This article was originally published in Blakes Bulletin on Litigation, September 2004
Multilateral Instrument 52-109 – "Certification of Disclosure in Issuers’ Annual and Interim Filings" – was issued by Ontario’s securities regulators on January 16, 2004.
It applies to most Canadian reporting issuers and mandates that issuers file annual and interim certificates signed by both the CEO and the CFO that certify that certain of the issuer’s specified periodic filings contain no misstatement of fact or are not misleading.
Part 2 of MI 52-109 requires the CEO and CFO of an issuer to file a certificate in a prescribed form any time the issuer files its Annual or Interim Filings.
In making the certification, the CEO and CFO are confirming that, based on their knowledge, the Annual and Interim Filings do not contain any untrue statement of fact required to be stated or not otherwise misleading. The wording of the certificates is fixed under MI 52-109 and an issuer does not have any latitude to modify or depart from it.
A CEO or CFO who provides a false certification is exposed to a risk of quasi-criminal, administrative or civil proceedings under securities law or to a private action for damages at common law if the CEO or CFO knew, at the time of making the certification, or was reckless to the possibility, that the annual interim fillings contained an untrue statement of material fact or were otherwise misleading. Where the CEO or CFO did not know of the misstatement or misrepresentation at the time the certification was made, the CEO or CFO may nevertheless be exposed to administrative or civil proceedings under securities law, or to a private action for damages under common law, if the officer did not exercise due diligence in the verification of the information before its release.
A CEO and CFO who signs a certificate in the prescribed form may be exposed to the risk of liability if it is subsequently determined that at the time the CEO or CFO made the certification:
- he or she knew that the certification was untrue or false;
- he or she was reckless as to whether the certification was untrue or false;
- he or she did so having knowledge that he or she was acquiescing to or authorizing the issuance of Annual or Interim Filings that may be false or otherwise misleading; or
- he or she ought to have known that it was false or misleading, but had failed to exercise reasonable diligence in ensuring that the certification was not untrue, false or otherwise not misleading.
Liability at Common Law for False or Inaccurate Certification
In addition to claims being instituted against them by regulatory authorities for a breach of securities laws, a CEO or CFO who has certified a false certificate may also be exposed to civil actions by investors who relied on the certification in making or retaining an investment. Investors could allege either that the misrepresentation was made fraudulently or negligently.
An action in fraudulent misrepresentation would be available to an investor if the investor could show that the CEO or CFO knew or showed reckless disregard as to whether the certification was false or misleading.
An action in negligent misrepresentation would be available to an investor where the investor could show that the CEO or CFO ought to have known, through the exercise of reasonable diligence, that the Annual or Interim Filings were untrue or otherwise misleading.
Statutory Civil Liability Under Part XXIII.1 of the Securities Act (Ontario)
The statute that provided authority for MI 52-109, Bill 198, has received royal assent, although Section 185, the section that would bring into force Part XXIII.1 of the Act relating to civil liability for secondary market disclosure, has not yet been proclaimed into force.
Part XXIII.1 creates a statutory right of action for damages by persons or companies who acquire or dispose of the securities of a responsible issuer during a period of time in which there is an uncorrected misrepresentation in a document released by the responsible issuer or by a person with actual, implied or apparent authority, relating to the affairs of the responsible issuer. The right of action is given to persons or companies acquiring or disposing of the securities of the responsible issuer between the time the misrepresentation was made and the time it was publicly corrected. The new rights of action are in addition to any rights that might otherwise exist.
A due diligence defence is available under Subsection 138.4(6) where the alleged misrepresentation occurs in a document filed with the Ontario Securities Commission, such as a certificate or an Annual or Interim Filing, that the officer has authorized, permitted or acquiesced to be released.
Part XXIII.1 will distinguish between "Core Documents" and "Non-Core Documents". The certification, unlike the Annual and Interim Filings, will not be Core Documents.
If a misrepresentation occurs in a document that is not a Core Document, Section 138.4(1) provides that no liability will be found unless the plaintiff proves that the person or company in question had actual knowledge of the misrepresentation, deliberately avoided acquiring knowledge of the misrepresentation or was guilty of gross misconduct in connection with the release of the document that contained the misrepresentation.
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.