LEXPERT MAGAZINE
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JANUARY/FEBRUARY 2018 27
LBP HOLDINGS V. HYCROFT
MINING, 2017 ONCA 13
DECISION DATE: OCTOBER 24, 2017
A proposed class action was brought on be-
half of investors against Hycro Mining
Corporation (formerly Allied Nevada Gold
Corp.) and two of its executives for primary
market misrepresentation under s. 130 of
Ontario's Securities Act, alleging misrepresen-
tations in a prospectus for a secondary public
offering. e plaintiff originally brought the
same statutory claim, in addition to com-
mon law claims, against the underwriters,
who sold the shares in the offering. During
the course of the motion for certification,
the plaintiff abandoned its statutory claim
against the underwriters and sought to cer-
tify only common law claims for negligence
and negligent misrepresentation.
e Hycro defendants consented to cer-
tification prior to the motion being heard.
e basis of the plaintiff 's negligent misrepre-
sentation claim against the underwriters was
that the underwriters' certificate, attached
to the prospectus, was a misrepresentation
because the prospectus did not contain full,
plain and true disclosure. In respect of negli-
gence, the plaintiff alleged the underwriters
owed class members duties to properly price
the shares and to perform due diligence to
ensure comprehensive disclosure of material
facts in the prospectus, and that those duties
arose from the underwriting agreement be-
tween Hycro and the underwriters.
e Ontario Superior Court of Justice re-
fused to certify the class proceeding against
the underwriters. e court held that the
"cause of action" criterion (that a claim must
disclose a reasonable cause of action) was
satisfied for the negligent misrepresentation
claim but not for the negligence claim.
e court also held that a class proceed-
ing is not the preferable procedure for either
cause of action.
Justice Paul M. Perell accepted the follow-
ing arguments made by the underwriters: (1)
the negligence claim was subsumed within
the negligent misrepresentation claim and
was included by the plaintiff to avoid having
to prove that each class member relied on the
alleged misrepresentations in buying shares
in the offering (reliance being an element of
negligent misrepresentation claims that is
not commonly certified); (2) the cause of ac-
tion for the negligence claim does not survive
a duty of care analysis because the underwrit-
ers did not owe the duties to the investors
alleged by the plaintiff (i) to properly price
the shares; and (ii) to perform due diligence
to ensure comprehensive disclosure of mate-
rial facts; and (3) a class proceeding was not
the preferable procedure to pursue either the
negligent misrepresentation or negligence
claims against the underwriters.
Because this was the first reported Cana-
dian decision on the issue of whether under-
writers owe investors a duty of care in negli-
gence, and that such a duty would be new to
Canadian negligence law, Justice Perell per-
formed the analysis laid down by the Supreme
Court of Canada to determine whether the
underwriters owed potential shareholders a
duty of care.
Justice Perell found that, on the facts of
the case, an underwriter would not antici-
pate that purchasers would be relying on it
to act as a "gatekeeper" separate and apart
from its duties of care under s. 130 of the
Ontario Securities Act and its common law
duties with respect to misrepresentations
in the prospectus. Even assuming the un-
derwriters had a duty for negligence inde-
pendent of their duty of care with respect
to representations, Justice Perell also found
that policy factors negated imposing liability
as a result of a breach of duty. e negligent
misrepresentation claim survived the cause
of action analysis but failed the preferable
procedure analysis.
is was the first known Canadian certi-
fication motion against underwriters seek-
ing certification of only common law causes
of action (as distinct from causes of action
for prospectus misrepresentation under the
Securities Acts). Justice Perell carefully ap-
plied the prevailing certification law in Can-
ada under AIC Limited v. Fischer, 2013 SCC
69, and found that both common law claims
failed the preferable procedure analysis. Jus-
tice Perell held that the elements of reliance,
causation, and damages are matters that
raise highly individual issues. A cost-benefit
analysis indicated that little benefit was add-
ed by subjecting the individual claims to the
procedure of a class action.
is decision stands in contrast to the ap-
parent judicial trend and willingness to cer-
tify securities class actions involving reliance-
based claims.
is is also the first known Canadian
case (class action or otherwise) in Canada in
which underwriters were sued for only com-
mon law damages (in negligence and negli-
gent misrepresentation), and the first deci-
sion regarding whether underwriters owe a
common law duty of care to investors, which
would be a new duty and important develop-
ment in Canadian negligence law.
Further, this is the first Canadian certi-
fication case against underwriters for only
common law causes of action, which there-
fore tested the limits of the court's increas-
ing willingness to certify cases despite in-
dividual issues that have traditionally been
resistant to certification.
e decision is thus a critically important
precedent for underwriters, the law of neg-
ligence and the development of the law re-
garding certification of causes of action that
include individual issues.
John A. Fabello, Gillian B. Dingle and
Alexandra Shelley of Tor ys LLP (with as-
sistance from Nic Wall, Glen Johnson and
Aaron Emes) represented Cormark Secu-
rities Inc. and Dundee Securities Ltd. as
the underwriters.
Andrew Morganti and Hadi Davarinia
of Morganti Legal, P.C. represented LBP
Holdings Ltd.
Wendy Berman, Lara Jackson and John
M. Picone of Cassels Brock & Black-
well LLP represented Hycroft Mining
Corporation, Scott A. Caldwell and Rob-
ert M. Buchan.
A LOOK AT THE RESOLUTION OF THREE SIGNIFICANT LAWSUITS: LBP HOLDINGS V. HYCROFT, WHICH WAS OF IMPORTANCE
TO UNDERWRITERS, AND TWO PHARMACEUTICAL PATENT CASES, IDENIX PHARMACEUTICALS V. GILEAD, AND ASTRAZENECA V.
APOTEX, IN WHICH THE SO-CALLED "PROMISE DOCTRINE" WAS STRUCK DOWN BY THE SUPREME COURT OF CANADA
BIG SUITS
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