Differing viewpoints have recently arisen in the Ontario Superior Court of Justice (Commercial List) as to whether fairness opinions are admissible during court approval of plans of arrangement. In Champion Iron Mines Limited (Re), 2014 ONSC 1988, Justice Brown held that in order for a fairness opinion to be considered by the court it must meet the requirements for the admission of expert evidence. By contrast, in Bear Lake Gold Ltd. (Re), 2014 ONSC 3428 and in Re Patents Royal Host Inc., 2014 ONSC 3323, Justices Wilton-Siegel and Justice Newbould, respectively, concluded otherwise.
Champion Iron related to a plan of arrangement involving a third party acquiring all the outstanding common shares of the company in exchange for shares of the third party. As is customary, the applicant submitted a fairness opinion (which had been included in the management proxy circular). While Justice Brown approved the plan of arrangement, he placed no weight on the fairness opinion, holding that for the fairness opinion to be admissible, it needed to satisfy the applicable requirements regarding the admissibility of expert evidence set out in the Rules of Civil Procedure (the “Rules”). The fairness opinion simply contained the usual conclusory statement as to fairness and did not include the “expert’s reasons for his or her opinion”, as required by the Rules.
In Bear Lake, approval of a similar plan of arrangement was before the court. Justice Wilton-Siegel did not share Justice Brown’s concerns in the context of an M&A transaction involving the acquisition of securities of an issuer by a third party. His Honour held that fairness opinions, while not expert evidence, are relevant to courts in two respects. First, the special committee or board of directors considered the fairness and reasonableness of the proposed transaction objectively; and second, the publication of the fairness opinion in the information circular allowed the shareholders to reach their own conclusions regarding both the integrity of the directors’ recommendations and the fairness of the transaction to them. As such, the absence of shareholder objection may be relied upon as an implicit shareholder endorsement of the directors’ views on the fairness and reasonableness of the transaction.
Justice Wilton-Siegel cautioned that when the plan of arrangement is contested if a fairness opinion is to be qualified as expert evidence, the detailed analysis that grounds the fairness opinion must be available to securityholders.
In Royal, released one day after Bear Lake, Justice Newbould stated that he agreed with Justice Wilton-Siegel’s decision.
There would appear to be a real divide among certain Commercial List judges on this issue. Accordingly, until an appellate court weighs in, caution must be exercised when dealing with court approval of plans of arrangement, especially where there is a dispute as to the fairness thereof.