Danier made an initial public offering of its shares by way of a prospectus. The prospectus included Danier's actual financial figures for the first three quarters and projected results for the fourth quarter of the fiscal year. Before the public offering closed, an internal company analysis indicated that Danier's fourth quarter results were below its forecast. Danier did not disclose these fourth quarter results before the offering closed. A number of individuals brought a class proceeding for prospectus misrepresentation under s. 130(1) of the Ontario Securities Act (the "Act"). The trial judge found Danier liable for statutory misrepresentation. He concluded that the prospectus impliedly represented that the forecast was objectively reasonable on the date the prospectus was filed and on the date the public offering closed and that the actual below forecast fourth quarter results were material facts required by s.57(1) to be disclosed before closing. The implied representation that the forecast, although true on the date the prospectus was filed, was false on the closing date. The Court of Appeal reversed the trial judgment and the Supreme Court of Canada affirmed the decision of the Court of Appeal.
As a general rule a corporation is a legal entity distinct from its shareholders: Salomon v. Salomon & Co., Ltd.,  A.C. 22 (H.L.) (the "Business Judgment Rule"). The law on when a court may disregard this principle by "lifting the corporate veil" and regarding the company as a mere "agent" or "puppet" of its controlling shareholder or parent corporation has not followed consistent principles and in Danier, the SCC adds to the principles by holding that forecasting is a matter of business judgment but disclosure is a matter of legal obligation. Further, the exercise of business judgment takes precedence over the Act's duty of disclosure.
The Act differentiates between material changes and material facts. A "material fact" is defined in the Act more broadly than a "material change" and includes "a fact that significantly affects, or would reasonably be expected to have a significant effect on, the market price or value of . . . securities" (s. 1). The trial judge concluded and the SCC agreed that the fourth quarter results constituted a "material fact."
The SCC summarized that when a prospectus or an amendment contains no misrepresentation on the date the document was filed, information amounting to material facts that arise subsequently could not support an action under s. 130(1) and that if a material change arises during the period of distribution, failure to disclose this change as required by s. 57(1) could support an action under s. 130(1).