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Article Excerpt
Beginning on December 31, 2005, the Ontario "Securities Act" began to impose civil liability for misrepresentations in secondary market disclosure, greatly expanding the liability of reporting issuers and their officers and directors for their communications with investors and potential investors.
It was recognized that this could cause issuers to severely restrict disclosures regarding the future, as such statements are inherently uncertain, due to the potential liability. The Supreme Court of Canada confirmed in Kerr v. Danier Leather Inc. that a forecast (and by implication other forward-looking information) can constitute a misrepresentation for which there is liability under the Act. "Forward-looking information" can be valuable information to the market and is important to informed investment decisions. In order to encourage issuers to continue to provide this information, a "safe harbour" defence from liability under the Act for forward looking information was created at the same time, provided that specific statutory requirements are met. it should be noted that actions based on fraud or negligent misstatement under tort law are not affected by the safe harbour.
The Ontario Securities Commission has recently issued a policy statement relating to this safe harbour defence. While the Policy may not have the force of law, it expresses the Commission's views on how issuers can meet the requirements of the safe harbour, which may be of some weight when an issuer seeks to rely on the defence in court.
A discussion of the safe harbour and the guidance from the OSC is set out below, followed by a discussion of practices that can be used to ensure that the safe harbour can be relied upon.
Forward-Looking Information And The Safe Harbour What Is Forward Looking Information (FLI)? Forward-looking information means disclosure:
regarding possible events, conditions or results of operations
that is based on assumptions about future economic conditions and courses of action and
FLI includes future oriented financial information with respect to prospective results of operations, financial position or cash flows that is presented either as a forecast or a projection.
The breadth of what constitutes FLI has not been considered in any Canadian jurisprudence to date, but given the policy rationale for the safe harbour, an expansive interpretation is not unwarranted. It would generally encompass "soft" information that is "predictive" of the future based on the assessments and beliefs of management.
What Is The Safe Harbour? To rely on the safe harbour, an issuer must satisfy the following elements of the defence:
cautionary language must appear "proximate" to the FLI disclosed by the issuer
the disclosure must identify "material" factors that could...
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