The Ontario Court Revisits Fairness Opinions
As we described in a previous blog post, the Ontario Court released a decision in March (Champion Iron Mines Limited) in which it held that a fairness opinion that does not disclose the analysis underlying the opinion was inadmissible as evidence before the Court on an application to approve a plan of arrangement. The decision of Justice David M. Brown suggested that companies might need to bolster their disclosure of fairness opinions in order for an Ontario Court to take the opinion into account in a fairness hearing for a plan of arrangement.
Two more recent decisions, however, suggest that the Ontario Court has not yet reached a consensus view on this issue.
In Bear Lake Gold Ltd., (Re), 2014 ONSC 3428, Justice Wilton-Siegel indicated that he does “not share” Justice Brown’s concerns related to fairness opinions. Justice Wilton-Siegel held that a fairness opinion is not intended as expert evidence in fairness hearings where the transaction involves the acquisition of an issuer’s securities by a third party. Instead, the fairness opinion is used by the court as an indicium that an arrangement has been put forward in good faith and that it is fair and reasonable. The fairness opinion is relevant for this purpose, according to Justice Wilton-Siegel, for two reasons:
First, it is evidence that the special committee or board of directors has considered the fairness and reasonableness of the proposed transaction on the basis of objective criteria to the extent possible. Second, the publication of the fairness opinion in the information circular allows the shareholders to reach their own conclusions regarding the integrity of the directors' recommendations and regarding the fairness of the transaction to them from a market perspective. The absence of shareholder objections therefore becomes a relevant consideration for a court.
Justice Wilton-Siegel concluded that “there is no compelling reason to depart from the existing practice regarding the use of fairness opinions” in these circumstances. He noted that in contested situations, if a party submits a fairness opinion as expert evidence, the detailed analysis underlying the fairness opinion would need to be available “if required by any objecting securityholders”.
In Re Patents Royal Host Inc., which was released the day after Bear Lake, Justice Newbould indicated that he agreed with the analysis and opinion of Justice Wilton-Siegel in Bear Lake.
As a result of these decisions, it would seem that the Ontario Court’s position on fairness opinions and related disclosure is not quite settled. It remains to be seen how the Court (or a particular judge) might approach this issue in circumstances where other indicia of the arrangement’s fairness are less compelling than they were in these cases. In the meantime, issuers should consider this issue carefully with counsel in the particular circumstances of each transaction.