The Ontario Superior Court of Justice's decision this week in Ceritcom Corp. v. Research in Motion Limited et al. has significant implications for M&A practice in Canada, particularly in hostile situations.
In Certicom, the court issued an injunction against RIM's unsolicited take-over bid for Certicom. The court ruled that RIM's use of confidential information for the purpose of a hostile bid breached two non-disclosure agreements between RIM and Certicom. These agreements specifically restricted the use of confidential information by RIM to assessing a business relationship (including a business combination) between the parties – which was interpreted as excluding a hostile bid. The court also held that the "restricted use" clauses in question operated to prohibit a hostile bid independently of an express standstill clause between the parties – notwithstanding that the standstill clause had already expired.
Following the issuance of the injunction, RIM withdrew its offer for Certicom.
"Restricted use" clauses similar to those contained in the contracts in question between RIM and Certicom are commonly employed in Canadian non-disclosure agreements. Accordingly, as a consequence of this ruling, many run-of-the-mill non-disclosure agreements may now inadvertently have the same practical effect in shielding targets from hostile bids as explicit standstill agreements.
In the wake of the Certicom decision, acquirors contemplating hostile transactions in Canada will have to carefully review and consider the terms of any non-disclosure agreements they have entered into with the potential target – even where standstill provisions are absent or have expired. Active acquirors may also wish to consider creating internal "firewalls" between their business development personnel and operations personnel who may have day-to-day access to confidential information of potential targets in the ordinary course of business.
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