The Supreme Court of Canada (SCC) has rendered a significant decision regarding the concept of “material change” in securities disclosures. In Lundin Mining Corp. v. Markowich, 2025 SCC 39, the SCC declined to provide a concrete definition of material change. Instead, it affirmed a flexible and contextual approach, shaped by the facts of each case while considering the broader purpose of securities legislation including investor protection and the preservation of fair and efficient capital markets.
Disclosure, damages, and the leave requirement: the legal framework
Ontario’s Securities Act draws a distinction between material changes and material facts. Material changes must be disclosed “forthwith”, while material changes need only be disclosed periodically. Moreover, if an issuer misrepresents or fails to make such disclosure, investors who traded in the shares of the issuer during the period of misrepresentation or its correction may seek damages under s. 138.3(4), including as a class action. To bring such an action a plaintiff is required to obtain leave from the court under s. 138.8(1).
Ontario’s Securities Act defines a material change as “a change in the business, operations or capital of the issuer that would reasonably be expected to have a significant effect on the market price or value of any of the securities of the issuer.” The legislation does not define the terms “change”, “business”, “operations”, or “capital”. A material fact is “a fact that would reasonably be expected to have a significant effect on the market price or value of the securities.”
From rockslide to courtroom: factual background
This case arises from a mining company’s alleged failure to make timely public disclosure of a pit wall instability at its flagship mine, leading to a localized rockslide and partial shutdown of its operations. Instead of promptly disclosing these events, the mining company only disclosed them a month later in its regular updates. Once disclosed, the share price fell 16%.
A shareholder of the mining company sought leave to bring an action under s. 138.8(1) and to certify a class action on behalf of all persons who acquired securities in the mining company between the day that the pit wall instability was detected and the date that the company disclosed the instability and the ensuing rockslide. The representative plaintiff alleged that the mining company failed to disclose a material change under section 75(1) and claimed damages under s. 138.3(4), meaning he needed to satisfy the leave test.
Division below: lower court decisions
The Ontario Superior Court of Justice refused to grant leave and dismissed the motion for class certification, finding that there was no reasonable possibility that a “change” to the mining company’s “business, operations, or capital” had occurred. The motion judge defined these terms narrowly, relying on ordinary dictionary definitions and lower court precedent to conclude that the events did not alter the company’s position, course or direction to constitute a material change. While the events were material facts, the motion judge determined that there was no reasonable possibility that they amounted to a material change requiring immediate disclosure.
The Ontario Court of Appeal (ONCA) overturned the decision, finding that the motion judge erred by adopting restrictive, dictionary-based definitions while failing to consider the Act’s purpose and relevant precedent. The ONCA held that, at the leave stage, plaintiffs need only to provide a plausible interpretation of the statutory provisions and sufficient evidence. The ONCA applied a generous interpretation and found a reasonable possibility that the events constituted a material change in the mining company’s operations. The plaintiff was granted leave to proceed.
The SCC speaks: SCC decision
An 8-1 majority (Côté J. dissenting) of the SCC dismissed the appeal and confirmed the wide interpretation.
The majority (Jamal J. writing) noted that disclosure is the “heart and soul of securities regulation” that “maintains a level playing field of information between investors and issuers.” The majority found that a broad interpretation of “change” was consistent with this purpose of securities regulation and the legislature’s intent, which deliberately left the terms “change”, “business”, “operations”, and “capital” undefined. The majority also confirmed that no bright line test exists to indicate what constitutes such a change.
The majority differentiated between material changes and material facts.
A material change focuses on whether there has been any internal change in the business, operations, or capital of the issuer that could reasonably be expected to have a significant effect on the market price or value of the securities. External political, economic, and social developments cannot give rise to a material change, unless the development results in a change in the business, operations, and capital of the issuer, and unless the change is material. A development does not need to be “important or substantial” to constitute a change. Further, the terms, “business,” “operations,” and “capital” should be interpreted broadly and in line with their commonly understood meaning in commercial contexts.
Material facts, by contrast, include a broader ambit, encompassing both internal affairs and external political, economic, and social developments as they impact issuers.
Separately, the majority clarified that the leave test is a preliminary merits test. The plaintiff needs to demonstrate that the action has a “reasonable possibility” of success. This standard does not require proof on a balance of probabilities that the action will succeed at trial. However, it is more stringent than the pleadings branch of the test for certification of a class action which merely requires the plaintiff to establish that it is not plain and obvious that the pleaded causes of action will fail.
Justice Côté’s dissent cautioned against an overly broad interpretation of material change, arguing that the majority blurred the line between material facts and material changes, potentially burdening public companies with premature and/or excessive disclosure and resulting in excessive information while increasing liability risks for directors. She endorsed the motion judge’s more restrictive interpretation and cautioned that a material change should be reserved for high-level or core alterations to a company’s business, operations, or capital.
Key takeaways
- Legally, the SCC purposefully left “material change” undefined, affirming a broad, flexible, fact- and industry-dependent standard to determine whether a development is a material change requiring immediate disclosure.
- It is clear a “material change” must constitute a change in the business, operations, or capital of the issuer that could reasonably be expected to have a significant effect on the market price or value of the securities.
- Issuers should cautiously review their reporting procedures and err on the side of timely disclosures to limit liability risks. This is particularly important to avoid class action exposure.
With thanks to Ezra Thevarasalingam, articling student,for his assistance in preparing this post.
