Securities Law & Instruments

Headnote

Section 144 -- variation of ruling previously granted in respect of relief from the prospectus requirements of the Act to permit issuance of units in limited partnership to family trusts established for the benefit of active partners of the law firm and certain of their qualified eligible beneficiaries -- limited partnership units not transferable except for redemption -- no market has developed or will develop for the resale of the units -- variation in ruling to expand the group of eligible beneficiaries of the family trusts to include the nephews and nieces of an active partner -- registration relief not required as filer does not receive any fees or other income from engaging in trades or acts in furtherance of distributions, and its activities do not have the attributes typical of a person or company carrying on the business of a dealer -- ruling subject to certain conditions.

Applicable Legislative Provisions

Securities Act, R.S.O., 1990, c. S.5, as am., ss. 53 and 74(1)

IN THE MATTER OF THE SECURITIES ACT, R.S.O.1990, C. S.5, AS AMENDED (the "Act") AND IN THE MATTER OF CARTHOS SERVICES LP

ORDER AND RULING

(Section 144 and Subsection 74(1))

UPON the application of Carthos Services LP ("Carthos") to the Ontario Securities Commission (the "Commission") for an order pursuant to section 144 of the Act and a ruling pursuant to subsection 74(1) of the Act revoking and replacing a ruling made by the Commission pursuant to subsection 74(1) of the Act on December 19, 1995 and entitled In The Matter of Carthos Services LP (the "Original Ruling");

AND UPON considering the application and the recommendation of the staff of the Commission;

AND UPON Carthos having represented to the Commission that certain facts set out in the recitals to the Original Ruling have changed;

AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;

IT IS ORDERED pursuant to section 144 of the Act that the Original Ruling be revoked and it is ruled, pursuant to subsection 74(1) of the Act, that the following be substituted therefor:

"RULING

(Subsection 74(1))

UPON the application of Carthos Services LP ("Carthos") to the Ontario Securities Commission (the "Commission") for a ruling pursuant to subsection 74(1) of the Act that the issuance by Carthos of limited partnership units (the "Units") to certain trusts ("Family Trusts" and individually, a "Family Trust") that have been or will be established for the benefit of the active partners ("Active Partners" and individually, an "Active Partner") of Osler, Hoskin & Harcourt LLP ("Osler") and/or members of their respective families described in paragraph 9 below is exempt from section 53 of the Act;

AND UPON considering the application and the recommendation of the staff of the Commission;

AND UPON Carthos having represented to the Commission as follows:

1. Carthos is a limited partnership established under the laws of Ontario on November 10, 1995 for the primary purpose of providing secretarial, accounting, administrative, financial and other services for Osler pursuant to a services agreement that was entered into between Carthos and Osler on January 1, 1996;

2. Carthos is not a reporting issuer in the Province of Ontario or in any other province or territory of Canada and has no present intention of becoming a reporting issuer in Ontario;

3. The general partner of Carthos is 3192423 Canada Inc. (the "General Partner"), a corporation incorporated under the Canada Business Corporations Act whose sole beneficial shareholder is 3054900 Canada Inc.;

4. Osler is a limited liability partnership of lawyers established under the laws of Ontario with offices in Toronto, Ottawa, Calgary and Montreal, and is in the process of opening an office in Vancouver; it also operates in affiliation with Osler, Hoskin & Harcourt LLP, a limited liability partnership of lawyers established under the laws of the State of New York with offices in the City of New York. As of August 13, 2014 there were 206 Active Partners of Osler;

5. From time to time, Carthos issues Units to Family Trusts for a subscription price of $100 per Unit pursuant to a subscription agreement that, among other things, discloses the risks associated with investing in the Units; the Family Trust of an Active Partner has not been and will not be induced to subscribe for a Unit by expectation of the Active Partner becoming or continuing to be a partner of Osler; the limited partnership agreement of Carthos dated November 10, 1995, as amended (the "LPA") provides that the Units are not transferable but may be redeemed by Carthos in certain circumstances at a redemption price of $100 per Unit plus the amount of any distributions owing in respect of such Unit as of the date of redemption;

6. The LPA also provides that Carthos shall redeem the Unit held by a Family Trust, and that Family Trust shall cease to be a limited partner of Carthos, in the event that: (i) the Family Trust has one or more beneficiaries who do not satisfy prescribed eligibility criteria, provided that in such event the General Partner may delay the redemption of the Unit until such date as the General Partner determines, in its sole discretion, to be in the interests of Carthos; (ii) the Family Trust purports to transfer the Unit held by it; or (iii) the General Partner, in its sole discretion, so determines and such determination has not been revoked by a resolution of the limited partners of Carthos within thirty (30) days after receiving notice of such determination; the prescribed eligibility criteria referred to in (i) above is the same as that set out in paragraph 9 below, except for the inclusion of nephews and nieces of an Active Partner, and the LPA will be amended to conform the prescribed eligibility criteria to that set out in paragraph 9 below following the granting of this ruling;

7. As of August 13, 2014, 174 Family Trusts each held one Unit; new Family Trusts will be established under the laws of Ontario from time to time, each of which will be resident in the Province of Ontario, and it is proposed that Carthos would issue one Unit to each such new Family Trust; new Family Trusts will either be created for individuals who become an Active Partner of Osler, or to replace a Family Trust previously created for an Active Partner;

8. Each Family Trust is a trust with three trustees, one of whom is generally an Active Partner (but may, in limited instances, be a former partner of Osler), and two of whom are former partners of Osler; the investment decision of a Family Trust to subscribe for a Unit will be made by all of the trustees, including the Active Partner or former partner of Osler;

9. The beneficiaries of each Family Trust may vary depending upon the type of trust but the categories of eligible beneficiaries will be limited to the following:

(a) an Active Partner;

(b) the spouse of such Active Partner;

(c) the living issue of such Active Partner or the living issue of the spouse of such Active Partner;

(d) the parents of such Active Partner or the parents of the spouse of such Active Partner;

(e) the grandparents of such Active Partner or the grandparents of the spouse of such Active Partner;

(f) the siblings of such Active Partner;

(g) the nephews and nieces of such Active Partner;

(h) a trust established for the benefit of any one or more of the foregoing; and

(i) a corporation all of the issued and outstanding shares of which are beneficially owned by one or more of the foregoing;

10. Units of Carthos are not transferable, but may be redeemed by Carthos at the discretion of the General Partner at a redemption price of $100 per Unit plus the amount of any accrued and undistributed income in respect of such Unit as of the date of the redemption; as a result, no market has developed, or will develop, for the resale of the Units;

11. The Units will be redeemed in the event of the death, retirement, resignation or other departure of the Active Partner from Osler;

12. Each limited partner of Carthos and each Active Partner will be provided with audited annual financial statements of Carthos on or before May 31 of each year; and

13. National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations ("NI 31-103") was adopted in September 2009; Carthos has considered whether under NI 31-103 and the Act it would be considered to be engaged in or holding itself out as engaging in the business of trading in securities and therefore required to register as a dealer. Carthos does not receive any fees or other income from engaging in trades or acts in furtherance of distributions, and its activities do not have the attributes typical of a person or company carrying on the business of a dealer. Having considered those facts and the guidance in section 1.3 of the Companion Policy to NI 31-103, Carthos has concluded that it does not require relief from the registration requirement of the Act;

AND UPON the Commission being satisfied that to do so would not be prejudicial to the public interest;

IT IS RULED pursuant to subsection 74(1) of the Act that the issuance of Units of Carthos to the Family Trusts is exempt from section 53 of the Act, provided that:

(a) the Units are not transferrable except for their redemption by Carthos; and

(b) prior to the issuance of Units to a Family Trust subscribing for Units (a "Subscriber"), Carthos:

(i) delivers a copy of this ruling and the most recent financial statements of Carthos to the Subscriber;

(ii) obtains a written statement from the Subscriber acknowledging receipt of a copy of this ruling and the above-noted financial statements, and of the Subscriber's understanding that the protections of the Act, including the right to rescission, to make claims for damages and to receive continuous disclosure, are not available to the Subscriber in respect of the Units; and

(iii) obtains a representation from the Subscriber that no beneficiary of a Family Trust other than an Active Partner, or his or her spouse, or any of the adult children of either of them: (A) has contributed or will directly or indirectly contribute money or other assets to such Family Trust; (B) is or will be liable for any loan or form of financing obtained by such Family Trust; or (C) is or will be involved in making investment decisions for the Family Trust, except to the extent such beneficiary is a trustee."

DATED in Toronto this 29th day of August, 2014

"Vern Krishna"
Commissioner
Ontario Securities Commission
 
"Edward P. Kerwin"
Commissioner
Ontario Securities Commission