The issuers of take-over bid circulars should take notice of the recent Ontario Court of Appeal decision in Rooney v ArcelorMittal S. A. The case deals with the statutory right of security holders, which is created by subsection 131(1) of the Ontario Securities Act, to sue for misrepresentations made in take-over bid circulars.
In the context of a hostile take-over bid in the ore industry, the security holder sued both the offeror (corporate) and the offeror’s directors or others who signed the offering memorandum (individuals) for misrepresentation. The offeror and its directors took the position that the security holder could sue either the offeror or its directors, but not both.
A lower court held that the security holder had to choose between bringing an action against the offeror or its directors. Based upon an analysis of the rules of statutory interpretation, this decision was overturned on appeal, with the result that the security holder is not restricted to suing only one of the offeror or its directors. Accordingly, Rooney v ArcelorMittal S. A. clarifies who may be targeted in a lawsuit for a misrepresentation in a take-over bid circular.
The Court of Appeal reasoned that if the security holder is permitted to sue only one of the offeror or its directors the security holder is put in a difficult position. If only the offeror is sued, then there is a risk the offeror could go bankrupt before the security holder recovers. If only the directors are sued, then there is a risk they will make themselves judgement proof. The Court of Appeal determined that neither of these scenarios advances the cause of investor protection, which is the purpose of the Securities Act.
The Court of Appeal also clarified that the statutory right of action on misrepresentation in a take-over bid circular is only available to those who have tendered to the offer, and not those who traded securities in the secondary market. This is because remedies for those selling in the secondary market are available elsewhere in the Securities Act.
