such as confidential client information. Members of the Task Force included Peter Dey, chair of the TSE Committee on Corporate Governance responsible for releasing the influential 1994 Report on Corporate Governance.

The steps taken by the CICA are important given the central position reliable financial disclosure occupies in effective corporate governance. Audit committees need the cooperation and commitment of accounting professionals if they are to fulfill their oversight function on behalf of shareholders.

The Canadian Securities Administrators (the “CSA”) have developed proposed amendments to securities legislation that would give investors in the secondary market the right to sue any public company and key related persons for making public misrepresentations about the company or for failing to make required timely disclosure. Currently, such rights are available only to those who rely on information contained in prospectuses and other documents relating to a primary issuance of securities. A CSA Notice describing the proposed amendments was released on November 3, 2000. The proposed amendments are for information purposes only and no further comment from the public or interested parties is being sought. While certain CSA members will be recommending the amendments to their respective provincial governments, such governments at this time have made no decision to proceed with the amendments.

Draft legislation that would create a limited statutory civil liability regime for continuous disclosure was first published for comment by certain CSA members in May 1998. The draft legislation arose out of the CSA’s review and support of the final report of the TSE’s Committee on Corporate Disclosure, commonly known as the Allen Committee, which was issued in March 1997. The Allen Committee was established to review and assess continuous disclo

sure by public companies, including the issue of whether additional remedies should be available for failure to make proper disclosure. The CSA draft legislation received 28 comment letters resulting, after further CSA deliberation, in the proposed amendments just released.

The proposed legislation would give secondary market investors a limited right of action against an issuer, its directors, responsible senior officers, “influential persons” (for example large shareholders with influence over disclosure), auditors and other responsible experts. Secondary market investors would have the right to seek limited compensation for damages suffered at a time when the issuer had made, and not corrected, public disclosure (either written or oral) that contained an untrue statement of a material fact or failed to make required material disclosure.
Investors would have the right to sue whether or not they actually relied on the misrepresentation or failure to make timely disclosure. This is intended to remove the necessity to prove reliance and to reflect the fact that investors may suffer damage indirectly because of the effect a misrepresentation has on the market price of a security.

Because the proposals are primarily intended to function as a deterrent to misrepresentations and failures to make timely disclosure, with compensation for investor damages being only a secondary objective, the proposed legislation contains limits on the potential exposure of issuers and defendants. By limiting liability to the greater of $1 million or 5 per cent of an issuer’s market capitalization, CSA members are hoping to achieve a balance between providing compensation to damaged investors and the interests of long-term security holders of the issuer, who will effectively pay the cost of any damage awards. In this respect, the CSA are supporting the view of the majority of members of the Allen Committee and not the minority position, expressed by securities lawyer Philip Anisman, that compensation for actual damages suffered by investors should be given more weight in any legislation dealing with liability for misrepresentation in the secondary market.