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The court held that the measure of damages was the difference between the price paid for the shares and the post-misrepresentation price, or value, of the shares. This measure was consistent with the measure of damages for misrepresen-tation at common law. The defendants could, however, try to show that some or all of the reduced price was the result of other factors, such as a general decline on the stock market. On the other hand, plaintiffs were free to show that the post-misrepresentation price was higher than the value of the shares because of other factors, such as stock manipulation.

Who is Entitled to Relief

The court held that s.130 of the Securities Act did not limit recovery to those who had sold and crystallized their loss. A person who held his or her stock after the misrepresentation became known could also recover damages. On the other hand, a person who bought and sold before the misrepresentation was disclosed suffered no loss as a result of the misrepresentation. Justice Lederman also rejected an argument that purchasers outside of Ontario could not recover because their places of residence did not determine whether the Securities Act applied.

Liability of Members of Management

One of the most interesting parts of Justice Lederman's judgment is his discussion of the liability of the two individual defendants. Section 130(5) of the Securities Act provides a due diligence defence to everyone other than the issuer or the selling security holder. However, the due diligence defence can only be successfully invoked by those who act as reasonably as a prudent person in the circumstances of the case would act.

One of the individual defendants was a director, the president and CEO. The other individual defendant was the CFO and secretary. Their "insider" status, Justice Lederman said, was a relevant factor in determining whether they acted prudently in the circumstances, and resulted in a higher standard for them than would be the case for an outside, or independent, director. On the other hand, the onus of proving that the defendants were not entitled to rely on the due diligence defence rested with the plaintiffs.

Applying these principles to the facts of the case, Justice Lederman held that the plaintiffs had shown that the individual defendants had failed to conduct such reasonable investigations so as to provide reasonable grounds for their belief that there had not been a misrepresentation. The defendants had failed to make an adequate analysis of the financial results as of May 20, 1998. Therefore, they could not show that they had a reasonable belief that the forecast could still be met. Moreover, they had not consulted any professional advisors.