A Bit of an Ending: The Bre‐X Litigation, Class Actions and the Liability of Professionals
| Date | 01 February 2000 |
| Published date | 01 February 2000 |
| Pages | 345-347 |
| DOI | https://doi.org/10.1108/eb025956 |
| Author | Michelle Gallant |
| Subject Matter | Accounting & finance |
Journal of Financial Crime — Vol. 7 No. 4 — Briefings
LITIGATION
A Bit of an Ending: The Bre-X Litigation, Class
Actions and the Liability of Professionals
Michelle Gallant
The notion of suing professionals — lawyers,
brokers, accountants — appears to make good finan-
cial sense. It seems fiscally sensible because, while an
offender may melt into the night, take up residence
in a foreign haven or otherwise dissipate his assets,
established professionals usually have sufficient prop-
erty at their disposal to make their pursuit through
the civil court economically prudent. Shareholders
in the Bre-X affair sought, through a class action, to
hold analysts and stockbrokers accountable for
losses sustained when the price of Bre-X shares sud-
denly collapsed in 1997. A decision in late November
1999 not to appeal a ruling of an Ontario Superior
Court signals but a tiny ending to a messy multi-
million-dollar scandal and to the quest to attach
responsibility to a group of professionals. It is a tiny
ending because it was the individualistic character
of the legal issues in the context of the exigencies of
the Ontario legislation, rather than the merits of the
underlying claim, that foreclosed this attempt to
hold professionals liable for financial losses.
THE Bre-X SCENARIO
Bre-X Minerals Ltd, a Calgary, Alberta-based com-
pany founded in 1988, saw little activity until it
began to explore and develop mining properties in
the Busang region of East Kalamantan in Indonesia.
Following a series of announcements indicating the
discovery of appreciable amounts of gold at the
Busang site, the company's share value rocketed
from 50 cents in May 1993 to CS228 in May 1996.
The failure of a potential joint venturer to confirm
the veracity of the Bre-X claims, together with
rumours and increasing speculation regarding the
truth of the Bre-X assertions, then caused values to
plunge. In May of 1997, another inquiry into the
mining potential of the Busang site concluded that
the site harboured no gold of any economic signifi-
cance. That report also indicated that the gold
samples used in the original testing, the samples
from which the positive prognosis of the potential
of the resource derived, had been falsified. Later in
the same month, Bre-X was removed from the
Toronto Stock Exchange.
The dramatic drop in the value of the Bre-X shares
caused enormous losses. Having bought the invest-
ments in anticipation of financial gain, investors
suddenly found themselves holding worthless
property. In response to the revelations of possible
fraud, a number of shareholders sought the assistance
of the civil courts to recover their money. Given that
Ontario law enables class actions and requires that
any class proceeding be certified by the courts, a
group of representative plaintiffs sought the certifica-
tion of
a
class action against the Bre-X company, its
corporate officers and directors and the mining
analysts and stockbrokerage firms associated with
researching, marketing and selling the ill-fated
shares. While the court certified the action against
the company, it did not certify the other actions.
THE CLASS ACTION AGAINST THE
PROFESSIONALS
The plaintiff's request for certification was brought
under the Ontario Class Proceedings Act, the law
that governs class actions. Of particular relevance
to the claims against the professionals were two
legal requirements of the legislation: that a claim
raise common issues and that a class proceeding, as
opposed to some other avenue, be the preferable
route for resolving those common issues. Neces-
sarily, a failure to demonstrate the existence of
common issues negates consideration of whether
the class proceeding is the preferable procedure.
One of the plaintiff's claims, negligence and the
breach of a duty to warn, fell short of the first
requirement. Two other claims, fraudulent or
negligent misrepresentation, failed to satisfy the
second.5
Journal of Financial Crime
Vol 7 No
4,
2000,
pp 345-347
© Henry Stewart Publications
ISSN
0969-6458
Page 345
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