On February 10, 2009, the Ontario Superior Court of Justice
issued an interlocutory injunction restraining Rusoro Mining Ltd.
from proceeding with its hostile bid for Gold Reserve Inc. As a
result of the injunction, Rusoro has withdrawn the bid.
The dispute between the parties focused on Rusoro's
financial advisor, Endeavour Financial International Corporation.
Endeavour had acted as an advisor to Gold Reserve for more than
four years until shortly after the launch of Rusoro's bid. In
the course of its engagement by Gold Reserve, Endeavour had access
to Gold Reserve's confidential information and was
contractually bound by confidentiality obligations, a negative
covenant to not knowingly act against the interests of Gold Reserve
in a material way, and an obligation to inform Gold Reserve of
conflicts of interest arising out of the representation of other
Endeavour is also a creditor, shareholder and financial advisor
of Rusoro. The same group of individuals at Endeavour participated
in advising both Rusoro and Gold Reserve.
Since this injunction was issued on an interlocutory motion, the
Court was not required to make a final determination on the merits
of the dispute. The Court found there was a serious issue for trial
that Endeavour breached the express contractual terms of its
agreement with Gold Reserve and its implicit duties of loyalty and
maintaining confidence as a professional advisor to Gold Reserve by
acting as expert financial advisor to Rusoro's hostile bid for
Gold Reserve. Further, Gold Reserve had established a prima facie
case that Endeavour was in breach of its covenant not to knowingly
act against the interests of Gold Reserve.
The record before the Court indicated that Rusoro knew of
Endeavour's relationship as an advisor to Gold Reserve, access
to confidential information of Gold Reserve, and obligation of
confidentiality to Gold Reserve. Accordingly, the Court held that
Rusoro could not be in a better position than Endeavour itself and
should properly be bound to respect, and not benefit from a breach
of, Endeavour's obligations to Gold Reserve.
The recent injunction issued in connection with Research In
Motion's bid for Certicom Corp. demonstrated the potential for
commercial confidentiality and non-disclosure agreements to be used
as a defensive tactic in a hostile bid. The Gold Reserve decision
highlights the importance of considering the obligations of third
parties involved in a bid to ensure that there are no conflicting
obligations that could later become obstacles to the bid.
Investment banks should consider the effect of confidentiality
provisions in their advisory engagement agreements and, where
appropriate, attempt to prevent contamination of client teams
though careful control of confidential information and ethical
The Canadian Office of the Superintendent of Financial Institutions ("OSFI") recently ruled that a bank cannot promote comprehensive credit insurance ("CCI") within its Canadian branches under the Insurance Business (Banks and Bank Holdings Companies) Regulations (the "Regulations").
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