Weather, Leather, and the Obligation to Disclose: Kerr V. Danier Leather Inc.

Abstract

Is an issuer legally obliged to update its prospectus if a material event occurs following the receipt for the prospectus but prior to the closing of the offering? This is the crucial issue that is addressed in Kerr v. Danier Leather Inc., a case that has been heard at the trial and appeal levels in Ontario and that will be heard in 2007 by the Supreme Court of Canada. In this commentary, we argue that the Court of Appeal decision in the case overlooked crucial aspects of contemporary securities law and policy in holding that there is no obligation to disclose intra-quarterly results that cast doubt on the achievement of an earnings forecast in a prospectus. Further, although the Court of Appeal took into account the business judgment rule, there is no precedent for applying it in the context of an obligation to fulfill statutory disclosure requirements. Ultimately, this is a case in which courts squarely confront the balance between legal obligations imposed on issuers and the expectations of investors in the context of forward-looking information. This issue was not a feature of the disclosure landscape when the Ontario statute was originally enacted and, until this case, had not been litigated in this country.