Canada: OSC Adopts Restrained Interpretation Of ‘Public Interest’ Jurisdiction In Baffinland Case

On August 26, 2014, a panel of the Ontario Securities Commission released its decision in a high-profile enforcement proceeding brought by OSC Staff against Jowdat Waheed and Bruce Walter. Staff had made a series of allegations against Waheed and Walter, including allegations of insider trading and conduct contrary to the "public interest," arising out of a hostile take-over bid the respondents had commenced for Baffinland Iron Mines Corporation (Baffinland) in 2010. In a decision that sets out important guidance in respect of both the test for insider trading and the scope of the OSC's "public interest" jurisdiction, the panel dismissed all of Staff's allegations.

BACKGROUND

The events in issue date to early 2010. At that time, Baffinland was a junior mining company attempting to develop iron ore interests it held in Nunavut. In February 2010, Baffinland retained Waheed as a consultant to advise on strategic options for the company, including partnerships and financing options. Waheed served as a consultant until April 2010, but remained in contact with the company through the summer of 2010.

In September 2010, Waheed and his colleague Walter commenced a hostile take-over bid for Baffinland. The take-over bid triggered a bidding war for the company and ultimately resulted in a successful joint bid being made by Waheed and Walter, in conjunction with ArcelorMittal S.A., in early 2011.

On January 9, 2012, almost a year after the completion of the take-over of Baffinland, Staff issued a Statement of Allegations against Waheed and Walter alleging insider trading and conduct contrary to the "public interest." The insider-trading allegations were premised on allegations that at the time they commenced their bid in September 2010, Waheed and Walter were in possession of material non-public information about Baffinland that Waheed had allegedly obtained in the course of his work as a consultant earlier in 2010.

In addition to the insider-trading allegations, Staff alleged that Waheed and Walter had engaged in conduct "contrary to the public interest." The OSC has a general power to make orders that are in the "public interest" of upholding the principles of Ontario securities law. These "public interest" orders can include sanctions against individuals who have been found to have acted contrary to the public interest.

Staff made two overarching "public interest" allegations. First, Staff made what was essentially an additional insider-trading allegation, to the effect that Waheed and Walter had traded while in the possession of "confidential information" and had thus acted contrary to the "public interest" of fair and transparent capital markets. While the allegation of trading while in possession of "confidential information" largely mirrored the conventional insider-trading allegation, it would have (if accepted by the panel) allowed Staff to avoid the obligation of proving that the non-public information in question was "material" information.

Staff's second "public interest" allegation related to Waheed's conduct earlier in 2010, both during and following the period in which he was a consultant to Baffinland. Staff alleged that Waheed breached obligations of loyalty to Baffinland during this period, including by exploring options for electing new management of Baffinland. Staff asserted that by doing so Waheed had harmed not only Baffinland, but also the broader public interest.

THE DECISION

In its decision, the panel dismissed all of the allegations against Waheed and Walter. The allegations of insider trading were dismissed on the basis of the panel's finding that the two individuals did not possess any material undisclosed information about Baffinland at the time they commenced their take-over bid, while the "public interest" allegations were dismissed on the basis that the allegations brought by Staff did not properly fall within the OSC's public interest jurisdiction, and in any event were not contrary to the public interest. Both the insider trading and public interest findings constitute important securities law precedents.

Insider Trading and "Material Facts"

In regard to the insider-trading allegations, the panel found after detailed consideration of the facts that the various items of information allegedly possessed by Waheed (and passed along to Walter) were either never material, or had ceased to be material by the time of the September take-over bid as a result of being stale-dated.

Ontario's prohibition on insider trading only applies to trading on "material" inside information, with the test for materiality being essentially whether the information would affect the market price of the company's stock. Therefore, the finding that Waheed and Walter did not possess "material" information about Baffinland as of September 2010 meant that they had not engaged in insider trading when they commenced their take-over bid.

Although the panel's decision on the insider-trading allegations largely turns on the facts before it, the decision nonetheless carries precedential value for future insider-trading proceedings. In particular, the decision is significant in that the panel found that while the information obtained by Waheed may have been material when first obtained in early 2010, it had become stale-dated and had ceased to be material by September 2010. As such, the panel's decision affirms that in a dynamic business environment, information can lose its "materiality" over a period of as little as a few weeks or months. As such, the panel's decision could serve as an important precedent for parties to future securities litigation arising out of fast-evolving "deal" environments.

Conduct Contrary to Public Interest

In regard to the "public interest" allegations, the panel found that as a foundational question of law, the allegations made by Staff fell outside the scope of the OSC's "public interest" jurisdiction.

First, in regard to Staff's quasi-insider-trading allegation of trading on "confidential information," the panel determined that since Ontario's actual insider-trading laws are expressly limited to trading on "material" undisclosed information, it would not be appropriate to make a finding in the "public interest" based on a lesser standard of trading on any "confidential" information. Since the panel had already found that Waheed and Walter did not violate Ontario's insider-trading laws in the course of their take-over bid, it also dismissed the further allegation that the bid was somehow contrary to the "public interest." In doing so, the panel essentially rejected the use of the "public interest" jurisdiction as a lower-threshold replacement for proving the requirements for insider trading as set out in Ontario law.

Second, in regard to Staff's allegation that Waheed had acted contrary to the public interest by allegedly breaching his obligations as a consultant to Baffinland, the panel again found that Staff's allegation fell outside of the appropriate exercise of the OSC's "public interest" jurisdiction. The panel found that the question of a breach by Waheed of his contractual duties to Baffinland was a matter of private dispute between Waheed and Baffinland, and that it was up to Baffinland to have commenced court proceedings against Waheed on its own behalf if it felt that such proceedings were warranted. As a result, the panel also dismissed Staff's second allegation of conduct contrary to the "public interest."

Both of the above findings constitute important precedents in favour of a restrained and conservative interpretation of the OSC's "public interest" jurisdiction. As such, the decision is likely to be an important precedent for respondents to securities regulatory proceedings in the coming years.

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 Mondaq.com.

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

Authors
Events from this Firm
23 Nov 2018, Other, Toronto, Canada

Cybersecurity, including data privacy and security obligations, has become a critical chapter in every company’s risk management playbook.

28 Nov 2018, Speaking Engagement, Toronto, Canada

Arbitration has a number of advantages and some disadvantages for the resolution of domestic and international commercial disputes.

Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
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

Mondaq.com (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 www.mondaq.com

To Use Mondaq.com 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.

Disclaimer

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.

General

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