The Supreme Court of Canada has released its much-anticipated decision in Lundin Mining Corp. v. Markowich, 2025 SCC 39, clarifying the definition of a "material change" under securities law and providing guidance on when a public company must disclose information to the market. The decision will have broad implications for public companies, their directors, officers, shareholders and other market participants.
Background: The Rockslide and the Decisions Below
In Lundin v Markowich, the central issue was whether pit wall instability and a rockslide at a major copper mine operated by Lundin Mining Corporation in Chile was a “material change” requiring prompt disclosure under the Ontario Securities Act. Lundin disclosed the rockslide approximately one month after the incident, as part of a regular news release containing operational updates. Lundin's disclosure, which was coupled with revised financial forecasting, resulted in an immediate 16% decline in its share price.
The plaintiff, an investor in Lundin, initiated a putative class proceeding, arguing that the rockslide was a "material change" in Lundin's business and operations. If so, Lundin was required to issue a press release under applicable securities law describing this change "forthwith" and to file a material change report within 10 days of the event.
The plaintiff sought leave to commence a secondary market misrepresentation claim under the Securities Act. At the leave stage, the plaintiff is required to prove only that (a) the claim was brought in good faith; and (b) there is a "reasonable possibility" that the action will be resolved at trial in the plaintiff's favour.
At first instance, the motion judge concluded that while the rockslide may have been "material", it did not constitute a "change" in Lundin's "business, operations or capital." On the motion judge's interpretation of the Securities Act, a "change" required that the event at issue result in a "different position, course or direction to a company's business, operations or capital." The motion judge found that the rockslide was not a change because there was no evidence that the rockslide posed any threat to the company's economic viability, interrupted the company's ability to carry out its mining operations at large, or changed the fundamental nature of its business. The motion judge also relied on evidence suggesting that rockslides were a relatively common occurrence in open-pit mines.
On appeal, the Ontario Court of Appeal held the motion judge had applied an overly narrow definition of “material change.” The Court of Appeal held that the pit wall instability and the rockslide could amount to a "material change" in Lundin’s operations and meet the threshold to support granting leave.
Lundin appealed the Court of Appeal’s decision to the Supreme Court of Canada.
The Supreme Court Adopts a Broad Interpretation of a Material Change
In an 8-1 decision, the majority of the Supreme Court dismissed the appeal and adopted a broad interpretation of what constitutes a "material change" under applicable securities law, following the two-step framework applied by the Court of Appeal.
The majority held that a “material change” is comprised of two components:
- There must be a "change" in the company's "business, operations or capital". This involves a qualitative assessment of the nature of the change. A change affecting the company in any one of its business, operations or capital is sufficient.
- The change must be material. A change is material when it is reasonable to expect a “significant effect on the market price or the value of the securities”. This involves considering the magnitude of the change based on the perspective of a “reasonable investor” in strict economic terms.
A disclosure obligation is triggered when both components are met.
As part of its analysis, the Supreme Court discussed and contrasted the different standards in the Securities Act applying to the disclosure of a "material change" (which must be disclosed "forthwith") and a "material fact" (which need not be disclosed immediately). The Supreme Court acknowledged that the distinction between a "material fact" and a "material change" is one of the more difficult areas of securities law.
The majority decision observed that two rival standards have developed in Canadian case law with respect to the definition of a "material change". The first approach is a broad, investor-friendly approach that sticks closely to the relevant statutory language and encourages companies to err on the side of disclosing new developments sooner rather than later. The second approach is a narrower, company-friendly standard that gives managers of public companies more scope to delay disclosure of new developments.
The majority decision rejected the second approach as inconsistent with the text and legislative purpose of the Securities Act. Consequently, the majority rejected commentary from previous lower court decisions that a development must be “important and substantial” to constitute a "change" under securities laws, noting that these requirements do not appear in the legislation and risk undermining its objectives.
A Broad Interpretation Reflects Legislative Intent and Policy Goals Relating to Information Asymmetry
The Supreme Court majority rooted its approach in the legislative purpose of securities regulation to remedy informational gaps between companies and investors. By leaving key terms such as "change", "business", "operations" and "capital" undefined, the Supreme Court concluded that the legislature intended for these terms to be context dependent and to provide flexibility for different factual scenarios. The Supreme Court declined to establish a bright line test to define “material change”. Instead, it emphasized that this determination is a matter of judgment and common sense applied to the unique circumstances of each case.
Application to the Facts
The Supreme Court majority agreed with the Court of Appeal’s analysis, finding that the motion judge interpreted “change” too narrowly, relying on a dictionary definition and applying this restrictive view to the evidence at the leave stage.
Applying its analysis of “material change” to the facts, the Supreme Court found that the pit wall instability and subsequent rockslide at the Chilean mine could possibly be found at trial to have been a change in Lundin’s operations.
The Leave Test: Statutory Interpretation is Not Less Stringent at the Leave Stage
The Supreme Court also addressed a secondary issue: the test for leave to commence an action for secondary market misrepresentation. The leave test is a “preliminary merits” assessment, requiring the plaintiff to show that the action is brought in good faith and that there is a reasonable possibility of success at trial.
The Supreme Court clarified that statutory interpretation is not "less [stringent]" at the leave stage. Plaintiffs must demonstrate a plausible application of the relevant statutory provision to the facts, based on the limited evidence available at this early stage. The threshold is more stringent than that for class action certification, but it does not require proof of success at trial, only a reasonable or realistic chance of success.
Key Takeaways
- The Supreme Court has endorsed a broader interpretation of a "material change" than what many issuers have generally applied, and which appears to expand the circumstances in which companies and boards will be required to provide disclosure to investors "forthwith" (i.e. as soon as possible) as opposed to in conjunction with regularly scheduled disclosure (e.g. quarterly financial statements and MD&A). The Supreme Court rejected the idea that a change must necessarily be “important and substantial,” a “significant disruption,” or so serious that the company can no longer carry on its main business before it triggers an immediate disclosure obligation.
- In the context of continuous disclosure, a "change in the business operations and capital" of a company is a holistic standard for assessing corporate developments that require disclosure. The standard must be applied in light of the underlying purpose to combat information asymmetry between companies and investors, rather than by parsing each element separately. The Supreme Court held that the legislature deliberately left this phrase undefined to allow courts and regulators to apply the legislation broadly and flexibly as the context and circumstances require.
- There is no bright-line test to establish whether a material change has occurred. This determination is a matter of judgment and common sense applied to the unique circumstances of each case.
- Events that are external to a company, such as political or economic developments, will only trigger disclosure as a material change if they result in a resulting internal change to the company's business, operations or capital.
- A material change may be triggered even if the event or change is a known or common occurrence in the particular industry and the company has previously disclosed a risk that such event could occur (e.g. rockslides in the mining industry). Previous disclosure of general risk factors will not excuse a company from disclosure if the specific risk actually occurs and constitutes a "material change".
- Negotiations or internal deliberations at a company, without any tangible outcomes, will not typically amount to a material change.
- The Supreme Court's decision may drive reporting issuers and their directors to "err on the side of caution" and disclose a potential material change before the relevant facts are fully known. In doing so, reporting issuers and directors must exercise significant care and avoid unintentionally providing disclosure that could be characterized as incomplete or misleading with the benefit of hindsight.
Looking Forward
The Supreme Court of Canada’s broadened interpretation of "material change" will require boards and management of reporting issuers to be mindful of timely disclosures. The Supreme Court’s flexible and context-driven approach means that disclosure decisions will require prompt consideration and ongoing diligence by companies and boards, especially when all facts may not be immediately available. Proactive engagement by companies and management will be essential to navigating the revised disclosure standards and mitigating regulatory and litigation risks.
If you have any detailed questions or require tailored advice about continuous disclosure obligations, material change determinations, securities litigation risks, mining industry considerations, or capital markets implications, our team can help. Bennett Jones’ Securities Litigation group offers deep expertise in navigating complex regulatory and litigation challenges, while our Mining and Capital Markets groups provide strategic guidance on transactions, governance, and risk management in Canada’s resource and financial sectors. Please contact one of the members of our Securities Litigation, Mining or Capital Markets groups to learn more about how we can support your business.
Associate Kanwar Brar assisted in the preparation of this article.
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