The Ontario Securities Commission has published a notice outlining a proposed policy on the defence for misrepresentations in forward-looking information that’s available to issuers under the new legislation enshrining statutory liability for secondary market disclosure.

The purpose of the proposed policy is to outline the commission’s views on some of the policy considerations underlying the defence for misrepresentations in forward-looking information and to explain how the commission approaches the interpretation of certain aspects of the defence.

The new civil liability regime, which took effect on Dec. 31, 2005, contains a number of defences including a defence for misrepresentations in forward-looking information. Forward-looking information includes future-oriented financial information with respect to prospective results of operations, financial position and/or cash flows that is presented as either a forecast or a projection, such as earnings guidance.

Under the Securities Act, a defendant is not liable for a misrepresentation in forward-looking information if the defendant proves that the document or oral statement containing the information included, “proximate to” the information: reasonable cautionary language identifying the information as forward-looking and identifying material factors that could cause results to diverge materially from a conclusion, forecast or projection in it; and, a statement of the material factors or assumptions on which it is based. In addition, the defendant must prove that it had a reasonable basis for the conclusion, forecast or projection.

The commission notes that its staff have received a number of enquiries from various issuers and counsel who have expressed uncertainty with respect to the requirements of the defence for misrepresentations in forward-looking information. In June 2005, it also received a written submission on behalf of a number of issuers requesting that it issue guidance on the subject.

“In light of the recurring questions we have received on this subject, we are issuing the proposed policy to outline the commission’s views on some of the policy considerations underlying the defence,” it says. Also, the proposed policy explains how the commission approaches the interpretation of certain aspects of the defence.

Comments on the policy are due by August 2.