Canada: Civil Liability for Continuous Disclosure Violations - Part 2

Last Updated: February 23 2006
Article by James Turner and Aaron Emes
This article is part of a series: Click Civil Liability for Continuous Disclosure Violations for the previous article.

Our last article provided an overview of the new Ontario regime of statutory civil liability for misrepresentations and failures to disclose material changes, that went into effect on December 31, 2005. This article describes the utility of a disclosure policy and a disclosure committee as measures to establish the due diligence defence offered in the legislation.

All potential defendants in a claim that a disclosure violation occurred have a defence if they can prove that, before the disclosure violation occurred, the defendant conducted a reasonable investigation and, at the time of the disclosure violation, the defendant had no reasonable grounds for believing that a disclosure violation would occur (the so-called "due diligence defence"). The factors that a court must take into account, in determining whether the due diligence defence has been established, include the existence and the nature of any system designed to ensure that the issuer meets its continuous disclosure obligations, and the reasonableness of reliance by the defendant on the issuer’s disclosure compliance system. The implementation of a suitable disclosure policy and the establishment of a disclosure committee are important elements of satisfying these criteria.

The Disclosure Policy

A disclosure policy is a written policy that provides an explanation of the issuer’s reporting obligations and commitments. It should be prepared with the intention that it will be distributed to directors, senior officers and all other employees of the issuer who in the ordinary course may be privy to material information about the issuer. Because of the potentially broad group that will have to apply the disclosure policy, the policy should be made to be reader-friendly and relatively concise; the policy should not be a comprehensive and detailed summary of every element of the issuer’s disclosure obligations. While a disclosure policy of this sort will likely trigger questions that will require deeper analysis from time to time, that analysis will be carried out by a smaller group, typically the "disclosure committee" (described below), counsel and (potentially) the board.

There are a number of key items that a disclosure policy should address, including:

  • Timely Disclosure - The disclosure policy should summarize the issuer’s obligations to disclose material changes and material facts (referred to as material information) in a timely fashion, providing examples of the types of developments that may be considered material. This will help officers and employees to be sensitive to timely disclosure issues and to bring potentially material developments to the attention of the appropriate officers. Since material developments can arise unpredictably, it is important that officers and employees have an understanding of the issuer’s obligations so that potentially material information is "communicated up" through the organization, and nothing material falls through the cracks.
  • Approval and Release Process - The disclosure policy should set out the approval process to be followed prior to the release of material information or the release of periodic disclosure documents (including annual and interim financials, MD&A, AIFs, proxy circulars and related materials). It should describe which of these matters require board or audit committee approval (the tendency now is for most, if not all, material matters to go to the board, either pursuant to the disclosure policy itself, or as a result of an issuer’s more general governance policies). The disclosure policy should also describe which officers in the organization have the authority to approve a release and who the issuer’s authorized spokespersons are. The policy may also contemplate certificates of the CEO and CFO (and of the disclosure committee) to the board, backing up the appropriateness of disclosure made in periodic disclosure documents. Certificates of this sort would be additional to those required annually of the CEO and CFO with respect to disclosure controls. The process followed by the CEO and CFO in providing any of this certification forms the foundation of the due diligence defence.
  • Documentary Process - Many current disclosure committees act on an informal basis. It is important, however, in establishing the due diligence defence, to have documentary evidence of the process that was followed in considering disclosure issues. As a result, practices should change and steps should be taken to ensure that there is evidence to support the process and reasoning of disclosure committees.
  • Forward-Looking Information - The disclosure policy should describe the cautionary language that will accompany any forward-looking information (be it documentary or oral disclosure). This is important since, if appropriate cautionary language accompanies forward-looking information, it is a defence to a claim that there was a misrepresentation in that information. Existing practices with respect to cautionary language (typically, the inclusion of non-specific and repetitious boilerplate) are generally inadequate to establish this defence.
  • Contact with Analysts, Investors and the Media - The policy should address disclosure to, and discussions with, analysts, investors and the media. This includes the process for conference calls held in connection with annual and quarterly earnings results and major corporate developments (for example, public announcement of when those calls will take place, ensuring that a replay of the call is available on the issuer’s website). It should also include procedures for disclosure at investor presentations and one-off discussions with analysts and investors. In addition to ensuring that no misrepresentations occur, this element of the policy also assists in avoiding any selective disclosure of material information (i.e. disclosing material information to a limited number of people prior to its having been generally disclosed by the issuer), a serious securities law offence. Companies should consider a blackout period during periods of preparation of annual or interim financials, or finalizing material developments, during which discussions with analysts and investors are prohibited or extremely limited. Careful scripting of what will be said, and debriefing after the fact (about what was said), may be helpful at other times.
  • Website Disclosure - As issuers increasingly promote their websites as a source of on-going disclosure, a summary of the relevant procedures to follow prior to posting business or financial information on the issuer’s website should be included in the disclosure policy. The procedures will largely track the approval and release process described above as the considerations are very similar. While material information should always be released by news release prior to posting on a website, information placed by an issuer on its website will be considered "released" by the issuer, making it subject to the civil liability regime.
  • Rumours - The disclosure policy should describe the process for dealing with any rumours that arise, including who is authorized to comment publicly on them. The policy may also contemplate monitoring of chat room discussions so the issuer can determine whether any rumours are developing, but a typical policy will forbid further participation in chat rooms.

The Disclosure Committee

An important adjunct to the disclosure policy is the establishment of a disclosure committee, specifically charged with responsibility for ensuring proper implementation of the disclosure policy and otherwise ensuring compliance with disclosure laws. The committee is usually made up of three or four members of senior management, typically the CEO, the CFO and the general counsel and perhaps a senior investor relations officer. In addition to implementing the disclosure policy, the committee also acts as a direct conduit to the board by bringing to the board’s attention potential material developments in a timely fashion and otherwise ensuring that the board is provided with all relevant disclosure material for the board’s review and approval.

Some issuers have also been adding an independent board member to the committee to give the board a direct and unfiltered window into disclosure issues. The most difficult issue that typically arises is whether a development is material or potentially material and at what stage it needs to be disclosed. This is an issue on which some boards would prefer to have direct input as matters arise. In certain cases, the board member on the committee is fixed, while in others it is a floating member (i.e., a committee meeting must have at least one (or two) board (or specified board committee) member(s) present).

In our view, it is not necessary for an independent board member to be on the disclosure committee in order for the board to be able to rely on the committee as an element of establishing the due diligence defence, as long as the board has reasonable confidence that the committee is appropriately performing its duties, including bringing relevant information to the board’s attention in a timely fashion. If red flags arise, a board will have to do more than simply rely on management in order to establish the due diligence defence. Having a board member on the disclosure committee will potentially increase the risk of liability of that director. However, that risk may be worth taking in order to establish the diligence of the board. If the practice becomes prevalent, an issuer that has not adopted the practice may have difficulty establishing the due diligence defence.


A well-thought out disclosure policy, and a responsible disclosure committee, will go a long way towards establishing a due diligence defence to a misrepresentation claim. Public companies should carefully consider whether their current policies and practices are adequate.

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.

This article is part of a series: Click Civil Liability for Continuous Disclosure Violations for the previous 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.