No "Material Change" In Jurisprudence: Practical Insights Following Highly Anticipated Decision From The Supreme Court (Lundin)

The Supreme Court of Canada's decision in Lundin Mining Corp. v. Markowich¹has triggered considerable press and law firm commentaries. However, while the Court endorsed a wide interpretation as to when a public company should find that a "change" has occurred in its "business, operations or capital", experienced practitioners will know that it does not create any new law applicable to a reporting issuer's timely disclosure obligations. Instead, it is a reminder that disclosure obligations can be assessed by scrutinizing judgment calls made with less than perfect information. This article synthesizes well-established principles that issuers, directors, and officers should consider when exercising such judgment.

We have previously published about the facts and background to Lundin here.

1. Two types of disclosures: Issuers² have two types of continuous disclosure obligations:
   • Periodic disclosure: an issuer must disclose all material facts about its business at regular intervals, such as in annual and quarterly financial statements, annual information forms, and proxy circulars.³
   • Timely disclosures: an issuer must immediately disclose all "material changes" to its business by press release and material change report.⁴
2. Material facts: A material fact is any fact that would reasonably be expected to have a significant effect on the market price or value of the securities.⁵ It is a broader concept than material change.⁶
   • Disclosing material facts: The impact of material facts must be explained plainly and clearly to shareholders. It is not enough to give shareholders enough information to allow them to "connect the dots" and discover the materiality of events themselves. Issuers must plainly disclose material facts.⁷
3. Material changes: A material change is a change in the business, operations or capital of the reporting 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 (or a decision to implement such change by the board of directors or by senior management who believe that confirmation of the decision by the board is probable). A "material change" occurs when there is a change in (1) the issuer's business, operations, or capital and (2) the change is material.⁸ Material changes require a change in the business, operations or affairs of a reporting issuer, not merely a change in the way the business is performing.⁹ A material change can occur even if it does not go to the "core" of the issuer's business or does not "significantly and substantially" alter the business or operations.¹⁰ The phrase "business, operations or capital" is broad — "operations", for example, can refer to a broad range of changes within the issuer such as (in Lundin) a production interruption and a change in scheduling due to an adverse event.
   • Disclosing material changes: A material change must be immediately disclosed by press release and a related material change report must be filed within 10 days. The failure to so disclose cannot be excused by relevant or similar disclosure in another continuous disclosure document or in "risk factor" disclosure in a prospectus or annual information form.¹¹ In restricted circumstances and subject to conditions, an issuer can delay disclosure of the material change by filing a confidential material change report.
     
     Issuers should apply common sense when weighing if a material change has occurred. They should avoid overly technical approaches to the issue.
     
     Optimism that a material adverse development can be quickly corrected does not justify concluding that a material change has not occurred.¹²
     
     Regulators have emphasized that if there is doubt, the information should be disclosed. If not, the reporting issuer should be prepared to give credible reasons for not disclosing such as the need to investigate the facts further.¹³
4. Material Information: Toronto Stock Exchange (TSX) listed issuers must also bear in mind a further category, material information. Material information includes both material facts and material changes. The TSX requires listed reporting issuers to "forthwith" disclose material information upon it becoming known to management or in the case of information previously known, upon it becoming apparent that the information is material. The Canadian Securities Administrators' National Policy 51-201 – Disclosure Standards includes materiality assessment considerations for issuers, including non-exhaustive examples of potentially material information.¹⁴ The TSX has offered similar guidance in its Guide to TSX Timely Disclosure Requirements. In restricted circumstances, disclosure of material information may be delayed and kept confidential temporarily where immediate release of the information would be unduly detrimental to the interests of the issuer.
5. Focus on the source of the event: To distinguish between a material change and material fact, issuers should consider where the event originated from — although this is not determinative. If the material event originated from an internal event, it could be a material change.¹⁵ On the other hand, if the material event originated from an external event, it is likely only a material fact. External political, economic, and social developments cannot give rise to a material change,¹⁶ unless the external event changes the business or disproportionately effects the reporting issuer.¹⁷
6. Ask whether a reasonably diligent shareholder can discover the event: To assess whether an event occurred "internally" or "externally", issuers can ask the following question: could a reasonably diligent investor (i) discover the material event, and (ii) assess its impact on the issuer's business? If the answer is yes, there is a good chance the event is simply a material fact.¹⁸ If not, courts may treat it as a material change.¹⁹
7. Uncertain material changes do not need to be immediately disclosed: An issuer only needs to disclose a material change when they are sufficiently certain that a change has actually occurred. Negotiations and internal deliberations, without more, will not usually amount to a material change, even if those negotiations and internal deliberations are material.²⁰ For example, a proposed merger transaction will almost always be a material fact, but will not be a material change until there is a substantial likelihood that the transaction will occur.²¹ The Ontario Securities Commission had held that a proposed merger transaction was not a material change unless there is "a sufficient commitment from the parties to proceed and a substantial likelihood that the transaction would be completed."²² By extension, if a reporting issuer believes a material change may have occurred but needs to investigate the facts further to be sure, it may have no immediate disclosure obligations.
8. One materiality size fits all: The materiality standard to determine whether something is a material fact or a material change is the same: whether the event would reasonably be expected to have a significant effect on the market price or value of the securities.²³ This is a fact-specific exercise dependent on the issuer and the circumstances, including contextual factors like market volatility and market conditions.²⁴ For instance, an event that is material to an issuer with a relatively small market cap might not be material to an issuer with a relatively large market cap.
   • No hindsight: A materiality judgment cannot be second-guessed with the benefit of hindsight garnered from knowing what happened after a change occurred.²⁵
   • No business judgment deference: Faulty judgments about materiality are not protected by the business judgment rule. Reporting issuers are not excused by reliance on lawyers or process,²⁶ although directors and officers can rely on a reasonable investigation defence.
   • Share price is not determinative: The fact that a disclosure does not have a significant impact on the market price of a security does not mean that a material change has not occurred. The market may through the issuer's deficient disclosure have failed to appreciate the significance of a fact or change. Nonetheless, the value of the underlying securities may have been significantly affected.²⁷
9. Responding to potential material changes: Issuers should consider reviewing their internal reporting procedures following Lundin to ensure that there is an appropriate process for internal developments to be escalated within the reporting issuer to individuals who can assess the issuer's disclosure obligations.
   
   Reporting issuers should carefully document uncertainty and internal investigations if they are taking the position that a "close to the line" development is not a material change. As part of this investigation, they should rely on empirical evidence of the secondary market's reaction to similar information and as such, should consider implementing ongoing monitoring and assessment of market reaction to different disclosures that can inform materiality judgments in the future.
   
   While subjective beliefs about materiality are not relevant because materiality is assessed objectively, it is important that contemporaneous evidence, including reliance on credible experts and empirical evidence when appropriate, detail a thought process to justify the materiality judgment call. Doing so will best-position reporting issuers, directors and officers in any subsequent regulatory investigation or civil litigation, especially compared to subjective testimony after the fact.²⁸
10. Don't forget about the public interest: Directors and officers of a reporting issuer are ultimately responsible for ensuring that information disclosed by the issuer complies with securities law. They should be mindful that, even if their conduct does not breach any technical disclosure requirement, it may still be subject to regulatory scrutiny:²⁹

A helpful litmus test to consider is: does the disclosure (or lack of disclosure) increase information asymmetry between investors and issuers, such as by being misleading?

The post-Lundin world is similar to the pre-Lundin world. Reporting issuers, directors, and officers will need to continue applying well-established principles of timely disclosure that, in practice, requires the difficult exercise of judgment in evolving circumstances that are often challenging to assess.

Footnotes

1. 2025 SCC 39. (" Lund " )

2. By issuer, we generally mean a Canadian public company.

3. Lundin , at para 41; Theratechnologies Inc. v. 121851 Canada Inc ., 2015 SCC 18, at para. 23 (" Theratechnologies ")

4. Lundin , at para. 42.

5. Lundin , and para. 39

6. Coventree Inc., Re, 2011 ONSEC 25, at para. 148 ("Coventree").

7. Coventree Inc., Re, at paras. 195-199, 244.

8. Lundin , at para. 42.

9. Coventree, para. 141. See also Theratechnologies, at paras. 48, 53.

10. Lundin , para. 77-81.

11. Coventree, 268

12. Coventree, 184

13. Coventree, para. 582; Peters v. SNC-Lavalin Group Inc., 2023 ONCA 360, at para. 71 ("SNC")

14. National Policy 51-201 – Disclosure Standards, See https://www.osc.ca/en/securities-law/instruments-rules-policies/5/51-201/national-policy-np-51-201-disclosure-standards

15. Lundin , at para. 51.

16. Lundin , at para. 51, 57.

17. Coventree, 152, 582 and 588; Lundin, at para. 51.

18. Lundin, and para. 58.

19. Lundin, and para. 51.

20. Lundin, and para. 59.

21. Lundin and para. 60.

22. AiT Advanced Information Technologies Corp, Re, 2008 ONSEC 3.

23. Lundin, at paras. 77 to 80.

24. Coventree, at paras. 151, 156.

25. Coventree, at para. 159; AiT Advanced Information Technologies Corp, Re, 2008 ONSEC 3, at para. 228.

26. Coventree , at. para. 162; Lundin , at para. 97; Kerr v. Danier Leather Inc ., 2007 SCC 44, at paras. 54-58.

27. Coventree, at para. 354.

28. Coventree , paras. 121, 132, 184-5, 322.

29. Biovail Corporation Re, 2010 ONSEC 21, at paras. 370, 374-375, 382-3, 388-389. The Ontario Securities Commission has applied its public interest jurisdiction to misleading disclosure in public disclosure, including news releases. See Rex Diamond Mining Corporation et al., 2008 ONSEC 18; YBM Magnex International Inc., Re, 26. O.S.C.B. 5285 (2003).

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