Canada: Are Your Disclosures Regarding the Future a Source of Liability? "How Issuers Can Minimize Liability For Forward Looking Information"

Last Updated: January 26 2009
Article by Gregory Hogan

Beginning on December 31, 2005, the Ontario "Securities Act" began to impose civil liability for misrepresentations in secondary market disclosure, greatly expanding the liability of reporting issuers and their officers and directors for their communications with investors and potential investors.

It was recognized that this could cause issuers to severely restrict disclosures regarding the future, as such statements are inherently uncertain, due to the potential liability. The Supreme Court of Canada confirmed in Kerr v. Danier Leather Inc. that a forecast (and by implication other forward-looking information) can constitute a misrepresentation for which there is liability under the Act. "Forward-looking information" can be valuable information to the market and is important to informed investment decisions. In order to encourage issuers to continue to provide this information, a "safe harbour" defence from liability under the Act for forward looking information was created at the same time, provided that specific statutory requirements are met. it should be noted that actions based on fraud or negligent misstatement under tort law are not affected by the safe harbour.

The Ontario Securities Commission has recently issued a policy statement relating to this safe harbour defence. While the Policy may not have the force of law, it expresses the Commission's views on how issuers can meet the requirements of the safe harbour, which may be of some weight when an issuer seeks to rely on the defence in court.

A discussion of the safe harbour and the guidance from the OSC is set out below, followed by a discussion of practices that can be used to ensure that the safe harbour can be relied upon.

Forward-Looking Information And The Safe Harbour

What Is Forward Looking Information (FLI)?

Forward-looking information means disclosure:

  • regarding possible events, conditions or results of operations
  • that is based on assumptions about future economic conditions and courses of action and

FLI includes future oriented financial information with respect to prospective results of operations, financial position or cash flows that is presented either as a forecast or a projection.

The breadth of what constitutes FLI has not been considered in any Canadian jurisprudence to date, but given the policy rationale for the safe harbour, an expansive interpretation is not unwarranted. It would generally encompass "soft" information that is "predictive" of the future based on the assessments and beliefs of management.

What Is The Safe Harbour?

To rely on the safe harbour, an issuer must satisfy the following elements of the defence:

  • cautionary language must appear "proximate" to the FLI disclosed by the issuer
  • the disclosure must identify "material" factors that could cause future developments to differ from the expectations or projections in the FLI
  • the disclosure must include a statement identifying the material assumptions that led to a the prediction, forecast or projection in the FLI, and
  • an issuer must have a "reasonable basis" for the FLI

Public oral statements containing forward-looking information must also contain cautionary language that is similar to that which is required of disclosure documents. However, the Act takes a more flexible approach to oral statements, since in practice it would often be awkward to ensure full compliance in the delivery of public oral statements.

In this circumstance, the safe harbour requirements can be satisfied if (i) the person makes a cautionary statement that the oral statement contains forward-looking information; (ii) states that the actual results could differ materially and that certain material factors or assumptions were applied; and (iii) states that additional information about the material factors and assumptions is contained in a readily-available document or in a portion of such a document and identifies that document or that portion of the document.

It should be noted that issuers are currently required to essentially comply with the safe harbour in respect of material FLI pursuant to their general continuous disclosure obligations under National Instrument 51-102 ("NI 51-102").

However, the safe harbour does not operate to eliminate liability for FLI that is contained in:

  • Financial statements filed under securities laws, or
  • Any document released in connection with an IPO

What Clarifications Has The OSC Provided In The Policy?

1. The "Proximate" Requirement

The Policy acknowledges that the interpretation of the word "proximate" was subject to some uncertainty. In the Commission's view, "proximate" in this context does not require the immediate juxtaposition of information. In other words, an issuer is not required to identify each and every statement of forward-looking information and immediately specify each of the risk factors and assumptions applicable to the statement. Rather, a single broad reference identifying the applicable assumptions and risk factors will generally satisfy the "proximate" requirement of the defence.

The Policy also suggests that, as a general principle, the proximity of a risk factor or assumption to a particular forecast or projection depends on how closely-tied the former is to the latter. In other words, if the disclosure of risk factors is closely connected to a forward-looking statement, but does not appear immediately before or after the forward-looking statement, it is advisable for the issuer provide a cross-reference or footnote that connects the risk factor or assumption to the forecast or projection.

Of note, the OSC provided its view (in the notice of implementation of the Policy) that incorporation by reference of more lengthy discussions of risk factors and assumptions would, in appropriate circumstances, be permissible from a policy perspective.

2. Risk Factor Disclosure

The statutory defence for misrepresentations in FLI is not available to an issuer that fails to identify "material" factors that could cause future developments to differ from the expectations or projections identified in a disclosure document. The Policy indicates that these should be relevant and not boilerplate in nature.

However, the Policy states that this should not require an issuer to disclose every possible factor that could cause actual results to differ from anticipations. According to the Commission, the inclusion of the word "material" suggests that only significant and reasonably foreseeable factors that may cause results to differ from projections are required to be disclosed. Consequently, the failure to include a factor that in fact causes a forward-looking statement to be inaccurate should not necessarily mean that the defence is unavailable. So, while the business judgment rule may not longer be applicable in the context of an issuer's continuous disclosure obligations following the decision of the Supreme Court in Danier, the Commission recognizes that there will need to be a degree of judgment in identifying the material factors. How much judgment, if any, a court may permit remains to be seen.

3. Assumption Disclosure

The defence for misrepresentations in FLI requires an issuer to include a statement identifying the material assumptions that lead to a certain forecast or projection. The Policy states that the word "material" should be read to indicate that an issuer need not provide an exhaustive list of each and every factor or assumption; rather, an issuer is only required to disclose the assumptions that are relevant and material to the forecast or projection and that it in fact applied. Again, how much judgment, if any, a court may permit in selecting the assumptions remains to be seen. Arguably, the assessment of what is material in this case should be less subject to uncertainty as all assumptions should be known.

4. "Reasonable Basis"

The Policy states that the interpretation of this reasonableness standard will be guided by the following factors:

  • the reasonableness of the assumptions applied in drawing a certain conclusion or making a certain forecast or projection; and
  • the inquiries made and the process followed in preparing and reviewing the forward looking information.

The OSC has indicated in response to public comments that while the process used may be relevant to establishing a reasonable basis, it is not determinative.

The OSC is not of the view (stated in the notice of implementation of the Policy) that issuers must explicitly state that they have a reasonable basis for the FLI.

5. Oral Statements Containing Forward-Looking Information

Some market participants had questions regarding whether each person making oral statements needs to reiterate the required cautionary statements. According to the Policy, the Commission supports a pragmatic interpretation of the Act, allowing, for instance, one person to issue the required cautionary statements on behalf of another speaker who makes a forward-looking statement, in appropriate circumstances.

6. Duty to Update

There is a duty to update FLI imposed under NI 51-102. The Commission has stated that it does not believe that the safe harbour requires issuers to update their FLI. The lack of a duty to update is explicit in the safe harbour provisions of US securities legislation.

Best Practices For FLI

As noted above, FLI, other than that required by MD&A, generally does not need to be disclosed. In addition, the content of FLI does not exist separate and apart from the opinions and personal views of management and directors of a reporting issuer (based to a greater or lesser extent on existing facts). Internal controls and disclosure controls and procedures should not (and likely could not), therefore, be relied upon to identify FLI or ensure that the prerequisites to the safe harbour are met. A simple framework consisting of identification, assessment and monitoring can help issuers comply with NI 51-102 and limit their exposure to secondary market liability.


A cursory survey of the ways in which issuers identify their FLI makes clear that many issuers are not meeting the requirements for the safe harbour (assuming the disclosure contains FLI) and that there is much room for improvement. The mandatory requirements of NI 51-102 make this a more important disclosure issue. Issuers will often use one of the following methods in their written disclosure:

  • references to lists of words that refer to the future in some manner such as "believe," "estimate," "anticipate," "plan," "predict," "may," "hope," "can," "will," "should," "expect," "intend," "is designed to," "with the intent," "potential," the negative of these words or such other variations thereon or comparable terminology
  • statements indicating that the disclosure may or does contain FLI without any specific identification other than to possibly exclude statements of historical fact
  • references to the FLI with some level of specificity to the FLI

Also noteworthy is that many issuers have adopted a US style approach to FLI, even to the extent of using the US phrase when referring to FLI (i.e., "forward-looking statements").

While the Policy does not take the position that each statement must be identified, using the above approaches clearly does not comply with the safe harbour or NI 51-102. Jurisprudence in the US suggests that boilerplate disclosure and/or disclosure that does not change over time are likely not sufficient to rely on the US equivalent to the safe harbour.

Although the list of words used in boilerplate FLI disclaimers may not, as discussed above, be sufficient to permit an issuer to avail itself of the safe harbour, such words can be important for identification purposes in determining whether an issuer is meeting its obligations under NI 51-102 and satisfying the prerequisites to the safe harbour. Much FLI will be obvious in that it explicitly refers to a future time period. However, there may be cases where this is not as obvious and looking for words such as these that imply a future orientation may readily identify potential instances of FLI.

The disclaimer that many issuers use often implies that FLI is contained in the disclosure, identifiable by the words or by not being a statement of historical fact. The work is often left to the reader. Issuers must clearly identify their FLI, not just because they are required to do so, but because it would be impossible to meet the defence without consideration of each such statement whether the rest of the prerequisites have been met for that statement.

Initial Assessment

Once FLI has been identified, the first question is whether the FLI is material. If it is not, then the statement will not be subject to NI 51-102 and, if the statement is not true, it should not constitute an actionable misrepresentation. Unfortunately, while this assessment involves the exercise of judgment, that judgment, no matter how reasonable, will not shield a wrong decision on the part of management. Questions of disclosure are not shielded by the business judgment rule that applies to most other decisions made by issuers. A conservative approach to materiality when assessing FLI is recommended.

If the FLI is material, then issuers need to determine:

  • Who is responsible for the inclusion of the FLI in the disclosure, and:

    • Confirm that the responsible person had a reasonable basis for the content of the FLI
    • If it is not clear that the there was a reasonable basis, the FLI should be removed from the disclosure
    • Other circumstances may warrant modifications to the FLI
    • If it is not certain who the responsible person is, the content should be assessed by an appropriate member of management to determine whether the FLI can or should be retained for the disclosure in question

  • Whether or not the components of the safe harbour discussed above are included in the disclosure

    • If one or more components is present, the content should be confirmed as being complete and accurate with or through the responsible person
    • If one or more components is not present, the responsible person should provide, or arrange to have provided, the required content to be included in the disclosure

  • Whether the risk factor disclosure can reasonably be regarded as those material factors that could cause the FLI to be false
  • Whether the factors and assumptions underlying the FLI are in fact those that are most material and relevant to the factors and assumptions applied to generate the FLI in question

Monitoring And On-Going Assessment

While there is no requirement to update FLI to take advantage of the safe harbour, an issuer's FLI should be monitored on an ongoing basis to determine which FLI can be considered "current" for the following reasons:

  • As a matter of good disclosure practice:

    • to ensure that statements that are obviously not going to be true can be superseded or "retracted" through subsequent disclosure
    • to be able to better assess the risks involved in the issuers business generally and in the types of FLI disclosed by the issuer specifically, with the hope that FLI can become more accurate or at least better explained and disclaimed

  • To comply with the requirements in NI 51-102 to provide updates for FLI in the issuer's MD&A

To accomplish this, a "log" of FLI that an issuer releases, which would contain the content, the safe harbour components and the responsible person, may be helpful to establish a risk management process to supplement disclosure controls and procedures, to track statements that could be the source of liability and to assist in the required updating in MD&A.

In addition, directors and officers of issuers can avoid liability if, after becoming aware of a misrepresentation, they take certain steps, including notice to the board of directors. This can be helpful as another defence if the safe harbour cannot be relied on.

US Practice

It should be noted that while there has been a similar safe harbour under US securities laws for over 10 years, the practice there may not be entirely useful in guiding issuers in Canada. There are three key differences:

  • The US safe harbour does not require the disclosure of the material factors and assumptions underlying the FLI, making the disclosure different.
  • There is no liability in the US if the plaintiff cannot prove that the FLI was made without knowledge that it was false or misleading, which provides an additional avenue to avoiding liability other than technical compliance with the safe harbour.
  • There is no duty to update in the US. In Canada, for secondary market liability purposes, there is similarly no duty to update, but NI 51-102 does impose a duty to update, generally in the issuer's MD&A.

In the notice of implementation of the Policy, the OSC indicated that issuers will need to assess the regimes in both countries (if reporting in both countries) and should not expect that compliance with the US will be sufficient for purposes of the Act.

Simon Flood, an associate with Cassels Brock, assisted in the preparation of this article.

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.

Gregory Hogan
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.