In its continuous disclosure obligations under the (Ontario) Securities Act, is a company obligated to disclose concerns that it reasonably and honestly considers to be premature, unreliable or unfounded opinion?
According to the Ontario Court of Appeal decision in Wong v. Pretium Resources, Inc. (“Wong”), the answer is no. In other words, if a company reasonably believes information that an investor would otherwise want to know is premature or unreliable, it may not yet be material and, therefore, not in need of being disclosed.
Wong was the first-ever determination “on the merits” of a case brought under the secondary market liability misrepresentation provisions of the (Ontario) Securities Act. In summary, the case involved a mining issuer that was sued by a representative plaintiff (i.e. in a class action) for not disclosing the opinion of a mining expert, Strathcona. The issuer had engaged Strathcona to provide, among other things, tower testing results at its Brucejack Project mining site.
Strathcona found, in mid July 2013, what they felt were unfavourable sample results, disclosed these to Pretium, and advised that they felt these results were material and should be disclosed to the market. When Pretium repeatedly refused to disclose despite Strathcona’s insistence, Strachona resigned in October 2013. It was at this point, when Pretium disclosed the resignation and the reasons behind it, that the share price of Pretium dropped by 50 percent.
As a result, the representative plaintiff (i.e. of class action shareholders) ultimately sued that Pretium should have disclosed Strathcona’s initial advice about their sample test results when they received them and not just upon resignation. Pretium’s position, which ultimately was vindicated and upheld on appeal, was that it honestly and reasonably believed that the results were unreliable and inaccurate; only a full-fledged test and assessment of the entire 10,000-tonne bulk sample could be relied upon. Anything less – such as the smaller sample testing conducted by Strathcona – would be “premature and unreliable” and, therefore, not material for the purposes of continuous disclosure obligations.
The Wong decision provides some relief and wiggle room for issuers as they assess their disclosure obligations. However, from a practical business standpoint, an ounce of prevention is still always better than a pound of cure. Put simply: issuers should always consider being proactive to avoid the risk of enforcement, administrative or other civil proceedings that invariably become major distractions at best, or catastrophic business-ending events at worst. Even the Wong decision came on the heels of a long and rather destructive process involving years of litigation on multiple levels of court. As such, Issuers would be wise to seek guidance from experienced legal counsel as soon and as early as possible when deciding whether any information is material or should otherwise be disclosed.