COURT FILE NO.: CV-13-491800-CP
DATE: 20210202
ONTARIO SUPERIOR COURT OF JUSTICE
DAVID WONG
Plaintiff
- and -
PRETIUM RESOURCES INC. and ROBERT A. QUARTERMAIN
Defendants
Proceeding under the Class Proceedings Act, 1992
BEFORE: Justice Edward P. Belobaba
COUNSEL: Andrew J. Morganti, Paul J. Bates and Hadi Davarinia for the Plaintiff
R. Paul Steep, H. Michael Rosenberg and Caroline H. Humphrey for the Defendants
HEARD: December 7 and 8, 2020
Cross Motions for Summary Judgment
[1] In a decision released in 2017,[^1] I granted the plaintiff leave to commence an action for secondary market misrepresentation under s. 138.8 of the Securities Act.[^2] I was satisfied that the plaintiff had established a reasonable possibility of success at trial. The defendant’s attempt to appeal this decision was dismissed.[^3] The action was then certified on consent as a class proceeding.[^4] The parties now bring cross-motions for summary judgment on the certified common issues.
[2] The core issue is whether the defendant gold mining company’s failure to disclose the negative opinions of one of its mining consultants amounted to an omission of a material fact and thus an actionable misrepresentation under Part XXIII.1 of the OSA.
[3] When I granted the plaintiff’s motion for leave to proceed, I added the self-evident comment that “the defendants may still prevail … when the matter is litigated in full.”[^5] This is because the leave motion, while more than a speed bump, is not the Matterhorn.[^6] In other words, leave to proceed will be granted if there is enough evidence to clear the “reasonable possibility” hurdle. However, when the matter is litigated in full and the plaintiff’s hurdle is the more demanding “balance of probabilities”, the defendants may prevail and the securities class action will be dismissed.
[4] That’s what happened here.
[5] The defendants presented additional evidence on these summary judgment motions that, in the end, persuaded me that this class action must be dismissed. The key determinant is my finding on a balance of probabilities that there was no omission of any material fact – that the defendants were not obliged to disclose information that they reasonably and objectively believed was premature, unreliable and incorrect, indeed “dead wrong”.
Summary judgment is appropriate
[6] Counsel on both sides agree that the certified common issues can be decided by way of these motions and cross-motions for summary judgment. I do as well. Almost all of the evidence is documentary in nature and, while there are affidavits and cross-examination transcripts, there are no credibility issues. I am satisfied that there are no genuine issues requiring a trial. I conclude under Rule 20.04(2)(b) of the Rules of Civil Procedure[^7] that it is appropriate to grant summary judgment.
Background
[7] The background facts are set out in my Leave Decision[^8] and need not be repeated. I will, however, restate my summary of the alleged misrepresentations and the parties’ positions. Here is what I said in the Leave Decision.[^9]
[8] The essence of the plaintiff’s claim is that Strathcona’s findings and concerns based on the sample tower test results were material facts that should have been disclosed to the market. The plaintiff points to the seven times during the July 23 to October 21, 2013 class period when Pretium issued material change reports, MD&A’s or press releases containing what the plaintiff says were misrepresentations by omission.
[9] It was only after Strathcona resigned that Pretium issued a press release explaining why Strathcona resigned and why its concerns were unfounded. The plaintiff says this should have been done from the outset – that Pretium should have disclosed Strathcona’s concerns each time they were voiced, adding its own explanation why, in Pretium’s view, these concerns were unfounded.
[10] Pretium’s position is that the defendants acted properly throughout. The Pretium team discussed Strathcona’s emails and letters both internally and with Snowden. They decided there was no obligation to disclose Strathcona’s concerns because they were premature and unreliable (because they were based on sample tower data) and, being unreliable, were not material. The only accurate and reliable test method was to mill the entire 10,000-tonne bulk sample and assess the results. As it turned out, Pretium was proven right. The mill results confirmed the validity of the Mineral Resources Estimate with room to spare.
[11] The defendants say they disclosed all material facts and, in any event, are not liable under the reasonable investigation defence set out in s. 138.4(6) of the OSA. The defendants asked that the motion for leave be dismissed with costs.
Why I granted leave
[12] As already noted, I granted the plaintiff leave to proceed with the secondary market “misrepresentation by omission” action because I concluded that he had established a “reasonable possibility” that he would prevail at trial. I accepted that Pretium genuinely believed that Strathcona’s concerns were based on faulty (sample tower) data and, in Pretium’s judgment, were inherently unreliable.[^10] However, I was not persuaded that genuinely-held but fundamentally subjective views of a public issuer were sufficient to displace the objective reality that Strathcona, an experienced mining consultant, was telling Pretium that its testing was showing almost no gold and that this was material information that should be publicly disclosed.
[13] I concluded that “by any objective measure, reasonable investors would have considered it material that two respected mining consultancies retained by Pretium – Snowden and Strathcona – fundamentally disagreed as to whether there were valid mineral resources in the VOK zone of the Brucejack mine”.[^11]
[14] As I explain in more detail below, this initial characterization of Strathcona and Snowden as two equally skilled resource estimate consultants with equal expertise and qualifications offering equally valid opinions has now been dislodged by the evidence on these motions. Strathcona was simply not as expert or as qualified as Snowden on the key issues in play and based its unsolicited and inexpert (contrary) opinions on deeply flawed estimation methodology and data.
[15] I am now satisfied on a preponderance of the evidence that Pretium acted properly throughout and was right in not disclosing bad and misleading information.
The additional evidence
[16] In support of their motion, the defendants filed fresh affidavits from Messrs. Quartermain, Ovsenek and McNaughton – senior Pretium executives at the time in question and experienced geologists or geological engineers in their own right. I recognize that participant affidavits filed seven years after the events in question may arguably be more self-serving and thus less persuasive than those filed more contemporaneously.
[17] Here, however, the defendants’ affiants simply restated and, in some cases, credibly expanded on what was said at the leave motion. More importantly, this evidence was reinforced by the additional evidence filed by three independent witnesses – Mr. Jones, who was Snowden’s senior principal consultant and was retained as the independent Qualified Person (“QP”)[^12] for the 2012 Resource Estimate; Dr. Dominy, Snowden’s sampling expert at the time; and Mr. Smith, a mining engineer at AMC who had responsibility for the 2013 and 2014 Feasibility Studies.
[18] By contrast, the plaintiff led substantive evidence from only Mr. Srivastava, an otherwise well-credentialed mining expert who, by his own admission, had no involvement in the relevant events. He reviewed an incomplete selection of documents prepared by class counsel and never reviewed Snowden’s resource model. Mr. Srivastava did not speak with any of the witnesses who participated in the relevant events and he offered no opinion on whether Strathcona’s concerns were even reasonable. For the most part, Mr. Srivastava paraphrased Strathcona’s concerns and “explicated” them from his own point of view. I am therefore inclined to agree with counsel for the defendants that much, if not all, of this evidence – if indeed admissible – is less than compelling and should probably be given little weight.
[19] Most importantly, the plaintiff filed no evidence from Strathcona. He made no effort to compel them as third-party witnesses. And there is nothing to suggest that Strathcona’s witnesses were unavailable. The defendants have asked this court to draw an adverse inference from the plaintiff’s decision to adduce Strathcona’s evidence through Mr. Srivastava’s “explication”.[^13] I refrain from doing so only because the evidence supporting the defendants’ submissions is otherwise more than sufficient.
[20] One final point. The plaintiff himself did not provide an affidavit in support of his motion. The defendants’ examination of the plaintiff, however, is before the court and the transcript is interesting and somewhat disturbing. I was frankly surprised to read that the plaintiff was not aware of any of the impugned documents containing any of the alleged misrepresentations; he did not rely on them in any way; and he did not think he had a cause of action until class counsel literally took him to lunch and told him otherwise.
Key findings
[21] The plaintiff’s pleadings allege a single misrepresentation that was publicly corrected in the October 22, 2013 press release, namely, Pretium’s failure to disclose Strathcona’s concern that “the Bulk Sample Program was failing to confirm the validity of the [2012 Resource Estimate], including the grade distribution and classification of Mineral Resources contained in the [November 2012 Estimate] and by necessary extension the validity of the [2013 Feasibility Study]”.
[22] Each of the impugned documents is alleged to contain a misrepresentation because the defendants “omitted to state … that Strathcona had advised Pretium that its ongoing analysis of the Bulk Sample Program … was failing to confirm, or substantially confirm, the [2012 Resource Estimate]”.
[23] As already noted, I granted leave on the basis of the “reasonable possibility” test. I am now obliged to consider all the evidence using the “balance of probabilities” standard. I find on a preponderance of the evidence that Strathcona’s so-called concerns or opinions were not only unsolicited but inexpert, premature and unreliable. That Strathcona simply disagreed with Snowden’s Resource Estimate is not enough, on the evidence herein, to make this a “material fact” that required disclosure. As I explain in more detail below, objectively unreliable or erroneous opinions are not material facts.
[24] The additional evidence adduced by the defendants on these motions persuades me of the following:
• Given the unique mineralization in question, the “only true test” of Snowden’s 2012 Mineral Resource Estimate was the milling of the 10,000-tonne bulk sample;
• Strathcona’s unsolicited and inexpert opinions were premature and unreliable;
• Pretium acted properly throughout.
[25] I will explain each of these points in turn.
(1) Given the unique mineralization, the “only true test” of Snowden’s Resource Estimate was the milling of the 10,000-tonne bulk sample
[26] The deposit at Brucejack has a unique style of mineralization, described as a “low grade quartz stockwork system” with high-grade veinlets. The high-grade veinlets are not dispersed in any uniform or linear fashion. Some 82 percent of the gold can be found in one percent of the rock. In the low-grade areas, all the gold in a block the size of a large swimming pool would often be found in a few lumps the size of toonies.
[27] Snowden, and in particular its senior resource estimator, Mr. Jones, understood how to best estimate the resource value of this unusual mineralization. Because of the skewed gold grades, Mr. Jones modeled the high-grade gold population separately and employed a sophisticated Multiple-Indicator Kriging (“MIK”) method to estimate the high-grade resource as a distinct population, separate from the low-grade. Mr. Jones explained his rationale as follows:
MIK had been selected, in part, because the resource estimate was influenced by a relatively small number of extremely high-grade intercepts. With ordinary kriging, it would have been impossible to isolate the high-grade population as it was inter-mixed with the background mineralization, with the result that the high-grade mineralization would have been cut and overlooked.
Our estimate was based on the assumption that there was randomly placed, or relatively randomly placed within the mineralized zones, lumps of gold up to the size of a toonie … This is the whole reason that [MIK] was adopted in the first place, was because of the discrete and very high-grade nature of some samples and set in a sea, a vast sea of rock which has relatively low grade.
[28] Mr. Jones, on behalf of Snowden, recommended that Pretium excavate and mill a 10,000-tonne bulk sample from the VOK Zone in its entirety to test the validity of the Resource Estimate. Strathcona was retained to oversee the excavation and third-party milling of the bulk sample and run the 15,000-metre drilling program.
[29] While waiting to secure space at a milling facility, Pretium allowed Strathcona to run the excavated bulk sample through a sample tower of Strathcona’s design and calibration, but only on the understanding that the sample tower data would be disclosed together with the bulk sample mill results in Strathcona’s final report expected at the end of 2013.
[30] In its public disclosures, Pretium repeatedly made clear that “the amount of gold and silver produced by the mill will be reported following completion of the milling of the bulk sample”, and that “the representative samples extracted by the sample tower will be assayed and the assay results will be reported by Strathcona in their report on the [Bulk Sample] Program.”
[31] The required space for milling the 10,000-tonne bulk sample was booked in March 2013. The bulk sample was delivered to the Montana mill in September with first results expected sometime in October. The entire bulk sample would be milled and a final report delivered sometime in December.
[32] On the basis of Snowden’s Resource Estimate, Pretium had predicted that the bulk sample, when milled, would yield approximately 4,000 ounces of gold. The final milling results were released on December 13, 2013. The 10,302 tonnes of bulk sample had yielded 5,865 ounces of gold, about 42 percent more than was predicted.
[33] The Brucejack mine entered into commercial production in 2017. Had the plaintiff kept his shares he would have doubled his money. But the important point is this. From the outset and throughout the class period (July to October 2013), Pretium agreed with Snowden and repeatedly conveyed the message to Strathcona that “the only true test of the resource estimate” was the actual milling of the entire 10,000-tonne bulk sample.
(2) Strathcona’s unsolicited and inexpert opinions were premature and unreliable
[34] This case, in essence, is about the opinions expressed by Strathcona in five emails or letters sent over a period of less than two months, from August 14, 2013 until their resignation on October 7, 2013. These opinions were disclosed by Pretium on October 22, 2013. Each of the communications sets out Strathcona’s concerns about the validity of Snowden’s Resource Estimate (and the related Feasibility Study). In Strathcona’s opinion, the Resource Estimate was “unreliable”, “invalid”, “materially inaccurate” and “incorrect”, and immediate public disclosure to this effect was required.
[35] When Pretium demurred, Strathcona decided to resign. Pretium urged that they wait just a few more days until the first mill results were received. Strathcona declined to do so. In its letter of resignation, it stated categorically that “there are no valid gold mineral resources for the VOK Zone” and that all of Pretium’s disclosures suggesting the opposite were “erroneous and misleading”.
[36] On the evidence before me, I conclude that Strathcona’s opinions, which may well have been offered in good faith, were nonetheless unsolicited, inexpert, premature and unreliable. I will explain each of these findings in turn.
[37] Unsolicited. Snowden was retained for its expertise in mineral resource estimation. Other consultants were retained for other tasks. Pretium retained Tetra Tech Inc. to prepare a feasibility study on the basis of Snowden’s 2012 Resource Estimate. They retained AMC Consultants to produce a mineral reserve estimate, which identified the gold and silver that could be extracted in an economically viable manner. Pretium retained Strathcona to design and oversee the 10,000-tonne bulk sample program that Snowden had recommended. However, it was always Snowden’s job to interpret the bulk sample program results once the entire bulk sample was milled and, if necessary, adjust the Resource Estimate. No one asked or needed Strathcona to opine on the validity of Snowden’s Resource Estimate.
[38] Inexpert. Strathcona was not qualified to opine on the validity of Snowden’s Resource Estimate. Strathcona itself admitted to Pretium that they did not have experience estimating deposits as varied and skewed as Brucejack. They also had no real understanding of the MIK methodology. Strathcona’s linear measurement approach assumed subject-matter consistency or “stationarity”, exactly the opposite of what was found in the uniquely variable Brucejack deposit, where almost all of the gold was concentrated in a very small portion of the rock.
[39] As Mr. Jones explained:
… Strathcona’s experience preparing mineral resource estimates appeared to be limited and restricted to more basic techniques [and] these were not appropriate for the Brucejack deposit. These techniques had been shown to understate the high-grade mineralization and underestimated the Brucejack Resource. On that basis, both Pretium and Snowden were in agreement that Strathcona did not have the ability and knowledge to appropriately assess the November 2012 Estimate.
[40] Mr. Srivastava, the plaintiff’s expert, accepted this characterization of Strathcona’s inexperience, noting that Strathcona did not work with MIK because it found it to be too mathematical and “black-boxy”. Indeed, prior to accepting a retainer as a QP at Brucejack, Strathcona had written an investor report that was critical of Snowden using an MIK model for Brucejack.
[41] Strathcona’s lack of expertise in resource estimation, particularly with respect to the mineralization at Brucejack, was apparent to Snowden as it reviewed Strathcona’s emails and concerns. As Mr. Jones explained:
I was the QP for the project. And so, you know, I was the one who was signing off on the mineral resource, not Strathcona. Strathcona had a different opinion. But in my view, Strathcona wasn't qualified to make that opinion because they're not experts in resource estimation in any way. And I didn't think they were right.
[42] Indeed, when pressed on cross-examination, Mr. Jones added that, in his view, Strathcona was “dead wrong”:
Q. Okay. So, would it be accurate to say that as of August 16th, when you wrote this email, you were not telling Pretium that Strathcona’s concerns raised in the letter dated August 14th were just dead wrong?
A. I believe they were dead wrong, and I think I told that to Joe [Ovsenek of Pretium]. You know, I told Joe that I thought they were wrong, but the only way to really find out was to process the full sample in a mill and then you would actually have the answer in your hand. This is the same sort of – same rhetoric that I gave them right from the very first time that I was made aware of Strathcona's concerns.
Q. All of Strathcona’s concerns?
A. Yeah. I believe they were all wrong.
[43] Premature. Every time Pretium received another email or letter from Strathcona, it discussed Strathcona’s expressed concern with Mr. Jones, who consistently reminded Pretium that any such concerns were premature. Mr. Jones repeatedly advised Pretium that it was “too early to form any opinion on the meaning of any results of the bulk sample”, and that “we need to wait for the results of processing of the 10,000-tonne bulk sample before we make our conclusions”. Pretium agreed with Snowden and politely but firmly conveyed this basic message (that their concerns were premature) to Strathcona, and even repeated Mr. Jones’ statement that “the only true test” of the resource estimate was in the milling of the 10,000-tonne bulk sample. And not before.
[44] Unreliable. Both Snowden and Pretium understood from the outset that Strathcona’s unsolicited and inexpert opinions were also unreliable. Initially, Strathcona expressed concern about the drilling data, given their responsibility to run the 15,000-metre drilling program. Pretium properly dismissed these initial concerns because the drill samples being reported were entirely consistent with the earlier drill samples upon which Snowden’s Resource Estimate had been built.
[45] Strathcona then shifted its attention to the data they were getting from their sample tower. However, the problem with the sample tower, even if the mineral deposit had a consistent variability, is that only a tiny fraction of the mined material was being assayed: here, about 4 to 8 kilograms for every 110 tonnes, or less than 0.01 percent. The variability in the VOK deposit, as already noted, was inconsistent in the extreme.
[46] Both Snowden and Pretium were therefore deeply skeptical about the reliability or “representativity” of any data that was generated via the sample tower testing method. The evidence shows that the unreliability of the sample tower data was noticed by everyone involved at both Snowden and Pretium.
[47] Mr. Jones advised Pretium in his email of August 16, 2013 that he had “significant concerns with the about the validity of the sample tower results with respect to the Brucejack mineralization, and [was] concerned that the results of the bulk sample are not necessarily representative of the full round”. Mr. Ovsenek restated these points and added his own observations in his August 22, 2013 email to Strathcona:
First, I do not believe I am misstating the facts by saying you have consistently advised us that you are skeptical of multiple indicator kriging as a valid method for resource modeling … Second, during our conference call on July 11, 2013 concerning the initial bulk sample program drill results, you had little data other than initial drill results, but made the assertion that the mineral resource estimate for the Valley of the Kings over estimates the gold grade of the bulk sample area …We do not believe that 30% of the results [presently available] provide you with sufficient data to test the resource model, which has been estimated to an Indicated classification … Third, as you readily admitted, there is considerable variation between samples from each round of the bulk sample and in-sample variation. This raises concerns as to the representativity of the sampling by the sample tower.
[48] Dr. Dominy considered the sample tower’s calibration and noted that “the sample tower was not performing as expected, it was not producing consistent results, and the samples were not representative”. Pretium’s Mr. McNaughton, who was tracking the sample tower data in real time, agreed:
As sample tower assay results became available, I continued to develop my database and model the results. I also spent time observing the operation of the sample tower, and in particular, the material entering the sample tower. On the basis of my observations and extensive knowledge of the style of mineralization at Brucejack, I was concerned that the sample tower was not cutting a representative sample of the rounds that it was grading. This view was reinforced by the assay results from the sample tower, which showed considerable scatter and suggested that the sample tower was not reliable. Given the concentration of the mineralization at Brucejack in a small fraction of the overall volume of rock, there were more chances to miss gold than to find it. If the sample tower was not taking representative samples, therefore, I reasoned that it was likely under-estimating the grade.
[49] As Mr. Jones explained in his affidavit, the simple linear measurement technique that Strathcona was using was inappropriate for a variable deposit like Brucejack, where most of the gold is highly concentrated:
The key insight is that most of the gold is in the small number of high-grade samples. Snowden recognized this phenomenon in early testing and determined that simple grade estimation methods understated the resource grades at Brucejack, and were therefore inappropriate for use in grade estimation at Brucejack.
[50] On cross-examination, the plaintiff’s expert, Mr. Srivastava, agreed. In his textbook, he explains that simple linear estimation techniques (like the one that Strathcona was using) are inappropriate where there is “a lot of low-grade rock interspersed with high-grade mineralization”. This was Brucejack. Given Brucejack’s unique mineralization, Mr. Srivastava suggested that the milling of “even 10,000 tonnes” would not necessarily refute the Resource Estimate.
[51] I agree with Pretium that Strathcona made two overarching errors in arriving at its conclusion that there are “no valid gold mineral resources” at Brucejack:
• Strathcona applied a resource estimation technique based on an assumption of “stationarity” that was completely inappropriate to the mineralization in question; and
• Strathcona’s sample tower data was inherently unreliable.
[52] I am therefore satisfied on the preponderance of the evidence before me that Strathcona’s unsolicited, inexpert and premature “concerns” fundamentally misunderstood the nature of the mineralization in question and were based on unreliable data that was generated using an inappropriate measurement methodology.
(3) Pretium acted properly throughout
[53] From the outset, Pretium made clear in its public disclosures that the results of the Bulk Sample Program would not be disclosed until the bulk sample had been milled and the final report submitted. The final report with the bulk sample data (and the sample tower data) was expected sometime in December 2013. As Pretium noted in its public disclosures: “[E]xcavation of the bulk sample is scheduled to begin in early June, with the final report expected later in the year after compilation of all bulk sample data”.
[54] As already noted, the 10,000-tonne bulk sample was delivered to the processing mill in Montana in September 2013; the first mill results were received around October 22; and the final results and related report on December 13, 2013.
[55] Every time Strathcona voiced an opinion about the validity of the Resource Estimate, Pretium firmly but politely advised Strathcona to stay in its own lane and not opine on matters relating to resource modelling. On every such occasion, Pretium discussed the matter internally and referred the concern to Mr. Jones at Snowden. Mr. Jones invariably responded with the same admonition: the Resource Estimate remains valid; the “only true test” is the milling of the bulk sample; any other so-called tests, including sample tower tests, are premature; wait until the bulk sample has been milled.
[56] The senior executives at Pretium had considerable expertise in their own right as geological engineers or geologists – indeed, Dr. Board is a highly experienced geologist and resource estimator. The Pretium executives also vetted Strathcona’s concerns with the company’s Disclosure Committee and discussed them in full at two Board meetings. The Board concluded on both occasions that Strathcona’s opinions were incorrect and that it would be misleading to disclose erroneous opinions.
[57] On October 22, 2013, two weeks after Strathcona resigned, Pretium disclosed the reasons behind the resignation. Pretium explains this timing by noting that it had just received the first batch of data from the mill in Montana and believed this preliminary (and positive) data provided the appropriate context for an explanation of its disagreement with Strathcona and the reasons behind the latter’s resignation. I will leave it to others to decide if Pretium was obligated even on October 22 (or ever) to publicly disclose Strathcona’s concerns and explain why it disagreed with the latter’s inexpert and unreliable opinions.
[58] In any event, on the evidence before me, I find that Pretium acted properly throughout in its handling of Strathcona’s so-called concerns.
No omission of any material fact
[59] The fundamental legal point is this: the Pretium defendants were under no obligation to disclose bad and misleading information. As such, there was no omission of any material fact.
[60] The OSA defines a misrepresentation as “(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 is made”.[^14] “Material fact” is defined in the OSA as “a fact that would reasonably be expected to have a significant effect on the market price or value of the securities”.[^15]
[61] However, unreliable information is not a material fact that must be disclosed.
[62] In Inmet Mining Corp. v. Homestake Canada Inc., the British Columbia Court of Appeal recognized that reliability is a precondition to materiality: “The analysis of whether any of the undisclosed information was material fact information, however, has to include an assessment of its objective reliability.”[^16] The court concluded that if information was not reliable, it could not be material.
[63] The importance of reliability was explained by the trial judge in Amirault v. Westminer Canada Ltd., a case on the very point at issue herein. The publicly-traded mining company omitted preliminary mill results while awaiting the data from the entire bulk sample. The Nova Scotia trial judge found that disclosure of the preliminary mill results would have been undesirable:
[I]f you have an expected grade which upon some initial sampling turns out to be lower that certainly is a fact and undoubtedly an important one. However, to say it is material and required to be disclosed is another matter, for within a day or week the sample grade may change upward dramatically. If both were disclosed as material information, the market could go up and down like a yo-yo and would be open to unresolvable and myriad claims of manipulation - reveal a few pessimistic facts, bring down the price of the stock, then release some favourable facts for the reverse effect.[^17]
[64] Nothing is achieved by flooding the market with unhelpful information. The trial judge found that the purpose of the continuous disclosure regime requires the issuer to determine whether information is sufficiently reliable:
[T]he facts of grade and ore reserves become material facts when the company is satisfied after performing the necessary work, in this case, as recommended by the consultants, as to the accuracy of the fact and that that is significantly different from earlier facts as to cause a significant change in the market price of the stock.[^18]
[65] The trial judge concluded that there had been no failure to make timely disclosure of any material fact and thus no breach of securities law.[^19] The idea of simply disclosing everything and letting the market make sense of it has been unequivocally rejected. In Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., the Supreme Court of Canada made clear that materiality is the standard of disclosure, but that this does not mean disclosing every item of information and letting the investor sort it out:
However, the statutory requirement does not impose on issuers an obligation to disclose all facts that would permit an investor to sort out what was material and what was not. This approach would not only result in excessive disclosure, regardless of materiality, it would overwhelm investors with information and impair, rather than enhance, their ability to make decisions.[^20]
[66] Importantly, in Sharbern, the Supreme Court of Canada adopted the words of its American counter-part in TSC Industries, Inc. v. Northway, Inc.:
[I]f the standard of materiality is unnecessarily low, not only may the corporation and its management be subjected to liability for insignificant omissions or misstatements, but also management’s fear of exposing itself to substantial liability may cause it simply to bury the shareholders in an avalanche of trivial information — a result that is hardly conducive to informed decision-making.[^21]
[67] By any objective measure, Pretium was not obliged to publicly disclose information that was premature, unreliable and “dead wrong” – these were not material facts that would assist a reasonable investor in making an informed investment decision.
[68] I therefore conclude that there was no omission of any material fact and thus no misrepresentation.
Reasonable investigation defence
[69] If I am wrong in the analysis just completed, I find in the alternative, and again on the evidence before me, that the defendants have satisfied both prongs of the “reasonable investigation” defence.
[70] Section 138.4(6) of the OSA provides that a person or company is not liable in an action under s. 138.3 if that person or company proves two things: one, that it conducted or caused to be conducted a reasonable investigation before the document containing the misrepresentation was released, and two, that at the time of the document’s release, it had “no reasonable grounds to believe that the document … contained the misrepresentation.”
[71] In the Leave Decision, I said this:
I accept that Pretium genuinely believed that Strathcona’s concerns were based on faulty (sample tower) data and, in Pretium’s judgment, were inherently unreliable. I also accept that Pretium was proven right. As already noted, the fully milled 10,000-ton bulk sample validated the Mineral Resource Estimate with room to spare.
I [further] accept that Pretium took Strathcona’s concerns seriously and discussed them both internally and with Snowden. In other words, I am prepared to find that the defendants conducted a reasonable investigation into the reliability of Strathcona’s findings and concerns and have thus satisfied the first branch of s. 138.4(6).[^22]
[72] The additional evidence adduced on these summary judgment motions (as summarized above) confirms my finding in the Leave Decision that the defendants conducted a reasonable investigation into the reliability of Strathcona’s concerns and thus satisfied the first branch of s. 138.4(6). Nonetheless, I granted leave because there was a reasonable possibility that the defendants would not be able to satisfy the second branch of the reasonable investigation defence. I said this:
In my view, however, there still remains a reasonable possibility that the defendants will not be able to satisfy the second branch - that at the time that each of the impugned documents was released, the defendants had “no reasonable grounds to believe that the document … contained the misrepresentation.” That is, that they had no reasonable grounds to believe that the omission about Strathcona’s findings and concerns was an omission of a material fact that a reasonable investor would find important and would reasonably want to know.[^23]
[73] Counsel for the defendants argues that it follows logically from my finding on the first branch that the second branch was also satisfied. That is, if Pretium had conducted a reasonable investigation and determined that Strathcona’s concerns were “inherently unreliable”, then it follows that it had “no reasonable grounds to believe that the document or public oral statement contained the misrepresentation”. That should have ended the inquiry, argue the defendants, because a misrepresentation requires the omission of a material fact, and “inherently unreliable” facts are not material.
[74] I do not deny the force of this submission. However, as already noted, the additional evidence adduced on these motions (and, in particular, the evidence of Mr. Jones and the other independent experts) adds an important objective dimension to the defendants’ subjective perspective of why the Strathcona data was “inherently unreliable.” This additional evidence allows me to now conclude that the second branch of the reasonable investigation defence has indeed been satisfied.
[75] I am also mindful of the decision of American courts in a parallel litigation. A class action against Pretium in the U.S. that advanced many of the same allegations was dismissed in 2017 by the Southern District of New York and the Court of Appeals for the Second Circuit on several grounds, including reasonable investigation.[^24] That the parallel American action was very similar, if not identical, to the one herein is evident from the following.
[76] First, the factual backdrop as summarized by the District Court:
Pretium hired two independent QPs specifically tasked with providing mineral estimates—Snowden and AMC—and another QP, Tetra Tech, for overall project management and to complete the June 2013 Feasibility Study. Strathcona was not hired to provide mineral estimates or to participate in the June 2013 Feasibility Study. Nonetheless, Strathcona informed Pretium that it did not agree with the Snowden model or Pretium’s estimates concerning the Brucejack Project.[^25]
[77] And the allegations in the American proceeding, also almost identical:
Plaintiffs assert that [Pretium’s] forecast was misleading because [Pretium] failed to disclose information available to Pretium including: (1) Strathcona’s concern that the Brucejack Project would not be economically viable for bulk mining; (2) negative results from the Bulk Sample Program; and (3) that the Cleopatra Vein was narrow and unrepresentative of the VOK region.[^26]
[78] The District Court concluded that Pretium was entitled to take the time to investigate Strathcona’s concerns and “that is precisely what [it] did”:
However, a party is also entitled to investigate potentially negative information before making statements to the market. As Chief Judge Easterbook explained: “Prudent managers conduct inquiries rather than jump the gun with half-formed stories as soon as a problem comes to their attention . . . Taking the time necessary to get things right is both proper and lawful. Managers cannot tell lies but are entitled to investigate for a reasonable time, until they have a full story to reveal.” That is precisely what Pretium did.[^27]
[79] The District Court judge noted Pretium’s view that Strathcona did not have the data to support its conclusions and that its data were drawn from a “flawed” sample tower.[^28] He found that Pretium was entitled to take four months “to investigate Strathcona’s concerns” – that is, until October 22, 2013, when the first mill results were delivered and Pretium “disclosed the disagreement”. The judge concluded that “[t]his is a reasonable period of time under all the circumstances presented here, namely, the size and scope of the project and the competing QP opinions”.[^29]
[80] The District Court judge also noted that “since Strathcona was not tasked with providing mineral estimates or with participating in the management or completion of the 2013 Feasibility Study it was arguably not positioned to credibly cast doubt on the estimates”.[^30] In any event, he found that Pretium’s investigation caused it to honestly believe that “the final results of the Bulk Sample Program would support its estimates of the Brucejack Project”, and “did not find Strathcona’s conclusions regarding the Brucejack Project to be credible”.[^31] The District Court judge dismissed the proposed class proceeding.
[81] The Court of Appeals for the Second Circuit upheld this decision in full, affirming the District Court’s conclusion that Pretium had reasonably investigated Strathcona’s concerns:
Strathcona’s opinions about other matters--including its concerns about the initial results of the sampling program or how those preliminary results compared to Snowden’s report - were not relevant to the narrow purpose for which Pretium retained Strathcona. Pretium was therefore entitled to investigate and confirm that Strathcona’s opinion about the preliminary findings from the sampling program was valid. See Omnicare, 135 S. Ct. at 1330 (“Investors do not, and are right not to, expect opinions contained in [official statements] to reflect baseless, off-the-cuff judgments.”).[^32]
[82] In sum, judges in the Southern District of New York and the Court of Appeals for the Second Circuit concluded that it was reasonable for Pretium to take four months to conduct its investigation of Strathcona’s unsolicited opinions. Here, of course, the time between Strathcona’s first real objection in its email of August 14, 2013 and Pretium’s disclosure of Strathcona’s concerns on October 22, 2013 was just over two months.
[83] The American decision, of course, is not binding on this court, but it is persuasive and it reinforces my conclusion that on the evidence herein, Pretium is entitled to a reasonable investigation defence under OSA s. 138.4(6).
Conclusion
[84] The evidence presented on these motions by the plaintiff leaves a lot to be desired. In particular, actual evidence from Strathcona’s principals may have resulted in a more balanced assessment of its expertise in mineral resource estimation or its understanding of the VOK mineralization and appropriate measurement techniques. However, class counsel chose not to file such evidence and relied almost exclusively on one expert’s report, whose contribution to the issues in play was of minimal value at best.
[85] Put simply, this court based its decision on the evidence before it. And this evidence requires that the two most important Common Issues must be answered as follows:
• The answer to Common Issue (a) – whether Pretium released core documents between July 23 and October 9, 2013 that contained misrepresentations – is “no”;
• The answer to Common Issue (k) – whether the defendants are relieved of liability under the reasonable investigation defence – is “yes” and is provided in the alternative.
[86] The defendants also argued two further statutory defences. One, under OSA s. 138.4(11), that Pretium reasonably relied on Snowden as an appropriately qualified expert, and the other, under s. 138.4(9), that Pretium properly disclosed and disclaimed forward-looking information. Given the answers to Common Issues (a) and (k) as just stated, there is no need to consider either of these additional defences. I note for the record, however, that counsel for the defendants advanced compelling submissions for both.
Disposition
[87] There was no omission of any material fact. There were no misrepresentations. The defendants’ motion for summary judgment is granted. The plaintiff’s cross-motion for summary judgment is dismissed.
[88] Orders to go accordingly.
[89] The defendants are entitled to costs. I encourage the parties (and the plaintiff’s third-party funder) to agree on the appropriate costs award. If the parties are unable to do so, I will be pleased to receive brief written submissions within 21 days from the defendants, and within 21 days thereafter from the plaintiff.
[90] My thanks to all counsel for their assistance.
Signed: Justice Edward P. Belobaba
Notwithstanding Rule 59.05, this Judgment [Order] is effective from the date it is made, and is enforceable without any need for entry and filing. In accordance with Rules 77.07(6) and 1.04, no formal Judgment [Order] need be entered and filed unless an appeal or a motion for leave to appeal is brought to an appellate court. Any party to this Judgment [Order] may nonetheless submit a formal Judgment [Order] for original signing, entry and filing when the Court returns to regular operations.
Date: February 2, 2021
[^1]: Wong v. Pretium Resources, 2017 ONSC 3361. [^2]: Securities Act, R.S.O. 1990, c. S. 5 ("OSA"). [^3]: By order of the Divisional Court dated December 1, 2017. [^4]: By order of this court dated January 23, 2019. [^5]: Supra, note 1, at para. 3. [^6]: Credit for this apt analogy goes to Mr. Peter Jervis, class counsel in the Barrick Gold leave motion: see DALI Local 675 Pension Fund (Trustees) v. Barrick Gold, 2019 ONSC 4160, at para. 36. [^7]: Rules of Civil Procedure, R.R.O. 1990, Reg. 194. [^8]: Supra, note 1, at paras. 4-18. [^9]: Ibid., at paras. 19-22. [^10]: Supra, note 1, at para. 27. [^11]: Ibid., at para. 37. [^12]: Under the Canadian Securities Administrators' National Instrument 43-101 – Standards of Disclosure for Mineral Projects. [^13]: Rules 20.02(1) and 39.01(4). And see Buik Estate v. Canasia Power Corp., 2014 ONSC 2959, at paras. 45-49, aff'd 2015 ONCA 352. [^14]: OSA, supra, note 2, s. 1(1) ["misrepresentation"]. [^15]: Ibid., s. 1(1) ["material fact"]. [^16]: Inmet Mining Corp. v. Homestake Canada Inc., 2003 BCCA 610, at para. 105. [^17]: Amirault v. Westminer Canada Ltd., (1993) 120 N.S.R. (2d) 91, at para. 581. [^18]: Ibid., at para. 582. [^19]: Ibid., at para. 584. [^20]: Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., 2011 SCC 23, at para. 65. [^21]: Ibid., at para. 41, citing TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976), at 448-49. [^22]: Supra, note 1, at paras. 27 and 44. [^23]: Ibid., at para. 45. [^24]: In re Pretium Resources Inc. Securities Litigation, 13-CV-7552 (VSB), aff'd Martin v. Quartermain, Case 17-2135 (2nd Cir. 2018). [^25]: In Re Pretium Resources Inc., at 22. [^26]: Ibid., at 20-21. [^27]: Martin, supra, note 24, at 26, citing Chief Judge Easterbrook in Higginbotham v. Baxter Int'l, Inc., 495 F.3d 753, 760-61 (7th Cir. 2007). [^28]: Ibid., at 26. [^29]: Ibid., at 26-27. [^30]: Ibid., at 24. [^31]: In Re Pretium Resources Inc. supra, note 24, at 23. [^32]: Martin, supra, note 24, at 9.