Lexpert US Guides

www.lexpert.ca | LEXPERT • June 2014 | 27 shareholder primacy is not the right thing. " ey focus on the cor- porate law ... and say quite rightly that the courts take a more def- erential approach to boards. "So their view is that corporate governance has really improved, so you should be trusting the board. " ey want securities regula- tors to get out of this space and leave it to the courts." " e way this tug-of-war falls out will have "a huge impact" on Canada's capital markets, she predicts. Jeff rey Leon, co-chair of litigation at Bennett Jones LLP in Toronto, believes the growing friction may refl ect a disagreement inside Canada's securities commissions. "I think what's happened on the corporate fi nance side of secu- rities regulators is they're pushing these issues on to the board, and presumably then to the courts, whereas the enforcement side of the commissions are getting more into corporate-law issues under their public-interest jurisdiction. You now have enforcement staff taking a much broader view of that." He says one casualty amid all the dissonance is the longtime view that conduct had to be abusive of capital markets in order to trigger the public interest. "" e commissions – Ontario in particular – seem to have re- tracted from that position, indicating in the Biovail case [Biovail Corp. (Re)] in particular that you don't have to have abusive con- duct in order for it to be found contrary to the public interest. "What that's done is spurred on enforcement staff to take an increasingly proactive approach relying on the public-in- terest power." He says Magna really drove that home. "Before Magna, you used to be able to think the conduct has to reach an abusive standard before you tripped the interest of the se- curities commissions. Now you can't say that. Just about anything proposal went to a shareholder vote and was approved by 75 per cent of the minority class A shares. " e institutions again voiced their concerns before an Ontario Court judge at a fairness hearing but, by then, the regulator had determined the transaction was not abusive and a majority of shareholders had approved it. John Smith, a partner at Lawson Lundell LLP in Vancouver, says regulators and courts have complementary roles. But by the time take-over bids or related-party transactions done by plan of arrangement get before the court, he acknowledges, it's usually a foregone conclusion. "It would be a big step for the court to say, 'We think the dis- closure's inadequate. We think the shareholders have been misled. Go back and hold the meeting again.' " at's a tough thing for a court to do. So if the issuer elects to go that route, there's a real disincentive for the court to fi x this thing other than in a really egregious situation." Smith believes the role of the securities commission is simply to deal with the disclosure, not to say, "'Do we think the transac- tion's fair?' " e SEC would never get into that, they'd say that's for the courts. "Magna's the interesting example. I would categorically say that to the extent the commission focused on making sure there's full disclosure … that's completely within their jurisdiction. But it's a very big step for them to go beyond that and say they will adjudicate on their fairness of the transaction. " at is not their job." But they have, and Waitzer says that highlights the problem. "I think it annoys the courts because once a specialized tribunal adjudicates something, even if it's a matter of corporate law, they're supposed to defer. " ere is some unhap- piness at having the commission step in ahead of them so they have to step back even though they think it may be bad law.… "Basically, the commission is second- guessing boards who are exercising their duties under corporate law." WHEN SHARON GERAGHTY, a partner at Torys LLP in Toronto, is work- ing on a public-company deal that may have issues, one of the fi rst things she does is bring in one of her fi rm's litigators. "If you're in a situation, and this happens so much in M&A, where we think someone might challenge what we're doing, we will defi nitely sit down and look at what we think is the best place for our client to be – where we will get the right result – and try to fi gure out how to get it there." She says the growing chasm is making it tactically more diffi cult. "Securities regulators sharply put their stake in the ground in fa- vor of shareholder primacy, which the institutional investors very much favor and like. "" e issuers, on the other hand, have very good arguments that SECURITIES » "Securities regulators sharply put their stake in the ground in favor of shareholder primacy, which the institutional investors very much favor and like. The issuers, on the other hand, have very good arguments that shareholder primacy is not the right thing. They focus on the corporate law ... and say quite rightly that the courts take a more deferential approach to boards." > Sharon Geraghty; Torys LLP

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