SNC-Lavalin can’t be sued for keeping to itself a critical phone call on the fate of a bribery prosecution against it, Ontario’s top court ruled Wednesday.
The bribery case against the Montreal engineering giant led to political fallout and parliamentary hearings in 2019. The federal government removed Jody Wilson-Raybould from her position as attorney-general after she refused to direct officials to negotiate a deferred prosecution agreement, which would have absolved the company of criminal responsibility.
Under Ontario securities law, publicly traded companies are obliged to tell shareholders “forthwith” – as soon as the next day – about “material change” that affects their businesses, operations or capital. If they don’t, shareholders have a right to sue.
SNC-Lavalin was facing charges of corruption and fraud over its alleged conduct in Libya in 2011. It had been seeking a deferred prosecution agreement. A conviction could have disqualified the company from competing for lucrative national and international contracts.
The Ontario Court of Appeal acknowledged the importance of the phone call, made to SNC-Lavalin from the Public Prosecution Service of Canada on Sept. 4, 2018. In that call, prosecutors told the company it would not be invited to negotiate a deferred prosecution agreement.
But the call did not alter the status quo, and was therefore not a material change, Justice Lise Favreau wrote in a 3-0 ruling, upholding the findings of a lower court.
The company faced prosecution before the call, and prosecution after it – and a deferred prosecution agreement had never been a sure thing, Justice Favreau said.
Moreover, discussions with the company about a potential deal continued after the call. Prime Minister Justin Trudeau intervened on Sept. 17, asking Ms. Wilson-Raybould to “help find a solution,” the court noted. It wasn’t until Oct. 9 that federal prosecutors finally rejected the use of a deferred prosecution agreement, the court said. The company disclosed that news the next day.
Shareholder John Peters attempted to bring a class-action lawsuit seeking $75-million on behalf of those who had purchased SNC-Lavalin securities between Sept. 4 and Oct. 10, when trading in the company’s shares was temporarily halted. The shares lost 13 per cent of their value that day, or more than $600-million.
In the end, late in 2019, SNC-Lavalin issued a news release announcing it had settled the charges with prosecutors. A subsidiary would pay $280-million and be placed on probation for three years, which meant SNC could still bid for government projects.
In a second major ruling on the disclosure obligations of publicly traded companies, also issued Wednesday, the court sent a message that a failure to promptly disclose material changes can result in massive lawsuits.
That ruling dealt with Lundin Mining Corporation, which was sued by shareholder Dov Markowich after a rock slide involving 600,000 tonnes of waste material happened at a company mine in Chile. A lower-court judge had said the rock slide was not a material change, but the Ontario Court of Appeal disagreed.
The rock slide happened at the end of October, 2017, and Mr. Markowich bought $91,000 worth of shares in November. He sued on behalf of anyone who bought Lundin shares from Oct. 25, when instability was found in a wall of the pit mine, and Nov. 29, when the company disclosed the slide. The price of its securities fell 16 per cent on the TSX that day, reducing its market capitalization by more than a billion dollars.
The appeal court said Mr. Markowich could sue, and referred the case to a lower court to decide whether a class action could proceed.
“It’s a very good day for shareholders generally because we have our highest court telling public companies they need to live up to their obligations to tell shareholders important changes immediately – they don’t get to wait,” lawyer Joseph Groia, who represented Mr. Markowich, said in an interview.
Lara Jackson, a lawyer for Lundin, declined to comment.
The SNC-Lavalin case was a smaller one, at least in terms of potential damages. Jay Strosberg, a lawyer whose firm was co-counsel for the shareholders who brought both lawsuits, said the principles developed by the lower court judge in the SNC-Lavalin case, Superior Court Justice Paul Perell, helped form the foundation of the appeal court’s ruling in Lundin. (Justice Perell used a broad definition of “material change,” though he still ruled for SNC-Lavalin.)
“I would have loved to have won both of them,” Mr. Strosberg said. “But if I had to choose, I would have preferred to win Lundin, because SNC is worth a very small amount of money.”
The message of the two cases taken together, he said, is that “you can’t play cute.”
“If there are real changes to the business operations or capital … you’ve got to tell the investors right away. The premise of the Ontario capital markets and indeed global trading is continuous disclosure.”
Katherine Kay, a lawyer for SNC-Lavalin, said she had not yet been authorized by company officials to speak about the ruling.