Canada: Disclosure Statements: How Much Is Enough?

The Supreme Court of Canada decision in Sharbern Holdings Inc. v. Vancouver Airport Center Ltd., has addressed a key issue of importance to the corporate world: "What must an offering memorandum contain?" The Court reaffirmed the test, long established in provincial appellate cases, that only material facts need to be disclosed in offering memoranda or disclosure statements. Noting that materiality will be determined on an objective basis, the court defines the test as information that a reasonable investor would likely have considered important in making her decision. Only information which is determined, objectively, to be material needs to be disclosed.

There is a constant tension when preparing disclosure statements or offering memoranda between enticing a potential investor and scaring them away. This tension is exasperated by numerous statutes that impose disclosure obligations upon issuers. Those statutes require issuers to disclose to potential investors information affecting their investment decision, either at the time of issuance or even for secondary market disclosures. The struggle for issuers and companies is to determine when disclosure of information is required and how much is too much.

The Supreme Court of Canada, in the recent decision Sharbern Holdings Inc. v. Vancouver Airport Center Ltd., dealt with this issue. Shabern was a class action lawsuit brought by investors in a Hilton hotel claiming misrepresentations by omission. To determine the question of misrepresentation, the Supreme Court addressed the need to balance too much information with too little disclosure. In particular, the court considered whether a failure to disclose certain information in an offering memorandum and disclosure statement amounted to a misrepresentation. The case turned upon whether the omitted information was material, and the test for determining such materiality.

The case is a refreshing confirmation that issuers need not disclose every possible piece of information. As noted at the outset of the decision, "issuers are not subject to an indeterminate obligation, such that an unhappy investor may seize on any trivial or unimportant fact that was not disclosed to render an issuer liable for the investor's losses." Instead, the obligation of an issuer is simply to disclose those facts for which, objectively, there is a substantial likelihood that a reasonable investor would have considered important in making his or her decision. The court was at pains to distinguish this standard as being one that a reasonable investor would have considered important, rather than a fact that merely might have been important.

Such a materiality standard strikes a balance between too much and too little disclosure. While potential investors are vulnerable to the superior knowledge of an issuer as to what need or need not be disclosed, the materiality standard avoids investors being buried in an avalanche of trivial information. A standard requiring the disclosure of too much information would be equally detrimental to the decision making of investors, as it would be difficult to parse the important from the unimportant information.

The test for materiality is determined at the time the disclosure is made. The courts are not to apply 20/20 hindsight. The court can consider the economic environment at the time the disclosure is made, the reasonable projections of financial benefits at that time, and the extent of the disclosure of risk all as part of the "total mix" of information available to the investor. It is only upon the consideration of this "total mix" of information that the court will determine whether the omitted fact is material.

The court also emphasized the distinction between the question of materiality and the business judgment rule. Under the business judgment rule, courts recognize that judges are less expert than managers in making business decisions. Managers should be free to take reasonable risks without having to worry that their business choices would later be second guessed by the judges. As such, the courts will show deference to these decisions.

However, no similar considerations apply regarding the legal disclosure requirements. The question of materiality involves the application of a legal standard to a given set of facts. This falls squarely within the realm and expertise of judges. Furthermore, a manager's assessment of risk does not have anything to do with their requirement to meet disclosure obligations. Rather, such legal disclosure requirements are set by the legislature and the courts, and not business management.

The court noted that there are no hard and fast rules in determining what is material, and it must be determined on a case by case basis. However, the court helpfully points out that the omitted fact must be considered in the context of the broader factual setting. This not only means in the context of the entire disclosure document, but also in the context of concurrent or subsequent conduct or events. Such conduct or events would shed light on potential or actual behavior of investors in the same or similar situations.

On the facts in Sharbern, the alleged misrepresentation was a failure to disclose details of an agreement whereby the developer and manager of the Hilton hotel was also acting as the developer and manager of a neighbouring Marriott hotel. The plaintiffs alleged that the details of the compensation agreement placed management in a conflict of interest situation, with a personal incentive to favour the Marriott hotel over the Hilton hotel. Management had guaranteed a gross return on the purchase price for the Marriott hotel investors, but had no similar guarantee for the Hilton hotel. While the Hilton investors were told in the disclosure statement that the developer and management were also involved with the Marriott, and had entered into documents "similar in form and substance" to those with the Hilton hotel, the details were not included. Furthermore, the disclosure statement said that the developer "was not aware of any existing or potential conflicts of interest ... that could reasonably be expected to materially affect the purchaser's investment decision".

The court considered extensive factual and expert evidence at trial concerning the actual and industry practice with respect to the management of hotels. The defendants led evidence showing that common management of competing hotels was normal in the industry, and further did not have any actual detrimental impact on the performance of these hotels. The court also noted that, at the time of the disclosure statements, the hotel business in this geographic area was booming, suggesting that neither occupancy rates nor competition from the Marriott would have been a problem. The court even went further and suggested that conduct of investors who at the time otherwise received the omitted information, or investors who were subsequently fully informed of the omitted information, was relevant to the analysis. Where a fully informed investor nonetheless invested in the Hilton, or when investors who were subsequently provided full details of the compensation agreements raised no objection for a number of years, then the court may conclude that the information was not material to a reasonable investor. In those circumstances, it would be unfair to allow the investors to subsequently latch onto this omitted information as a basis to recover their subsequent losses in the investment.

It should be noted that the court was extremely critical of the failure of the plaintiff to lead any evidence as to the materiality of the omitted facts. The plaintiffs simply relied upon the omission, and deemed reliance provisions in the relevant statutory schemes governing the disclosure statements. The court noted that the mere fact of the omission was insufficient, and the onus was on the plaintiff to prove that the fact was also material before liability may arise.

Even for a deemed reliance provision in a statute, the onus lay upon the plaintiff to prove materiality of the omission before deemed reliance would apply. The court noted that any such deemed reliance would also be a rebuttable presumption, even if the statute did not specifically provide for same. To find otherwise would lead to an absurd and unjust result, since a non-rebuttable presumption of reliance would allow an investor to claim to have relied upon the deemed misrepresentation even if the investor had complete knowledge of all the facts. This would place issuers in the position of having to guarantee the losses of fully informed investors, an unfair result.

In the final analysis, the court held that the omitted facts were not material. This recent decision of the Supreme Court of Canada, following its earlier decision in Kerr v. Danier Leather, recognizes and supports the difficult decisions and judgments made by reasonable business persons. By recognizing an objective standard of materiality, and permitting the court to consider the entire factual matrix surrounding the investments at the time they are made, the court affirms that investors are primarily responsible for their own investment decisions. The court imposes an obligation upon the investor to prove that any omitted evidence is, objectively, truly material.

As concluded by the court, "there must be a substantial likelihood that a reasonable investor would consider the fact as having significantly altered the total mix of available information." It is only then that an issuer may be subject to liability, either at common law or through statutory deemed misrepresentation provisions. This is a welcome confirmation of previous case law and reaffirmation that not every potentially relevant piece of information need be disclosed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions