For over a decade courts have grappled with the question of what amounts to a ‘public correction’ for a Part XXIII.1 secondary market securities misrepresentation claim under the Securities Act. One issue that has repeatedly arisen but has not been resolved is whether there can be a ‘partial public correction’ of a misrepresentation.
At first instance, judges have divided on this issue.
In Dugal v. Manulife, 2011 ONSC 387 at para. 33 Strathy J. (as he then was) held that a public correction must be a one-time event and “any so-called ‘partial correction’ is nothing more than a continued misrepresentation.” Justice Belobaba adopted this reasoning in DALI v. Barrick, 2019 ONSC 4160 at para. 25. On appeal, the Court of Appeal described the question of whether a partial correction of a misrepresentation can constitute a public correction for the purposes of the statutory scheme was “an issue for another day” at footnote 9 of the reasons reported at 2021 ONCA 104. Upon rehearing parts of the motion before Belobaba J., Justice Akbarali in DALI v. Barrick, 2022 ONSC 4216 at para. 9 determined that the issue is not one “that ought to be decided on a leave motion, nor does it need to be decided on this motion.”
Conversely, both Justices Glustein and Morgan have accepted that partial corrections are possible at the leave stage. In Kauf v. Colt Resources, 2019 ONSC 2179 Justice Glustein disagreed with the defendants’ submissions that “a statement cannot be both a misrepresentation and a partial correction related to the same alleged undisclosed material fact.” Similarly, in Miller v. FSD Pharma, 2020 ONSC 4054 Justice Morgan granted leave to a plaintiff alleging a multiple correction theory based on a “news release [that] contained a public correction” that “was only a partial [correction], and was followed up with a series of news releases… that completed the correction.” This reasoning appears to be irreconcilable with Justice Strathy’s holding in Dugal quoted above.
A number of judges appear to have resiled from their initial treatment of partial corrections or the appropriateness of addressing that issue at the leave stage. Both Justice Perell and Justice Strathy have also made facially inconsistent determinations about the role of partial corrections in the section 138.3(1) analysis. Justice Perell, citing Dugal, held that a “correction is a one-time event” in Cappelli v. Nobilis Health Corp., 2019 ONSC 2266 at para. 152. Later in the same year, Justice Perell granted carriage to a firm advancing an action alleging partial corrections over a competing action that did not, and noted that a case theory based on partial corrections was not “fatally flawed or toxic” in Rogers v. Aphria Inc., 2019 ONSC 3698 at para. 101. Similarly, despite his remarks in Dugal, a year later Justice Strathy went on to grant leave to a number of secondary market misrepresentation claims alleging partial public corrections in Green v. CIBC, 2012 ONSC 3637.
Finally, despite her reasons in Barrick suggesting it was unnecessary to determine whether a partial correction may be viable at the leave stage, Justice Akbarali in effect went on to make such a determination at the leave stage in her decision in Longair v. Akumin Inc., 2024 ONSC 3675 (“Akumin”) at first instance, as detailed in a prior newsletter article. These inconsistent decisions, along with the Court of Appeal’s refusal to weigh in on the matter has, until recently, left the issue far from clear.
The Court of Appeal affirms, but does not explicitly comment on, granting leave for claims involving ‘partial corrections’ in Akumin CA
The Ontario Court of Appeal’s recent decision in Longair v. Akumin Inc., 2025 ONCA 606 (“Akumin CA”) offers some welcome clarity. While the Court of Appeal has yet to explicitly address the judicial uncertainty surrounding the role of partial public corrections in the section 138.3(1) analysis, it appears to have implicitly accepted that “another day” has arrived in Akumin CA, as the outcome of the appeal requires the Court to have accepted the viability of secondary market misrepresentation claims involving partial corrections. The decision at first instance provides necessary context.
The plaintiff in Akumin alleged that the defendant issuer made a number of misrepresentations related to previously disclosed financial information that culminated in the restatement of certain financial statements. The plaintiff alleged that the misrepresentations were corrected through a series of partial corrections including two that did not result in a statistically significant decline in share price. The motion judge granted leave as she found that there was a reasonable possibility of success for these allegations.
On appeal, Justice Monahan specifically noted at Akumin CA para. 35 that Justice Akbarali had been “satisfied that the respondent had established a reasonable possibility that all four Disclosures were partial public corrections”. While not specifically commenting on the ‘partial public correction’ point the motion judge’s leave analysis was generally affirmed at para. 7: “the motion judge correctly determined that Akumin’s disclosures were ‘public corrections’ since they prima facie informed investors” of the misrepresentations. Similarly, at para. 83 Justice Monahan distinguishes the case before him from the Barrick line of decisions as in this case the issuer had not “fully corrected the impugned misrepresentations” such that “subsequent disclosures were not ‘public corrections’ because there was nothing left to correct”.
The reframing of the two ways in which a correction may be articulated are well suited to analyzing partial corrections where they exist
The discussion of the two ways a correction can occur in Akumin CA further assists in placing partial corrections in their proper context within the Part XXIII.1 statutory liability regime. Broadly speaking, Akumin CA identifies two forms of public corrections at paras. 51 & 53: 1) express public corrections 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”; and 2) non-express corrections where the statement “when considered in context and in light of all surrounding circumstances… was reasonably capable of being understood as revealing to the market the existence of an untrue statement of material fact or an omission”.
I will refer to the second category as ‘contextual corrections’.
While an express correction will likely often ‘fully correct’ a misrepresentation, this is not true in every case. Akumin itself was such a case – there the motion judge found the plaintiff had a reasonable possibility of success in demonstrating that the alleged misrepresentations were corrected by multiple express, partial corrections. Specifically, the motion judge accepted that as a result of “truth-on-the-market” (prior disclosure which alerted the market to misrepresentation such that there was not a further price reaction upon its disclosure) there was no price impact for two corrective disclosures.
More “issue[s] for another day”
While Akumin CA has gone a long way to resolving one of the most deeply rooted points of contention in the public correction debates, other issues remain and some have become more pronounced.
How does a leave judge determine when there is “nothing left to correct”?
Akumin CA has created a fresh tension in the jurisprudence by distinguishing between Akumin and Barrick. In Barrick, it was determined at the leave stage that a misrepresentation had been “fully corrected” such that no further corrections were possible. This finding was made despite allegations that subsequent disclosure touching on the same subject matter, which caused a statistically significant decline in share price, was also corrective. In contrast, Akumin involved a subsequent disclosure that lacked a statistically significant decline in share price but was found to be corrective.
This brings into focus the question of how one determines whether a statement is corrective? Price impact is one means by which you can evaluate whether information was corrective, often through an event study conducted by an expert economist. Notably, such evidence was before the motion judge in Barrick, as confirmed at para. 22 of Barrick, 2022 ONSC 4216. However, Justice Akbarali specifically declined to consider the event study evidence before her in that proceeding. While expert evidence may not be necessary to determine if a statement is corrective where it is evident on its face, questions of whether such statements are “fully” corrective in an economic sense would seem to be beyond the ken of the trier of fact. Similarly, if a contextual correction is alleged, it would seem necessary for the leave judge to consider any admissible econometric evidence before her to make this determination. With the current state of the law, it is unclear how expert evidence fits into the analysis of public corrections.
What is the role of market efficiency in the public correction analysis?
While most securities trade in an efficient market, this is not necessarily the case for thinly traded securities for smaller issuers. This is an important issue because Canada’s capital markets include a significant number of thinly traded securities. Indeed, in Akumin certain debentures were found not to be trading in an efficient market. Despite this, leave was granted with respect to the debenture related claims. Judicial guidance on what kind of evidence is probative for a public correction for securities trading in inefficient markets will be necessary in the future.
Where is the line drawn between an express correction and a contextual correction?
Both Akumin and Akumin CA accept the proposition that something less than a mirror image may be an express correction. Where is the line drawn? At what point is a correction a contextual correction requiring broader consideration of the understanding of the market and potentially expert evidence?
Conclusion
Akumin CA offers welcome guidance on the viability of claims framed as involving partial public corrections, among other matters. However, it raises a number of issues to be decided in future cases as well. Going forward, counsel will need to carefully consider how prior jurisprudence on this issue fits into the framework articulated in Akumin CA and to what extent some of those decisions remain good law at all.
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