Introduction
Wong v Pretium Resources (“Pretium”) was a securities class proceeding premised on the issue of whether the defendant gold mining company’s failure to disclose the negative opinion of one of its mining consultants, Strathcona, amounted to an omission of a material fact, and thus an actionable misrepresentation under Part XXIII.1 of Ontario’s Securities Act, RSO 1990, c S5 (“OSA”).
Strathcona believed that sampling it had performed disconfirmed the validity of a prior resource estimate performed by Snowden, another mining consultancy, for Pretium’s Brucejack gold mine. For its part, Pretium neither agreed with nor accepted Strathcona’s unsolicited opinion, so kept it from the market. Thus, the court had to consider whether there was any legal obligation for Pretium to disclose Strathcona’s opinion, which later, in fact, turned out to be wrong.
Merits decisions are somewhat of a rarity in the class actions universe. So, Justice Belobaba’s reasons on cross-motions for summary judgment have been received with great interest by the bar. There are a couple big takeaways for counsel and interested parties, which shall be expanded upon below: (i) courts will treat the different standards on procedural versus substantive motions seriously; and (ii) reliability is a precondition to “materiality” under the OSA.
Background
In 2017, Mr. Wong was granted leave to commence an action for secondary market misrepresentation under s. 138.8 of the OSA. Justice Belobaba was at that time satisfied there was a reasonable possibility of the plaintiff’s success at trial. In particular, His Honour found that “reasonable investors would have considered it material that two respected mining consultancies retained by Pretium…fundamentally disagreed as to whether there were valid mineral resources” in the mine. The action was subsequently certified on consent.
OSA leave motions are determined on a “reasonable possibility of success” standard, which is lower than the “balance of probabilities” standard imposed on motions for summary judgment. Where further evidence is scrutinized by a court on a balance of probabilities, it may be harder for plaintiffs to prevail depending on what that evidence is. In Pretium, the evidence contextualized Pretium’s conduct and disproved the plaintiff’s claim.
It is, in the author’s opinion, correct that some cases will get through a leave motion and then fail on the merits. The standards are different for sound policy reasons. The leave test, “while more than a speedbump, is not the Matterhorn.” It exists for the protection of defendants from strike suits and fulfills this function. Subsequent to the granting of leave, however, on a more demanding “balance of probabilities” standard and with the benefit of discovery, the case can be fully adjudicated on its merits and a plaintiff can win or lose.
The Cross-Motions for Summary Judgment
The cross-motions for summary judgment turned on additional evidence which showed that the initial characterization of Strathcona’s expertise and qualifications on the leave motion was inaccurate. The Court concluded that because its findings were unreliable, they were immaterial to market participants and there was no need to disclose them.
The defendants filed a number of affidavits from executives, geological experts, and independent witnesses, which credibly expanded on the story told by Pretium at the leave motion. That story was that Strathcona was unskilled, inexpert, and used a flawed sampling methodology given the unique mineralization characteristics of Brucejack, where some 82 percent of the gold could be found in one percent of the rock. Strathcona could not have confirmed the resource estimate because it used the wrong sampling technique for testing a variable gold deposit. Accordingly, they argued, Pretium was entitled to wait and see, as it had always intended to do, with respect to confirmation of Snowden’s original resource estimate. Because the Strathcona opinion was unreliable, “the Pretium defendants were under no obligation to disclose bad and misleading information.” As such, there was no omission of any material fact and no misrepresentation. At least on the facts of this case, the underlying rationale makes sense on this point. With that said, some amount of well-founded disagreement with a qualified consultant would be material.
For his part, the plaintiff led substantive evidence from one expert, who was not involved in the relevant events and reviewed an incomplete sampling of documents prepared by class counsel. This turned out to be fatal. Indeed, the Court indicated a particular concern that Mr. Wong did not file any evidence from Strathcona in support of his position, nor was any effort made to compel them as third-party witnesses, which “may have resulted in a more balanced assessment of its expertise in mineral resource estimation or its understanding of…mineralization and appropriate measurement techniques.”
Conclusion
Ultimately, the defendants were successful in persuading the court that there was no omission of material fact. On these facts, the Court determined that they were not obliged to disclose information they reasonably believed to be premature, unreliable, and incorrect. It is interesting to consider what would have happened if Pretium was proven wrong, and the mineral resource estimate was not valid. In any event, on the basis of Snowden’s resource estimate, there turned out to be about 42 percent more gold than originally projected. There was “gold in them thar hills,” as Snowden predicted, and so Pretium won the day.