Alberta’s first statutory open-stock market decision seeks to protect shareholders

(June 24, 2019). The Court of Queen’s Bench of Alberta has released its first decision relating to shareholders’ burden to seek “leave to proceed” with a statutory secondary market (a/k/a, open market purchase) claim against a responsible issuer.  The decision is identified as Stevens v. Ithaca Energy Inc., 2019 ABQB 474.

Ithaca Energy had listed its equity securities on the Toronto Stock Exchange and London AIM.

Morganti & Co., P.C. and JSS Barristers, LLP argued that Ithaca Energy’s disclosure statements in its quarterly reports and news releases dated August 12, 2014, October 7, 2014, November 13, 2014, and January 12, 2015, omitted material facts about the delays in progress and conflicts with its outside engineering firm for its bet-the-company project costing hundreds of millions.

Ithaca Energy argued that it did not have to disclose all the adverse facts because its senior management was optimistic that it could get the project back on track.  The investors argued that Ithaca Energy’s position directly violated the famous Supreme Court of Canada case of Kerr v. Daniel Leather Inc., 2007 SCC 44, at paragraphs 54 and 55, which was first followed in the context of a leave to proceed motion in Wong v. Pretium Resources Inc., 2017 ONSC 3361, at paragraphs 31 and 38.  Specifically, potential and the then current investors of Ithaca Energy should have been given all the then current material facts so they could make their own judgment about whether to accept or not management’s business judgment about the future outcome of the identified problems.

Equally as important for investors in providing a solid guidance as to what must be disclosed to investors, the Court of Queen’s Bench of Alberta also followed Sharbern Holdings Inc. v. Vancouver Airport Centre Ltd, 2011 SCC 23, in determining when an adverse fact rises to a level of becoming a material fact requiring disclosure to investors.  That definition can be summarized as asking whether that omitted adverse fact, if disclosed, would have significantly altered the total mix of information made available to investors at that time of the released quarterly report or news release.

Ultimately, the Queen’s Bench of Alberta granted the investor’s application for leave to proceed and certified a class of investors that purchased Ithaca Energy’s securities between October 7, 2014 and February 25, 2015.  The proceeding should advanced towards discovery and trial.