Case information

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Case summaries are prepared by the Office of the Registrar of the Supreme Court of Canada (Law Branch). Please note that summaries are not provided to the Judges of the Court. They are placed on the Court file and website for information purposes only.

Commercial law - Securities - Procedural law - Appeal - Should statutory prospectus misrepresentation civil liability provisions be interpreted to require disclosure of all material facts arising up to closing - Does a financial forecast in a prospectus contain the implied factual assertion that it is objectively reasonable and continues to be so - Is the assessment of the materiality of undisclosed facts objective, or are the courts required to defer to management’s subjective analysis through the application of the business judgment rule - In the context of a prospectus misrepresentation claim, must the appellate court defer to a trial judge’s factual findings of materiality and the unreasonableness of management’s conduct absent palpable and overriding error.

In May 1998, Danier Leather Inc. (“Danier”) made an initial public offering of its shares through a prospectus. The prospectus contained a forecast which included projected revenue and earnings for the last quarter of the company’s fiscal year. An internal company analysis prepared a few days before the closing of the public offering indicated that Danier’s fourth quarter revenue and earnings were lagging behind the figures in the forecast. Danier did not disclose the poor results before the closing, but when they continued, the company disclosed them shortly after in a revised forecast. This precipitated a significant fall in the price of its shares. Although Danier’s sales rebounded and the company substantially achieved its original forecast, the plaintiffs began a class action for misrepresentation in the prospectus under s. 130(1) of the Securities Act, R.S.O. 1990, c. S.5, as amended. The Superior Court of Justice found Danier and its chief officers liable for statutory misrepresentation for failing to disclose material facts occurring between the date of the prospectus and the date of closing. The plaintiffs were awarded substantial damages using the fall in Danier’s share prices as the prima facie measure. The Court of Appeal for Ontario allowed the appeal and dismissed the action.