The Supreme Court has dismissed a shareholders’ action in which a public issuer was accused of failing to include details of a conflict of interest in its disclosure. In Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., the court held that disclosure obligations for public issuers have very well-defined limits.

The Supreme Court held unanimously that, when making disclosure, issuers are only obligated to disclose information that could affect the decisions of potential investors. What this means to issuers is that their disclosure obligation is not indeterminate, and investors cannot rely on “trivial or unimportant” facts to hold an issuer liable for their losses.

In this case, a class action lawsuit was launched against a land developer for inadequate disclosure. The action was certified under the British Columbia Class Proceedings Act. The plaintiff class was a group of approximately 200 investors who purchased lots in a Hilton hotel from the defendant. Lots were also sold by the defendant in a Marriott hotel adjacent to the Hilton property, which it was also developing.

The plaintiff Sharbern Holding Inc. alleged that the defendant failed to disclose details of differences in the financial arrangements given to purchasers of the different hotel properties and that the defendant company was in a conflict of interest. This conflict allegedly created an incentive for the defendant to favour the Marriott lot owners in its operation and management of the hotels.

The defendant’s disclosure obligations were governed by the British Columbia Securities Act and the British Columbia Real Estate Act. The lots were marketed under exemptions to these statutes, and the defendant only had to issue a single disclosure document to meet its obligations.

In upholding the dismissal of the plaintiff’s claim, the Supreme Court held that determining whether information is material is a fact-specific exercise and a court must first look at the information disclosed to investors at the time they made their investment decision. The statutory disclosure requirement does not oblige issuers to disclose all facts that would allow an investor to determine what is material and what is not.