Canada: A Second Opinion On Fairness Opinions In Commercial Arrangements

Last Updated: June 16 2014
Article by Derek J. Bell

Champion Iron Called Into Question by Bear Lake and Royal Host

Decisions on corporate plans of arrangement tend to be of two varieties. Most are fairly straightforward decisions, where the applicant proves that it complied with the interim order already issued by the court, shows that a meeting of shareholders was held and shareholders approved the plan, and the plan is fair and reasonable. Endorsements tend to be short and hearings are often done in chambers.

Other times, much more infrequently, they turn into blockbusters. The plan of arrangement in BCE went to the Supreme Court of Canada, for example, and both the case and the ultimate decision was the focus of the business community for months. And recently, the Superior Court of Justice's decision in Champion Iron became the talk of the town because it called into question the manner in which fairness opinions were provided to the Court.

Two decisions – one by Justice Wilton-Siegel, and one by the head of the Commercial List, Justice Newbould – have called into question the correctness of Champion Iron.

The Issue of Fairness Opinions

In Canada, corporate mergers can be effected by way of a straight takeover bid, or by way of a plan of arrangement. Plans of arrangement are effected through a two-step process in the courts.

First, the court issues an interim order, which calls a meeting of shareholders, sets out the quorum requirements and the manner in which the meeting will be held, and approves in general terms the meeting material to be sent to shareholders. The purpose of an interim order was described in First Marathon Inc. (Re), [1999] O.J. No. 2805 (S.C.J.) as follows:

The purpose of such Orders is simply to set the wheels in motion for the application process relating to the arrangement and to establish the parameters for the holding of shareholder meetings to consider approval of the arrangement in accordance with the statute.

Following the interim order, the company will send the meeting materials out to various stakeholders in accordance with the terms of the initial order, hold the meeting, and shareholders will vote on the meeting.

This leads to the second court attendance, the final order hearing. Materials filed on such a motion tend to be brief, with a short affidavit explaining the mailing process and describing the results of the vote. At the final order hearing, the Court will consider whether the arrangement is fair and reasonable.

The content of the meeting material will vary depending on the nature of the arrangement. Where the company is required to obtain a majority of the minority vote, the meeting materials will typically include a valuation. And in most cases the applicant will include a fairness opinion in the meeting materials.

Fairness opinions in this country tend to be succinct in their analysis. The analysis tends to be boiled down to a single sentence:

Based upon and subject to the foregoing and such other matters as we considered relevant, it is our opinion, as of the date hereof, that the Consideration payable to Shareholders of ABC Co. pursuant to the Proposed Transaction is fair, from a financial point of view, to the Shareholders of ABC Co.

There is always much, much more analysis behind these opinions, which analysis is provided to the Board. But that analysis is not shared in the publicly-filed fairness opinion, generally because of the competitive and confidential nature of that information. Under IIROC Rules, even where additional disclosure is needed for insider bids, issued bids, going private transactions or related party transactions, such information can be deleted from the publicly filed version of the opinion.

Fairness Opinions Questioned in Champion Iron

The prevailing practice with respect to fairness opinions was called into question in Justice D.M. Brown's decision in Champion Iron Mines Limited (Re.), 2014 ONSC 1988. In that case, the applicant sought a final order from the Court, having complied with the interim order, having held a shareholder meeting where the arrangement was approved by more than 99 percent of the votes cast by shareholders. Nobody opposed. By all accounts, this final order hearing had been shaping up to be a straightforward affair.

Unsurprisingly, Justice Brown granted the final order. Surprisingly, he did so with some additional comments in his reasons. In a section entitled "Two concluding comments", Justice Brown took issue with: (a) the content of the fairness opinion; and (b) a "feeling that corporate lawyers regard the role of courts in the whole plan of arrangement process as nothing more than one box to check off on a closing agenda."

First, Justice Brown refused to give any weight to the content of the fairness opinion tendered in that case. He said:

The Fairness Opinion simply asserted an opinion, without disclosing the reasons for it. On its face, it was devoid of analysis which a reader could follow in order to understand how the opinion was reached and what, if any, weight should be given to the opinion. Accordingly, I concluded that the Fairness Opinion, as written, was inadmissible for purposes of the final order application and I ignored it.

Second, as it concerned the perception of the court serving as a rubber stamp, Justice Brown stated plainly that, "[a] court is not a boardoom", and that dealmakers should build in a gap of at least one business day between the shareholder meeting and the final order date.

The business community took notice. In addition to the usual updates one expects on law firm websites, the decision actually made the national press, receiving coverage in the Globe and Mail and the National Post.

Bear Lake

Bear Lake Gold Ltd. was acquired by Kerr Mines Inc. The principal purpose of the arrangement was to provide for sufficient funding to complete a feasibility study on one project and to enhance the exploration potential of another. The board of Bear Lake recommended the deal to shareholders, and obtained a fairness opinion. Dissent rights were provided. And, 97.9 percent of the votes cast at the shareholder meeting voted in favour of the arrangement.

All told, Bear Lake was shaping up to be a fairly ordinary plan of arrangement. But as was the case in Champion Iron, the judge hearing the matter decided to take up the issue of fairness opinions. In his reasons reported at 2014 ONSC 3428, Justice Wilton-Siegel referred to Champion Iron, and said:

I do not share this concern [of Justice Brown] in the context of M&A transactions involving the acquisition of securities of an issuer by a third party. In such circumstances, I consider that a fairness opinion is properly included as an indicia of a good faith transaction as well as of the fairness and reasonableness of the proposed transaction in the manner described below.

Justice Wilton-Siegel commented that fairness opinion are usually the subject of a detailed presentation to the directors, but those details are not usually provided in the fairness opinion itself. He did not view the fairness opinion to be "expert evidence" in the sense described in Champion Iron, but rather:

Instead, the fairness opinion is of relevance to the court in two respects. First, it is evidence that the special committee or board of directors has considered the fairness and reasonableness of the proposed transaction on the basis of objective criteria to the extent possible. Second, the publication of the fairness opinion in the information circular allows the shareholders to reach their own conclusions regarding the integrity of the directors' recommendations and regarding the fairness of the transaction to them from a market perspective.

Justice Wilton-Siegel concluded that "there is no compelling reason to depart from the existing practice regarding the use of fairness opinions for the purpose of court approval of statutory arrangements involving M&A transactions where there is no valuation opinion."

Royal Host

Royal Host Inc. sought an interim order in connection with a CBCA plan of arrangement, wherein holders of Royal Host shares would receive a combination of cash and shares of Holloway Lodging Corporation. Justice Newbould, who is the head of the Commercial List in Toronto, issued reasons on June 6, 2014, reported at 2014 ONSC 3323 in connection with the interim order.

First, Justice Newbould took issue with another recent decision of the Court, Re Tigray Resources Inc., 2014 ONSC 1979, in which the applicant was cautioned that if only a small number of shareholders attend the meeting (quorum was set by the by-laws to be five percent), then the Court would not give much weight to the vote. "I do not share the same concern. ... What the quorum is for the meeting is not relevant to that issue. So long as the quorum is in accordance with the company's by-laws, I do not think a court should have concern with the quorum for the meeting." In Royal Host, the required quorum was 20 percent.

Second, Justice Newbould commented that Royal Host indicated in its affidavit material that the fairness opinion was being tendered not to show that the arrangement is substantively fair, but rather "it will be used to show that the directors have put forward the arrangement in good faith and that the shareholder vote, when taken, will have been informed by, among other things, an independent opinion of a third party financial advisor."

On this, Justice Newbould said:

The position proposed to be taken by Royal Host regarding the fairness opinion appears reasonable, although ultimately it will be a matter for the court hearing the application for approval of the arrangement to consider, assuming the votes put forward support the arrangement. The purpose of a fairness opinion is a commercial one. It is an opinion to be considered by the board of directors and the shareholders in a commercial context. It is not an expert report in a litigation context. If the board or the shareholders are not satisfied with the report, they can vote with their feet and not proceed with or approve the arrangement.

Justice Newbould then commented on Bear Lake and stated that "I agree with [Justice Wilton-Siegel's] analysis and opinion on this issue."


There will clearly be times when expert evidence is needed in connection with an arrangement. In BCE, the parties adduced a large amount of expert evidence on the nature of debentures and standard covenants. In ID Biomedical, the parties adduced expert evidence on the intrinsic value of warrants. Justice Wilton-Siegel's opinion in Bear Lake recognizes that in contested situations, the court may well need expert opinions, properly qualified. However, absent a contested situation, it is difficult to see how a financial opinion, provided in the form of an "expert opinion" would be assessed by a court, particularly given the court's stated reservations about entering into matters of "business judgment", which typically attract deference.

It is likely too early to state categorically how companies should proceed with fairness opinions and, of course, applicants in plans of arrangement will take advice on the matter. One has the sense that there is more to come from the Commercial List on the issue.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Derek J. Bell
Similar Articles
Relevancy Powered by MondaqAI
Borden Ladner Gervais LLP
Norton Rose Fulbright Canada LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Borden Ladner Gervais LLP
Norton Rose Fulbright Canada LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions