In a recent securities law decision regarding continuous disclosure, the Supreme Court of Canada rejected a restrictive and overly formulaic approach to determining what constitutes a “material change”, instead confirming that this assessment is contextual and flexible, based on the ordinary meanings of the relevant terms.

In the underlying dispute, Lundin Mining Corporation (“Lundin”) had detected pit wall instability at its premier mine. Shortly thereafter, the pit wall instability caused a localized rockslide, requiring a temporary closure of part of the mine and lowering the production forecast for the next year. When Lundin disclosed these events to investors about a month later, the company’s share price dropped 16%, resulting in a loss of over $1 billion in market capitalization.[1]

An investor then sought leave to bring an action under s. 138.8(1) of the Ontario Securities Act, R.S.O. 1990 c. S.5 (“Securities Act”) and for certification of that action as a class proceeding, alleging that Lundin had failed to make timely disclosure of a material change.[2] Section 138.8(1) requires leave of the court to commence an action for allegations of failure to make timely disclosure, and the Court may grant leave only if the action is being brought in good faith and there is a reasonable possibility that the action will be successful.[3] In this case, a reasonable possibility that the action would be successful meant a reasonable possibility that the investor could establish a “material change” in the company’s “business, operations or capital”.

The motion judge declined to grant leave, holding that while the pit wall instability and rockslide may have been “material facts”, there was no reasonable possibility that the investor could establish these events amounted to a “material change” in the company’s “business, operations or capital”.[4]

The Ontario Court of Appeal allowed the appeal, ruling that the motion judge erred by applying unduly restrictive definitions to the statutory test for a “material change”.[5] The Supreme Court of Canada agreed, dismissing the appeal.

Issues

The main issue on appeal was whether the investor should have been granted leave to commence the action in accordance with s. 138.8(1). This issue gave rise to two questions:

1. What is the test for a “material change” and how does this differ from a “material fact” under the Securities Act?
2. What is the test for leave to commence an action under s. 138.8(1) of the Securities Act?

Regulatory Context

Writing for the majority, Justice Jamal began by providing an overview of the regulatory context in which disclosure obligations arise and the underlying policy rationale, as follows.

Proper disclosure helps maintain a level playing field between investors and issuers, thereby protecting the public interest, promoting efficiency, and maintaining the integrity of capital markets.[6] Disclosure obligations generally arise in one of two ways: initial disclosure of material facts in the primary market, and continuous disclosure in the secondary market.

When a company (an “issuer”) first sells its securities directly to investors, known as an “initial public offering”, the issuer is said to be participating in the “primary market”. The issuer becomes a “reporting issuer” and must prepare a comprehensive disclosure document, called a prospectus. The prospectus must provide “full, true and plain disclosure of all material facts relating to the securities issued or proposed to be distributed”.[7]

Once an issuer has sold its securities directly to investors in the primary market, subsequent trades of its securities are said to occur in the “secondary market”. Issuers have two kinds of continuous disclosure obligations in the secondary market:

1. The issuer must periodically disclose every “material fact” at regular intervals; and
2. The issuer must make timely disclosure of every “material change” in its affairs.

A “material change” is defined in relevant part as “a change in the business, operations or capital of the 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”.[8] This definition has two components: there must be a change to the business, operations or capital of the issuer, and that change must be material, meaning one that would reasonably be expected to have a significant effect on the value of the issuer’s securities.[9]

Regulator policy statements and national instruments — such as National Instrument 51-102 and National Policy 51-201 — provide helpful guidance on disclosure standards, identifying examples of potentially materially information.[10] However, the Court was clear that these policies cannot and do not replace the statutory tests for identifying material facts and material changes.[11]

Statutory Interpretation of a “Material Change”

The Court considered the proper statutory interpretation of a “material fact” and “material change”, noting the following key distinctions between these terms:

1. A material fact is static, providing a “snapshot” of an issuer’s affairs at a particular point in time, while a material change is dynamic, comparing the issuer’s affairs from before and after the particular change.[12]
2. A material fact is defined more broadly than a material change.[13]
3. A material change is internal to the issuer’s business, capital or operations, whereas a material fact can also include external factors, such as external political, economic and social developments.[14]
4. A material change generally requires more than mere negotiations or internal deliberations, even if they are material.[15]

In light of these principles, the Court concluded that the motion judge made three errors in interpreting the term “material change”.

First, the motion judge erred by relying on the dictionary definition of the word “change”, rather than interpreting the word with reference to the particular context of securities legislation, the facts of each case, and the relevant industry norms.[16]

Second, the motion judge erred by incorporating a requirement that the change be “important and substantial”. While previous jurisprudence provided some basis for this requirement, the Supreme Court of Canada rejected this approach. Materiality ought to be “determined objectively from the perspective of a reasonable investor, and the applicable standard is defined in strictly economic terms”.[17] The Court held that such a broader disclosure standard for material change is more consistent with the text of the legislation and the fundamental purposes of securities regulation.[18]

Third, the motion judge erred by proposing restrictive definitions of the terms “business, operations or capital”. The Court noted that, despite the proposed definitions being drawn from existing case law, these terms are not defined in the Securities Act nor in the leading jurisprudence — and for good reason. The terms “business”, “operations”, and “capital” are widely understood commercial concepts that ought to be given their ordinary commercial meaning, applied flexibly in different circumstances, and, in the context of continuous disclosure obligations, applied as a “holistic standard”.[19]

Ultimately, whether there has been a material change in a given case is a “highly contextual question of mixed fact and law” and is “a matter of judgment and common sense applied to the unique circumstances of each case”.[20]

Test for Leave Under s. 138.8(1) of the Ontario Securities Act

The Court went on to consider the test for leave under s. 138.8(1) of the Securities Act. Section 138.8(1)involves a preliminary merits test in which the court considers whether the proposed action has a reasonable possibility of success. To meet this threshold, a plaintiff must establish two things:

1. a plausible analysis of the applicable legislation; and
2. some credible evidence in support of the claim.

The Court emphasized that this preliminary merits test should not be treated as a “mini trial”. While some limited weighing of the evidence is inevitable, a motion judge should not attempt to resolve realistic and contentious issues arising from conflicting credible evidence. The Court must also be aware of the evidentiary limitations of the plaintiff, who has not yet had the benefit of documentary production or oral discovery.[21]

The Court clarified that a plausible analysis of the applicable legislation must not be read as requiring a plausible interpretation of legislative provisions. Statutory interpretation is not conducted less stringently on a motion for leave under s. 138.8(1). Rather, the focus should be on whether there is a plausible analysis, also referred to as a plausible application, of the relevant legislative provisions, based on the limited evidence before the court.[22]

Application

The Court concluded that, had the motion judge correctly interpreted the statutory terms at issue, he would have found there was a reasonable possibility that the investor could succeed at trial. Therefore, the investor should have been granted leave under s. 138.8(1) of the Securities Act to commence the action.

Importantly, the Court did not decide that the pit wall instability was a material change, merely that there was a reasonable possibility that the investor could establish the materiality of these circumstances at trial. Whether this dispute goes to trial and what the outcome of that trial will be are questions yet to be answered.

Implications for Reporting Issuers

The key takeaways from the case can be summarized as follows:

1. As explained in simple terms by the Court of Appeal, “a change is a change”.[23] The term “change” must retain its ordinary meaning and must be interpreted contextually, on a case-by-case basis.
2. A material change need not be “important or substantial”. Materiality for disclosure purposes must be determined objectively from the perspective of a reasonable investor.
3. The terms “business”, “operations”, and “capital” must be given their ordinary commercial meaning and applied flexibly and holistically in different circumstances. Parties and courts should not rely solely or predominantly on definitions from lower-court jurisprudence in place of a holistic, fact-specific assessment grounded in the issuer’s particular circumstances.

Ultimately, while this decision arguably provides more guidance on what standards not to apply in determining whether a given circumstance is a “material change”, issuers should be aware of the broad, flexible, and contextual approach to this question moving forward.

For more information, please contact our Litigation + Dispute Resolution Group.

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[1] Lundin Mining Corporation v. Markowich, 2025 SCC 39 at para. 3 [Lundin SCC].

[2] Ibid.

[3] Securities Act, R.S.O. 1990 c. S.5, s. 138.8(1) [Securities Act].

[4] Markowich v. Lundin Mining Corporation, 2022 ONSC 81 [Lundin ONSC].

[5] Markowich v. Lundin Mining Corporation, 2023 ONCA 359 [Lundin ONCA].

[6] Lundin SCC at paras.33-37.

[7] Securities Act, s. 56(1).

[8] Securities Act, s. 1(1); similar definitions appear in provincial and territorial securities legislation across Canada.

[9] Lundin SCC at para. 44.

[10] Ontario Securities Commission, National Instrument 51-102, Continuous Disclosure Obligations (2004), 27 OSCB 3439; Ontario Securities Commission, National Policy 51-201, Disclosure Standards, (2002), 25 OSCB 4492

[11] Lundin SCC at para. 45

[12] Lundin SCC at paras. 48-49

[13] Lundin SCC at para. 50.

[14] Lundin SCC at paras. 51-55.

[15] Lundin SCC at paras. 59-62.

[16] Lundin SCC at paras. 64, 71-73.

[17] Lundin SCC at para. 77, citing Lundin ONCA, supra at para. 81.

[18] Lundin SCC at paras. 80, 84-85.

[19] Lundin SCC at paras. 89-90, 92, 94.

[20] Lundin SCC at para. 97.

[21] Lundin SCC at paras. 106-109, 111-114.

[22] Lundin SCC at paras. 117-119.

[23] Lundin ONCA at para. 82.