’s favour.[^25]

[37] The Supreme Court reminded class action judges that the leave threshold is intended to provide “a robust deterrent screening mechanism” to ensure “that cases without merit are prevented from proceeding.”[^26] In the end, I adopted and applied the test from Theratechnologies which, in my view, was in essence the same test that was approved by the Court of Appeal in Green v. CIBC:

[W]hether, having considered all the evidence adduced by the parties and having regard to the limitations of the motions process, the plaintiffs' case is so weak or has been so successfully rebutted by the defendant, that it has no reasonable possibility of success.[^27]

[38] I take the same approach here. Given the decisions in Green and Theratechnologies, the question for me, as I see it, is this: after considering all of the evidence presented by the parties, does any part of the plaintiffs’ case have a reasonable or realistic chance of success at trial? Or is the plaintiffs’ case so weak or has it been so successfully rebutted by the defendants that is has no reasonable possibility of success?

[39] I remind the reader that this leave motion involves both an alleged misrepresentation and an alleged failure to make timely disclosure of a material change.

Misrepresentation

[40] As is now common on OSA leave motions, the parties, and in particular the defendants, filed a large volume of evidence, all of which of course had to be considered. However, as if often the case, the decision of the court turns on a handful of documents.

[41] This case comes down to a comparison of the Schedule 4 document that was attached to the SVM press release of September 14, 2011 and the AMC 2012 Report. The plaintiff’s position is that because the AMC numbers are materially different (with lower mineral production numbers and grade levels), the earlier disclosures during the Class Period (as summarized in Schedule 4) were obviously misrepresentations that resulted in an inflated share price and, once corrected, caused damage to the affected shareholders.

[42] There were, to be sure, other issues raised by the plaintiff - for example, whether the use of the “polygonal method,” common in China for estimating resources in deposits with the geological profile of the Ying mine, was in accord with applicable professional standards or whether the BK 2010 and 2011 Reports complied with the requirements of National Instrument 43-101.[^28] But the primary focus, and indeed the issue on the leave motion, is whether on the evidence presented there is a reasonable possibility that the plaintiff will succeed at trial on either the misrepresentation or failure to disclose allegation. The focus of attention, as I have already noted, is the comparison of Schedule 4 with the AMC 2012 Report.

[43] The plaintiff’s expert in this regard was Mohan Srivastava, a consulting geologist, who undertook a comparison of the information in Schedule 4 with what was said in the AMC 2012 Report. Mr. Srivastava concluded that the data did not match and found significant, indeed material, differences between the two reports. For example, not only were the production numbers in the AMC 2012 Report for the relevant time periods noticeably different, AMC’s reported grade of silver was much lower than in the earlier corporate disclosures as summarized in Schedule 4 – 18 per cent lower for 2009 and 35 per cent lower for 2010. Mr. Srivastava concluded that the AMC 2012 Report “directly supported” the internet allegations “that SVM was overstating the silver grades of the Ying Project.”

[44] If this was the entirety of the evidence, I would have granted leave under s. 138.8 of the OSA. The plaintiff would have established a reasonable possibility of success at trial. But for this: Mr. Srivastava did not respond to or even mention the earlier AMC affidavit filed by the defendants.

[45] Patrick Stephenson was the principal geologist at AMC who was responsible for the preparation of the AMC 2012 Report. Recall that AMC was retained by SVM under pressure from the B.C. Securities Commission and agreed “to prepare an updated Technical Report … taking into account updated exploration and production information developed since the May 2011 BK Technical Report was prepared.”

[46] Mr. Stephenson provided an affidavit on behalf of AMC “to correct the erroneous statements made in the Claim by the Plaintiff about the contents of our report.” According to Stephenson, the plaintiff had “mischaracterized or misunderstood a number of statements made by or attributed to AMC.” Stephenson made clear that AMC “did not conclude that Silvercorp had overstated its 2009-2011 production numbers” and he found “no material discrepancy” between the production numbers reported in the AMC 2012 Report and the production numbers published in SVM’s annual MD&As for 2010 and 2011 (which, as already noted, were summarized in Schedule 4).

[47] Mr. Stephenson said he compared the production numbers in the MD&As for 2010 and 2011 with the production numbers recorded by AMC for the same years and noted the following:

▪ The AMC report used calendar years ending December 31 whereas the BK reports and the MD&A reports used fiscal years ending March 31;

▪ The AMC production numbers were lower in part because AMC inadvertently omitted hand-sorted high grade direct shipping ore from the milled ore totals in its 2012 report;

▪ The AMC production numbers were also lower in part because they reflected a mix of wet and dry tonnes while the SVM production numbers included moisture, adding about 2.5 to 3 per cent in volume;

▪ The AMC grouped production tonnage by different mine areas than SVM and covered different mines.

[48] Add to this list of differentiating factors, the fact that AMC was asked to “[take] into account updated exploration and production information developed since the May 2011 BK Technical Report was prepared” (my emphasis) and one can readily understand Mr. Stephenson’s overall conclusion.

[49] Mr. Stephenson concluded that, once the different reporting parameters were taken into account, there were no material differences between SVM’s production numbers (by tonnage and grade) as reported by SVM during 2010 and 2011, and those contained in the AMC 2012 Report over the same time periods:

In summary, in our view, when the 2010 and 2011 production totals reported by Silvercorp are adjusted to calendar year periods, and the slight AMC underreporting error, the wet-to-dry tonnes adjustment, and the mine grouping differences are taken into account, there are no material differences between the production numbers (by tonnage and grade) reported by Silvercorp in its contemporaneous MD&As, and the production numbers recorded by AMC in its 2012 Technical Report.

[50] Here is the important point. The plaintiff did not challenge Mr. Stephenson’s affidavit evidence. When Mr. Srivastava delivered his second affidavit comparing Schedule 4 to the AMC 2012 Report in August, 2014, four months after being served with Mr. Stephenson’s affidavit, Srivastava did not even mention the Stephenson affidavit, much less respond to any of its observations or conclusions.

[51] Further, counsel for the plaintiff cross-examined Mr. Stephenson at length and had every opportunity to challenge his observations and conclusions. But it appears that nothing came of this. In any event, there was no suggestion in the plaintiff’s factum or by plaintiff’s counsel in court that the Stephenson/AMC evidence had been controverted in any way or was no longer credible.[^29]

[52] Given that the detailed evidence of Mr. Stephenson, who was directly involved in the preparation of the 2012 AMC Report, stands completely uncontroverted I am obliged to find on the allegation of misrepresentation that the plaintiff has not cleared the OSA leave standard. This is not a case of battling experts. We have a participant expert (Stephenson) who was responsible for the AMC 2012 Report and who explains how and why the report is about oranges and another expert (Srivastava) who ignores the AMC explanation altogether and continues to assume that he is dealing with apples.

[53] It is important to remember that absent the second Srivastava affidavit, the only other evidence of misrepresentation, as advanced by the plaintiff, is in the suggestions of possible negligence (in the preparation of the BK 2010 and 2011 Reports) that are found in the exchange of letters between SVM and the B.C. Securities Commission. These are the letters that led to the retainer of AMC.[^30] But even if the various “deficiencies” identified by the Securities Commission could be characterized as possible negligence (no breach of any standard of care is either pleaded or documented) this alone is not enough to clear the leave hurdle, especially when it appears that the Commission was content with the AMC retainer and no further action was taken.

[54] I am therefore obliged to conclude that the plaintiff’s allegation of misrepresentation is so weak or has been so successfully rebutted by the defendants that it has no reasonable possibility of success.

Timely disclosure

[55] The allegation here is that SVM failed to make timely disclosure of a material change as required under s. 138.3(4) - namely the disclosure of a “trend” that its successive mineral production figures, as published, were deteriorating and that SVM was mining higher quantities of ore to extract minerals which were declining in quality.

[56] A “material change” is defined in s. 1(1) of the OSA as “a change in 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.”[^31] However, as Strathy J. noted in Green,[^32] the requirement to make timely disclosure of a material change “is not an obligation to provide running commentary on the company’s progress during the quarter or to comment on internal or external events that may impact its performance.”[^33]

[57] A downward trend in the performance of a business, without more, is not a material change requiring disclosure. The case law is clear that there must be a significant disruption or interference in the ongoing operation of the business itself - for example, if a mining company is notified that its mining leases will be cancelled or mining access roads will be closed. In Re Rex Diamond,[^34] the Ontario Securities Commission found that a material change occurred in the diamond company’s business when it was legally unable to access its mining properties in order to extract diamonds. And in Re Coventree,[^35] the capital markets company was no longer able to issue commercial paper (through its conduits) which was a primary source of its revenue and a crucial aspect of its business. This inability was found to be a material change because the securitization company was no longer able “to carry on its principal business.”[^36]

[58] There is no suggestion here that because of the alleged “trend”, SVM was no longer able to carry on its principal business. Indeed nothing of the sort has even been pleaded. More particularly, the plaintiff has not pleaded any material facts as to any specific production data received by SVM, on any specific date within the proposed Class Period, showing a “trend” or otherwise that was a “material change” within the OSA definition and thus required disclosure by SVM. In any event, SVM published a “Results of Operations” chart setting out comparative annual results in its fiscal year-end MD&As released in 2010 and in 2011.

[59] In short, there is no support in either the pleadings or the evidence for the proposition that the plaintiff’s allegation of the failure to make timely disclosure of a material change has a reasonable possibility of success at trial.

Conclusion on leave motion

[60] I have now considered all of the evidence presented by the parties and I find for the reasons set out above that the plaintiff has not satisfied the leave requirement. I find that the plaintiff’s case so weak or has it been so successfully rebutted by the defendants that it has no reasonable possibility of success at trial. The motion for leave must be dismissed.

(2) The certification motion

[61] If the leave motion is dismissed, what then remains for certification? Recall that the plaintiff is advancing two common law claims, negligent misrepresentation and negligence.

[62] The Court of Appeal made clear in Kinross[^37] that a class action is not the preferable procedure where leave under s. 138.8 of the OSA has been denied because the statutory misrepresentation claim has no reasonable possibility of success and where the common law misrepresentation claim is “destined to fail” because it rests on the same evidentiary foundation.[^38] “To permit a class action to proceed in [these] circumstances would render access to justice more illusory than real and would significantly undercut the goal of judicial economy.”[^39]

[63] Here the common law misrepresentation claim rests on the same evidentiary foundation as the statutory claim (i.e. the comparison of Schedule 4 with the AMC 2012 Report). Applying the analysis in Kinross, I am obliged to conclude here as well that the common law misrepresentation claim should not be certified.

[64] That leaves the negligence claim. The defendants point out, in my view correctly, that negligence simpliciter as against SVM has not been pleaded. There are suggestions in the statement of claim that the defendants breached a duty of care by co-authoring and publishing the BK 2010 and 2011 Reports. But in the “defined terms” section of the statement of claim, the two reports are described as audit reports “prepared by Chris Brioli and Mel Klohn”, the two BK principals; and BK itself is defined as a joint venture between Messrs. Brioli and Klohn that “authored and published” the BK 2010 and 2011 Reports. I also note that an SVM mining engineer named (Wenchang) Ni is defined as a person who “authored” material portions of the two BK reports.

[65] The current pleading, to say the least, needs to be clarified. Not surprisingly, the plaintiff seeks leave to amend the statement of claim to plead negligence simpliciter with greater clarity. The plaintiff’s request for leave to amend is denied for two reasons. First, it is unfair to the defendants at this stage of the proceeding. Second, the negligence claim on the facts herein is, in any event, subsumed in the negligent misrepresentation claim.[^40]

[66] Put simply, the negligence pleading - that SVM co-authored and published technical reports that overstated the quantity and quality of mineralized ore that in turn resulted in shareholder losses when these alleged misrepresentations were corrected – is in substance a pleading of negligent misrepresentation. The duty of care and the breach of this duty in both cases are one and the same. The negligence simpliciter pleading is duplicative and cannot proceed.

[67] If the negligence simpliciter claim is subsumed in the common law negligent misrepresentation claim and the latter will not be certified given that the statutory claim for misrepresentation has been denied, then nothing meaningful remains for certification.

Disposition

[68] The motion for leave and certification is dismissed.

[69] If costs cannot be resolved by the parties, I would be pleased to receive brief written submissions – within 10 days from the defendants and within 10 days thereafter from the plaintiff.

[70] I am grateful to counsel on both sides for the quality of their advocacy.

Belobaba J.

Released: October 22, 2015

Appendix: Evidentiary Rulings

1. The September 13 Internet Posting. The plaintiff’s post-hearing motion is granted and the Posting is received in evidence. There is no good reason to exclude it. The defendant had a copy of the Posting and responded to it in detail in its September 14 press release. The plaintiff referred to this Posting in the statement of claim and the Morganti affidavit. There is no surprise and no prejudice. The Posting is relevant to establish the period in which the defendant is liable for the alleged misrepresentation under s. 138.3(1) of the OSA and in the assessment of damages under s. 138.5. The Posting is not hearsay because, as the plaintiff explains in his factum, it is not being adduced for the truth of its contents.

The defendant further argues that the Posting is inadmissible because it is submitted without an affidavit. While generally, the proper practice under Rule 39.01 for adducing evidence on a motion is to prove documents through an affidavit,[^41] courts have been flexible in that regard.[^42] Similarly, with respect to Rule 39.02, the Divisional Court has urged a “flexible, contextual approach” and refrain from an “overly rigid interpretation [that] can lead to unfairness by punishing a litigant for an oversight of counsel”.[^43] Further flexibility exists by way of s. 12 of the CPA. Any oversight on the part of plaintiff’s counsel in not tendering the Posting before the hearing is fully and fairly reparable and should not be visited on the putative class members.

2. The three letters between SVM and the B.C. Securities Commission. It was this exchange of letters that resulted in the AMC 2012 Report. The letters list the various deficiencies identified by the Securities Commission in the BK 2011 Technical Report and show that SVM retained AMC in response to pressure from the Commission who threatened to place the company on its “issuers in default” list if a new technical report was not prepared “within a reasonable time”. I advised counsel at the hearing that I could readily infer this very rationale from the defendants’ use in their factum of the telling phrase “after an exchange of letters” and that the additional detail in said letters was not overly helpful. However, I am prepared to rule in favour of the plaintiff and find that the three letters are admissible under the “documents in possession” doctrine: see R. v. Wood, 2001 NSCA 38, at para. 114.

3. The four BK emails. The defendant moves to strike these emails (Ex. B, K, T and AA). The three emails written by Mel Klohn (Ex. B, K, and T) are struck. Mr. Klohn, a principal of BK and living in Spokane, Washington, is fully available to provide direct (non-hearsay) evidence. Indeed, he is arguably obliged to do so under ss. 9, 10 and 11 of the Tolling Agreement (also see s. 14 and 19). Because no formal steps have been taken to obtain Mr. Klohn’s evidence under these Tolling Agreement provisions, “necessity” has not been established. The three Klohn emails are struck. Mr. Brioli (the other principal of BK) is, sadly, incapacitated and thus his email (Ex. AA) satisfies the “necessity” criterion and remains in the record - for whatever limited value it may have.

4. The draft of the Stephenson affidavit. The plaintiff says that certain portions in the draft affidavit make clear that SVM retained AMC as a direct response to the concerns raised by the B.C. Securities Commission. As I have just noted, I advised the plaintiff that I could infer this very rationale from the defendant’s factum and its acknowledgement that SVM retained AMC “after an exchange of letters” with the Securities Commission. The plaintiff, however, insisted the same acknowledgement be found in the draft of the Stephenson affidavit. I cannot understand the reason for this submission. In any event, I agree with the defendants that the draft of a “participant expert” is not admissible.[^44]

5. The second Srivastava affidavit compares Schedule 4 with the AMC 2012 Report, both of which were released after the Class Period. However, this alone does not preclude the admissibility of Mr. Srivastava’s analysis as set out in his second affidavit. The defendants concede that Schedule 4 is simply a conversion of SVM’s Class Period production numbers from a fiscal year to a calendar year. Schedule 4 is therefore relevant and remains in the record.

[^1]: Securities Act, R.S.O. 1990, c. S. 5 (“OSA”).

[^2]: Class Proceedings Act, 1992, S.O., 1992, c. 6 (“CPA”).

[^3]: See Appendix.

[^4]: “Misrepresentation” is defined in s. 1(1) of the OSA to mean: “(a) an untrue statement of material fact, or (b) an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in the light of the circumstances in which it was made”. “Material fact” is defined in s. 1(1) of the OSA to mean: “...a fact that would reasonably be expected to have a significant effect on the market price or value of the securities.”

[^5]: Re: Carnes, 2015 BCSECCOM 187.

[^6]: Ibid., at para. 138.

[^7]: Ibid., at 141.

[^8]: Ibid., at paras. 104 and 142.

[^9]: OSA, supra, note 1, s. 138.8.

[^10]: Drywall Acoustic Lathing and Insulation Local 675 Pension Fund v. SNC-Lavalin Group Inc., 2015 ONSC 256, [2015] O.J. No. 125 at paras. 27- 28, 44 (S.C.J.);

[^11]: Drywall and Acoustic Lathing and Insulation Local 675 Pension Fund v. SNC-Lavalin Group Inc., 2014 ONSC 660, [2014] O.J. No 435, at paras. 40-44, 47-49 (S.C.J.), leave to appeal ref’d 2014 ONSC 3438 (Div. Ct.)

[^12]: Section 138.3(6) of the OSA provides that “multiple misrepresentations having common subject matter or content may in the discretion of the court be treated as a single misrepresentation.”

[^13]: Under s. 138.5 of the OSA.

[^14]: Matthew L. Fry, “Pleading and Proving Loss Causation in Fraud-on-the-Market-Based Securities Suits Post-Dura Pharmaceuticals” (2008) 36 Sec. Reg. L.J. 1 at 22-23.

[^15]: In re Vivendi Universal, S.A. Securities Litigation, 765 F.Supp.2d 512 (S.D.N.Y. 2011) at 560.

[^16]: In re eSpeed, Inc. Securities Litigation, 457 F. Supp.2d 266 (S.D.N.Y. 2006) at 296.

[^17]: Lentell v. Merrill Lynch & Co., Inc., 396 F. 3d 161 (2nd cir. 2005) at 178 n. 4.

[^18]: In re Winstar Communications, 2006 WL 473885 (S.D.N.Y.).

[^19]: OSA, supra, note 1, s. 138.8.

[^20]: Goldsmith v. National Bank of Canada, 2015 ONSC 2746 at paras. 6-10.

[^21]: Coffin v. Atlantic Power Corporation, 2015 ONSC 3686 at paras. 16-21.

[^22]: Theratechnologies Inc. v. 121851 Canada Inc., 2015 SCC 18.

[^23]: Ibid., at para. 38.

[^24]: Ibid., at para. 38.

[^25]: Ibid., at para. 39. Emphasis in original.

[^26]: Ibid., at para. 38.

[^27]: Green v. Canadian Imperial Bank of Commerce, 2014 ONCA 90 at para. 93, (affirming Strathy J.’s test in the court below).

[^28]: National Instrument 43-101 regulates the publication of mineral estimates and other information about mining properties.

[^29]: The defendants add another point that I include for completeness: that the plaintiff has not tendered any evidence from any witness stating that because the AMC 2012 Report was different than what was said in Schedule 4, Schedule 4 and SVM’s earlier disclosures were wrong. Given my findings herein, there is no need to pursue this point.

[^30]: Recall that the plaintiff does not (and cannot) rely on the September 13 internet posting for the truth of its contents.

[^31]: OSA, at s. 1(1).

[^32]: Green v. Canadian Imperial Bank of Commerce, 2012 ONSC 3637.

[^33]: Ibid., at para. 28.

[^34]: Re Rex Diamond Corp., (2008) 31 O.S.C.B. 8337.

[^35]: Re Coventree, (2011) 34 O.S.C.B. 10209 at paras. 140‑141, 154, 583-584. Also see Coffin v. Atlantic Power, 2015 ONSC 3686, at paras. 101-110.

[^36]: Ibid., at para. 583.

[^37]: Musicians’ Pension Fund of Canada (Trustees of) v. Kinross Gold Corp., 2014 ONCA 901.

[^38]: Ibid., at para. 138.

[^39]: Ibid., at para. 139.

[^40]: See the discussion in Silver v. Imax Corp., 2009 72334 (ON SC), [2009] O.J. No. 5585 (S.C.J.) at paras. 81-88.

[^41]: Slough Estate Canada Ltd. v. Federal Pioneer Ltd., 1994 7313 (ON SC), [1994] O.J. No. 2147 at para. 56 (Gen. Div.).

[^42]: See for example, Montor Business Corp. (Trustee of) v. Goldfinger, 2011 ONSC 2044 at para. 23 (Rule 39.01 “does not require that the only evidence to be used on a motion must be in affidavit form.”)

[^43]: First Capital Realty Inc. v. Centrecorp Management Services, 2009 CarswellOnt 6914 at para. 14 (Div. Ct.).

[^44]: See the decisions of the Court of Appeal in Westerhof v. Gee Estate, 2015 ONCA 206 at paras. 6, 61-64, 70 and 81-82 and Moore v. Getahun, 2015 ONCA 55 at para. 70.