Baldwin v. Imperial Metals Corporation et al.
[Indexed as: Baldwin v. Imperial Metals Corp.]
Ontario Reports
Ontario Superior Court of Justice
Belobaba J.
September 23, 2020
152 O.R. (3d) 774 | 2020 ONSC 5616
Case Summary
Securities regulation — Misrepresentation — Statutory cause of action — Leave of court — Corporate defendant issuing press release advising of collapse of wall of tailings storage facility and release of liquid mining waste — Corporation's share price dropping dramatically and mine shutting down — Plaintiff shareholder moving for leave to commence secondary market misrepresentation claim — Motion dismissed — Plaintiff failed to establish public correction of alleged misrepresentation — Securities Act, R.S.O. 1990, c. S.5, ss. 138.3, 138.8.
The plaintiff was a shareholder of the corporate defendant, a subsidiary of which operated an open-pit copper and gold mine. Part of the perimeter wall of the mine's tailings storage facility collapsed, releasing millions of cubic metres of liquid mining waste onto the adjoining area and waterways. The defendant issued a press release advising of the incident and stating that the cause of the breach was not yet known. The defendant's share price dropped by 40 per cent and it lost $500 million in capitalization. The mine was shut down. The plaintiff intended to bring a securities class action on behalf of herself and other shareholders who suffered losses, alleging that the defendant knew or ought to have known of the storage facility's compromised structural stability and risk of failure. She moved for leave under s. 138.8(1) of the Securities Act to commence a secondary market misrepresentation claim for damages.
Held, the motion should be dismissed.
A statutory right of action did not arise unless the plaintiff could point to both an alleged misrepresentation and a public correction of the misrepresentation. There was no discrete and identifiable public correction. The plaintiff's [page775] pleadings pointed to the press release to allege that the misrepresentations "began to be corrected" when the facility failed and the defendant disclosed the failure. However, a public correction was a one-time event and any partial correction was nothing more than a continued representation. The inapt pleading of a partial correction was enough reason to dismiss the motion. However, even assuming that the plaintiff intended to point to the press release as the one and only public correction, the release indicated nothing to an informed reader or analyst that what the defendant had previously said was untrue or misleading. It said nothing more than that the facility was breached, the cause was unknown, and the company was working with authorities to assess the damage. The required public correction had not been established and there was no reasonable possibility that the plaintiff could show otherwise.
Drywall Acoustic Lathing and Insulation Local 675 Pension Fund (Trustees of) v. Barrick Gold Corp. (2019), 148 O.R. (3d) 755, [2019] O.J. No. 5145, 2019 ONSC 4160, 2019 CSLR para. 900-807, apld
Other cases referred to
Cappelli v. Nobilis Health Corp., [2019] O.J. No. 1804, 2019 ONSC 2266; Dugal v. Manulife Financial Corp., [2011] O.J. No. 327, 2011 ONSC 387, 198 A.C.W.S. (3d) 25
Statutes referred to
Securities Act, R.S.O. 1990, c. S.5, ss. 138.3 [as am.], (1) [as am.], 138.8 [as am.], (1) [as am.]
MOTION for leave to commence a secondary market misrepresentation claim for damages.
Michael G. Robb, Sajjad Nematollahi and Bonnie Roberts Jones, for plaintiff.
Lawrence E. Thacker, Chris Trivisonno and Aoife Quinn, for Imperial Metals defendants.
No one appearing for Edco defendants.
[1] BELOBABA J.: — In a motion for leave under s. 138.8 of the Securities Act,[^1] it is not enough to allege a secondary market misrepresentation. There must also be some evidence of a public correction. Absent a public correction, the statutory action for damages is not available and the motion for leave must be dismissed.
Background
[2] Many mining sites have a tailings storage facility or TSF to collect and store the tailings or waste materials that remain after the ore has been processed and the valuable metals have been extracted. The mining waste is mixed with water to form a mud-like [page776] slurry. The slurry is stored in the TSF which is akin to a large reservoir.
[3] On August 4, 2014, part of the perimeter wall of Mount Polley Mine's TSF collapsed, releasing millions of cubic metres of liquid mining waste onto the adjoining area and waterways. This was one of the largest environmental mining disasters in Canadian history.
[4] The Mount Polley Mine is an open-pit copper and gold mine in central British Columbia. It is owned and operated by the Mount Polley Mining Corporation, a wholly owned subsidiary of Imperial Metals Corporation. Imperial Metals is a reporting issuer in Ontario and its shares trade on the TSX.
[5] Imperial Metals issued this press release on August 4, 2014, the day the TSF collapsed:
Imperial Metals Corporation (III-TSX) reports the tailings storage facility at its Mount Polley mine was breached, releasing an undetermined amount of water and tailings in the early morning of August 4. The cause of the breach is unknown at this time.
Senior company management are at the mine site and are working with mine operating personnel, local agencies, provincial ministry officials and the engineers of record to assess the extent of the breach and the impact of the released water and tailings on the surrounding area.
The Company will provide further information when confirmed and available.
[6] The company's share price dropped by 40 per cent. Imperial Metals lost $500 million in market capitalization. The mine was shut down.
[7] The plaintiff, Claire Baldwin, intends to bring a securities class action on behalf of Imperial Metals shareholders like herself who sustained losses when the share price fell because of the TSF collapse. Here, she moves for leave under s. 138.8(1) of the Securities Act to commence a secondary market misrepresentation claim for damages.
[8] The plaintiff sues the defendant Imperial Metals and four individuals (Messrs. Kynoch, Deepwell, Moeller and Pare) who were senior officers and/or directors of the defendant corporation at the time in question. I am advised by counsel for the plaintiff that this motion for leave is not being pursued as against the Edco defendants or its principal, Murray Edwards.
The need for a public correction
[9] Section 138.3(1) makes clear that the statutory right of action for damages does not arise unless the plaintiff can point [page777] to both an alleged misrepresentation and a public correction of the misrepresentation.
138.3(1) Where a responsible issuer or a person or company . . . releases a document that contains a misrepresentation, a person or company who acquires or disposes of the issuer's security during the period between the time when the document was released and the time when the misrepresentation contained in the document was publicly corrected has, without regard to whether the person or company relied on the misrepresentation, a right of action for damages . . .
(Emphasis added)
[10] Absent a discrete and identifiable public correction (whether provided by the defendant company or a third party) there is no basis for a s. 138.3 misrepresentation action -- the absence of a public correction is "dispositive"[^3] and there is no need to proceed further and consider whether leave should be granted under s. 138.8.[^4]
The definition of public correction
[11] In the Barrick Gold leave motion, I summarized how this court has defined "public correction".[^5] It is sufficient for the purposes of this motion to focus on what in my view is the key requirement: the public correction must be reasonably capable of revealing to the market the existence of an untrue statement of material fact or an omission to state a material fact.[^6]
[12] In other words, there must be some indication in the alleged public correction (when compared to an earlier material disclosure) that the earlier material disclosure contained a misstatement or was misleadingly incomplete.
[13] If the alleged public correction, on a fair reading (and in comparison to an earlier disclosure) does not provide some indication that the earlier disclosure was not truthful or was misleadingly incomplete, then there is no public correction and no basis for the proposed s. 138.3 action.[^7] [page778]
The allegations of misrepresentation
[14] The collapse of the TSF was thoroughly investigated by government authorities and independent commissions. The various reports appear to suggest that the primary cause of the collapse was the instability of the underlying soil -- a fact that was missed when the ground was first tested by the engineers before the TSF was built.[^8] However, the plaintiff points to other excerpts in these reports and in earlier advisories that suggest other potential causes in the design, construction and operation of the TSF, including water management problems (that is, excessive amounts of water in the facility).
[15] The plaintiff alleges that some of these risks were known to the corporate and individual defendants and should have been disclosed whenever public corporate statements were made (as they were) about the safe design, construction or operation of the mine. The statement of claim pleads that:
It was known or ought to have been known to the Defendants that there was a risk that the tailings storage facility's structural stability was compromised due to: (a) the deficiencies with respect to designing, constructing and operating the tailings storage facility; and/or (b) the excessive amount of water in the facility.
[16] The plaintiff argues in her factum that:
There was a specific and identifiable risk that the TSF would fail, which it did on the morning of August 4, 2014. That risk was known or knowable to the Defendants, but the Defendants improperly failed to disclose it during the Class Period.
[17] The defendants take issue with every allegation advanced by the plaintiff. They disagree with the plaintiff's interpretation of the findings of the various governmental investigations. They also take issue with the alleged misrepresentations and omissions -- that they were even made and their materiality -- and argue, in any event, that these risks were fully disclosed in the company's many risk-disclosure statements.
[18] Simply put, every allegation or misrepresentation and the related "evidence" proffered by the plaintiff was strenuously contested by the defendants. An extensive amount of material was filed by both sides.
[19] I do not have to deal in any detail with the "misrepresentation" issues because, as the defendants correctly noted in their written and oral submissions, none of these "misrepresentations" even if they were made, were ever publicly corrected. [page779]
No public correction
[20] The plaintiff says the required public correction can be found in the press release of August 4, 2014. Strictly speaking, the plaintiff pleads that the misrepresentations she alleges "began to be corrected on August 4, 2014 when Mount Polley's tailings storage facility failed and Imperial disclosed the same" (emphasis added). However, the law is clear that a public correction is a one-time event and "any so-called 'partial correction' is nothing more than a continued misrepresentation".[^9] Partial or cumulative corrections do not amount to a correction.[^10]
[21] The inapt pleading of a "partial correction" is reason enough to dismiss this motion. However, for the sake of the analysis that follows, I am prepared to assume that the plaintiff intended to point to the press release as the public correction, full stop.
[22] Recall again what was said in this press release:
Imperial Metals Corporation (III-TSX) reports the tailings storage facility at its Mount Polley mine was breached, releasing an undetermined amount of water and tailings in the early morning of August 4. The cause of the breach is unknown at this time.
Senior company management are at the mine site and are working with mine operating personnel, local agencies, provincial ministry officials and the engineers of record to assess the extent of the breach and the impact of the released water and tailings on the surrounding area.
The Company will provide further information when confirmed and available.
[23] The press release says nothing more than (i) the TSF was breached; (ii) the cause of the breach is unknown; and (iii) the company is working with the authorities to assess the damage.
[24] There is nothing in this press release that indicates that the TSF breach may have been caused by deficient design, defective construction or problems in operation. There is nothing that indicates to an informed reader or analyst (that is, someone who has been following the company closely and has reviewed the previous public disclosures) that what the company said X months ago about Y was untrue or misleading.
[25] The only scenario in which this particular press release could reasonably serve as a public correction of an earlier misrepresentation is one in which the earlier representation said something like this: "The TSF is built to be failproof, and will never, ever fail." Had this been stated in the defendant's corporate disclosures, a [page780] press release advising that TSF had indeed failed would arguably constitute a public correction of the earlier misstatement.
[26] But these are not the facts herein.
[27] Here is my list of the subject-matter of the many alleged misrepresentations and omissions:
(a) the underlying soil layer;
(b) the slope of the dam/embankments;
(c) Imperial's water management practices;
(d) excessive accumulation of water in the TSF;
(e) various site investigations;
(f) reports issued by Imperial's engineering consultants;
(g) operations, production and financial results;
(h) Imperial's financial statements;
(i) the 2004 NI 43-101 Technical report or the matters discussed therein;
(j) Imperial's commitment to safety;
(k) environmental compliance at the Mount Polley Mine site.
[28] Again, there is nothing in the press release that, on a fair reading, can be linked to any of these subjects or can be said to "correct" any of these alleged misrepresentations or omissions. Put simply, the news that the TSF has failed for reasons that are unknown does not amount to a correction of anything that was stated previously.
[29] In my view, this is a clear case where the required public correction has not been established. And there is no reasonable possibility that the plaintiff can show otherwise.
Disposition
[30] The motion for leave under s. 138.8(1) of the Securities Act is dismissed. The claim for statutory damages for secondary market misrepresentation cannot be pursued.
[31] If the matter of costs cannot be resolved by the parties, I will be pleased to receive brief, written submissions -- within 14 days from the defendants and within 14 days thereafter from the plaintiff. If counsel believe that costs can be resolved but need more time to do so, they should advise me accordingly.
Motion dismissed.
Notes
[^1]: Securities Act, R.S.O. 1990, c. S.5.
[^3]: Cappelli v. Nobilis Health Corp., [2019] O.J. No. 1804, 2019 ONSC 2266, at para. 189.
[^4]: Drywall Acoustic Lathing and Insulation Local 675 Pension Fund (Trustees of) v. Barrick Gold Corp. (2019), 148 O.R. (3d) 755, [2019] O.J. No. 5145, 2019 ONSC 4160, at para. 16.
[^5]: Ibid., at paras. 16-19.
[^6]: Ibid., at para. 16.
[^7]: Ibid., at para. 19.
[^8]: The Imperial Metals' lawsuit against the engineers and contractors who designed or constructed the TSP was recently settled.
[^9]: Dugal v. Manulife Financial Corp., [2011] O.J. No. 327, 2011 ONSC 387, at para. 33.
[^10]: See the discussion in Barrick Gold, supra, note 4, at paras. 25-26.