The Supreme Court of Canada has rejected an investor class action seeking to hold Danier Leather for an alleged misrepresentation in its prospectus.

Danier Leather made an initial public offering of its shares through a prospectus. The prospectus contained a forecast that included its projected results for the fourth quarter of the fiscal year. However, an internal company analysis prepared before its public offering closed showed that Danier’s fourth quarter results were lagging behind its forecast. Danier did not disclose its intra-quarter results before closing.

The investors brought a class proceeding for prospectus misrepresentation under the Ontario Securities Act. The trial judge found Danier liable for statutory misrepresentation. He concluded that the prospectus impliedly represented that the forecast was objectively reasonable, both on the date the prospectus was filed and on the date the public offering closed.

The Court of Appeal, however, reversed the trial judgment. And today, the SCC agreed with the appellate court, ruling that the appeal should be dismissed.

The Supreme Court found that, in compelling disclosure, the Securities Act recognizes the burden it places on issuers and sets the limits on what is required to be disclosed. ”When a prospectus is accurate at the time of filing, [the Act] limits the obligation of post-filing disclosure to notice of a “material change”, it notes. “An issuer has no similar express obligation to amend a prospectus or to publicize and file a report for the modification of material facts occurring after a receipt for a prospectus is obtained that do not amount to a “material change” within the meaning of the Act.”

“If an issuer has fully complied with its regulatory obligation, it would be contrary to the scheme of the Act, and to the intent of the Ontario legislature reflected therein, to find civil liability against an issuer for failing to disclose post-filing information that does not amount to a material change,” the court added.

“The trial judge, having also found the forecast to be objectively reasonable as of the filing date, erred in proceeding to test the objective reasonableness of the forecast at the date of closing, and assessing damages for its perceived deficiencies as of that later date. The forecast did carry an implied representation of objective reasonableness rooted in the language of the prospectus, but this implied representation extended only until the prospectus was filed,” it said.

In dismissing the case with costs the court noted, “This case is a piece of Bay Street litigation that was well run and well financed on both sides. Success would have reaped substantial rewards for the representative plaintiff and his counsel. The proper interpretation of the Securities Act has from the outset been the time bomb ticking under this case.”

“The respondents attempted to have this issue determined in their favour on a motion for summary judgment heard in December 2000 but were unsuccessful. The result was a very expensive piece of shareholder litigation. There is no magic in the form of a class action proceeding that should in this case deprive the respondents of their costs,” it concluded.