Canada: The Right to Sue Public Companies for Misleading Public Disclosure Comes to British Columbia

Last Updated: September 10 2008
Article by Trevor R. Scott

Originally published August 2008

On July 8, 2008, new laws came into force in British Columbia that give investors the right to sue public companies, their directors and officers, and certain others when there is misleading information in a publicly disclosed document or a public oral statement, or when there is a failure to make timely disclosure of material changes in the affairs of a company. These new laws harmonize the law in British Columbia with laws already in force in all of the other provinces of Canada. Those associated with public companies should ensure proper measures are taken to protect their company and themselves from these laws.


Investors have long had the right to sue companies and associated individuals for misrepresentations in a prospectus, offering memorandum or take-over bid circular. As a result of the new laws, investors who buy and sell securities of a public company through a stock exchange or other secondary market will now be provided a similar right to sue for misrepresentations in a company's public disclosures. These rights will apply in respect of public companies that are a "reporting issuer" in British Columbia, or other public companies with a real and substantial connection to British Columbia. Similar laws were first introduced in Ontario in 2002. All of the other provinces of Canada have since also introduced similar laws.

While the new laws enable individual investors to sue, so far the only lawsuits that have been commenced in those provinces where similar laws have come into effect are proposed class actions.

What You Can Be Sued For

The new laws create three ways for investors to sue:

Where Documents Released by a Company Contain a Misrepresentation – From the time that a company publicly releases a document that contains a misrepresentation, an investor who trades in the company's securities before the misrepresentation is corrected will have the right to sue. Those at risk of being sued include the company, directors, and officers, influential persons (an insider, a controlling shareholder or a promoter) and experts involved in the release of the document. A "document" includes documents filed with the British Columbia Securities Commission, a stock exchange or a government agency, or any other written communication which could reasonably be expected to affect the market price or value of the securities of the company. A "document" can include postings to a company's website.

Where Public Oral Statements Contain a Misrepresentation – If a person who speaks on behalf of a company makes a public oral statement about the company that contains a misrepresentation, then any investor who traded the company's securities in the period before the misrepresentation was corrected has the right to sue. The company, the person who made the public statement (e.g. investor relations personnel), and directors, officers, influential persons and experts who were involved in the making of the statement are all at risk of being sued. Public oral statements can include statements made at a shareholders' meeting or on an analyst call.

Failure to Make Timely Disclosure of a Material Change – Where a company fails to make timely disclosure of material changes in its affairs, any investor who trades in the company's securities before the change is disclosed has the right to sue. The company, and directors, officers and influential persons who were involved in the failure to disclose may be sued.

An investor does not have to establish that they relied upon the misrepresentation or failure to make timely disclosure.

How Much You Can Be Sued For

The amount an investor is entitled to in a successful lawsuit is based upon the effect the disclosure violation had on the market price for the security. However, no amount will be included to the extent that a defendant proves the change in the market price is unrelated to the disclosure violation.

Where multiple defendants are held liable in a lawsuit, each defendant is liable only in proportion to its relative responsibility. However, defendants (other than the company) who authorized, permitted or acquiesced in the disclosure violation may be liable for the full amount of the lawsuit, jointly and severally. A defendant's liability is also subject to certain limits:

Company – liability may not exceed the greater of $1 million and 5% of its market capitalization.

Individual – liability is limited to the greater of $25,000 and 50% of his or her total compensation from the company and its affiliates during the preceding 12 months (including the value of any options, pension benefits and stock appreciation rights granted during that period).

Expert - liability is limited to the greater of $1 million and the fees earned by the expert from the company and its affiliates during the preceding 12 months.

These limits do not apply to a defendant (other than the company) that authorized, permitted or acquiesced in the disclosure violation, while knowing that it was a disclosure violation.

What Defences You Have If Sued

Defendants will have several defences to a lawsuit, including:

Reasonable Investigation Defence – Defendants will not be liable if they prove that they:

  • conducted or caused to be conducted a "reasonable investigation"; and

  • had no reasonable grounds to believe that the document or oral public statement contained a misrepresentation, or that timely disclosure would not be made.

In determining whether an investigation was reasonable, the court must consider certain factors, including the existence of a system designed to ensure the company meets its continuous disclosure obligations and the reasonableness of the reliance by a defendant on that disclosure compliance system. A written disclosure policy will be essential for a company to rely on this defence.

Where Corrective Action Taken – A defendant (other than the company) is not liable if the disclosure violation was made without the knowledge or consent of the defendant, and if after the defendant became aware of the disclosure violation, the defendant notified the board of directors of the company of the disclosure violation. If no correction is made by the company within two business days, the defendant must notify the British Columbia Securities Commission of the disclosure violation.

Forward Looking Information - There will be no liability for a misrepresentation in forward-looking information if:

  • it contains reasonable cautionary language identifying the forward looking information;

  • it identifies the material factors that could cause actual results to differ materially from the forecast or projection;

  • it states the material factors or assumptions that were applied in making the forecast or " projection; and

  • there is a reasonable basis for making the forecast or projection."

Reasonable Reliance on Experts - There is no liability for non-experts for any document that includes, summarizes or quotes from a report, statement or opinion made by an expert who gave consent to the use of it, provided the defendant did not know, and had no reasonable grounds to believe, that there had been a misrepresentation made on the authority of the expert, and the report, statement or opinion made by the expert is fairly represented.

Procedural Safeguards

In the United States, there has been a history of class actions being brought against public companies in the hope that the companies will agree to an early settlement. These "strike suits" are often initiated immediately following any sudden drop in the trading price of a company's securities.

The new laws contain procedural safeguards designed to prevent strike suits. First, leave to proceed must be obtained from the court in order to commence a lawsuit. The court will only grant leave if it is satisfied that the action is being brought in good faith, and there is a reasonable possibility that the plaintiff will succeed at trial. Second, court approval is required before a lawsuit can be discontinued, abandoned or settled.

The new laws include a "loser pays" costs rule, which is also designed to discourage the bringing of strike suits. The new laws provide that the prevailing party in any lawsuit is entitled to costs, and the court must order costs against the losing party in any lawsuit (including any class action). In the United States, the losing party in a class action is generally not required to pay the costs of the successful party.

What You Should Do About These Changes

Directors and officers of public companies will want to review their company's disclosure practices to minimize their exposure under these new laws, including:

  • Ensure that your company has a formal, written disclosure policy. At a minimum, this policy should state who is authorized to make public statements on behalf of the company, and establish a system of review and approval for documents that are released to the public. This policy may also clarify the process that the company uses to ensure public oral statements are not made by company representatives without prior vetting, or without subsequent review to ensure an absence of misrepresentations.

  • Educate those who decide when material changes will be disclosed of the new risks. Those individuals who decide when material changes in the affairs of a company will be disclosed will now be at risk of being personally liable if they do not disclose material changes on a timely basis. These individuals should understand what constitutes a "material change", as well as when and how that change should be disclosed.

  • Correct disclosure violations promptly. When a disclosure violation is discovered, immediate steps should be taken to correct the error. Only investors who trade the company's securities while the disclosure violation exists are allowed to sue under the new laws, so prompt corrective action will minimize the number of potential investors who can sue.

  • Plan and Record Public Presentations and Oral Statements. Public presentations and oral statements by people who speak on behalf of the company, including directors and officers, should be carefully planned and scripted. It is important to make and retain records of public presentations and oral statements. Those responsible for corporate disclosure should review these records immediately after the public presentation or statement to identify and correct any misrepresentations.

  • Review Director & Officer Insurance Coverage. Review your director and officer insurance coverage to ensure it covers liability for these types of claims and that the coverage is adequate.

About Trevor Scott

Trevor Scott is a solicitor at Farris and provides strategic and legal advice in diverse business areas. He has extensive experience in debt and equity financings for public and private companies, representing both issuers and investment banks. He also regularly advises on business acquisitions, divestments and take-over bids, including compliance issues with the Competition Act and assisting foreign investors with Investment Canada Act matters. Trevor also advises on corporate governance matters.

If you wish to discuss any aspect of this commentary, please contact Trevor Scott or any member of Farris' Securities Practice Group.

© 2008 Farris, Vaughan, Wills & Murphy LLP

This summary is necessarily of a general nature and should not be construed as the giving of legal advice. You are urged to seek legal advice on areas of specific interest or concern.

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
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