Bayens v. Kinross Gold Corporation et. al.

In Bayens v. Kinross Gold Corporation et. al., the Court of Appeal for Ontario upheld the decision of Justice Paul Perell of the Ontario Superior Court of Justice dismissing the plaintiffs’ motion for leave to commence an action against Kinross under the secondary market liability provisions of the Ontario Securities Act and their motion for certification of their Securities Act claims and related common law negligent misrepresentation claims as a class proceeding. The decision confirms that the leave requirement for claims under the Securities Act is not just a “speed bump” and, in the right circumstances, can serve its intended role as an effective screening mechanism to protect defendants from having to defend claims that have no reasonable possibility of success.

The plaintiffs’ action arose from Kinross’s announcement on January 16, 2012, that it expected to record a goodwill impairment of its Tasiast mine in Mauritania acquired in 2010. The plaintiffs – the trustees of the Musicians’ Pension Fund of Canada – alleged, among other things, that Kinross ought to have recorded the goodwill impairment earlier than it did. On the leave motion before Justice Perell, the plaintiffs relied primarily on the evidence of an accountant who opined that a triggering event requiring a goodwill impairment had happened earlier in 2011 – only months after Kinross had acquired the mine – because, in the accountant’s view, initial infill drilling conducted by Kinross after the acquisition had not confirmed the previously disclosed significant exploration potential at the Tasiast property. In response, Kinross put forward both fact witnesses and expert evidence demonstrating that the write-down was not triggered by unmet expectations about exploration potential (which had actually been demonstrated and disclosed), as the plaintiffs contended, but rather because of fundamental changes in external market conditions.

To obtain leave to commence an action under the Securities Act, the plaintiffs must establish, on the evidence, that there is a reasonable possibility that their claims would succeed at trial. Justice Perell ruled that there was no possibility, let alone a reasonable possibility, that the plaintiffs’ claim regarding the goodwill impairment would succeed at trial. In particular, he found that the opinion of the plaintiffs’ accountant suffered from three fatal flaws. In essence, the plaintiffs’ expert focused on irrelevant infill drilling results, rather than relevant exploration drilling results, and ignored evidence that demonstrated that Kinross’s expectations with respect to the exploration potential of Tasiast at the time of acquisition had been confirmed. Accordingly, Justice Perell dismissed the plaintiffs’ motion for leave to commence an action under the Securities Act, since there was no reasonable possibility that the proposed action would succeed.

Justice Perell also dismissed the plaintiffs’ motion for certification of the action as a class proceeding.  In addition to the statutory claims in respect of which leave was denied, the plaintiffs also sought certification of parallel common law negligent misrepresentation claims. Justice Perell held that those claims were also incapable of certification because, among other things, “the common law claim[s] standing alone will not satisfy the preferable procedure criterion” in section 5(1)(d) of the Class Proceedings Act.

On appeal to the Court of Appeal, the plaintiffs argued, among other things, that Justice Perell exceeded his role as motions judge by improperly weighing the evidence, including by examining the factual underpinnings of the reports of the plaintiffs’ accountant. The Court of Appeal dismissed this ground of appeal, stating that the motion judge’s scrutiny of expert evidence is required under the leave test in order to determine whether the plaintiffs’ claims had a reasonable possibility of succeeding based on the evidence before the Court. The Court of Appeal found no basis to find that Justice Perell had erred in his analysis of the plaintiff’s expert evidence. The Court of Appeal therefore dismissed the plaintiffs’ appeal from the leave motion and confirmed Justice Perell’s ruling.

The plaintiffs also argued that Justice Perell erred in denying certification of the common law claims. Although the Court of Appeal approached the certification analysis differently than Justice Perell, the Court of Appeal ultimately confirmed Justice Perell’s ruling that the common law claims should not be certified. A class proceeding would not be the preferable procedure to resolve the common law claims, which would necessarily require complex individual inquiries for each investor regarding, among other things, whether the investor relied on the alleged misrepresentations. The Court of Appeal stated: “the need for a host of individual inquiries regarding reliance, causation and damages renders the common law claims unsuitable for certification.” In addition, the Court of Appeal held that it is appropriate to consider the denial of leave to commence proceedings under the Securities Act in the certification analysis. In other words, given that the statutory claims had no reasonable possibility of success, it would not serve the goals of a class proceeding to allow the common law claims to proceed.

Mark  Gelowitz, Allan Coleman and Robert Carson of Osler, Hoskin & Harcourt LLP represented Kinross Gold Corporation and its former officers.

Kirk Baert and Celeste Poltak of Koskie Minsky LLP represented the plaintiffs.