Canada: Fairness Opinion Flare-Up

It is generally considered advisable for a board or special committee of a public corporation involved in a significant M&A transaction, including a court-approved plan of arrangement, to seek a fairness opinion from its independent financial advisor. The text of the fairness opinion is normally provided to shareholders who will be asked to approve the transaction as one indicator of the board's diligence and good faith in considering and approving its terms and its fairness to shareholders from a financial point of view.

While Canadian courts have had, at times, a difficult relationship with fairness opinions, they generally have permitted the practice to remain consistent. A recent decision of the Yukon Supreme Court rekindles some uncertainty as to the role of fairness opinions in plans of arrangement relating to public corporations.

The Champion Iron Mines  Uncertainty

In the spring of 2014, the Ontario Superior Court of Justice held in Re: Champion Iron Mines that because a fairness opinion did not satisfy the civil procedure requirements for expert evidence, it was not admissible to assist the Court in determining whether the arrangement was fair and reasonable.

The potential upheaval in practice relating to fairness opinions represented by the Champion Iron Mines decision was quickly mitigated by two decisions in June of 2014, Re: Bear Lake Gold Inc. and Re: Royal Host Inc. In those decisions, the same Court held that fairness opinions in M&A transactions need not satisfy the requirements of expert evidence and found "no compelling reason to depart from the existing practice regarding the use of fairness opinions." Rather, the Court stated that a fairness opinion:

  • has a commercial, as opposed to evidentiary, purpose;
  • is an indicia of a good faith transaction and the fairness and reasonableness of the proposed transaction; and
  • is evidence of the special committee or the board's consideration of the transaction on the basis of objective criteria and allows shareholders to reach their own conclusions.

With the endorsements in Bear Lake and Royal Host, the Court allowed fairness opinions to largely reclaim their role.

The Interoil Arrangement

A recent decision of the Yukon Supreme Court relating to the fairness and reasonableness of a plan of arrangement under the Business Corporations Act (Yukon) (the "Yukon Act") has revived an element of the controversy from 2014.

In order to be approved by a Court under the Yukon Act, an arrangement must meet the standard set by the Supreme Court of Canada in BCE Inc. v. 1976 Debentureholders. Among other things, the arrangement must be determined by the court to be "fair and reasonable." In Re: Interoil Corporation, the Court considered several factors in assessing the fairness and reasonableness of the arrangement, but focused significant attention on the fairness opinion provided by Morgan Stanley. In its view, the process of the board in seeking the fairness opinion, and the fairness opinion itself, were inadequate.

The proposed arrangement concerns the acquisition by Exxon Mobil Corporation ("Exxon") of  all of Interoil's issued and outstanding common shares for a fixed amount per share in common shares of Exxon, plus a "contingent resource payment" up to a cap based on Interoil's resources. Exxon's offer was in fact the second offer for Interoil, supplanting an earlier arrangement that had already received an interim order to call a shareholder meeting.

In connection with the meeting to approve the Exxon arrangement, Interoil's board of directors received a fairness opinion from Morgan Stanley, which stated that the consideration to be received by the holders of the Interoil shares pursuant to the arrangement is fair from a financial point of view to such holders. Morgan Stanley was to be paid a success fee in connection with the arrangement.

Fairness Opinions, Corporate Governance and Fiduciary Duties

The Yukon Supreme Court found Morgan Stanley's fairness opinion to be highly problematic. In its comments, the Court stated that while the Champion Iron Mines standard of fairness opinions satisfying the civil procedure requirements for expert evidence does not apply, fairness opinions "should be robust, rigorous and independent opinions from reputable experts to discharge the fiduciary duty of special committees of independent directors and to assist the shareholders in their evaluation of the fairness of an arrangement." Specifically:

  • "a board of directors must ensure that there will be an independent flat fee fairness opinion to assist shareholders and the court if it wishes to comply with best practice corporate governance" and
  • "a fairness opinion that simply follows the direction of the board and is based on a success fee does not meet the standard of good corporate governance."

The Court also noted with approval a 2009 decision of the Ontario Securities Commission, which stated, "a fairness opinion prepared by a financial advisor who is being paid a signing fee or a success fee does not assist directors comprising a special committee of independent directors in demonstrating the due care they have taken in complying with their fiduciary duties in approving a transaction."

In other words, it appears that in the Yukon Court's view, if a board or committee decides to seek a fairness opinion in connection with a transaction, not only good corporate governance practices, but perhaps also the board's statutory duties, require that the board pay a flat fee, not a success fee. The Court did not provide further detail on the suggestion that a deviation from "best practice" corporate governance, or even from good corporate governance, could represent in and of itself a failure to discharge a fiduciary duty or duty of care in this context.

In any event, it does appear that an arrangement can be fair and reasonable even in the face of an apparently problematic board process: in spite of its view of the board's conduct and of the quality of the fairness opinion in this case, the Court ultimately found that based on the various other relevant factors, the arrangement was fair and reasonable.

Why Is This Relevant?

It is not clear what effect this decision of the Yukon Supreme Court will have on the practice surrounding fairness opinions in public M&A transactions, if any; the decision is being appealed, and the Yukon Court of Appeal has agreed to hear the matter on an expedited basis. However, while the statements of the Yukon Supreme Court concerning best practices of corporate governance and the duties of a board of directors or special committee in seeking a fairness opinion appear to have been made in obiter, boards and special committees should consider whether the independence of their financial advisor could be compromised by the structure of its compensation, and should ensure that that compensation is disclosed to shareholders in the relevant proxy circular.

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.

In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.