Plaintiffs in a claim for misrepresentation in a takeover bid
circular in Ontario must choose between an action for rescission or
an action for damages; however, an action for damages can be
against both the offeror and its directors, among others. In Rooney
v. ArcelorMittal S.A., the Ontario Court of Appeal reversed a
lower court decision that required plaintiffs in an action for
damages to choose between suing either the bidder or its directors,
but not both. The decision also confirms that a claim against an
offeror is only available to securityholders who tendered to the
Background and the Court's Analysis
The plaintiffs in Rooney were former securityholders of
Baffinland Iron Mines Corporation, which had been acquired in a
successful hostile takeover bid. The plaintiffs had commenced a
class action on the basis of misrepresentations in the bidders'
takeover bid circular, relying on Section 131 (the "Takeover
Liability Provision") of the Securities Act (Ontario) (the
"Act"). The defendants sought to strike the claim,
including on the basis that the Takeover Liability Provision
precluded the plaintiffs from proceeding against both the offerors
and their directors.
In reviewing the lower court's decision, the Court of Appeal
applied the "modern principle" of statutory
interpretation adopted by the Supreme Court of Canada in Rizzo
& Rizzo Shoes Ltd. (Re:). The modern principle still
relies on consideration of the plain meaning of the relevant words
of the statute, but only with reference to the context in which
those words appear and the scheme and objectives of the relevant
act. The Court of Appeal found that the lower court had relied too
heavily on the plain meaning of the words, failing to take into
sufficient consideration the context of the Takeover Liability
Provision within the Act and its role in the Act's scheme and
objectives. In particular, the Court of Appeal considered the
similarity of provisions relating to liability for
misrepresentations in prospectuses and offering memorandums that
appear in the same part of the Act, the fact that the plain meaning
of the provision, though ambiguous, allowed for an inclusive
interpretation of who could be sued and the fact that allowing
plaintiffs to sue both an offeror and its directors for damages
would be consistent with the Act's purpose of protecting
The Court of Appeal also confirmed that the regime establishing
secondary market liability should be available to shareholders who
sold their shares in the public market in this case, but that those
shareholders should not be entitled to make a distinct and parallel
claim under the Takeover Liability Provision, which is designed to
protect those who tender to a takeover bid.
Why Does this Decision Matter?
This decision is of particular note to offerors making a bid
subject to the Act. Other provincial legislatures, while sharing
the concept of bidder liability for misrepresentation in a takeover
bid circular, have worded the relevant provisions differently. In
British Columbia, for example, Section 132 of the Securities Act
(British Columbia) is clear that while a plaintiff that is sent a
takeover bid circular must choose between a claim for rescission
and a claim for damages, the claim for damages can be against any
or all of the offeror, its directors, those who signed the circular
and certain experts.
In Ontario, the relevant provision is "not as clearly
expressed as it could be," leading the lower court to decide
that, unlike in British Columbia, plaintiffs could seek damages
against either the offeror itself or its directors, but not both.
That misalignment has been remedied; claimants in Ontario are now
entitled to claim for damages for misrepresentation in a takeover
bid circular against the same classes of person as in British
For investors, the decision confirms that the statutory action
for misrepresentation in a takeover bid circular is not available
to those who sold their shares in the market instead of tendering
to the bid. Those investors must rely on the provisions enacted
specifically to establish secondary market liability.
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.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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