Determining whether something is material can be a perplexing and challenging task for clients and lawyers, even at the best of times – all the more so when you consider that whether you get it right or not can have some serious legal consequences. The concept of “materiality” is a cornerstone of securities laws and it is the foundation on which the integrity of the capital markets is based. It is the basis for determining what needs to be disclosed
- in offering and disclosure documents such as prospectuses and offering memoranda,
- in information circulars sent to shareholders to enable them to make informed decisions on matters affecting a corporation,
- to meet a reporting issuer’s continuous disclosure obligations, and
- for the integrity of the market place not to be compromised, to ensure that no participant in the market place be in possession of a material fact that has not been generally disclosed.
It is a conundrum, therefore, why something as important as “materiality” is in securities law can, most times, be so difficult to determine. The difficulty stems from the requirement that in order for something to have constituted either a “material change” or a “material fact”, there has to be an assessment by the client of whether the fact or the event would reasonably be expected to have a significant effect on the market price or value of a security of the issuer . Lawyers are not particularly adept in assisting on that, not having been taught the subject in law school, and the law on this matter is unclear and not particularly helpful to lawyers when they are asked to provide advice to clients on the matter, as each situation must be judged on its own merits.