Ashton Mining of Canada Inc. v. Stornoway Diamond Corp. (2006), 21 B.L.R. (4th) 171 (B.C. Court of Appeal) – September 13, 2006
This was an application for leave to appeal a decision of the British Columbia Securities Commission (the "Panel"), which had dismissed Ashton Mining of Canada Inc.’s application for a regulatory order in connection with a corporate takeover bid.
Ashton was a TSX-listed diamond exploration company and had a market capitalization of approximately $100 million. Rio Tinto plc had acquired an indirect 52% interest in Ashton as an incidental result of acquiring another company and wanted to sell it. It found a willing buyer in Stornoway Diamond Corp., which is also listed on the TSX.
The parties agreed to proceed by way of a takeover bid, and entered into a hard lock-up agreement. One provision of the agreement was that if Stornoway walked away from the deal, it would pay Rio Tinto a fee in the amount of $2 million. This "Penalty Provision" was later amended such that the $2 million would be paid pro rata to all Ashton shareholders if Stornoway abandoned its bid.
Prior to the amendment, Ashton applied to the British Columbia Securities Commission asking that the lock-up be amended from hard to soft (i.e. that Rio Tinto be permitted to tender to a higher bid if one came along) and that the take-over bid be prevented from proceeding until 35 days after that amendment. The amendment to the Penalty Provision did not satisfy Ashton, which argued that the lock-up continued to breach the collateral benefit and identical consideration rules in s. 107 of the British Columbia Securities Act (BCSA), in addition to being contrary to the public interest.
After a hearing conducted in chambers, Mr. Justice Low of the Court of Appeal found that the Panel had not erred in finding that the lock-up agreement did not contravene the identical bid rules, either before or after the break fee amendment. He agreed with the Panel’s determination that s. 107 was not relevant in this case because it deals only with consideration paid if the offer goes through. In the Panel’s view, the lock-up agreement did not form part of the take-over bid. Neither did the Penalty Provision form part of the bid because that provision was triggered only if Stornoway failed to take up and pay for the shares. Further, the amendment meant that all of the Ashton shareholders would receive identical treatment once the penalty fee was triggered. The fact that only Rio Tinto could trigger the penalty was of no consequence, given that once it had been triggered, all shareholders would be treated equally.
Further, the Court of Appeal noted that even if it were wrong in its interpretation and application of s. 107, it was loath to interfere with the Panel’s determination as to remedy (the Panel had exercised its discretion in determining that even if there had been a breach of the BCSA, there was no public interest ground to intervene, given that Stornoway had not profited from the breach).
Finding nothing unreasonable in the Panel’s interpretation and application of the statutory provisions in question, the Court of Appeal dismissed Ashton’s application
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