PDAC-Mining companies face rise in class actions in Canada

Wed Mar 6, 2013 1:39pm EST
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By Allison Martell

TORONTO, March 6 (Reuters) - Mining companies facing the harsh financial realities of the post-boom market are also up against a new legal threat in Canada - a big increase in the number of shareholder class-action lawsuits.

Plaintiffs' lawyers say the suits are good for investors because they deter fraud. Opponents say companies can be forced to settle or pay for costly litigation even when they have done nothing wrong; when they are accused of misleading investors when they were the victims of market forces beyond their control.

"Increasingly, what we're saying to clients when they've had to deliver bad news to the markets is, you know, chances are you will be sued," said Andrea Laing, a partner at Blake, Cassels & Graydon LLP.

The litigation-happy environment reflects changes to the Ontario Securities Act that came into effect in late 2005 and gave shareholders an explicit right to sue issuers that mislead investors or do not share news quickly enough.

The law targets all companies with a "real and substantial" connection to Ontario, so investors can sue companies and their officers and directors even if firms are not headquartered in Canada or listed on a Canadian exchange.

Investors can also sue outside experts such as geologists and auditors hired by public companies.

Several years passed before the new regime faced any real-world tests, but by 2008 securities class actions, once rare in Canada, were on the rise. By the end of 2012 there were 51 active lawsuits in Canada, up from 16 in 2004, according to NERA Economic Consulting, which tracks securities litigation.

Two-thirds of the cases filed in 2012 were against companies in mining or oil and gas. Defense lawyers say that reflects the sector's inherent uncertainty, but their opponents see something different at work.   Continued...