CITATION: Bradley v. Eastern Platinum Ltd., 2016 ONSC 1903

COURT FILE NO.: 4521/11-CP

DATE: 2016/03/31

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

Brian Bradley

Applicant

• and -

Eastern Platinum Ltd., Ian Rozier, John Andrews and John Hawkrigg

Respondents

COUNSEL: Daniel Bach, Paul Bates and Alex Dimson, for the applicant Alan L. W. D’Silva, Patrick O’Kelly and Daniel Murdoch, for the respondents

HEARD: September 8 and 9, 2015 Supplementary Written Submissions December 18, 2015, January 13 and 19, 2016

RADY J.:

Introduction

[1] This is a proposed class action in which the applicant seeks damages for the alleged non-disclosure of a material change as required by the Securities Act, R.S.O. 1990, c. S.5.

[2] The claim has its genesis in a press release dated Friday, April 15, 2011 from Eastern Platinum Ltd. (Eastplats) announcing production results for the quarter ended March 31, 2011 (Q1/2011) at the Crocodile River Mine (CRM). It disclosed that production had declined in Q1/2011 as compared to the prior quarter and Q1/2010. The text of the release is set out below:

EASTPLATS REPORTS PRODUCTION RESULTS

FOR THE QUARTER ENDED MARCH 31, 2011

April 15, 2011

Mr. Ian Rozier, President and CEO of Eastern Platinum Limited (“Eastplats”) is pleased to report operating results from the Crocodile River Mine (“CRM”) for the first quarter ended March 31, 2011.

Production statistics for the current quarter and historical quarters are as follows:

[Table omitted]

Early in the quarter, a comprehensive internal safety review was conducted in line with new DMR (South African Department of Mineral Resources) general safety recommendations on roof support requirements. Following this review, support methods at CRM have been modified. This review has also accelerated the previously planned progressive introduction of cement grout support packs into working panels as mining operations at CRM get deeper and where support requirements are projected to increase. These measures should further enhance safety standards at CRM. This increase in support standards necessitated the retraining of underground personnel with a consequent temporary reduction in the number of working panels during the quarter that impacted on mine production.

The increase in reef development has impacted slightly on the head grade delivered to the plant.

“The traditional slow start in January combined with the introduction of revised support methods resulted in a significant decrease in production for the quarter. We are confident that the impact of this is short term and that production will return to anticipated levels. Development at Crocette is progressing, and in the Eastplats Limb we anticipate awarding contracts for construction for Mareesburg shortly”, stated Ian Rozier.

[3] Following the release of this information, Eastplats’ stock price fell from $1.30 to $1.10 on the Toronto Stock Exchange (TSX) by the close of the next trading day.

[4] On June 28, 2011, the applicant issued a notice of application for leave to commence an action pursuant to Part XXIII.1 of the Act. The applicant alleged that Eastplats failed to disclose a complete or partial shutdown of operations at the CRM in Q1/2011, which resulted in a reduction in production. The application was subsequently amended with an attached amended statement of claim that alleged that cement grout packs were introduced at CRM in Q1/2011, which was an undisclosed material change because it caused the decline in production.

[5] The applicant seeks leave to commence the action pursuant to s. 138.8 of the Act. The respondents oppose the relief sought on the basis that the action is not brought in good faith and there is no reasonable possibility that the action will be resolved at trial in the applicant’s favour. The applicant submits that it has led sufficient evidence to surpass the “low reasonable possibility of success at trial standard”. He submits that there is an evidentiary conflict that cannot be resolved at this stage of the proceedings.

[6] For the reasons that follow, I have concluded that the proposed action has no reasonable prospect of success and the motion for leave must be dismissed. In the circumstances, I find it unnecessary to deal with the issue of good faith or whether the alleged non-disclosure is a material change.

The Parties

[7] The applicant is a pastry chef by trade who resides in British Columbia. He purchased 2000 shares of Eastplats in January 2011 on the TSX.

[8] Eastplats is a platinum mining company with its head office in Vancouver, British Columbia where it was also incorporated. It operated one platinum producing mine, CRM, during the proposed class period. It has since ceased operations. CRM comprised substantially all of Eastplats’ business.

[9] Eastplats’ common shares were listed on the TSX, the Johannesburg Stock Exchange and the London Stock Exchange’s AIM exchange.

[10] Mr. Rozier has been Eastplats’ president and CEO since September 2003. At times material to the claim, he was on both the company’s Safety, Health and Environment and its executive committees.

[11] Mr. Andrews was an Eastplats director from October 2007 until February 2014. He too served on the Safety, Health and Environment Committee at the relevant time.

[12] Mr. Hawkrigg was an Eastplats’ director from October 2007 until December 2012. He was also a member of the company’s Safety, Health and Environment Committee.

The Evidence

[13] As has now become customary, the evidentiary record on this motion is voluminous, comprehensive and daunting. It includes:

1. Application Record (one volume) with the affidavits of: (i) Sajjad Nematollahi, then an articling student and now an associate lawyer with Siskinds; (ii) Brian Bradley, the applicant; (iii) Alastair Macfarlane, the applicant’s mining expert.

2. Responding Record (three volumes) with the affidavits of: (i) Wayne Robinson, the managing director of CRM from January 2006 until December 2011; (ii) Richard Skinner, the chief surveyor at CRM since April 2010; (iii) Lukas Berrange, the manager of Safety, Health, Environment, Risk and Quality at CRM; (iv) Dr. Hendrik Kirsten, the respondents’ mining expert; (v) H.G. (Wally) Waldeck, the respondents’ mine planning and design expert; (vi) Richard Deaves, the respondents’ economic expert; (vii) Jacobus Bosman, the principal rock engineer at CRM between January and September 2011.

3. Reply Application Record (two volumes) with: (i) a supplemental affidavit from Mr. Nematollani; (ii) an affidavit from Douglas Cumming, the applicant’s economic expert;

4. Supplemental Reply Application Record (one volume) with the affidavit of Laura-Marie Paynter, a clerk with Siskinds;

5. Seven volumes of cross-examination transcripts, exhibits and answers to undertakings;

6. Supplemental Responding Record with the affidavit of Colleen Thompson, an administrative assistant with Stikeman, Elliott;

7. Compendia of the respondents;

8. In addition, the parties filed lengthy facta and volumes of books of authorities.

The Terminology

[14] The resolution of this motion requires some basic understanding of the technical concepts relating to mining referred to by the parties in order to provide background necessary to assess the affidavit and cross-examination evidence. The following discussion is taken largely from the respondents’ factum and is not controversial.

[15] A reef is a thin, continuous, underground layer of rock, which at CRM contains platinum group metals. There are two reefs on the CRM property, the Merensky and the UG2 reef. These two reefs, which extend over several hundreds of kilometers with many mines, contain much of the world’s known platinum group metal reserves. At the relevant time, extraction operations were taking place at certain underground sections of CRM, namely Zandfontein and Maroelabult.

[16] Mines like CRM are built to access the reefs and extract the platinum ore. Reefs are accessed in one of two ways, both of which were used at CRM:

• down a vertical shaft, with an elevator that descends from the surface down to various levels of the mine; and
• through inclined tunnels from the surface to the underground areas in which mining vehicles can travel.

[17] The extraction of ore occurs through ledging and stoping. When mining crews are ledging, they dig tunnels in the reef to facilitate access to the ore. A stope is an excavated area within the reef, which is accessed from the tunnels created by ledging. Stopes are divided into sections called working panels. Stoping is the mining of ore from a working panel in a stope. At any given time, some mining crews will be ledging while others are stoping. Ledging is a necessary developmental activity to allow crews to access the stopes and still involves ore extraction. Stoping results in a greater pace of ore extraction than ledging.

[18] Mine production over a short period, such as a month or quarter, may be affected by the number of crews required to engage in either ledging or stoping.

[19] The blasting and removal of rock and the installation of temporary stope support comprises the mining cycle. At CRM, the mining cycle consisted of drilling closely spaced blast holes at right angles into stope faces and filling the holes with explosives that are detonated when the employees are out of the mine. Once the stope face is blasted, temporary stope supports are installed. The miners then scrape the broken rock from the stope face into a series of gullies leading to a centre gully, and from there into trucks or conveyor belts that transport the rock from the mine to the surface.

[20] Once every three or four blasts, new rows of permanent stope support are installed. The installation of permanent stope support occurs independently of the mining cycle. As stopes are created, the roof of the stope, known as the hanging wall, must be supported to maintain the stability of the excavation and to minimize falls of ground. Ground or rock falls occur when the mine roof partially collapses and rock falls to the mine floor. Rock falls are unpredictable. Many factors contribute to them, including the depth of the mine, the geology of the rock and some seismic activity. Rock falls are dangerous and a leading cause of mine fatalities. They also affect the productivity of the mine because access to stope panels may be obstructed or blocked until the rock fall is cleared.

[21] The mine’s overall regional stability is provided by in-stope pillars, which are blocks of the ore body itself, which are left intact. No mining is permitted into those pillars.

[22] The stability of the mine is augmented by the installation of permanent stope support systems, which vary in strength, cost and complexity.

[23] Three support technologies are available:

• pre-stressed elongates – 20cm thick timber poles that contain a “pre-stressing” unit which helps to maximize the support each elongate provides. This is the support methodology that was primarily used at CRM prior to 2011;
• C-packs – a series of interlocking 10cm thick layers of timber that extend from the floor to the roof of the mine. They are placed around every other pre-stressed elongate and staggered between adjacent rows;
• cement grout packs – pre-fabricated woven bags, internally supported by wire formers, that surround an elongate. Cement-based grout is pumped into the bags from a plant on the surface after they are set up in the mine around the pre-stressed elongates.

The Claim in Summary

[24] The applicant commenced this application on June 28, 2011 by notice of application attaching a proposed statement of claim. In the claim, the applicant alleged that a complete or partial shutdown of CRM operations in early Q1/2011 was a material change that required disclosure. The alleged shutdown is said to have led to a decline in production.

[25] On June 18, 2012, the applicant served an amended notice of application with a revised proposed statement of claim. In the second proposed claim, the applicant alleged that the reduction in production in Q1/2011 was the result of a change in mine roof support methods and in particular, the introduction of cement grout pack supports. The applicant alleges that the introduction of cement grout pack supports at CRM in Q1/2011 was a material change as defined in the Act and other comparable provincial securities legislation, which ought to have been disclosed by Eastplats prior to the April 15 press release.

[26] The applicant alleges that the respondents’ failure to disclose the change caused Eastplats’ stock to trade at artificially inflated prices during the proposed class period and, as a result, the applicant and other Eastplats shareholders sustained damages by buying Eastplats securities at inflated prices.

[27] The timing of the introduction of cement grout pack supports is the central contentious issue between the parties in this proceeding. The respondents assert that cement grout packs were not used at CRM in Q1/2011. The applicant takes a different view.

[28] As elaborated below, the applicant alleges that in early 2011, Eastplats undertook a comprehensive internal safety review at CRM. Following the safety review, Eastplats accelerated a change to how the roof of CRM was supported with the introduction of cement grout support packs. The applicant alleges that in doing so, Eastplats deviated from a planned progressive introduction of the technology. The changes are said to have included:

• increasing the time to complete a cycle of operations at a given working panel (defined as “an underground compartment of a mine in which the mining face is accessed, separated from other compartments by a large pillar”) and the aggregate time taken to complete cycles of operation in the working panels of the Mareobult and Zanfontein sections of CRM;
• diverting underground personnel from their regular activities in order to be retrained on how to use the technology;
• decreasing the number of working panels; and
• the complete or partial shutdown or reduction in platinum extraction operations at CRM.

[29] The type of support methodology used in the mine can have a significant impact on the mining production process. The applicant’s expert, Alastair Macfarlane has deposed that the installation of a line of twelve elongates can take approximately three hours, while the installation of a line of grout packs can take approximately seven hours. Because the difference can reduce mine productivity, the implementation of a new support methodology requires a new mining plan in order to maintain production. A change between support methodologies also requires mine workers to be retrained, which also can impede production until training is complete.

[30] The applicant relies on evidence from the public domain that he says suggests that cement grout packs were implemented at CRM sometime in Q1/2011, including:

(i) the statement in the April 15, 2011 news release that, after an internal safety review, Eastplats “accelerated the previously planned progressive introduction of cement grout support packs into working panels as mining operations at CRM got deeper” and “this increase in support standards necessitated the retraining of underground personnel with a consequent temporary reduction in the number of working panels during the quarter that impacted on mine production”;

(ii) transcripts from conference calls between Eastplats and analysts during which Mr. Rozier is said to have acknowledged that the company accelerated a change in support during the first quarter of 2011 and that it “was probably a bit more costly than we thought with respect to the loss of panels.” In a subsequent call, Mr. Rozier said that Eastplats had made “the changes in roof support” “in our own time, as we were planning to do anyway--business as usual”.

(iii) a Credit Suisse Analyst Report dated April 17, 2011 which reads in part:

[Eastplats] reported Q1/2011 production results from its Crocodile River Mine. Ounces produced during the quarter totaled 25,387, 10% below our estimate, with all of the miss due to lower than forecasted mill throughput. While [Eastplats] had noted on the year-end conference call that production in January was impacted due to the traditional slow start to the year, the impact of introducing revised mining support methods was unexpected and resulted in a 12% greater reduction in throughput than we had anticipated.

(iv) A JPMorgan Analyst Report dated April 18, 2011 which reads in part:

[Eastplats] reported depressed production for the March quarter, apparently impacted by an accelerated change of stope support standards, and a ‘slow’ restart after the Christmas/New Year break. The slow start is a feature across the industry but the production loss due to a change in support standards is unusual. While management did not allude to it, we suspect its only existing operation, Crocodile River Mine (CRM), might have suffered some DMR enforced ‘section 54’ stoppages…

(v) other Eastplats disclosures that are said to acknowledge that the “increase in support standards necessitated the retraining of underground personnel, which temporarily decreased the number of working panels during the quarter and impacted production”.

[31] The applicant also relies on Mr. Macfarlane’s evidence. He was asked to examine the layout, mining operations and support conditions at CRM. He concluded that there was an accelerated change to the support methodology used in CRM in Q1/2011, which “would have had a material impact on output unless sufficient contingency face length and substitute labour was immediately available”. Mr. Macfarlane also concluded that the support change “ought to have been foreseen, and should have required a re-planning exercise,” resulting in “a modification to the original mine plan, in consequence of the changes in the output that should have been foreseen as a result of the accelerated changeover to the new support system.”

[32] The respondents counter that the evidence overwhelmingly establishes that C-packs rather than cement grout packs were installed in Q1/2011 and their installation did not have an impact on productivity at CRM. As an example, they have filed an affidavit from Mr. Bosman, CRM’s prinicipal rock engineer at the material time who deposed that C-packs were used during Q1/2011 as opposed to cement grout packs. As already noted, a number of other affidavits have also been filed on the issue, which are reviewed in more detail below. They say that the applicant’s interpretation of the press release and other documents is simply unsupported when all of the relevant evidence is reviewed.

The Law

[33] Section 138.8 of the Act provides as follows:

Leave to proceed

138.8(1) No action may be commenced under section 138.3 without leave of the court granted upon motion with notice to each defendant. The court shall grant leave only where it is satisfied that,

(a) the action is being brought in good faith; and

(b) there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff.

Same

(3) The maker of such an affidavit may be examined on it in accordance with the rules of court.

[34] It has been observed that “[t]he statutory leave provision is designed to prevent an abuse of the court’s process through the commencement of actions that have no real foundation, actions that are based on speculation or suspicion rather than evidence”: Silver v. Imax Corp., 2009 72342 (ON SC), [2009] O.J. No. 5573 (S.C.J.) at para. 330; leave to appeal refused 2011 ONSC 1035, [2011] O.J. 656 (Div. Ct.).

[35] Put another way, the purpose of the leave motion is to prevent strike suits, namely “coercive and unmeritorious claims, which are aimed at pressuring a defendant into settlement in order to avoid costly litigation”: Ainslie v. CV Technologies Inc., 2008 63217 (ON SC), [2008] O.J. No. 4891 (S.C.J.) at para. 10.

[36] Both the Silver and Ainslie decisions set out a helpful discussion of history leading to the creation of the legislation, which need not be repeated here but provide important context to the rationale and purpose of the provision.

[37] The Supreme Court of Canada has recently considered the securities legislation in Quebec and Ontario. First, in its April 2015 decision in Theratechnologies Inc.v. 121851 Canada Inc., [2015] S.C.C. 18, the Court ruled on an application for authorization to proceed with a secondary market class action under the Quebec Securities Act. The proposed claim alleged that Theratechnologies failed to disclose a material change arising from an FDA drug approval application. Under the Quebec Act, the test for authorization is whether the “…action is in good faith and there is a reasonable possibility that it will be resolved in favour of the plaintiff.” The court, in reversing the courts below, concluded that there was no reasonable possibility of success because of what was an absence of credible evidence of a material change that would trigger a disclosure obligation.

[38] Justice Abella, writing for a unanimous court, described the test for leave as a “meaningful screening mechanism” designed to prevent “costly strike suits and litigation with little chance of success” [para. 39].

[39] The court placed considerable emphasis on the history of the Ontario secondary market liability regime. The court also agreed with Belobaba J. in Dugal v. Manulife Financial Corp., 2013 ONSC 4083. He had expressed the leave test to require “not just a triable issue but a seriously arguable claim”. He observed as follows:

The [Ontario Law Reform Commission] was explicit that the “reasonable possibility of success” test was not intended merely to screen out impossible cases: “The test that we propose is not aimed at those cases where it is clear that the action cannot succeed”. There are already provisions under the Rules of Civil Procedure that allow such cases to be summarily disposed of, either by a motion to strike or a motion for summary judgment. Therefore, the “reasonable possibility of success” standard in s. 138.8, if the standard is not to be redundant, requires that plaintiffs prove something more than a mere possibility of success at trial. Otherwise, the leave application in securities class actions is nothing more than a speed bump [para. 39].

[40] A very similar conclusion had found expression in the decision of Perell J. in Bayens v. Kinross Gold Corp., 2013 ONSC 6864; aff’d at 2014 ONCA 901. He held that “the test is a genuine screening mechanism that requires the court to assess and weigh the evidence and to determine whether the plaintiff’s chance of success is a reasonable possibility” [para. 38].

[41] In the first Ontario decision to consider Theratechnologies, Justice Belobaba adopted its language. In Goldsmith v. National Bank of Canada, 2015 ONSC 2746 he stated:

Henceforth, class action plaintiffs seeking leave under Part XXIII.1 of the Act will have to provide the motions judge with (1) a plausible analysis of the applicable legislative provisions, and (2) sufficient evidence to persuade the court that there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff…The [Supreme Court of Canada] has re-established the leave threshold as “a robust deterrent screening mechanism” to ensure that “cases without merit are prevented from proceeding”…[I]t is now clear that the words “reasonable possibility” have a common sense content… [paras. 9 -11]

[42] The Court of Appeal dismissed the applicant’s appeal from his decision. See 2016 ONCA 22.

[43] Then, in December 2015 the Supreme Court released its decision in Green v. Canadian Imperial Bank of Commerce, 2015 SCC 60, considering s. 138.8 of the Act. The court concluded that the threshold for determining whether a proposed action has a reasonable chance of success is the same as the threshold under s. 225.4 of the Quebec Securities Act. The test as articulated in its decision in Theratechnologies was held to apply to the Ontario legislation.

[44] In arriving at her conclusion, Justice Côté noted at para. 103:

103 I would also add that the last of the reasons Strathy J. gave in support of his conclusion that he would have granted such an order was premised on an erroneous interpretation of the law: he found that the plaintiffs’ statutory claim had a reasonable possibility of success, but as I will explain below, this finding was based on the wrong threshold.

[45] The plaintiffs submit that Justice Côté’s comment is ambiguous and does not significantly change the standard set by the Court of Appeal in its Green decision.

[46] It bears noting that the Court of Appeal had concluded that the leave test in s. 138.8(1)(b) of the Act was the same as that for certification in s. 5(i)(a) of the Class Proceedings Act and Rule 21 of the Rules of Civil Procedure. That test was expressed as whether the claim as drafted “discloses a reasonable cause of action”. See Green, 2014 ONCA 90 at paras. 90 and 91.

[47] If there were any ambiguity, Justice Côté, along with the Chief Justice and Rothstein J. went on to say:

118 In CIBC, the defendants challenged the threshold that must be met by a plaintiff applying for leave under s. 138.8 OSA. One of the conditions that must be met to obtain leave is that the court must be satisfied that “there is a reasonable possibility that the action will be resolved at trial in favour of the plaintiff”: s. 138.8(1)(b) OSA. Strathy J. interpreted this statutory language as establishing a relatively low threshold according to which leave will be denied only if, “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”: para. 374. The Court of Appeal upheld this interpretation of s. 138.8(1)(b).

119 The defendants in CIBC argued in this Court that the threshold articulated by Strathy J. is too low.

120 I will address the point briefly, given the Court’s recent decision in Theratechnologies inc. v. 121851 Canada inc., 2015 SCC 18, [2015] 2 S.C.R. 106 (S.C.C.).

121 In Theratechnologies inc., the Court was asked to interpret s. 225.4 of the Securities Act, CQLR, c. V-1.1 (the “QSA”), the Quebec counterpart to s. 138.8 OSA. That section, which introduces a leave requirement for a statutory claim based on a secondary market misrepresentation in Quebec, provides that there must be a “reasonable possibility that [the action] will be resolved in favour of the plaintiff” for leave to be granted. The Court stated that for an action to have a “reasonable possibility” of success under s. 225.4, there must be a “reasonable or realistic chance that [it] will succeed”: Theratechnologies inc., at para. 38. Claimants must “offer both a plausible analysis of the applicable legislative provisions, and some credible evidence in support of the claim”: Theratechnologies inc., at para. 39.

122 There is no difference between the language of s. 138.8 OSA and that of s. 225.4 QSA. Moreover, both provisions relate to leave applications for statutory claims based on secondary market misrepresentation, albeit in different jurisdictions. Accordingly, the threshold test under s. 225.4 QSA articulated in Theratechnologies inc. applies in the context of s. 138.8 OSA.

123 Although there may be differences in the records that need to be produced in support of the leave applications in Quebec and Ontario (121851 Canada inc. c. Theratechnologies inc., 2013 QCCA 1256 (C.A.)), at paras. 125-26 ()), this does not affect the threshold a plaintiff must meet.

[48] In separate reasons, Justice Cromwell agreed with his colleague on this issue noting as follows:

147 Other issues were raised in the CIBC appeals. With respect to the threshold for leave under s. 138.8 OSA, I agree with my colleague Côté J.’s conclusion as to the applicable threshold and with my colleague Karakatsanis J. that the CIBC plaintiffs met it. I also agree with Côté J.’s analysis and disposition of the certification of common issues.

[49] And finally, Karakatsanis J., writing for Moldaver, Gascon J.J. and herself agreed with Justice Côté’s comments respecting the applicability of the Theratechnologies test to leave motions under s. 138.8 of the Act (see para. 212).

[50] What is clear is that the motions judge is to ensure that the leave requirement is more than a “speed bump” in the litigation and the plaintiff must show that there is a “reasonable or realistic chance that the action will succeed”. In order to do so, the plaintiff must, to repeat the words of Côté J., “offer both a plausible analysis of the applicable legislative provisions and credible evidence in support of the claim”. The motions judge must undertake “a reasoned consideration of the evidence to ensure that the action has some merit”.

[51] In my view, the test as now understood requires a robust, meaningful examination and critical evaluation of the evidence (or the absence of evidence). This would include both fact evidence from individuals and documents filed, as well as expert evidence. It is not a low bar as the applicant has asserted, and while this is not a motion for summary judgment, there are obvious parallels in the sense that both require the examination and weighing of evidence. On the other hand, there is no requirement for a respondent to “lead trump or risk losing” as expressed in many summary judgment decisions. I note that a respondent may have no obligation to file evidence at all as Justice Lax suggested in her Ainslie decision. Having said that, it may be a risky venture not to do so particularly where there are, as here, highly contentious factual issues. And as already noted, the respondents did file considerable evidence for this motion.

The Evidence Examined

[52] As already set out, the applicant’s evidence is the April 15, 2011 press release, the transcripts of teleconferences and certain analysts’ reports, which need not be repeated. He also relies on Mr. Macfarlane, who concluded there was an acceleration in the use of cement grout packs, based on the material relied on by the applicant and provided an opinion respecting its effect on mine production.

[53] The respondents’ evidence is in the form of affidavits from four fact witnesses, who were either employees or contractors at CRM in Q1/2011 and three experts, two of whom speak to Mr. Macfarlane’s affidavit and one who addresses the plaintiff’s financial expert. I pause here to say that I do not consider it necessary to deal with the financial experts because as is customary, these experts proceed on the basis of assumptions. To state the obvious, their conclusions are only valid if the underlying assumptions are proven.

[54] The respondents’ evidence can be neatly summarized as follows:

• CRM did not introduce cement grout pack supports in Q1/2011; and
• there was no partial or complete shutdown of CRM during that quarter.

[55] Mr. Bosman was the principal rock engineer at CRM at the material time, contracted through Open House Management Solutions (OHMS), a South African firm that provides independent consulting services to the mining industry on geotechnical and seismological issues. Mr. Bosman categorically denies that cement grout packs were introduced at CRM in Q1/2011. Rather, the mine began an expanded implementation of C-packs in February 2011. He elaborates in quite some considerable detail why this occurred. Suffice it to say that he explains that the introduction of C-packs was the result of a concern about rock falls at CMR and other mines. A number of studies were undertaken at CRM’s request as a result of the requirements of the DMR, which regulates South African mining operations. While consideration was given to the use of cement grout packs as mining operations got deeper (with the attendant increased instability), this was not necessary until the mine reached a depth of 380 meters. As of September 2010, the mine was approaching 300 meters. It was estimated that it would reach 380 meters within two years. He further says that CRM could not have introduced cement group packs because it did not have a cement grout plant on site, which is essential to the fabrication and use of cement grout packs. He estimates that its construction would take six months or longer.

[56] Mr. Bosman also states that the full scale introduction of cement grout packs at CRM did not occur until early 2012, following the completion of a pilot grout plant in approximately July 2011. After its construction, some installation of cement grout packs began as part of testing operations.

[57] Mr. Bosman’s recollection of the timing of the implementation of cement grout packs was corroborated by Mr. Robinson during his cross-examination.

[58] Mr. Robinson, the former managing director of CRM, prepared monthly reports to senior management on CRM’s operations. Mr. Robinson also denies that cement grout packs were introduced during Q1/2011. He deposes that the use of C-packs was expanded at CRM in February 2011, as a result of direction from the DMR. He explains that CRM crews were diverted from their usual duties in order to be trained in the use of C-packs during that first quarter. He says there was no increase in the time necessary to complete cycles of operation in working panels at that time. Finally, he says there was no shutdown of operations, in whole or in part, because of the implementation of C-packs, or indeed for some other cause. Mr. Robinson’s management reports during the relevant time, appended to his affidavit, neither reference the introduction of cement grout packs nor the construction of the necessary infrastructure to do so. They do, however, speak to the introduction of C-packs during Q1/2011.

[59] The January 2011 management report was distributed on February 16, 2011 by Mr. Robinson. In preparing the report, Mr. Robinson deposes that he received information from Gerhard van Niekirk, CRM’s vice president of operations, that there had been a series of unforeseen rock falls (called back breaks) at CRM in November and December 2010 and the beginning of 2011, which had caused a loss of stoping panels (or face length) available for mining crews to work on. As a result, some crews were moved from the stoping panels where they had been assigned and either to other working panels or to engage in ledging or some other development activities. The transfers resulted in lower production from those particular crews.

[60] The February 2011 management report, distributed March 14, 2011, recorded that lower production numbers were, again, primarily the result of unforeseen rock falls reducing the number of available working panels. In particular, the report said that “[c]rew performances for Zandfontein decreased…and Maroelabult decreased…Following numerous panel collapses, a Section 54 was issued by the DMR, requiring the mine to install c-packs in all working panels. This combined with a loss of face length has had a significant impact on crew productivity”. (I will discuss the DMR and its role of oversight below).

[61] Finally, the March 2011 management report, distributed April 12, 2011, disclosed that the installation of C-packs (also known as “mat-packs”) caused logistical, labour and winch operating constraints during operating shifts. Mr. Robinson explains they were believed to have affected tonnes hoisted in March 2011, although no analysis was undertaken during the quarter to measure any impact. Perhaps counter-intuitively, apparently tonnes hoisted is not a measure of crew productivity, but rather shows how much ore was lifted from underground to the surface of the mine for processing. In contrast, square metres mined was 18% higher in March than anticipated, which is said to be the leading measure of stoping activity.

[62] It is also worthwhile to note that Mr. Robinson deposes that labour negotiations at CRM were taking place from November 2010 and through Q1/2011, ending in an illegal strike in May. Mr. Robinson says that negotiations and “go slow” tactics by some workers (which I interpret as akin to working to rule) may have had an impact on production during the relevant time. He reports that over 600 employees participated in a march in December 2010 that lasted about two and a half hours. Mr. Robinson reported on industrial relations and negotiations in his management reports.

[63] Mr. Skinner is the chief surveyor at CRM, charged with responsibility for preparing monthly and annual mining plans. He addresses the reduction of production at CRM during the relevant time. He explains that as a result of a large number of unanticipated falls of ground, it was necessary to relocate crews from stopes and to undertake ledging duties. Accordingly, of 53 planned stoping panels, only 23 could be mined and mining production diminished.

[64] Mr. Berrange is the safety, health, risk and quality manager at CRM. He compiled data on C-pack use as well as what is known in the industry as lost blasts. A lost blast occurs when crew cannot trigger a blast on the scheduled day. His data was used by the respondents’ experts, Mr. Kirsten and Mr. Waldeck. The essence of the economic expert’s conclusions is that the expanded use of C-pack supports in Q1/2011 had no material impact on Eastplats’ business.

[65] In order to round out the consideration of the evidence, the chronology respecting communication between the CRM and the DMR is necessary. This evidence is derived primarily from Mr. Bosman’s affidavit. I pause here to note that the applicant (through his counsel) attempted to obtain information from the DMR through an application pursuant to South Africa’s Promotion of Access to Information Act. As I understand it, the Act does not permit disclosure if to be used in connection with civil litigation and accordingly, the initial request to the DMR and an appeal from its decision to deny was unsuccessful.

[66] To give some context to the discussion that follows certain relevant portions of the DMR’s governing legislation – the Mine Health and Safety Act 1996 - are reproduced below.

s. 54 (1) If an inspector has reason to believe that any occurrence, practice or condition at a mine endangers or may endanger the health or safety of any person at the mine, the inspector may give any instruction necessary to protect the health or safety of persons at the mine, including but not limited to an instruction that -

(a) operations at the mine or a part of the mine be halted;

(b) the performance of any act or practice at the mine or a part of the mine be suspended or halted, and may place conditions on the performance of that act or practice;

(c) the employer must take the steps set out in the instruction, within the specified period, to rectify the occurrence, practice or condition; or

(d) all affected persons, other than those who are required to assist in taking steps referred to in paragraph (c), be moved to safety…

s. 55 (1) If an inspector has reason to believe that an employer has failed to comply with any provision of this Act, the inspector may instruct that employer in writing to take any steps that the inspector -

(a) considers necessary to comply with the provision; and

(b) specifies in the instruction.

(2) When issuing an instruction under subsection (1), an inspector must specify the period within which the specified steps must be taken. A period specified in an instruction may be extended by an inspector at any time by giving notice in writing to the person concerned.

[67] Actions taken by an inspector under these sections are referred to in this decision as s. 54 and s. 55 Notices respectively.

[68] With this framework in mind, I turn to the interactions between the DMR and CRM as detailed by Mr. Bosman.

[69] Investigations into rock falls at CRM began in 2008. Gert Judeel (a former rock engineer at CRM) and Albert Hartmann (a former mine manager at CRM) authored a publicly available paper in March 2008 – prepared for a mine engineering symposium – entitled “Ground Support at the Crocodile River Mine Located in the Brits Graben of the Western Limb of the Bushveld Complex”. The paper discussed the reasons for 83 working panel collapses, some of which were described as “massive”, at CRM since the beginning of 2006, and methods to minimize such collapses. It did not however, discuss the introduction of specific support methods but rather identified “[i]mportant future work” to include “to verify and improve on the support strategies that are implemented…”.

[70] Between March 1, 2008 and September 9, 2008, CRM commissioned a series of reports from Groundwork Consulting (Pty) Ltd., a South African geotechnical and rock engineering consulting company, to recommend remedial actions to address rock falls. The company recommended supports such as C-packs to be introduced in unstable parts of the mine.

[71] As a result, while pre-stressed elongates were the standard support system, CRM began to use C-packs in August 2008.

[72] Between 2008 and 2009, there were 53 rock falls at CRM that affected production but there were no fatalities. However, in 2010 there were a number of fatalities at other platinum mines in the region, which led the DMR to more carefully scrutinize mine support systems. CRM’s rock engineers renewed their investigation of support systems as well.

[73] On September 4, 2010, Mr. Bosman’s predecessor, Marius Steinmann authored a report addressed to Mr. van Niekerk and Mr. Lubbe (a mine inspector) discussing the increasing instability of the mine as it got deeper. At the time of this report, the mine was nearing a depth of 300m and Mr. Steinmann recommended that the CRM support standard be changed to cement grout packs “as part of the support strategy and standard” when CRM reached a depth of 380m. Mr. Steinmann made these recommendations:

• The signs of potential large scale fall are there. Action needs to be implemented immediately to ensure the long-term safety of ythe shaft. This should be via introduction of grout packs as part of the support strategy and standard.
• The spacing mentioned in the report may change as the accurate info of where the second duplet chromite stringer is situated will only be known once the borehole camera has arrived at the end of September 2010.
• Due to costs and time restraints, it is recommended that we look at outsourcing the gout plant and pumping of the grout packs. Training people is time consuming and costly if we block pipes with cement and needs to flash it out.
• When we are installing the piping we need to make provision for all stoping below 4 Level as well as all areas earmarked as part of the intake or return vent layout.
• Capital estimation will be I the region R150 000 per raise line.
• Monthly service fee can be negotiated with the contractor on a fixed base should that route be chosen.
• A date must be set up to visit a grout plant at one of our neighbouring mines. The contractors, if we go that route, needs to come and present to management their strategies in placing the packs underground and set the table for negotiations.

[74] On September 23, 2010, Mr. Steinmann delivered a presentation to the DMR entitled “Support strategy for CRM requested by DMR.” He noted that “Camlok jacks” were used as temporary support units. Camlok jacks are not cement grout packs. He advised the DMR that CRM was contemplating the implementation of cement grout packs when the mine reached a depth of 380m “within the next two years”. However, he noted that “this strategy is still in the concept phase and work regarding this will be performed and completed during the next three months.”

[75] That same day, the DMR issued a Section 55 Notice requiring within 30 days an in-house risk assessment and the implementation of a quality control system for mine supports, and in particular, for timber support, shepherd’s crooks, shotcrete and mechanical anchors at CRM.

[76] On October 19, 2010, in a report to the DMR, Mr. Steinmann reported on the progress of the work required in the September 23, 2010 Section 55 Notice. He reviewed the quality control standards for the supports identified in the September Section 55 notice. He stated that “a quality control system has now been drafted and will be managed to ensure that…the support units delivered to the mine will be checked, tested and performing to the supplier’s specification…”. The letter makes no reference to cement grout packs.

[77] On November 9, 2010, CRM experienced a large rock fall, which was reported to the DMR in accordance with statutory reporting requirements. Representatives of the DMR attended at CRM on November 19, 2010, and issued a Section 55 Notice requiring CRM to do the following:

(a) revise the mine standard regarding support to prevent a re- occurrence [of the rock fall];

(b) evaluate current support systems that [are] utilized or practiced [sic] in the market, assess and implement these systems if applicable;

(c) ensure proper escape ways and regional stability of the affected working place.

[78] In response to the November 19, 2010 Section 55 Notice, CRM commissioned Dr. Francois Malan of Groundwork to follow up on its 2008 reports and provide recommendations for remedial action to address large rock falls.

[79] On December 4, 2010, Dr. Malan issued his report to CRM. He reviewed remedial measures undertaken at another mine and discussed the relative advantages of grout pack and C-pack supports. In summary, Dr. Malan found that “[i]t is clear that some increase in support resistance is required and it is recommended that the mine investigate the use of packs in conjunction with elongates as a matter of urgency.” The December 4 Malan report examined both C-packs and cement grout packs as the potential pack supports that could be introduced at CRM.

[80] In a follow up technical note to CRM, dated December 17, 2010, Dr. Malan referenced his earlier recommendation. He said that “[a]s a result, the mine is currently investigating the use of packs, in conjunction with elongates, to achieve this objective”. He also noted that “it will require a period of time to achieve this changeover to a revised support system (especially if grout packs are selected).”

[81] As previously noted, in November and December 2010 and January 2011, CRM experienced further large rock falls. At a February 4, 2011, meeting between CRM, OHMS, and DMR representatives, CRM proposed the full-scale implementation of C-packs in the mine. A proposed design of a standardized C-pack support system was presented to the DMR at this meeting. The presentation included the following discussion:

The addition of C-packs to the support system will allow for the regeneration of support resistance as the mine poles shed load. After 50mm deformation, the mine poles would have shed all their load, yet the C-packs would have generated a shade more than 1000kN per pack. Assuming that every second mine pole had been converted into a C-pack, an average support resistance of 175kN/ m² would have been generated.

In conclusion:

At the appropriate density, C-packs will be able to arrest a 7.5m fall out height within 60mm of deformation. A 10m fall out height can be arrested within 160mm of deformation.

Due to the work hardening capability of the C-pack support system it will have ample capacity to arrest even larger fall out, provided sufficient deformation can be allowed.

C-packs needs to be installed on every second mine pole, in every row of poles. C-packs must be installed within 10m of the face and must be properly pre-stressed.

[82] On February 11, 2011, CRM held a further meeting with the DMR. At this meeting, Mr. Bosman made a presentation to the DMR, which noted that C-packs were the “current position” for improving support at CRM. He advised as follows:

Current position

• 0.75m x 0.75m Pre-stressed timber C Packs have already been introduced in conjunction with the pre-stressed elongates in problematic areas.
• The Ledging standard has been revised to include 0.75m x 0.75m pre-stressed timber C Packs in conjunction with the pre-stressed elongates.
• The breast mining support standard has been revised to include 0.75m x 0.75m pre-stressed timber C Packs in conjunction with the pre-stressed elongates.
• The services of a Hydrologist have been contracted to determine the source and then management of the inflow of the water.

[83] He noted it was best practice to consult to determine what other mines in the immediate area were doing and made specific reference to Hernic and Lonmin, the latter of which used, in part, cement grout packs. He concluded that CRM would “investigate the requirement and introduction of a permanent stiff support system [another term for cement grout packs] comprising a combination of pre-stressed mine poles and stiff packs to ensure the long term stability of the deeper portions of the mine”.

[84] That same day, the DMR issued a Section 55 Notice to CRM, requesting that CRM amend their C-pack proposal. In particular, it was stated that “the proposal for the current working packs (C-pack method) must be amended to prescribe the C-pack line not farther than 8m from the face” (emphasis added). It also directed CRM to provide the DMR with a “critical schedule path for the implementation of grout packs.”

[85] In response to the February 11 Section 55 Notice, Mr. van Niekerk delivered a letter to the DMR, dated February 16, 2011, which stated that CRM had revised its C-pack proposal to comply with the DMR recommendations regarding spacing and that “CRM is in process of investigating future support standards, which may include grout packs, as the mine progresses deeper… A critical schedule path as requested should be available within the next 12 weeks.” This letter indicated a target date of May 25, 2011 for completion of the critical path schedule.

[86] On February 23, 2011, Mr. Bosman delivered a letter to Mr. van Niekerk at CRM in which he considered the earlier Groundwork reports that compared C-packs and grout packs. He reported that a C-pack “support system comfortably exceeds the set design criterion”. He concluded that “from a technical perspective, assuming the quality of installation will remain consistent and of an acceptable quality, the C-pack support system will yield the best support resistance performance” and “the implementation of C-packs can be affected [sic] immediately, with limited overhead cost.” He observed that the “implementation of grout packs will require at least six months and will be associated with considerable upfront infrastructure cost”. He recommended an action plan that included the implementation of C-pack support design; a cost analysis of C-Pack and grout pack supports and the investigation and design of a grout plant and distribution system.

[87] On March 24, 2011, CRM finalized its standards for comprehensive C-pack use in the mine.

[88] On April 4, 2011, Mr. Robinson sent a letter to the DMR confirming that CRM has “amended the applicable C-pack standard as noted with the relevant Section 55”. Full scale C-pack implementation began approximately three weeks after the February 11 Section 55 Notice was issued. It appears that C-pack use went from 3,180 in January 2011 to 21,560 in February 2011 and 31,362 in March, 2011, according to a chart entitled C-pack consumption referred to in the Kirsten affidavit.

[89] In that same April 4, 2011 letter from Mr. Robinson to the DMR, he outlined CRM’s “critical schedule for grout pack installation” including that it had embarked on a tender process pursuant to which four different companies would present their plans during the week of April 4, 2011 for the construction of a grout plant, after which a vendor decision would be made. Mr. Robinson further stated that it “has decided that ‘Grout packs’ will form an integral part of its stoping standards and will forward the DMR the required project plan once the specific vendor has been decided upon”.

Analysis and Disposition

[90] The applicant urges me to conclude that he has satisfied the requisite threshold, namely that he has a reasonable chance of success at trial. He asks me to accept as at least arguably plausible at trial his interpretation of the April 15, 2011 press release and the other public documents in a way that supports his allegation that cement grout packs were indeed introduced at CRM in Q1/2011.

[91] Unfortunately for the applicant, his interpretation is simply not supported by the overwhelming weight of the evidence that points to the opposite conclusion.

[92] By way of preliminary example as I will elaborate below and contrary to the allegation in the statement of claim, the April 15 press release does not say that there was a complete or partial shutdown at CRM. The only reference to a shutdown is contained in the JP Morgan analyst report, which recorded a suspicion of DMR mandated work stoppages. As already noted, suspicion alone is not sufficient to surpass the leave threshold.

[93] To accept the applicant’s theory, I would have to disregard what I view to be very compelling and persuasive evidence that cement grout packs were not in fact introduced in Q1/2011. First, there is the affidavit, documentary and transcript evidence of current and former employees of CRM, who categorically deny that cement grout packs were introduced at that time. It is important to remember that these are the people who were “on the ground” at CRM. To accede to the applicant would require me to conclude that it is more likely than not that these individuals have given false evidence under oath and have provided only selective documentary evidence that supports their position, while withholding documents that do not. Or the alternative, I suppose, would be that documents were falsified.

[94] However, there is nothing that would lead me to such a conclusion. Two of the deponents are independent in the sense they are not employed or contracted by Eastplats any longer. What would be their motive to be less than candid? Even the cynically minded would be hard pressed to explain. Certainly, the applicant did not offer any suggestion. Moreover, the documentation includes material sent to and from third party source(s) independent of CRM – the DMR for example, which has no stake in this litigation.

[95] I do not agree that the respondents’ failure to adduce affidavit evidence from Mr. Rozier about the April 15, 2011 press release and the conference calls, explaining what they meant is significant. It was simply not necessary to do so in view of the other evidence marshalled from those with firsthand knowledge of what was happening at CRM.

[96] I am not persuaded that an explanation was necessary in any event. A fair reading of the transcripts of the cross-examinations does not, as the applicant suggests, amount to some sort of admission by the respondents that his theory of the case – and in particular his interpretation of the April 15 press release and the other documents – is correct. While the witnesses say that they considered the press release to be accurate when it was disseminated, they do not admit that this means that cement grout packs were introduced in Q1/2011. They adamantly say otherwise. And as discussed below, the press release accurately described the state of affairs.

[97] The press release simply cannot support the applicant’s allegation, given the evidence to the contrary. The press release reports that support methods were modified – on other words, C-packs were being used; and the plan to use cement grout packs as the mine got deeper was accelerated – all as clearly explained in the Bosman affidavit.

[98] It seems clear to me that the reference to a comprehensive internal safety review was intended to respond to the s. 55 notice issued by the DMR on November 19, 2010, which it will be recalled, required CRM to “evaluate the current support systems that are utilized or practiced in the industry, and assess and implement these systems if applicable”. CRM responded at a meeting on February 11, 2011 announcing an immediate switch to C-packs and a “critical path schedule” for the introduction of cement grout packs by May 25, 2011. It stands to reason that the modification of support systems occurred after that February meeting. The press release expressed management’s expectation that the impact of these modifications would be short term with a temporary effect on mine production.

[99] The respondents’ two experts, Messrs. Kirsten and Waldeck speak to the impact of the use of C-packs with the attendant retraining of underground personnel. They conclude that there was a nominal impact on Q1/2011 production and no detrimental effect on the mining cycle. These conclusions are buttressed by the evidence of the fact witnesses. In contrast, Mr. Macfarlane’s conclusions are premised on the assumption that cement grout packs were introduced in Q1/2011. If his assumption is unsupported by the evidence as I have found, his conclusion necessarily falls.

[100] Finally, the press release speaks to projections. For the sake of clarity, I repeat the relevant passage:

“[t]his review has also accelerated the previously planned progressive introduction of cement grout support packs into the working panels as mining operations at CRM get deeper and where support requirements are projected to increase”

[101] I pause to note here parenthetically that any confusion respecting the meaning of the press release could have been avoided had the previous sentence of the paragraph read: “Following this review, support methods at CRM have been modified to use C-packs” (my emphasis). Nevertheless, read fairly and as a whole and in conjunction with the documentation reviewed above, the press release simply cannot bear the interpretation urged by the applicant nor is there any reasonable prospect he could do so at trial.

[102] The same must be said about the two conference calls and the Managements’ Discussion and Analysis (MD&A). Bluntly stated, these documents simply cannot bear the interpretation urged. There is no credible evidence in support of it.

[103] The discussion in the Q1/2011 earnings call makes no reference to cement grout packs or indeed to any specific type of support method. The discussion relates to “safety acceleration work” at the mine.

[104] The discussion in the Q2/2011 earnings call, similarly, refers only to “roof support”. There is no mention of the type of roof support that is being discussed and certainly not cement grout packs.

[105] The Q1/2011 MD&A contains similar language to the April 15 Press Release referring to “acceleration of the previously planned progressive introduction of cement grout support pack into working panels”, which I have already discussed.

[106] In sum, the applicant’s position is overwhelmingly contradicted or rebutted by the contemporaneous documents and the affidavit evidence produced.

[107] In my view, there is no reasonable prospect of success at trial. At the risk of repetition, the applicant’s interpretation of the press release and other documents on which he relies is simply unsupported when considered against the totality of the evidence led by the respondents. The motion for leave must be dismissed.

[108] I will receive written submissions on costs not to exceed 15 pages (excluding Bills of Costs) first from the respondent by April 29, 2016 and the applicant by May 27, 2016.

“Justice H. A. Rady”

Justice H. A. Rady

Released: March 31, 2016