The recent Ontario Court of Appeal decision in Terry Longair Professional Corporation v. Akumin Inc. (Longair) offers important clarifications for issuers and legal practitioners involved in secondary market misrepresentation claims and the certification of common law negligence claims. The Court of Appeal dismissed an appeal from an order granting leave to proceed with a claim under s. 138.3(1) of the Securities Act (the Leave Order) and an order certifying various claims, including secondary market misrepresentation, primary market misrepresentation under s. 130.1 and common law negligence (the Certification Order).
Some of our insights on secondary market liability can be found here: Secondary market liability: Lessons for mining issuers arising from the first merits decision in Canada and Secondary market liability: Holding experts and mining executives accountable.
Key takeaways from the Longair decision
1. Public corrections: A contextual and practical approach
The Court of Appeal affirmed the appellant's disclosures constituted "public corrections." This finding was based on the assessment that the disclosures prima facie informed investors of errors and/or misstatements in the impugned statements, and would have been understood as such by the market. The Court of Appeal emphasized that a statistically significant price drop is not a prerequisite for a disclosure to qualify as a public correction. This clarification rejects the appellants' reliance on Badesha v. Cronos Inc.,1 and separates the materiality of the misrepresentation from the market's reaction to the correction. The focus remains on whether the disclosure itself identifies or clarifies misleading information.
This approach aligns with established jurisprudence, which emphasizes that a "public correction" is a necessary component of a secondary market misrepresentation claim under s. 138.3 of the Securities Act.2 The standard for assessing a public correction at the leave stage is whether it was "reasonably capable of being understood in the secondary market as correcting what was misleading in the impugned statement."3 It does not require a direct admission of a previous untrue statement or a "mirror-image" correction, but rather "some linkage or connection" between the alleged misrepresentation and the correction4. The Court of Appeal's decision reinforces a practical, contextual analysis of how disclosures would be perceived by the market, rather than a narrow, textual reading, when determining if a public correction has occurred.
Importantly, the Court of Appeal noted that accepting the appellant's argument would create the paradox that financial statements could contain material untrue statements, be later expressly corrected, yet not be considered as a public correction because of a lack of specificity of the extent of prior misstatements. This would be an outcome contrary to the Securities Act's statutory scheme and policy intent.
2. Materiality for securities not trading in an efficient market
A significant aspect of the Longair decision is the Court of Appeal's affirmation that leave can be granted for secondary market claims on behalf of holders of secured notes, even if those notes do not trade in an efficient market. The motion judge in Longair v. Akumin Inc. et al. found that requiring an event study to prove materiality when one cannot be completed for securities not traded in an efficient market would be inconsistent with the policy goals of the Securities Act.5
The Securities Act itself contemplates assessing damages for securities that are not traded in an efficient market.6 For such securities, courts can consider other evidence, such as price history and credit rating reports, to determine materiality for the purpose of granting leave.7 This ruling is crucial for investors in less liquid markets, ensuring they are not denied access to the statutory regime simply because their securities do not lend themselves to traditional event study analysis.
For issuers, this means disclosure obligations apply broadly across all securities, not just those trading on major exchanges.
3. Certification of common law negligence claims alongside statutory claims
The Court of Appeal also upheld the certification of a common law negligence claim, noting that there is ample precedent for certifying such claims alongside statutory misrepresentation claims under the Securities Act.
While statutory secondary market liability claims under s. 138.3 do not require proof of reliance, which is a key element of common law negligent misrepresentation,8 courts have already recognized the procedural simplicity and reconciliation of legislative purposes achieved by allowing both types of claims to proceed together.9 Precedent supports the certification of common law negligence claims, even if issues related to reliance may require careful management at later stages.10 While reliance and damages may raise individualized issues, common issues regarding the issuer's intent and conduct can be resolved on a class-wide basis. The Court of Appeal also clarified that the statutory remedy for secondary market liability under s. 138.3 is in addition to, and without derogation from common law rights, meaning certification of both tracks is proper.
Implications for issuers and practitioners
The contextual approach to "public corrections" means issuers should carefully consider how their disclosures might be understood by the market as correcting prior statements, even without explicit admissions of error. Disclosures that clarify or restate prior statements are likely to be viewed as public corrections, regardless of immediate market reaction.
Further, the clarification on materiality for inefficiently traded securities broadens the scope of potential secondary market liability, requiring issuers to be mindful of all their securities, regardless of market efficiency.
Finally, the continued willingness of courts to certify common law negligence claims alongside statutory claims underscores the comprehensive nature of potential liability in securities class actions.
Given the sparse jurisprudence to date on secondary market liability claims, Longair is welcome guidance to issuers and practitioners across Canada.
Footnotes
1. Para 66 of Badesha v. Cronos Inc., 2022 ONCA 663, 163 O.R. (3d) 481 ↩
2. Baldwin v. Imperial Metals Corporation, 2021 ONCA 838 (CanLII), para 41; Drywall Acoustic Lathing and Insulation, Local 675 Pension Fund v. Barrick Gold Corporation, 2021 ONCA 104 (CanLII), para 21 ↩
3. Baldwin v. Imperial Metals Corporation, para 47; Drywall Acoustic Lathing and Insulation, para 76; Drywall Acoustic Lathing and Insulation (Pension Fund, Local 675) v. Barrick Gold Corporation, 2024 ONCA 105 (CanLII), para 71 ↩
4. Baldwin v. Imperial Metals Corporation, para 54; Drywall Acoustic Lathing and Insulation, para 22 ↩
5. Longair v. Akumin Inc. et al., 2024 ONSC 3675 (CanLII), para 133 ↩
6. s. 138.5(1)(2)(ii)(B)), Longair v. Akumin Inc. et al., para 131 ↩
7. Longair v. Akumin Inc. et al., para 133, 136 ↩
8. Vecchio Longo Consulting Services Inc. v. Aphria Inc., 2021 ONSC 5405 (CanLII), para 75 ↩
9. Green v. Canadian Imperial Bank of Commerce, 2014 ONCA 90 (CanLII), para 62, 103 ↩
10. Wright v. Horizons ETFS Management (Canada) Inc., 2020 ONCA 337 (CanLII), para 118, 152; Green v. Canadian Imperial Bank of Commerce, para 106 ↩
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