The Supreme Court's Lundin Mining Decision Redefines The Meaning Of Material Change For Public Companies

The Supreme Court of Canada's (the "SCC") decision in Lundin Mining Corp. v. Markowich ("Lundin Mining") marks a turning point for Canadian securities law by revisiting the meaning of "material change", resulting in significant implications for reporting issuers and the broader Canadian capital markets.

For reporting issuers, the message is clear: timely disclosure obligations are broader than many issuers may have assumed. Issuers must move faster and disclose more. Operational events that were once viewed as routine, particularly in industries like mining, may now constitute a "material change," requiring immediate public disclosure even when they are temporary or inherent to the industry.

Issuers should now adopt a proactive disclosure posture. The safest strategy is to err on the side of timely transparency. Delaying disclosure until scheduled quarterly updates or relying on internal assessments that downplay operational incidents are no longer defensible.

What is the difference between a material fact and a material change?

The SCC reaffirmed and clarified the governing framework by distinguishing between material facts and material changes, and by emphasizing a broad standard aimed at protecting investors:

1. Material fact (static): a snapshot of an issuer's affairs at a point in time, defined broadly to include any internal or external fact that could significantly impact market price or value of an issuer's shares.
2. Material change (dynamic): a comparison of an issuer's affairs involving its business, operations or capital at two points in time, which must be internal to the issuer and involve a substantial likelihood of materialization.

How does the two-step test for determining a material change work?

The SCC confirmed that the "material change" analysis proceeds in two broad steps:

1. Has there been a change in an issuer's business, operations, or capital?

This threshold is low and does not require the change to be important or substantial, or disrupt an issuer's overall viability. The interpretation of the word "change" should not be constrained its dictionary definition. Rather, a change can simply be a development in the affairs of an issuer that applies to:

• its business (including business lines),
• its operations (including operational affairs), or
• its capital (including financial affairs).

The development does not need to be important or substantial to constitute a change, and the phrase "business, operations or capital" should not be interpreted restrictively; however, the phrase "change in the business, operations or capital" should be considered holistically without a requirement to parse each element separately.

In addition, when considering whether a change in an issuer's business, operations, or capital has occurred, the magnitude or significance of the development in an issuer's affairs is not to be taken as a consideration for whether it constitutes a change. The term "change" does not include qualifiers such as core, fundamental, or key. Evaluating the nature of the change is qualitative, while considering the magnitude of the change or whether it is significant is a question of materiality, which is addressed in part two of the two-step test.

2. Is that change material?

The question is about whether a reasonable investor, applying economic judgment, would expect the change to significantly affect or influence the market value of an issuer's securities.

Importantly, an issuer's good faith business judgment about the results of the two-step test for determining whether a material change has occurred does not put the issuer in a safe harbour where it can avoid liability for its wrong decisions. Rather, the test for whether a development is a material change is a highly contextual legal question of mixed fact and law, and it is not subordinated to any business judgment rule. Accordingly, issuers should err on the side of prompt disclosure whenever new developments arise that may constitute a material change.

What triggered the Supreme Court's reconsideration of a "material change"?

Under Canadian securities legislation, where a material change occurs in the affairs of an issuer, it must "forthwith" issue and file a news release authorized by a senior officer disclosing the nature and substance of the change. An issuer must then file a material change report as soon as practicable and in any event within 10 calendar days of the date on which the change occurred. For Canadian publicly traded companies, a "material change" refers to either:

• an alteration in an issuer's business, operations or capital that a reasonable person would expect to significantly influence the market price or value of the issuer's securities, or
• a decision to make such an alteration, where the decision has been taken by the board of directors (or equivalent decision-makers) or by senior management who believe that board approval, or approval by those in a comparable role, is probable.

The SCC's decision arose from a dispute over whether Lundin Mining Corp. ("Lundin") should have acted more quickly to inform the market about a significant operational event. In late October 2017, Lundin detected pit wall instability at its Candelaria copper mine, located in Chile. Days later, a rockslide forced the company to temporarily shut down part of the mine. At the time, the Candelaria mine accounted for more than half of Lundin's global revenue.

Lundin did not disclose the rockslide immediately. Instead, it waited more than a month, issuing a news release and hosting a conference call in late November. When Lundin disclosed the event, the market reacted sharply: Lundin's stock price fell by 16 percent in a single day, wiping out more than US$1 billion in market value.

The lead plaintiff, a minority shareholder of Lundin, purchased shares in Lundin after the rockslide occurred but before it was disclosed. The lead plaintiff advanced a claim under section 138.3(4) of the Securities Act (Ontario) (the "Act"), which requires that any "material change" in the "business, operations or capital" of a company must be disclosed promptly and forthwith. The lead plaintiff also sought certification of a class action lawsuit, which covers anyone who acquired Lundin shares between October 25 and November 29, 2017; and continued to hold at least some of those shares after the disclosure of the rockslide was eventually made by Lundin.

At the heart of the case was a fundamental question: did the significant rockslide at the mine constitute a "material change" in the Lundin's "business, operations or capital" such that Lundin's failure to disclose the rockslide promptly breached its statutory obligation to report a "material change" forthwith under the Act?

Dueling approaches: how did the lower courts decide the issue?

The narrow approach

In 2022, the Ontario Superior Court (the "Superior Court") dismissed the motion for leave and certification of the proposed class action lawsuit, applying a narrow interpretation of "material change", concluding that the rockslide did not alter Lundin's "business, operations, or capital" in any meaningful way, meaning that the rockslide did not meet the legal definition of material change to then require timely disclosure.

Even though Lundin's share price fell sharply after disclosure, the judge emphasized that market impact alone does not transform an operational incident into a material change. In fact, Lundin was "able to continue its business, operations and capital as a worldwide mining corporation", and because rockslides and pit wall instability are common, inherent features of mining operations, the incident in question did not amount to a "material change" since it had no impact on Lundin's viability or fundamental nature of its business.

The broad approach

In 2023, the Ontario Court of Appeal (the "ONCA") unanimously overturned the decision of the Superior Court on the basis that it interpreted the definition of "material change" too narrowly, particularly in the context of an application for leave under section 138.8(1) of the Act, whereby the applicant only needs to put forward a "reasonable possibility of success" based on a "plausible interpretation of the statute and the evidence."

The ONCA introduced a two-step analysis that significantly broadens the scope of disclosure:

1. determine whether there is a change in an issuer's "business, operations, or capital", noting that this part of the test is to be broad; and
2. assess whether that change is "material", meaning it would reasonably be expected to have a significant effect on the market price or value of the securities. According to the ONCA, the second prong of the test captures the "materiality" component only after it has been substantiated that a "change" has occurred.

The ONCA rejected the notion that only strategic or structural changes qualify. Operational events, even those arising from inherent risks, can constitute changes if they alter the way the business functions – even temporarily. The ONCA emphasized investor protection and the need to reduce information asymmetry, allowing the action to proceed after finding that the investor had met the leave test by presenting a plausible interpretation and credible evidence. Lundin appealed.

What did the Supreme Court ultimately decide?

In an 8–1 decision, the SCC dismissed Lundin's appeal and affirmed the ONCA's broader interpretation of "material change". The SCC held that the Superior Court erred by applying overly restrictive definitions of "change," "business," "operations" and "capital," noting that the Ontario legislature intentionally left these terms undefined to permit flexible, contextual application across industries.

As the SCC noted, "Proper disclosure is the heart and soul of the securities regulations across Canada and is pivotal for an effective securities regime."

The SCC's broad interpretation of "material change" means that issuers must promptly disclose developments that could reasonably affect market value, even operational events, not just strategic decisions. This approach expands the range of events requiring disclosure and reduces reliance on business judgment, effectively lowering the threshold for what qualifies as a material change.

The SCC confirmed the ONCA's two-part test:

1. identify whether there is a change in an issuer's "business, operations, or capital"; and
2. assess whether that change is material in the sense that it would reasonably be expected to significantly affect the market price or value of the securities.

The SCC rejected the argument that only structural or directional changes qualify, emphasizing that temporary operational disruptions can meet the threshold if they alter the way the business functions.

The SCC also clarified the leave test for securities class actions under section 138.8 of the Act. The SCC confirmed that only need to demonstrate a "reasonable possibility of success" based on a plausible application of the legislation to the facts and some credible evidence. This means that the necessary analysis is not conducted less stringently on a leave motion than at trial. A court determining whether to grant leave for a class action under section 138.8 of the Act must evaluate what might qualify as a "material change" – without lowering the standards regarding the interpretation of that phrase – while recognizing the limited nature of the evidence available prior to the discovery phase of the litigation.

The SCC grounded its ruling in the policy objectives of the securities legislation: maintaining market integrity and investor confidence. It warned that a narrow interpretation would undermine these goals and allow issuers to withhold disclosure of significant developments until periodic reporting cycles.

What are the practical implications of the Supreme Court's decision?

Implications for mining issuers

For mining issuers, the implications are pronounced. Mining operations are inherently risky and subject to frequent operational disruptions, such as geotechnical instability, equipment failures, environmental incidents, and regulatory interventions. Historically, many of these events were treated as routine and disclosed only in periodic updates. That approach is no longer prudent.

The practical effect of the SCC's decision is that even temporary interruptions can constitute a "material change" if they alter an issuer's operations and could reasonably be expected to affect the market value of any of an issuer's securities.

When a significant operational event occurs, whether it is a production interruption, safety incident, or equipment failure, companies must act quickly to inform the market. For mining companies, this means that events such as pit wall failures, rockslides, flooding, or unexpected shutdowns, whether caused by safety concerns or environmental compliance, must be assessed immediately for disclosure. The fact that these risks are inherent to mining does not exempt them from timely reporting obligations.

Implications for all reporting issuers

For reporting issuers generally, the SCC's decision signals a shift toward broader and faster disclosure obligations. With litigation risk increasingly shifted toward issuers, companies are likely to adopt a more cautious disclosure posture, issuing press releases and then material change reports more frequently. The decision also clarifies the conceptual framework for disclosure obligations.

There are no bright line tests, and the determination of material facts and material changes are a matter of judgment and common sense applied to the unique circumstances of each case. The contextual exercise of identifying a material change and disclosing it promptly is guided by the purpose of disclosure obligations to level informational asymmetry between issuers and investors, which serves to maintain the integrity of the securities system and protect the public interest.

The SCC reaffirmed the ONCA's broad two-step test for material changes, as outlined above. Importantly, the SCC stressed that issuers should err on the side of disclosure when new developments arise as the obligation is proactive and immediate, not discretionary. In practice, this may require more frequent press releases and material change reports.

What should issuers and boards do now?

The SCC has shifted the balance from issuer discretion toward investor protection. For issuers, the safest course is proactive, timely, transparent disclosure, even when the event (i.e., the change) seems operational rather than strategic or foundational to the business. Failure to disclose may result in significant legal and reputational risk, including loss of market confidence. In the wake of the SCC decision in Lundin Mining:

• Issuers should revisit their disclosure frameworks and prepare for a new era of heightened scrutiny.
• Boards should revisit disclosure policies, strengthen escalation protocols in such policies and ensure that management understands the new standard.

In this environment, caution is not just prudent, it is essential.

For strategic guidance on disclosure obligations, securities compliance, or mining-related operational risk, contact our Capital Markets & Securities Group.

When must mining issuers disclose operational incidents under Canadian securities law?

Mining issuers must disclose operational incidents "forthwith" when they constitute a material change, meaning they alter business operations and could reasonably affect market value.

Does a temporary shutdown at a mine qualify as a material change?

Yes. Even temporary operational disruptions can qualify if they alter the way the business functions and could influence a reasonable investor's economic judgment.

Does good-faith business judgment protect an issuer from liability for late disclosure?

No. The SCC clarified that business judgment does not create a safe harbour; materiality remains a legal test applied objectively.

Are inherent mining risks exempt from disclosure obligations?

No. The fact that certain risks are inherent to mining operations does not eliminate the duty to promptly disclose developments that may affect market value.

What policies should issuers update after Lundin Mining?

Disclosure frameworks, escalation procedures, internal reporting protocols and training programs for operational teams should be modernized to meet the broadened standard.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.