Investment banks can breathe a little bit easier after National
Bank's recent win in Goldsmith v.
National Bank of Canada, where the Court found that
providing conventional banking and advisory services will not make
a bank a "promoter" for the purposes of Part XXIII.1 of
the Ontario Securities Act and dismissed the claim at the
leave stage on the basis that it had no reasonable possibility of
success at trial.
The case arose out of the implosion of Poseidon Concepts, the
publicly-traded energy services company, in 2013. Goldsmith brought
a proposed class proceeding against, among others, National Bank,
based on alleged misrepresentations made by Poseidon in its public
disclosure. National Bank acted as Poseidon's financial
advisors on its public offering. Under the Act, the bank would only
be liable for the company's misrepresentations if it was found
to be an "influential person" who "knowingly
influenced the responsible issuer ... to release the [impugned]
document." The plaintiff argued that National Bank was a
"promoter" as defined in the Act, and thus an
The Court began its analysis by articulating the standard on the
leave threshold. Following the Supreme Court of Canada's recent
decision in Theratechnologies the Court affirmed that the leave
stage is not a mere "speed bump" on the way to
certification, but rather a "robust deterrent screening
mechanism" to ensure that "cases without merit are
prevented from proceeding." At the leave stage, the plaintiff
must put forward sufficient evidence to persuade the court that
there is a reasonable possibility the action will be resolved in
its favour at trial.
The Act defines the term "promoter" as:
[A] person or company who, acting
alone or in conjunction with one or more other persons, companies
or a combination thereof, directly or indirectly, takes the
initiative in founding, organizing or substantially reorganizing
the business of the issuer.
Considering the evidence put forward by the plaintiffs, the
Court had no difficulty in concluding that there was no reasonable
possibility that National Bank could satisfy this definition. As
the Court explained:
A bank that provides conventional
banking services, however important they may be to the borrower is
not without more a Promoter. An investment bank that makes
presentations, pitches ideas to company executives, provides
advisory services for a fee and plays a central or even crucial
role in a client's reorganization is not without more
a Promoter. Why? Because lending money or providing financial and
corporate advice, even if it is absolutely essential to the success
of the project cannot reasonably be described as 'taking
the initiative to found or organize' the business of the
To establish that a bank or professional advisor is a
"promoter", the plaintiff would need to provide evidence
that the bank or professional advisor itself took steps, directly
or indirectly, to actually found or organize the business in
question – for example, by funding the required
incorporations, organizing the board of directors, actively
managing the company, or making key business decisions. None of the
evidence put forward by the plaintiff suggested that National Bank
played this role in connection with Poseidon. Although not party to
the motion, the Court also found that National Bank Financial,
National Bank's capital markets subsidiary which acted as lead
underwriter on Poseidon's public offering, was also not a
"promoter" for the purposes of Part XXIII.1 of the
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The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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