Securities Law & Instruments


STAFF NOTICE: ONTARIO SUPERIOR COURT OF JUSTICE DISMISSES APPLICATION RELATING TOMACDONALD OIL TAKE-OVER BID FOR BRESEA

Background

On October 14, 1999, the Commission and the Director, Canada Business CorporationsAct (the "Director, CBCA") brought a motion in the Superior Court of Justice requestingthat an application by Rolland Russell Martel seeking certain declaratory and other reliefbe dismissed. Molloy J. granted the motion and dismissed the application.

Mr. Martel's application related to a share exchange take-over bid (the "Offer") commencedby MacDonald Oil Exploration Ltd. ("MacDonald Oil") on June 8, 1999 for BreseaResources Ltd. ("Bresea"), a corporation governed by the Canada Business CorporationsAct (the "CBCA"). Mr. Martel was a former director and officer of MacDonald Oil. Withrespect to the Offer, he acted as an agent of MacDonald Oil, preparing the take-over bidcircular and associated disclosure documents (the "Offer Documents") and providinginformation to investors who inquired about the Offer. He owned shares of MacDonald Oilbut not of Bresea.

Shortly before the Offer expired on July 12, 1999, the Commission and the AlbertaSecurities Commission (the "ASC") issued temporary cease-trade orders (the "TemporaryOrders") that had the effect of precluding MacDonald Oil from completing the acquisitionof any common shares of Bresea (the "Bresea Shares") tendered to the Offer or issuingits own securities as consideration. (The Commission's Temporary Order is reproducedat (1999) 22 OSCB 4523.) The Temporary Orders were subsequently extended, again ona temporary basis, until a joint hearing of the Commission and the ASC could be held toconsider, among other things, whether permanent cease-trade orders should be issuedin respect of the Offer. On July 30, 1999, staff of the Commission and the ASC issuedNotices of Hearing and a Joint Statement of Allegations in which, among others, Mr. Marteland MacDonald Oil were named as respondents. (See (1999) 22 OSCB 4952, 4953.)

On August 9, 1999, the Joint Hearing was held and on August 11, 1999, the Commissionand the ASC issued final orders (the "Final Orders") with respect to the Joint Hearing.(The Commission's Final Order is reproduced at (1999) 22 OSCB 5123 and its reasonsfor decision are reproduced at (1999) 22 OSCB 6452.) Among other things, the FinalOrders: (1) permanently cease-traded the Offer, thereby preventing MacDonald Oil fromcompleting the acquisition of the tendered Bresea Shares or issuing its own securities asconsideration; (2) directed MacDonald Oil to disseminate a news release advising Breseashareholders of the impact of the cease-trade order and explaining how they couldexercise withdrawal rights in respect of any Bresea Shares they had tendered to the Offer;and (3) prohibited MacDonald Oil, Mr. Martel and certain other persons and companiesfrom trading in Bresea Shares until, among other things, they had satisfied the ExecutiveDirectors of the Commission and the ASC that all of the tendered Bresea Shares had beenwithdrawn by, or returned to, the appropriate shareholders.

On August 6, 1999, Mr. Martel brought an application in the Ontario Superior Court ofJustice seeking certain relief pursuant to the CBCA. In general terms, Mr. Martelrequested, among other things, that the Court: (1) declare that the Offer Documentscomplied with the CBCA; (2) declare that, where an offeree corporation does not have aboard of directors, no directors' circular is required under the CBCA and no directors'circular was required from Bresea or its interim receiver, PricewaterhouseCoopers Inc., inrespect of the Offer; (3) order correction of the Offer Documents and dissemination of thecorrected Offer Documents to each offeree in the event that the Court concluded that theOffer Documents did not comply with the CBCA; and (4) order that MacDonald Oil couldcomplete the delivery of one MacDonald Oil convertible preferred share and oneMacDonald Oil E-Warrant for each Bresea Share allegedly taken up by MacDonald Oil onor before July 12, 1999.

On August 31, 1999, Mr. Martel filed a Notice of Appeal with the Divisional Court in respectof the Commission's Final Order.

On September 29, 1999, the Commission and the Director, CBCA moved jointly to dismissor stay the application (on the basis of jurisdictional and standing arguments) or, in thealternative, to stay the application pending the final determination of the appeal. OnSeptember 30, 1999, Fleury J., declining to determine the jurisdictional and standingarguments, ordered that the application be stayed pending the final determination of theappeal.

By Notice of Abandonment dated October 1, 1999, Mr. Martel abandoned his appeal.

As noted above, on October 14, 1999, the Commission and the Director, CBCAsuccessfully moved for a dismissal of Mr. Martel's application. Madame Justice Molloy'sendorsement is reproduced below.

Martel v. Director, Canada Business Corporations Act, Ontario Securities Commission,MacDonald Oil Exploration Ltd. and PricewaterhouseCoopers Inc.

 

Endorsement

 

Superior Court of Justice - Commercial List

 

Molloy J.

 

 

Court File No. 99-CL-3476

 

 

Heard: October 14, 1999

 

 

Judgment: October 14, 1999

 

Molloy J.: The respondents, the Director of the CBCA and the OSC, move for an orderstaying or dismissing this application as an abuse of process. The Receiver of Bresea (thetarget of the take-over bid) supports the motion. MacDonald Oil (the offeror of the take-over bid) consents to there being a stay.

The applicant, Russell Martel, is a shareholder of MacDonald Oil and acted as agent forMacDonald Oil in its take-over bid in respect of Bresea. He has no standing to bring thisapplication. He is not an "interested person" under ss. 204 or 205 of the CBCA. An"interested person" should be interpreted as a person who has a real or legitimate stakein the proceeding in the sense of a legal pecuniary interest: TIW Industries and Clarksonat 671-672. An agent for an offeror is specifically excluded from the category of "interestedperson" by virtue of the definition of "offeror" in the Act. By inference, since shareholdersof an offeree corporation are expressly included, the shareholders of an offeror were notintended to be included. I should not be taken as saying that a shareholder can neverhave an interest that would provide standing. However, Mr. Martel does not have therequisite interest to provide standing, whether under the proper interpretation of "interestedperson" under the Act or applying common law principles. In addition, s. 205(3) of the Actcontemplates an application by a person alleging non-compliance with the Act andrequesting remedial relief. In this case, Mr. Martel alleges that the Act has been compliedwith and seeks exemptive relief in respect of Bresea. This does not create an "interest"contemplated under s. 205(3). The fact that Mr. Martel may have been the subject oforders by the OSC has no impact on his standing before this Court.

Even if Mr. Martel had standing to bring the application, the application is ill-founded andshould be dismissed for the following reasons:

1. The issues raised are moot in light of the OSC and ASC orders which havepermanently ceased trading re: the take-over bid. No matter what order this Courtmight make as to whether the take-over bid complied with the CBCA, it is nowexpired and the subject of a cease-trade order. Therefore any declaration by thisCourt is of no effect.

2. The relief sought with respect to declarations of compliance with the CBCA anddirecting MacDonald Oil to complete the delivery of its shares pursuant to the take-over bid flies in the face of the OSC Order and is an attempt to circumvent thatOrder. If the applicant wishes to overcome the decision of the OSC, the appropriateroute is an appeal to Divisional Court. He cannot achieve a reversal of the OSCdecision indirectly by taking declaratory relief from this Court.

3. To the extent that the relief sought is in respect of Bresea's inability to deliverfinancial statements and a Director's Circular, such relief is exemptive and isrequired under s. 204 to be brought before a Court having jurisdiction where theofferee corporation has its registered office. Bresea's office is in Alberta. AnOntario court has no jurisdiction to grant such relief.

4. To the extent that relief is sought under section 205(3)(b) of the CBCA as tocorrection of a take-over bid, this is only available where the take-over bid is tocontinue. This take-over bid cannot continue. Therefore, the court has nojurisdiction to make the order sought.

In my opinion, it is plain and obvious that this application cannot succeed in any respect.It is an abuse of the process of the Court and does not raise any serious issue to be tried.Accordingly the appropriate order is that the application be dismissed.

Given the circumstances of this case, particularly that this proceeding has been found tobe an abuse of process and an attempt to circumvent the orders of the securitycommissions, the fact that the moving parties have been wholly successful, and theabandonment by Mr. Martel of his Divisional Court appeal upon the Order of Fleury J.staying the application pending that appeal, I agree with the submissions of the movingparties that they should be entitled to costs. There are voluminous materials, cross-examinations and several appearances in Court. The quantum of costs sought by counselis very modest in the circumstances.

Costs awarded to the OSC fixed at $5000, the Director of the CBCA fixed at $3000 and toPricewaterhouseCoopers fixed at $1000. These orders are for the entire applicationincluding the appearance before Fleury J.

Molloy J.