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Court of Appeal Clarifies Scope of Shareholder Misrepresentation Claims in Takeover Bids

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In Rooney v. ArcelorMittal S.A.[1], the Court of Appeal for Ontario considered whether a plaintiff in an action pursuant to s. 131(1) of the Securities Act (the “Act”) is required to choose whether to sue the offeror, or to instead sue the directors/officers and signatories of the offeror, where misrepresentations are alleged to have been made in a hostile take-over bid circular.

The Court also considered whether security holders who sold their shares in the secondary market should be permitted to elect to bring an action under s. 131(1) of the Act rather than pursuant to the secondary market liability provisions in Part XXIII.1 of the Act, based on alleged misrepresentations in the takeover bid circular.


In September 2010, the defendant, Baffinland Iron Mines Corporation (“Baffinland”), was the subject of a hostile take-over bid led by the defendant Jowdat Waheed (“Waheed”), who was originally hired to provide strategic advice to Baffinland’s board of directors. ArcelorMittal S.A. (another defendant) first made an unsuccessful friendly bid for Baffinland alone, but later made a hostile joint take-over bid with Waheed.

As required under the Act, both Waheed and Baffinland’s board of directors prepared circulars that were sent to Baffinland’s security holders. The plaintiffs brought a class action alleging that the circulars failed to disclose material information. and that the information included in the circulars was itself materially misleading and replete with misrepresentations. The action was based upon s. 131(1) of the Act and was brought against the persons and companies who signed and filed the circulars.

Section 131 of the Act provides that:

(1) Where a take-over bid circular sent to the security holders of an offeree issuer as required by the regulations related to Part XX, or any notice of change or variation in respect of the circular, contains a misrepresentation, a security holder may, without regard to whether the security holder relied on the misrepresentation, elect to exercise a right of action for rescission or damages against the offeror or a right of action for damages against,

  1. every person who at the time the circular or notice, as the case may be, was signed was a director of the offeror;
  2. every person or company whose consent in respect of the circular or notice, as the case may be, has been filed pursuant to a requirement of the regulations but only with respect to reports, opinions or statements that have been made by the person or company; and
  3. each person who signed a certificate in the circular or notice, as the case may be, other than the persons included in clause (a). [Emphasis added]

The defendants brought various motions to strike out parts of the plaintiffs’ statement of claim on the grounds, amongst others, that (i) the plaintiffs were required to make an election on whether to sue the offeror, or to sue the directors/officers and signatories of the offeror under s. 131(1) of the Act and (ii) the plaintiffs who acquired their shares in Baffinland in the secondary market could not pursue their claims under s. 131(1) of the Act.

The motions judge agreed on both points, stating that while Act could have been more carefully worded, it appeared that such an election was required, and that it must have been intended that secondary market transactions would be included under s. 131(1).


The Court of Appeal applied the modern approach to statutory interpretation and determined that the plaintiffs did not have to choose between suing the offeror only or suing the directors/signatories of the offeror under s. 131(1) of the Act. The Court looked to the entirety of the provisions under Part XXIII of the Act and found that the scheme of this part is inconsistent with the interpretation of the motions judge who found that such plaintiffs must choose between suing the offeror or the directors/signatories personally. The Court noted that the preceding section, s.130(1), required no such choice to be made by a potential plaintiff and could not identify reasons why a distinction would be made between potential plaintiffs under these sections. Accordingly, the Court overturned the decision of the motions judge on this issue stating:

…If the motions judge’s interpretation is correct, this scheme falls apart. What point is there in requiring the offeror’s directors and officers to sign a certificate affirming the integrity of the take-over bid circular if s. 131(1) forces a plaintiff into an election that could let those people off the hook? And what statutory purpose is served by forcing an innocent investor to choose which allegedly bad actor to sue? Why should a wrongdoer get a free pass?[2]

With respect to the second question, the Court found that the decision of the motions judge was correct; holders of securities, who dispensed with those securities on the secondary market, could not avail themselves of the relief under s. 131(1) of the Act. The Court stated that the legislature provided relief for such security holders under Part XXIII.1, and should be presumed to have intended to preclude relief under s. 131(1) of the Act. Any other interpretation would be contrary to the modern approach and render the legislation enacted a nullity. The Court stated that:

The legislature must be presumed to have created a coherent and consistent legislative scheme. It is highly unlikely that the legislature would enact a redundant right of action…The availability of s. 131 to these sellers would render Part XXIII.1 nugatory. If s. 131 provides an unfettered right to sue, why would a plaintiff ever choose to sue under Part XXIII.1 and thus to be subject to the leave requirement and liability caps imposed by that Part?[3]


As a result of the Court of Appeal’s decision, security holders seeking to make claims for misrepresentation in a take-over bid circular are not required to choose to sue the company or to sue its directors and officers. However, security holders who acquired their securities in the secondary market are limited to invoking the secondary market provisions in Part XXIII.1 of the Act.

It must be noted that this is a significant decision for security holders who acquired their interests in the secondary market, as they are ultimately limited by the caps placed on damages by the Act, whereas primary market security holders face no such issues. The decision is significant for the plaintiffs and defendants alike because under Part XXIII.1 of the Act, in the absence of fraud, there are caps on damages for misrepresentation claims.  There are no such caps under s. 131(1) of the Act.  Thus the Court’s decision is welcome news for defendants.

[1] 2016 ONCA 630

[2] Ibid, at para 53

[3] Ibid, at paras 73-74