In his judgment, Justice Perell reiterates the distinctions between a material fact and a material change as defined by the LVMO. Recall that a remediation agreement, also known as a suspended prosecution agreement (“ APS “), makes it possible in matters of corruption to avoid criminal proceedings in exchange for admissions of guilt and the payment of fines.
Peters sought authorization to bring a class action lawsuit against SNC-Lavalin for failing to disclose to investors, in a timely manner, the fact that the company was no longer in negotiations with Canadian authorities for a remediation agreement regarding the lawsuit she was facing. This was therefore a request to authorize a class action based on alleged misrepresentations on the secondary market.
Peters alleged that on September 5, 2018, when Canadian authorities communicated to SNC-Lavalin that negotiations related to the remediation agreement had not been successful, this constituted a material change that should have been immediately disclosed.
Instead, SNC-Lavalin disclosed this information on October 10, 2018, 36 days after the fact. It was on October 10, 2018, after the disclosure of this information, that the price of SNC-Lavalin shares fell by 13%.
Justice Perell finds that a material change in a company’s business, operations or capital requires disclosure. However, according to Justice Perell, the communications between the Canadian authorities and SNC-Lavalin regarding the failure of the remediation agreement do not meet this definition of a material change.
Referring to the definitions of LVMOJustice Perell summarizes the difference between a material change and a material fact as follows:
- A “material change” means a material change in the business, operations or capital of a company that has an impact on the price of the securities. Only a material change needs to be disclosed.
- A “material fact” includes any fact that will have a significant impact on the market price or value of an issuer’s securities. The material fact need not be disclosed.
Justice Perell determines that the September 5, 2018 communication is not a change in SNC-Lavalin’s business. SNC-Lavalin and its investors could neither assume the success of the remediation agreement nor infer from the communication that new negotiations could not resume.
Judge Perell therefore ruled that the communication from the Canadian authorities was not a material change in the business, operations or capital of SNC-Lavalin, and consequently, there was no new information to communicate to investors.
Thus, the mere change in the market value of a security does not necessarily constitute a material change that must be disclosed. For there to be a material change that requires disclosure, there must also be a change in the affairs, operations or capital of a company.
According to Justice Perell, the breakdown of negotiations over the remediation agreement is not a material change. Peters’ leave to institute a class action was therefore denied.
Julie-Martine Loranger partner at McCarthy Tétrault SENCRL, srl, with the collaboration of Kevin Pinkoski, articling student.
This article does not constitute legal advice.
 2021 USSC 5021.