Justifiable Expectations Standard: The Basis for the Exercise of the Public Interest Power of the Ontario Securities Commission Paul Davis August 22, 2014 Paul Davis is a partner of McMillan LLP. This paper was prepared with the assistance of Sandy Andreou (an associate at McMillan LLP); and Allison Vale, David Zhou, Jennifer Allman and Matthew Burns, each of whom is a summer student. McMillan LLP Brookfield Place, 181 Bay Street, Suite 4400, Toronto, Ontario, Canada M5J 2T3 Vancouver Calgary Toronto Ottawa Montréal Hong Kong mcmillan.ca TABLE OF CONTENTS 1. INTRODUCTION .................................................................................................................................................. 1 2. LEGISLATIVE HISTORY ..................................................................................................................................... 2 3. JURISPRUDENCE ................................................................................................................................................. 4 3.1 Cablecasting ....................................................................................................................................... 4 3.1.1 Summary .............................................................................................................................. 4 3.1.2 Observations ........................................................................................................................ 6 3.2 Re Lindzon .......................................................................................................................................... 7 3.2.1 Summary .............................................................................................................................. 7 3.2.2 Observations ........................................................................................................................ 8 3.3 Canadian Tire ..................................................................................................................................... 8 3.3.1 Summary .............................................................................................................................. 8 3.3.2 Observations ...................................................................................................................... 11 3.4 Re Selkirk Communications Ltd ........................................................................................................ 12 3.4.1 Summary ............................................................................................................................ 12 3.4.2 Observations ...................................................................................................................... 14 3.5 Re Mithras Management Ltd ............................................................................................................ 14 3.5.1 Summary ............................................................................................................................ 14 3.5.2 Observations ...................................................................................................................... 16 3.6 Re HERO Industries Ltd ..................................................................................................................... 16 3.6.1 Summary ............................................................................................................................ 16 3.6.2 Observations ...................................................................................................................... 17 3.7 Re Asbestos Corp Ltd........................................................................................................................ 17 3.7.1 Summary ............................................................................................................................ 17 3.7.2 Observations ...................................................................................................................... 21 3.8 Re Canfor Corp ................................................................................................................................. 21 3.8.1 Summary ............................................................................................................................ 21 3.8.2 Observations ...................................................................................................................... 22 3.9 Re Financial Models Co .................................................................................................................... 22 3.9.1 Summary ............................................................................................................................ 22 3.9.2 Observations ...................................................................................................................... 24 3.10 Patheon ........................................................................................................................................... 24 3.10.1 Summary ............................................................................................................................ 24 3.10.2 Observations ...................................................................................................................... 25 3.11 Biovail .............................................................................................................................................. 26 3.11.1 Summary ............................................................................................................................ 26 3.11.2 Observations ...................................................................................................................... 28 3.12 Re Magna International Inc .............................................................................................................. 28 3.12.1 Summary ............................................................................................................................ 28 3.12.2 Observations ...................................................................................................................... 29 3.13 Re VenGrowth Funds (Special Committee of Directors) ................................................................... 30 3.13.1 Summary ............................................................................................................................ 30 McMillan LLP mcmillan.ca - ii - 3.13.2 Observations ...................................................................................................................... 32 3.14 Re Donald ........................................................................................................................................ 32 3.14.1 Summary ............................................................................................................................ 32 3.14.2 Observations ...................................................................................................................... 34 3.15 Re Suman ......................................................................................................................................... 34 3.15.1 Summary ............................................................................................................................ 34 3.15.2 Observations ...................................................................................................................... 34 4. ANALYSIS ........................................................................................................................................................... 35 4.1 Guiding Principles ............................................................................................................................. 35 4.1.1 Objects and Purposes of the Act ........................................................................................ 35 4.1.2 Orders are Preventive and Prospective ............................................................................. 35 4.1.3 General Deterrence ............................................................................................................ 36 4.1.4 Not a Private Remedy......................................................................................................... 36 4.1.5 Transactional Nexus ........................................................................................................... 36 4.1.6 Dismissal of Technical Interpretations ............................................................................... 36 4.1.7 Due Diligence Defence ....................................................................................................... 37 4.1.8 Addressed by Legislature ................................................................................................... 37 4.1.9 Self-Restraint in Enforcing Other Statutes ......................................................................... 37 4.1.10 Shareholder Approval ........................................................................................................ 37 4.1.11 Financial Merits of a Transaction ....................................................................................... 38 4.1.12 Good Faith Action Based on Statement of Regulator ........................................................ 38 4.2 Surrounding Facts and Circumstances .............................................................................................