Canada: Forecasts And The Business Judgment Rule: Issuers, Directors And Officers Take Comfort In Court Of Appeal´s Decision In Danier

Last Updated: December 30 2005

In an eagerly awaited decision, the Ontario Court of Appeal reversed the May 2004 ruling of Justice Sidney Lederman in Kerr v. Danier Leather Inc., which had held that Danier and certain of its senior officers were liable to investors for a prospectus misrepresentation relating to an earnings forecast included in a prospectus.

The Court of Appeal's decision in Danier is important for many reasons. The two most important are that the Court of Appeal:

  1. Clarified that under the Ontario Securities Act, a prospectus is only required to provide full, true and plain disclosure of all material facts as of the date of the prospectus (not the date of closing) and issuers are required to amend for material changes, but not for material facts; and
  2. Strongly endorsed what is referred to as the "business judgment rule."


In May 1998, Danier (a manufacturer and seller of leather clothing and accessories) undertook an initial public offering of its shares. The prospectus contained a forecast that included Danier’s projected revenue and earnings for the last quarter of its fiscal year.

An internal company analysis prepared a few days before the offering closed, but after the final prospectus had been filed, showed that Danier’s fourth quarter revenue and earnings were lagging behind a front end loaded internal store budget. However, on the date of closing, Danier’s senior management still believed that Danier could achieve the forecasted results, in part because of two planned sales promotions scheduled for the last six weeks of the fiscal year: Danier’s annual Victoria Day Sale and a June promotion.

The Victoria Day Sale began the day after the offering closed. Unfortunately, the results of the sale were disappointing. Upon considering the results and investigating the matter further, Danier’s CEO concluded that the unexpectedly low sales were due to unseasonably hot weather across Canada.

Danier’s CEO told the underwriters that if the unseasonably hot weather continued, he could no longer be confident that Danier would meet the forecast. Danier’s lawyer recommended that Danier assume the worst (that the hot weather would continue into June) and that the company prepare and file a revised forecast (under then National Policy 48) with the Ontario Securities Commission, which Danier did.

Danier’s announcement of the revised forecast precipitated a significant temporary decline in its share price on small volumes. However, the weather later cooled and Danier’s sales rebounded. By the end of the fiscal year, Danier had substantially achieved its original forecast.

Nonetheless, the plaintiffs began a class proceeding for prospectus misrepresentation under s. 130(1) of the Securities Act.

Recap of the Trial Decision

After a lengthy trial, Justice Lederman found Danier and certain of its senior officers liable for statutory misrepresentation regarding the forecast.

The trial judge’s finding of liability was based primarily on the following conclusions:

  • The poor fourth quarter revenue and earnings occurring after the prospectus was issued were material facts Danier was required by the Securities Act to disclose before closing (although they were not a material change);
  • The prospectus implied that the forecast was objectively reasonable both on the date of the prospectus and on the offering’s closing date; and
  • Because of Danier’s failure to disclose the poor fourth quarter results, this implied representation, though true on the date of the prospectus, became false on the closing date.

Having found Danier and its senior officers liable, the trial judge awarded substantial damages, using the fall in Danier’s share prices as the prima facie measure of that award.

The Court of Appeal’s Decision

In its decision released December 15, the Court of Appeal reversed Justice Lederman’s finding of liability against Danier and its senior officers and dismissed the class action. In particular, the Court of Appeal held that the trial judge erred in:

  • Concluding that Danier had a continuing obligation to disclose material facts occurring between the date of its prospectus and the date of closing when no material change had occurred;
  • Concluding that Danier's prospectus contained the implied representation that the forecast in question was objectively reasonable; and
  • Failing to give any deference to the business judgment of Danier's senior management and to take into account that the forecast was substantially achieved.

Disclosure Ruled Sufficient

The Court of Appeal held that Danier had complied with its disclosure obligations by filing a prospectus which was true on its date, and by not filing any amendment to the date of closing of the offering as no material change had occurred. The Court of Appeal rejected the trial judge’s interpretation of the Securities Act that issuers have an obligation to update all material facts to the date of closing.

Business Judgment Rule Strongly Endorsed

As mentioned above, the Court of Appeal held that the trial judge erred by failing to give any deference to the "business judgment" of Danier’s senior management. On this point, the court emphasized that the "reasonableness" that is the centerpiece of the business judgment rule involves a "range of reasonableness." The court went on to quote the following passage from a previous Court of Appeal decision (a passage also recently quoted by the Supreme Court of Canada in the Peoples Department Stores case):

The court looks to see that the directors made a reasonable decision not a perfect decision. Provided the decision taken is within a range of reasonableness, the court ought not to substitute its opinion for that of the board even though subsequent events may have cast doubt on the board’s determination. As long as the directors have selected one of several reasonable alternatives, deference is accorded to the board’s decision. This formulation of deference to the decision of the Board is known as the "business judgment rule." [italics in original, bold added]

Adopting this approach, the Court of Appeal held that while the senior officers’ view regarding the forecast might have been an optimistic one, it deserved deference because it represented "one of several reasonable alternatives" and was "within a range of reasonableness."

At a time when directors and officers of Canadian companies are becoming increasingly concerned about liability, this strong endorsement of the business judgment rule by the Court of Appeal should provide some level of comfort. Benjamin Zarnett and Jessica Kimmel of Goodmans LLP represented Danier’s senior officers in the action and the appeal.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific 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
Related Video
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
Check to state you have read and
agree to our Terms and Conditions

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.

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 by clicking here .

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.


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.