Court File and Parties

COURT FILE NO.: CV-14-504010CP DATE: 2017-06-27

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

MARTIN GERARD Plaintiff – and – DETOUR GOLD CORPORATION and GERALD PANNETON Defendants

COUNSEL: Andrew J. Morganti for the Plaintiff Luis Sarabia and Chantelle Spagnola, for the Defendants

HEARD: June 27, 2017

PERELL, J.

REASONS FOR DECISION

1. Introduction

[1] Pursuant to the Class Proceedings Act, 1992, S.O. 1992, c. 6, Martin Gerard sues Detour Gold Corporation and Gerald Panneton. The parties have settled the litigation and, on consent, I certified the class action for settlement purposes. See Gerard v. Detour Gold Corporation, 2017 ONSC 2547.

[2] The Plaintiff now moves on consent for approval of the settlement, approval of a distribution plan, approval of Class Counsel’s fee of $1,620,000, plus disbursements and taxes, approval of two honoraria of $15,000 and incidental relief.

2. Factual Background

[3] The background facts are that Detour Gold is a gold mining and exploration company incorporated under the Canada Business Corporations Act, R.S.C. 1985, c. C-44 with its headquarters in Toronto, Ontario. Its shares are listed and traded on the Toronto Stock Exchange. Mr. Panneton is Detour Gold’s President and Chief Executive Officer.

[4] Detour Gold’s principal operating property is the Detour Lake Mine located 185 kilometers northeast of Cochrane, Ontario.

[5] A predecessor to Mr. Gerard, Mr. Terry Wright, commenced the action by Statement of Claim on May 12, 2014. This pleading was subsequently amended on July 10, 2014, February 10, 2016, July 21, 2016, January 27, 2017, and April 18, 2017. The most recent iteration is the Fifth Fresh as Amended Statement of Claim.

[6] The class period is defined as from March 12, 2013 to and including November 7, 2013. The action was brought on behalf of the following class:

All persons, other than Excluded Persons, who acquired Detour’s securities during the Class Period: (i) in the secondary market; or (ii) in the SPO pursuant to the Prospectus and during its distribution period; and (iii) who held some or all of those securities at the close of trading on November 7, 2013.

[7] For settlement purposes only, the following common issues were certified:

(a) Did Detour make a misrepresentation by omission by failing to disclose during the Class Period the Completion Test covenant contained in the Credit Facility’s credit agreement as well as its terms? (b) Did Detour make misrepresentations by announcing gold production numbers that it knew or should have known could not be achieved?

[8] The Statement of Claim alleges that during the Class Period, Detour Gold made misrepresentations in its continuous public disclosures with regard to gold production guidance and cash cost projections and certain operating covenants included within the credit agreement for a $135 million credit facility. It is alleged that Detour Gold is liable for damages sustained by the Class as a result of these alleged misrepresentations.

[9] The Defendants served a Statement of Defence on July 29, 2016. The Defendants have denied, and continue to deny, all liability, and have asserted various statutory defences under Part XXIII.1 of the Ontario Securities Act, R.S.O. 1990, c. S.5. The Defendants put forward a vigorous defence, most particularly about the quantification of damages, which was informed by multiple expert reports.

[10] Beginning in October 2014, the Plaintiff served four volumes of material in support of his motion for leave to proceed and two volumes in support of his motion for certification.

[11] The Defendants responded with a multi-volume motion record in opposition to leave and certification. Their record for those motions contained four expert reports and dozens of securities analyst reports.

[12] The Plaintiff’s motions for certification and for leave under the Ontario Securities Act were scheduled to be heard on December 6 to 9, 2016. Cross-examinations were completed in September of 2016. I decided a refusals motion in relation to one of the cross-examinations in November of 2016. The moving and responding facta were exchanged between the parties, and subject to the delivery of reply facta, the motions were fully briefed.

[13] Those motions were adjourned as the parties began settlement negotiations. After extensive arm’s-length negotiations, and with the assistance of Ronald G. Slaght, Q.C. as mediator, the parties reached a settlement.

[14] The Settlement Agreement is subject to court approval. Under the Settlement Agreement, Detour Gold has agreed to pay or cause to be paid the all-inclusive sum of $6 million for the benefit of the Class. Gerald Panneton will not pay any amount personally. In return, the Plaintiff and the Class will provide a release to the Defendants.

[15] In the event that the Settlement Agreement is not approved by this Court, the Settlement Agreement provides that the order certifying the within action as a class proceeding will be set aside, the Plaintiff and Defendants will retain all of their legal rights and defences, and the Plaintiff and Defendants will be restored to their respective positions prior to the execution of the Settlement Agreement.

[16] The proposed distribution plan, “The Plan of Allocation”, reflects the Plaintiff’s damages theory that the value of Class Members’ shares was artificially inflated by misrepresentations made by the Defendants during the Class Period and that the inflation was removed from the share-value as a result of the publication of the corrective disclosure on November 7, 2013.

[17] The Plan of Allocation calculates Class Members’ entitlements in a manner analogous to the damages provisions in s. 138.5 of the Ontario Securities Act and reflects the opinions of the Plaintiff’s damages expert Frank Torchio.

[18] Mr. Torchio opined that that the artificial inflation in the stock price of Detour: (a) for the period of March 12, 2013 to May 8, 2013 (“Period One”), was $0.87 per share; (b) for the period of May 9, 2013 to October 8, 2013 (“Period Two”), was $0.10 per share; and (c) for the period of October 9, 2013 to November 7, 2013 (“Period Three”), was $0.67 per share.

[19] The Plan of Allocation provides that a Class Member’s Nominal Entitlement will be the lesser of the difference between the amount actually paid for the purchase of the Qualified Shares (including any commissions paid in respect thereof) and the amount received upon their disposition (without deducting any commissions paid in respect thereof), and: (a) an amount equal to the number of shares purchased in Period One that were disposed of after November 7, 2013 multiplied by $0.87; (b) an amount equal to the number of shares purchased in Period Two that were disposed of after November 7, 2013 multiplied by $0.10; and (c) an amount equal to the number of shares purchased in Period Three that were disposed of after November 7, 2013 multiplied by $0.67.

[20] The Plan of Allocation states that no Nominal Entitlement shall be available for shares disposed of before November 7, 2013, which is consistent with the damages theory advanced in the Statement of Claim.

[21] Ultimately, the amount of each Class Member’s actual compensation from the Compensation Fund will depend upon: (a) the number and the price of Qualified Shares purchased by the Class Member and the time during the Class Period when they made their purchase; (b) the price at which the Class Member sold such Qualified Shares, if at all; and (c) the total number and value of claims for compensation filed with the Administrator.

[22] Class Counsel provided notice of the settlement approval hearing in accordance with the Order I made on April 25, 2017. The notices specified a deadline of June 20, 2017 to remit objections to the Settlement.

[23] No objections to the settlement were received by the objection deadline. The notices further specified an opt-out deadline of June 26, 2017. As of June 19, 2017, there had been no valid opt-outs.

3. The Fee Request

[24] The retainer agreement entered into between Class Counsel and Mr. Gerard provides that Class Counsel could seek fees of up to 30% of the amount of any recovery obtained on behalf of the Class, plus disbursements and taxes.

[25] Class Counsel seeks fees in the amount of $1,620,000, plus disbursements and applicable taxes.

[26] The amount of the fee was calculated as 27% of the Settlement Amount. The requested fee represents a multiplier of approximately 1.35 on Class Counsel’s base time up to June 12, 2017.

4. The Honorarium Request

[27] Messrs. Gerard and Wright were engaged and active plaintiffs and each expended significant time and effort in assisting with the preparation of documents and motions, tendering affidavits in support of various motions, subjecting themselves to cross-examinations on their affidavits.

[28] Having regard to their considerable efforts, the prosecution of the class action advanced to the settlement stage.

[29] I am satisfied that they have earned an honorarium.

5. Settlement Approval

[30] Section 29(2) of the Class Proceedings Act, 1992, provides that a settlement of a class proceeding is not binding unless approved by the court. To approve a settlement of a class proceeding, the court must find that, in all the circumstances, the settlement is fair, reasonable, and in the best interests of the class: Fantl v. Transamerica Life Canada, [2009] O.J. No. 3366 (S.C.J.) at para. 57; Farkas v. Sunnybrook and Women’s Health Sciences Centre, [2009] O.J. No. 3533 (S.C.J.) at para. 43; Kidd v. Canada Life Assurance Company, 2013 ONSC 1868.

[31] In determining whether a settlement is reasonable and in the best interests of the class, the following factors may be considered: (a) the likelihood of recovery or likelihood of success; (b) the amount and nature of discovery, evidence or investigation; (c) the proposed settlement terms and conditions; (d) the recommendation and experience of counsel; (e) the future expense and likely duration of the litigation; (f) the number of objectors and nature of objections; (g) the presence of good faith, arm’s-length bargaining and the absence of collusion; (h) the information conveying to the court the dynamics of, and the positions taken by, the parties during the negotiations; and (i) the nature of communications by counsel and the representative plaintiff with class members during the litigation. See: Fantl v. Transamerica Life Canada, supra, at para. 59; Corless v. KPMG LLP, [2008] O.J. No. 3092 (S.C.J.) at para. 38; Farkas v. Sunnybrook and Women’s Health Sciences Centre, supra, at para. 45; Kidd v. Canada Life Assurance Company, supra.

[32] In determining whether to approve a settlement, the court, without making findings of fact on the merits of the litigation, examines the fairness and reasonableness of the proposed settlement and whether it is in the best interests of the class as a whole having regard to the claims and defences in the litigation and any objections raised to the settlement: Baxter v. Canada (Attorney General) (2006), 83 O.R. (3d) 481 (S.C.J.) at para. 10. An objective and rational assessment of the pros and cons of the settlement is required: Al-Harazi v. Quizno’s Canada Restaurant Corp. (2007), 49 C.P.C. (6th) 191 (Ont. S.C.J.) at para. 23.

[33] The case law establishes that a settlement must fall within a zone of reasonableness. Reasonableness allows for a range of possible resolutions and is an objective standard that allows for variation depending upon the subject-matter of the litigation and the nature of the damages for which the settlement is to provide compensation: Parsons v. Canadian Red Cross Society, [1999] O.J. No. 3572 (S.C.J.) at para. 70; Dabbs v. Sun Life Assurance Company of Canada (1998), 40 O.R. (3d) 429 (Gen. Div.). A settlement does not have to be perfect, nor is it necessary for a settlement to treat everybody equally: Fraser v. Falconbridge Ltd., [2002] O.J. No. 2383 (S.C.J.) at para. 13; McCarthy v. Canadian Red Cross Society (2007), 158 ACWS (3d) 12 (Ont. S.C.J.) at para. 17.

[34] In my opinion, the settlement and the distribution plan is fair, reasonable, and in the best interests of the class.

[35] After extensive arm’s-length negotiations and a mediation, a payment of $6 million represents a fair and reasonable recovery for Class Members, which is more certain and immediate than the continued pursuit of an action where there is significant uncertainty about the materiality of the representations at issue, and the quantum of damages, if any.

[36] I approve the settlement and the distribution plan.

6. Class Counsel Fee

[37] The fairness and reasonableness of the fee awarded in respect of class proceedings is to be determined in light of the risk undertaken by the lawyer in conducting the litigation and the degree of success or result achieved: Parsons v. Canadian Red Cross Society, [2000] O.J. No. 2374 (S.C.J.) at para. 13; Smith v. National Money Mart, 2010 ONSC 1334 at paras. 19-20, varied 2011 ONCA 233; Fischer v. I.G. Investment Management Ltd., [2010] O.J. No. 5649 (S.C.J.) at para. 25.

[38] Factors relevant in assessing the reasonableness of the fees of class counsel include: (a) the factual and legal complexities of the matters dealt with; (b) the risk undertaken, including the risk that the matter might not be certified; (c) the degree of responsibility assumed by class counsel; (d) the monetary value of the matters in issue; (e) the importance of the matter to the class; (f) the degree of skill and competence demonstrated by class counsel; (g) the results achieved; (h) the ability of the class to pay; (i) the expectations of the class as to the amount of the fees; and (j) the opportunity cost to class counsel in the expenditure of time in pursuit of the litigation and settlement: Smith v. National Money Mart, supra; Fischer v. I.G. Investment Management Ltd., supra, at para. 28.

[39] In my opinion, having regard to the various factors used to determine whether to approve the fees of Class Counsel, the fee request in the immediate case should be approved.

7. Conclusion

[40] For the above reasons, I approve the settlement including the distribution plan. I also approve Class Counsel’s fee request and the payment of honoraria to Messrs. Wright and Gerard.

Perell, J. Released: June 27, 2017