Snapshot
Does an alleged corrective statement need to be followed by a significant price drop of an issuer’s securities for it to be considered a public correction of a prior misrepresentation? In Terry Longair Professional Corporation v. Akumin Inc.,1 the Court of Appeal for Ontario recently confirmed the answer is no.
In secondary market misrepresentation claims under Ontario’s Securities Act,2 a plaintiff must establish two time-posts: (i) when the misrepresentation in a document released by the defendant issuer occurred, and (ii) when the public correction of that misrepresentation occurred. Only an investor who acquired or disposed of the defendant’s securities between those two time-posts has standing to bring a claim for secondary market misrepresentation under the Securities Act. As such, proving the existence of a public correction is critical for plaintiffs, particularly at the preliminary leave stage under the Securities Act.
Courts have typically determined that a public correction exists by having regard to whether the alleged corrective statement is followed by a statistically significant decrease in the price of the issuer’s shares. Such analyses are often aided by econometric expert evidence and are premised on the assumption that the defendant’s securities trade in an “efficient market” that is capable of quickly absorbing and reacting to new adverse information, such as the correction of a prior misrepresentation.
But, what about cases where there is no price drop, or where the defendant’s securities do not trade in an efficient market? In Akumin, the Court of Appeal confirmed that, in such cases, it is still possible to establish that a public correction exists. This decision provides important guidance on what constitutes a “public correction” of a misrepresentation under Parts XXIII and XXIII.1 of the Securities Act, and clarifies the precise test.
Background
In the fall of 2021, the appellant Akumin Inc. (Akumin) advised that it would be restating its annual financial statements for the periods ending December 31, 2019 and December 31, 2020, respectively, along with its interim financial statements for Q1 2021.
The respondent, a former shareholder of Akumin, alleged that the impugned financial statements contained material misstatements regarding the company’s revenue, accounts receivable and PP&E, and that these misstatements were corrected through subsequent disclosures in August, October, and November 2021. Akumin argued that these disclosures did not constitute a public correction, alleging that three of the four disclosures were not followed by a statistically significant decline in share price, and the remaining disclosure was not a “correction” but rather simply advised that there would be a delay in the release of its Q2 2021 financial statements.
At the leave stage, the motion judge was satisfied that the plaintiff had established a reasonable possibility that it could prove that untrue statements in Akumin’s financial disclosures were material, and a reasonable possibility that the subsequent disclosures were public corrections, because they each expressly and on their face corrected or clarified information in the impugned financial statements.
The motion judge also found that the respondent satisfied the requirements for certification of a class proceeding set out in section 5(1) of the Class Proceedings Act.3
Court of Appeal Affirms a Broad and Functional Approach
On appeal, the Court upheld the motion judge’s decision. In doing so, the Court reaffirmed a broad and functional approach to the concept of “public correction.” Drawing on three prior appellate decisions,4 the Court emphasized that a public correction is a disclosure that is “reasonably capable of being understood in the secondary market as correcting what was misleading in the impugned statement.”
The Court also clarified that a public correction can on the one hand, be an express correction where a subsequent disclosure expressly or on its face states that an assertion in a previously issued document was untrue at the time it was made, or on the other hand, be implied, and “reasonably capable of being understood as revealing to the market the existence of an untrue statement of material fact or an omission to state a material fact.”
Finding that Akumin’s disclosures expressly identified misleading and incorrect statements, the Court also rejected Akumin’s argument that a corrective statement can only constitute a public correction if it is followed by a statistically significant decline in the price of the issuer’s securities. Instead, the Court opted for a simpler test without any materiality analysis for a public correction: did the alleged correction actually correct the alleged misrepresentation or not? In this case, the answer was yes.
The Court similarly rejected Akumin’s argument that the securities must trade on an efficient market for a corrective statement to constitute a public correction. As the Court explained, such a requirement would frustrate the objectives of Part XXIII.1 of the Securities Act, which was enacted to protect investors from corporate nondisclosure.
The Court also dismissed Akumin’s remaining arguments against certification and upheld the motion judge’s decision to (i) include secured noteholders in the class, (ii) extend the class period beyond October 12, 2021, and (iii) affirm the certification of the common law negligent misrepresentation claim, which is significant given that parallel common law misrepresentation claims have historically been difficult to certify in class proceedings primarily framed around the statutory secondary market misrepresentation provisions of the Securities Act.
Key Takeaways
This decision is the latest in a series of rulings that have shaped the interpretation of Part XXIII.1 of the Securities Act since its enactment and illustrates an investor-friendly approach to interpreting the statutory test. Issuers should take heed from this decision that they will not necessarily avoid exposure to secondary market misrepresentation actions simply because an alleged public corrective statement did not precipitate a statistically significant share price drop. The decision may also signal a de-emphasizing of econometric expert evidence at the leave stage for such actions, as it appears to be the latest in a string of cases where the court has placed less stock in such evidence and favoured a more “common sense” based approach to determining whether a public correction exists.
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1 Terry Longair Professional Corporation v. Akumin Inc., 2025 ONCA 606 (Akumin).
2 Securities Act, R.S.O. 1990, c S.5 (Securities Act).
3 Class Proceedings Act, 1992, S.O. 1992, c 6 (Class Proceedings Act).
4 Drywall Acoustic Lathing and Insulation, Local 675 Pension Fund v. Barrick Gold Corporation, 2021 ONCA 104; Drywall Acoustic Lathing and Insulation (Pension Fund, Local 675) v. Barrick Gold Corporation, 2024 ONCA 105; Baldwin v. Imperial Metals Corporation, 2021 ONCA 838.