Canada: No Changes To Arrangements: Alberta Court Of Appeal Upholds Directors' Choice Of Transaction Structure In Merger Of Marquee Energy Ltd. And Alberta Oilsands Inc.

Last Updated: January 12 2017
Article by Greg McIlwain, Paul Collins, David Zhou and Laura Fraser

On November 15, 2016, the Alberta Court of Appeal overturned1 a lower court decision that would have required Alberta Oilsands Inc. ("AOS") to obtain approval of its shareholders to the acquisition of Marquee Energy Ltd. ("Marquee") by means of a plan of arrangement of Marquee, even though approval of the AOS shareholders was not a statutory requirement under the transaction structure chosen by the parties.

Key Facts and Judicial History

The case involves a merger between two companies incorporated under the Alberta Business Corporations Act ("ABCA")2 operating in the oil industry: AOS and Marquee. The business plan underlying this transaction was to combine the companies and use AOS's cash—$35 million received from the Alberta government as compensation for cancelled oil sands leases—to develop the oil and gas assets owned by Marquee. An amalgamation of the two companies would require a vote by shareholders of both companies and give rise to statutory rights of dissent and appraisal under the ABCA. Smoothwater Capital ("Smoothwater"), a 15% shareholder of AOS, opposed this business plan and had indicated that it would vote against the transaction and likely exercise its dissent rights and demand to be paid by AOS the fair value of its shares. In order to avoid such situation, Marquee and AOS structured the transaction as an arrangement of Marquee under section 193 of the ABCA, whereby each share of Marquee would be exchanged for 1.67 AOS shares, with the result being that Marquee would become a wholly owned subsidiary of AOS. The arrangement would be subject to the approval of 2/3 of the votes cast by Marquee shareholders and the approval of the court. Following completion of the arrangement, AOS and Marquee would complete a vertical amalgamation under s. 184 of the ABCA, which would not require shareholder approval and which would not give rise to rights of dissent and appraisal.

As is required under the ABCA, as well as under a number of Canadian corporate statutes, including the Canada Business Corporations Act and the Ontario Business Corporations Act, Marquee applied for and obtained from the Alberta Court of Queen's Bench, a preliminary order, which among other things confirmed the requirement for approval of the arrangement by Marquee's shareholders. Smoothwater then applied for and obtained an amendment of the preliminary order to require that the transaction also be approved by the AOS shareholders and to grant dissent rights, on the same basis as the Marquee shareholders. Marquee appealed.

Key Findings

In overturning the chambers judge's decision, the Court of Appeal applied the three-part test for approval of a plan of arrangement as set out in BCE Inc. v. 1976 Debentureholders3: an application for a plan of arrangement must: (i) comply with all statutory and court-mandated requirements; (ii) be brought in good faith; and (iii) be fair and reasonable. In determining whether an arrangement is fair and reasonable, the Court must consider whether the arrangement has a valid business purpose and whether the objections of those whose legal rights are being affected are being resolved in a fair and balanced way. The Court of Appeal held that all three requirements were satisfied on the facts. In so holding, the Court of Appeal made the following key findings:

  • AOS was not the corporation being arranged, and was therefore not subject to the statutory requirement for a shareholder vote on the proposed arrangement. Under the ABCA, the court must order a meeting of the shareholders of the corporation being arranged ("arranging corporation") to vote on the proposed arrangement in accordance with specified thresholds.4 The Court of Appeal found that Marquee was the arranging corporation, but AOS was not. It reached this conclusion by applying the reasoning of the 2006 Ontario court decision in McEwen v Goldcorp Inc.5 The Goldcorp case arose out of a very similar arrangement transaction, whereby each share of Glamis Gold Ltd. was exchanged for 1.67 treasury shares of Goldcorp Inc. plus a nominal cash payment. Goldcorp held that the arranging corporation was Glamis but not Goldcorp on account of the following factors: the transaction would result in Glamis shareholders holding Goldcorp shares, whereas Goldcorp. shareholders would continue to hold Goldcorp shares; the transaction would not affect the rights and privileges attached to Goldcorp shares; there was no change of control of Goldcorp; and the nature of Goldcorp's business was not materially changed. Applying the reasoning of Goldcorp, the Court of Appeal held that Marquee (like Glamis) was the arranging corporation and AOS (like Goldcorp) was a non-arranging corporation.
  • The "fairness and reasonableness" of the arrangement is to be measured only from the perspective of the stakeholders of Marquee, the arranging corporation. Though an AOS shareholder, Smoothwater was not a stakeholder of Marquee. The ABCA does not contain any provision that would require shareholders of two corporations entering into a transaction to be treated equally. Therefore, the fairness and reasonableness of the Marquee arrangement did not depend on equal treatment as between the shareholders of Marquee and AOS.
  • It was not bad faith for the directors of AOS and Marquee to structure the transaction in a way that avoided triggering a shareholder vote of AOS with accompanying dissent and appraisal rights. The ABCA contemplates multiple methods of effecting a business combination of two corporations, including by amalgamation or arrangement, and the choice of transaction structure among these methods is left to the directors of the participating corporations. The Court of Appeal rejected Smoothwater's argument that the principles of "shareholder democracy" meant shareholders should have a say in fundamental changes being proposed to a corporation. Rather, except where required by statute, the directors are placed in control of the corporation and can execute many transactions without submitting them to shareholder approval. As the chosen transaction structure did not require a vote of the AOS shareholders or that the AOS shareholders be granted dissent or appraisal rights, the AOS shareholders were not being deprived of any pre-existing right. The Court of Appeal held that it was not open to the chambers judge to re-characterize an arrangement as in substance an amalgamation, and then use such re-characterization to vary the transaction structure chosen by the directors.


The Court of Appeal ultimately confirmed that, absent a statutory requirement or stock exchange rule, a shareholder vote of the acquiring company is not required to complete the acquisition of the shares of a target by plan of arrangement. This is so even where the primary reason for using the plan of arrangement appears to have been to avoid potential dissent that would have made it impracticable to effect the transaction under the more straightforward corporate procedure of amalgamation. This decision of the Court of Appeal accords with prevailing public M&A practice in Canada and shuts a potential floodgate, which would have remained open if the lower court's decision had stood, of more dissident shareholders challenging arrangement transactions.

However, there is a postscript to this decision that highlights the practical perils of "structuring around" a dissident shareholder. Although the Court of Appeal ultimately rejected Smoothwater's claim, the decision did not hand AOS and Marquee an unequivocal victory: after the Court of Appeal rendered its decision, Smoothwater and the arranged corporation (the "New Marquee") entered into a settlement agreement pursuant to which Smoothwater would obtain a seat on the board of New Marquee, have New Marquee reimburse it for expenses incurred in the course of the dispute, and receive additional shares in New Marquee. In other words, though the proponents of the arrangement took on a dissident shareholder and won at court, they still had to offer that shareholder significant compensation. This outcome may serve as a cautionary tale about the perils of structuring transactions around a large and vocal shareholder.


[1] Smoothwater Capital Corp. v Marquee Energy Ltd., 2016 ABCA 360 [Marquee].

[2] RSA 2000, c B-9.

[3] 2008 SCC 69 [BCE].

[4] ABCA, s. 193(4).

[5] (2006), 21 BLR (4th) 262 (Ont SCJ) affm'd (2006), 21 BLR (4th) 306 (Ont Div Ct) [Goldcorp].

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2017

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.

Greg McIlwain
David Zhou
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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

    By clicking Register you state you have read and agree to our Terms and Conditions