The Supreme Court of Canada clarifies “Material Change” and the Leave Test in Securities Legislation in Lundin Mining Corp. v Markowich, 2025 SCC 39

In Lundin Mining Corp. v Markowich, 2025 SCC 39 [Lundin Mining], an 8-1 majority of the Supreme Court of Canada determined that the definition of “material change” in securities legislation should be interpreted broadly, and that the leave test for bringing an action under such legislation requires a reasonable likelihood of success at trial.

Facts

Lundin Mining Corp (“Lundin”) is a Canadian mining company, which is a reporting issuer with its shares listed on the Toronto Stock Exchange. In October of 2017, Lundin detected pit wall instability in an area forming part of Lundin’s open pit copper mine in Chile. A few days later, the pit wall instability caused a rockslide, which led to the mine slowing its operations and lowering its production forecast for the next year by 20%. Lundin did not disclose the pit wall instability or rockslide immediately to investors. Instead, Lundin revealed the news a month later, in November of 2017, as part of its regularly scheduled updates. The day after Lundin’s disclosure, its share price fell by 16%.

An investor who purchased shares in Lundin after the instability was detected, but before disclosure was provided, sought leave to commence a secondary market claim under Ontario’s Securities Act, RSO 1990, c S.5 (“Securities Act”), and applied to certify the action as a class proceeding under Ontario’s Class Proceedings Act, 1992, SO 1992, c 6. A secondary market claim is a statutory cause of action that allows investors who trade securities on the open market (rather than directly from the issuer) to seek compensation from issuers, or the directors and officers of an issuer, for losses caused by misrepresentations or disclosure failures by the issuers.

The investor alleged the pit wall instability and rockslide were “material changes” to the company’s “business, operations or capital”, which required immediate disclosure under the Securities Act.

Lower Court Decisions

The motion judge denied leave to commence the lawsuit. The judge concluded there was no reasonable possibility that the pit wall instability or rockslide created a material change in Lundin’s business, operations or capital.

The Ontario Court of Appeal reversed the motion judge’s decision, and granted the investor leave to commence the action. The Court of Appeal found that the motions judge interpreted “change”, “business”, “operations”, and “capital” too narrowly, which led him to err in refusing leave to commence the lawsuit. The Court of Appeal found that, under a broad reading of those terms, the pit wall instability and rockslide could be seen as operational material changes, as there was evidence confirming these events affected mine phasing and reduced the company’s projected production. As a result, the Court of Appeal found the investor’s interpretation was plausible and that there was sufficient evidence to justify granting leave to commence the lawsuit. The Court of Appeal referred the issue of certification back to the lower court.

Lundin sought and was granted leave to appeal against the Ontario Court of Appeal’s decision to the Supreme Court of Canada.

Supreme Court of Canada Decision

In an 8-1 majority, in reasons authored by Justice Jamal, the Supreme Court dismissed Lundin’s appeal. The majority agreed with the Court of Appeal that the definition of “material change” should be interpreted broadly under applicable securities law. The majority also clarified the test for obtaining leave to commence a secondary market claim.

1. What counts as a “material change”?

The majority of the Supreme Court agreed that the terms “change,” “business,” “operations,” and “capital” were intentionally left undefined in the legislation so they could be applied flexibly across different industries.

In applying its broad interpretation of “material change,” the Supreme Court concluded that a trial judge could reasonably find that the pit wall instability and rockslide at Lundin’s mine amounted to an operational change, thereby falling into the definition of “material change” under the securities legislation. The determination that a material change had occurred then necessitates the prompt public disclosure of such material change.

In its analysis, the Supreme Court considered the difference between a “material fact,” which requires periodic disclosure, and a “material change,” which requires immediate public disclosure, under the Ontario Securities Act and equivalent provincial legislation across Canada.

The Supreme Court held that a “material change” under the Securities Act has two components:

(1)    there must be a “change” in the company’s “business, operations or capital of the issuer”; and

(2)    the change must be material, meaning it would reasonably be expected to have a “significant effect on the market price or the value of the securities.” Materiality is assessed objectively from the perspective of a reasonable investor in strict economic terms.

In its analysis, the Supreme Court considered the difference between a “material fact,” which requires periodic disclosure, and a “material change,” which requires immediate public disclosure under the Ontario Securities Act and equivalent provincial legislation across Canada.

The majority clarified a few key differences between material facts and material changes:

(1)     Static vs. Dynamic: A material fact is static and reveals an issuer’s circumstances at a given moment, whereas a material change requires a comparison of the issuer’s circumstances at two different points in time.

(2)    Internal and External vs. Internal Only: A material fact can arise due to circumstances internal or external to the issuer. Conversely, a material change often arises due to circumstances only internal to the issuer. This distinction follows the purpose of securities legislation to mitigate “informational asymmetry” between issuers and investors, and keeps investors appraised of internal changes to the company’s business, operations, or capital.

(3)    Broad vs. Narrow: Material facts are defined more broadly than material changes. Any fact of an issuer’s company can be considered a material fact, but only changes in an issuer’s “business, operations or capital” can be considered a material change.

In dissent, Justice Côté indicated that she would have granted the appeal and reinstated the motion judge’s order refusing leave to commence the lawsuit. She concluded that the concept of a “material change” should be limited to developments affecting the issuer’s fundamental or high-level business, operations, or capital structure—namely, changes that shift the issuer’s overall position, trajectory, or strategic direction.

2. What does an investor need to show on a motion for leave under Canadian securities law?

In his reasons for the majority, Justice Jamal confirmed the test under Ontario’s Securities Act, and by extension other provincial securities legislation, for leave to commence an action for breach of a reporting issuer’s disclosure obligations. That is, the court must be satisfied the action is being brought in good faith and there is a reasonable possibility of success at trial based on an analysis of applicable law and credible evidence.

Since the undisputed evidence in this case showed that the instability and rockslide had real operational impacts, the evidence showed these events could have resulted in a change that was material, and therefore, the plaintiff met this threshold.

In her dissent, Justice Côté did not take issue with the majority’s procedural framework for granting leave, but instead cautioned that broadening the substantive interpretation of “material change” could unduly lower the bar for obtaining leave. She cautioned that the majority’s broad interpretation could lead to over-disclosure, heightened compliance costs, and increased exposure to liability for issuers and their officers and directors.

Key Takeaways

Lundin Mining offers guidance for directors and officers of reporting issuers and securities holders, respectively, on what may constitute a material change, when a material change should be disclosed, and the consequence when it is not. The following takeaways may be drawn from the majority’s reasons:

(1)    The meaning of “material change” obtains a broad meaning. Whether a material change has occurred is fact specific and may not be obvious. As a result, to avoid potential liability for not disclosing a material change quickly enough, where there are internal, dynamic shifts in a company’s business, operations or capital, the board or management of a reporting issuer may be inclined to err on the side of early disclosure with respect to publicly reporting a potential or perceived material change.

(2)    Management of a reporting issuer should assess changes to the company’s business, operations or capital as they occur, sometimes even before the full impact of a change is known, because the obligation of timely disclosure of a material change arises as soon as the two components of a “material change” are met.

(3)    A material change is a change that is internal to the issuer. External developments (such as the imposition of trade tariffs or other broadly applicable developments) that broadly affect all participants in the industry in which a reporting issuer operates should not trigger a public disclosure requirement, unless such external development results in an internal change to the business, operations, or capital of such reporting issuer.

Although Lundin Mining was decided in respect of Ontario’s Securities Act, it is expected that the same analysis will be applied in Saskatchewan, in respect of The Securities Act, 1988, SS 1988-89, c S-42.2 (“Saskatchewan Securities Act”).

McDougall Gauley LLP has experience with advising issuers on disclosure obligations and compliance with the Saskatchewan Securities Act. For guidance navigating the disclosure obligations of reporting issuers, contact our Securities Law team. The firm also has experience litigating disputes between issuers and securities holders, including disputes related to late disclosures, and class actions. For assistance, contact our Litigation team.