On Lemons and Leather: Liability for Misrepresentations of Forward-Looking Information in Danier Leather

Abstract

The Supreme Court of Canada considered in Kerr v. Danier Leather the liability of a corporate issuer of a prospectus forecasting performance that was alleged to misrepresent the company’s prospects at the time purchasers bought shares. This article analyzes whether there is an obligation on issuers to update previously disclosed forward-looking information (FLI) whenever circumstances change, and whether the business judgment rule applies to such disclosure decisions. The author provides a policy analysis of whether the decision’s interpretation of the Ontario Securities Act best advances the societal interests underlying potential liability for misrepresentations on FLI. As a general rule, there is no obligation on an issuer to disclose FLI. Given that mandatory disclosure rules do not extend to FLI, and given that the issuer itself will predictably bear costs if its FLI disclosures lack credibility, the law should allow the issuer itself to customize the standard for evaluating its liability for misleading FLI. The article concludes that the Danier decision is correct in light of this policy analysis, as it leaves scope for issuers to tailor liability for FLI to their particular circumstances.

Keywords: Danier leather, disclosure, misrepresentation