Ontario Court Denies Leave In Proposed Secondary Market Class Action

 
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On November 5, 2013, Justice Perell released his decision in Bayens v. Kinross Gold Corp. denying leave to commence a statutory misrepresentation claim under Part XXIII.1 of the Ontario Securities Act (the "OSA") and holding that as a result of the failure to obtain leave for their statutory claim, the plaintiffs' putative class proceeding could not satisfy the criteria for certification of a class action, including with respect to the common law claim for negligent misrepresentation.

Background

In Bayens, several Trustees of the Musicians' Pension Fund of Canada ("Musicians") commenced a secondary market misrepresentation claim against Kinross Gold Corporation, a Canadian international mining company, and several current and former officers and directors of Kinross. The proposed class action was brought on behalf of purchasers of Kinross shares from May 3, 2011 to January 16, 2011 and related to Kinross' purchase, in September 2010, of Red Back Mining Inc., which owned the Tasiast mine in Mauritania and the Chirano mine in Ghana. The plaintiffs asserted three core allegations of misrepresentation pertaining to Kinross' acquisition of the mines: first, in May 2011 Kinross should have reported a write down of its goodwill associated with the two mines because Kinross' failure to achieve certain expectations regarding the Tasiast mine within six to eleven months of Kinross' purchase of Red Back Mining Inc. was a triggering event for a write down (the "Goodwill Misrepresentation");1 second, certain Kinross disclosures were misleading because they implied that the presence of lower grade ore in certain areas of the Tasiast mine was a new discovery (the "Low-Grade Ore Misrepresentation"); and third, Kinross misrepresented that the expansion project for the Tasiast mine remained on schedule (the "On-Schedule Misrepresentation").

A similar class action commenced against Kinross in the United States was partially dismissed. The US District Court for the Southern District of New York permitted the plaintiffs' claim that Kinross had misrepresented the schedule for the Tasiast expansion project to proceed. Notably, Justice Perell found that the result in the US class action played a role in shaping Musicians' case on the leave motion.

The Leave Motion

Section 138.8(1) of the OSA permits the court to grant leave to commence a secondary market claim, where the court is satisfied that (a) the action is being brought in good faith; and (b) there is a...

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