The B.C. Court of Appeal delivered a judgment on November 21, 2002, in the securities class action Pearson et al v. Boliden et al. Justice Mary Newbury’s decision, concurred in by Chief Justice Lance Finch and Justice Mary Saunders, is the most recent consideration by an appellate court of the nature, scope and territorial effect for the statutory civil remedies for prospectus misrepresentation in provincial Securities Acts.
On June 10, 1997, an initial public offering of 60,917,216 of the issued shares of Boliden Limited was made by its parent company Trelleborg International BV, a wholly owned subsidiary of Trelleborg, AB. Nesbitt Burns Inc. was the lead underwriter who organized a syndicate of Canadian, U.S. and European investment dealers. A prospectus was prepared and filed in each of the Canadian provinces. Shares were also offered outside Canada by private placement in the U.S. and by an international prospectus for distribution in Europe. Boliden is a Swedish company engaged in the business of mining and processing minerals and at the time of the offering operated a mine with a tailings dam in Spain. On April 25, 1998, several months after the public offering, the tailings dam ruptured sending seven million tons of mine tailings into the surrounding area.
The representative plaintiffs purchased Boliden shares in July 1997. On October 20, 1998, they brought a class action in the B.C. Supreme Court alleging, inter alia, material misrepresentation or omission in the prospectus with respect to the condition of the tailings dam and pleading the statutory cause of action in B.C. and its provincial counterparts. The defendants included Boliden, the two Trelleborg companies, the directors of Boliden and Nesbitt Burns.
The defendants agreed to certification of the statutory cause of action only in return for the plaintiffs abandoning their common-law causes of action. The remaining issues, among other things, were whether certain purchasers of the shares had a cause of action under the statutory prospectus misrepresentation provisions and as a result should be included in the class. These purchasers included those who bought shares in the distribution outside of Canada, secondary market purchasers, purchasers in Alberta, where the defendants argued the limitation period had expired and those who bought shares in the distribution, but sold them prior to the dam failure. The chambers judge declined to decide these questions and deferred them for further summary judgment motions. The defendants appealed the decision.
Justice Newbury allowed the appeal on each issue. She held that the law to be applied was that of the distribution of the shares. In particular, she determined that those who purchased shares outside Canada did not have a statutory cause of action in that the provincial Securities Acts had no application. Further, purchasers of shares on the secondary market did not have a statutory cause of action. This is the first appellate court decision in Canada to find that the statutory cause of action cannot be invoked by open market purchasers (except possibly in the province of Manitoba). Finally, the judge excluded from the class those persons who had purchased shares on the primary distribution, but sold them prior to the failure of the tailings dam. Citing Ontario decisions in Carom v. Bre-X Minerals et al, the judge found that any such shareholder’s loss was caused by the prior sale and not by the event giving rise to the alleged misrepresentation.
Elliott Myers, Q.C., of Bull, Housser & Tupper and David Kent of McMillan Binch LLP represented Boliden, the two Trelleborg companies and five of the directors. R.J.R. Hordo, Q.C., assisted by Tom Clearwater and Efrem Swartz, all of Hordo & Bennett in Vancouver, represented the remaining three directors. Douglas Rae, Q.C., and Andrew Borrell (corporate and commercial litigation, class actions) of Fasken Martineau DuMoulin LLP represented Nesbitt Burns. David Klein of Klein, Lyons in Vancouver, represented the respondent representative plaintiffs.