Pente Investment Management Ltd. et al. v. Schneider Corp. et al.

• Jurisdiction: Ontario
• Court: Court of Appeal (Ontario)
• Judge: Osborne, Weiler and Feldman, JJ.A.
• Citation: (1998), 113 O.A.C. 253 (CA),1998 CanLII 5121 (ON CA),1998 CanLII 5121 (NS CA),42 OR (3d) 177,44 BLR (2d) 115,[1998] CarswellOnt 4035,[1998] OJ No 4142 (QL),113 OAC 253,83 ACWS (3d) 51
• Date: 20 October 1998

Pente Inv. Mgt. v. Schneider Corp. (1998), 113 O.A.C. 253 (CA)

MLB headnote and full text

Temp. Cite: [1998] O.A.C. TBEd. OC.025

Maple Leaf Foods Inc. and SCH Acquisition Inc. (plaintiffs/appellants) v. Schneider Corporation, Douglas W. Dodds, Anne C. Fontana, Gerald A. Hooper, Frederick D. Morash, Larry J. Pearson, Brian J. Ruby, Eric N. Schneider, Ronald J. Simmons, Hugh W. Sloan, J.M. Schneider Family Holdings Limited, Frederick P. Schneider, Betty L. Schneider, Herbert J. Schneider, Jean M. Hawkings, Bruce Hawkings, CIBC Mellon Trust Company, Smithfield Foods Inc., Harbour Glen Securities Limited, Kinspan Investments Limited, Laurel Ridge Investments Limited and Jadebridge Holdings Limited (defendants/respondents)

(C29923)

Pente Investment Management Ltd. and Cascade Holdings Ltd. (plaintiffs/appellants) v. Schneider Corporation, Douglas W. Dodds, Anne C. Fontana, Gerald A. Hooper, Frederick D. Morash, Larry J. Pearson, Brian J. Ruby, Eric N. Schneider, Ronald J. Simmons, Hugh W. Sloan, Frederick P. Schneider, Betty L. Schneider, Herbert J. Schneider, Jean M. Hawkings, CIBC Mellon Trust Company, Smithfield Foods Inc., Maple Leaf Foods Inc., J.M. Schneider Family Holdings Limited, SCH Acquisition Inc., Harbour Glen Securities Limited, Kinspan Investments Limited, Laurel Ridge Investments Limited and Jadebridge Holdings Limited (defendants/respondents)

(C29945)

Indexed As: Pente Investment Management Ltd. et al. v. Schneider Corp. et al.

Ontario Court of Appeal

Osborne, Weiler and Feldman, JJ.A.

October 20, 1998.

Summary:

The Schneider Corporation (Schneider) was a public corporation controlled by the Schneider Family (Family) through its own­ership of 70.5% of Schneider voting com­mon shares, but whose equity was 77% owned by nonFamily members through their ownership of nonvoting A shares. A take­over fight for Schneider occurred, initiated by an offer by Maple Leaf Foods. In response, Schneider's Board of Directors established a Special Committee of indepen­dent non-­Family directors to review the Maple Leaf offer and to consider other alternatives. The Family ultimately rejected Maple Leaf's offer, but accepted an offer by Smithfield Foods Inc. This led to three actions. At issue were: (1) the interpretation of a "coattails provision" in Schneider's articles of incor­poration, to determine whether Maple Leaf's bid was an exclusionary bid; (2) if Maple Leaf's bid was exclusionary, was there an effective anti-conversion certificate in place; and (3) was the Schneider Family obligated to sell to the highest bidder.

The Ontario Court (General Division), in a decision reported 62 O.T.C. 1, interpreted the coattails provision according to the rules governing legislative, rather than contractual, interpretation. The court rejected the plain meaning of the provision in favour of an interpretation that would avoid absurdity. The court held that the Family, in negotiat­ing with potential buyers, did not commit to a true auction process and thereby become obligated to accept the highest offer, nor did they raise the reasonable expectation that they were committing to a true auction process. The court held that the Maple Leaf offer was not an exclusionary offer and, alternatively, there was an anti-conversion certificate in place which prevented the A shares from becoming voting shares. The court held that there was no oppression under s. 248(2) of the Ontario Business Corporations Act. The plaintiffs appealed. At issue on appeal were: (1) the duties of the Special Committee and of the Board of Directors when dealing with a takeover bid, and (2) the interpretation of the "coattails provision".

The Ontario Court of Appeal dismissed the appeal.

Company Law - Topic 1103

Incorporation and organization - Articles of association or incorporation - Interpre­tation - "Coattails provision" - Maple Leaf of­fered to acquire the common (vot­ing) shares of Schneider - Maple Leaf also offered to acquire Schneider's nonvoting Class A shares - The price offered for both share categories was identical - The offer to the Class A shareholders provided that Maple Leaf would not take up and pay for Class A shares deposited if Maple Leaf did not acquire any common shares - The "coattails provision" in Schneider's articles was triggered by an exclusionary offer for the common shares, i.e., an offer not made concurrently with an identical offer for the Class A shares that had no condition other than the right not to take up and pay "for shares tendered if no shares are tendered pursuant to the offer for common shares" - The Ontario Court of Appeal affirmed that: (1) the word "tender" in the "coattails provision" was to be construed as includ­ing "acquired" or "purchased"; (2) the offer for common shares was not exclusionary; and (3) the "coattails provision" had not been triggered - See paragraphs 80 to 92.

Company Law - Topic 2162

Shareholders - Shareholders' rights - Con­version of non-voting shares - Section 16 of Schneider Corporation's articles pro­vided that if an exclusionary takeover offer was received, the conversion of the non-voting Class A shares into common (vot­ing) shares, pursuant to the articles' "coat­tails provision", did not arise if the holders of 50% or more of the common shares filed a certificate with the corporat­ion's transfer agent and its secretary indi­cating that they would not accept an exclusionary offer without giving the transfer agent written notice of their inten­tion - Such a certificate could be a stand­ing certificate filed before an exclusionary offer was made (a s. 16(a) certificate) or one filed within seven days after such offer (a s. 16(b) certificate) - A s. 16(a) certificate was filed in 1988 with Schnei­der's then transfer agent, Canada Trust - Royal Trust and CIBC Mellon succeeded Canada Trust as transfer agent - No new certificate was filed - Maple Leaf made a takeover bid on November 5, 1997 and bettered it on De­cember 12, 1997 - On November 11, 1997, a s. 16(b) certificate was filed with Schnei­der's corporate secre­tary but was not pro­vided to CIBC Mellon until December 22, 1997 - The Ontario Court of Appeal held, assuming that Maple Leaf's offer was exclusionary, that both the s. 16(a) and s. 16(b) certificates were effective to block conversion of the Class A nonvoting shares - See paragraphs 93 to 104.

Company Law - Topic 4301

Directors - Duties to company and share­holders - The Ontario Court of Appeal discussed the determination of whether directors have acted in the corporation's best interest - See paragraphs 33 to 38.

Company Law - Topic 7221

Fundamental changes and shareholders' rights - Takeover or acquisition of control - General - [See Company Law - Topic 9785 ].

Company Law - Topic 7236

Fundamental changes and shareholders' rights - Takeover or acquisition of control - Duties of directors during takeover or acquisition proceedings - Maple Leaf made a takeover bid for Schneider, a pub­lic corporation whose voting shares were controlled by the Schneider Family - In response, Schneider's Board of Directors established a Special Committee of inde­pendent non-Family directors, including Schneider Chairman Dodds, to review the Maple Leaf offer and to consider other alternatives - A data room was established to provide confidential information to bidders - Offers were received from Smith­field and others - The Family was not willing to sell to Maple Leaf - Dodds negotiated with Smithfield, who bettered its offer - The Family ultimately rejected Maple Leaf's offer and accepted Smith­field's even though Maple Leaf had also bettered its offer - Maple Leaf (and others) unsuccessfully sued for oppression - The Ontario Court of Appeal held: (1) the Special Committee members acted in good faith and in the best interests of Schneider and its shareholders; (2) Dodds was not in a conflict of interest position - See par­agraphs 22 to 52, 72 to 79.

Company Law - Topic 9785

Actions against corporations and directors - Action for oppressive conduct - Oppres­sion, prejudice or disregard of interests - Maple Leaf made a takeover bid for Schneider, a public corporation whose voting shares were controlled by the Schneider Family - In response, Schnei­der's Board of Directors established a Special Committee of independent non-Family directors, including Schneider Chairman Dodds, to review the Maple Leaf offer and to consider other alterna­tives - A data room was established to provide confidential information to bidders - Offers were received from Smithfield and others - The Family was not willing to sell to Maple Leaf - Dodds negotiated with Smithfield, who bettered its offer - The Family ultimately rejected Maple Leaf's offer and accepted Smithfield's even though Maple Leaf had also bettered its offer - Maple Leaf (and others) sued, arguing: (1) by creating a Special Com­mittee, hiring advisers and establishing a data room, the Family used Schneider's money inappropriately to better Maple Leaf's offer; (2) information from the data room was a valuable corporate asset that was being dissipated; (3) the Special Com­mittee's process was flawed; (4) the Spe­cial Committee should have given Maple Leaf another chance to bid; (5) there should have been an auction for Schnei­der's shares; and (6) there was a public expectation that an auction would be held - The Ontario Court of Appeal affirmed the trial judge's decision rejecting these argu­ments and dismissing the action - See paragraphs 53 to 71.

Cases Noticed:

Teck Corporation v. Millar et al. (1973), 33 D.L.R.(3d) 288 (B.C.S.C.), refd to. [para. 33].

Olympia & York Enterprises Ltd. v. Hiram Walker Resources Ltd. (1986), 59 O.R.(2d) 254 (H.C.), affd. (1986), 59 O.R.(2d) 281 (Div. Ct.), refd to. [para. 33].

820099 Ontario Inc. v. Ballard (Harold E.) Ltd. (1991), 3 B.L.R.(2d) 123 (Ont. Gen. Div.), affd. (1991), 3 B.L.R.(2d) 113 (Ont. Div. Ct.), refd to. [para. 34].

CW Shareholdings Inc. v. WIC Western International Communications Inc. et al. (1998), 61 O.T.C. 81 (Gen. Div.), refd to. [para. 34].

Brant Investments Ltd. et al. v. KeepRite Inc. et al. (1987), 60 O.R.(2d) 737 (H.C.), affd. (1991), 45 O.A.C. 320; 3 O.R.(3d) 289 (C.A.), refd to. [para. 34].

Paramount Communications v. QVC Net­work Inc. (1934), 637 A.2d 34 (Del.), refd to. [para. 35].

Exco Corp. et al. v. Nova Scotia Savings & Loan Co. et al. (1987), 78 N.S.R.(2d) 91; 193 A.P.R. 91; 35 B.L.R. 149 (T.D.), refd to. [para. 35].

347883 Alberta Ltd. v. Producers Pipeline Inc., [1991] 4 W.W.R. 577; 92 Sask.R. 81; 80 D.L.R.(4th) 359; 3 B.L.R.(2d) 237 (C.A.), refd to. [para. 35].

Themadel Foundation et al. v. Third Cana­dian Investment Trust Ltd. (1998), 107 O.A.C. 188; 38 O.R.(3d) 749 (C.A.), refd to. [para. 36].

First Boston, Inc. Shareholders Litigation, Re, [1990] Fed. Sec. L. Rep. 322 (Del.), refd to. [para. 37].

Amchem Products Inc. et al. v. Workers' Compensation Board (B.C.), [1993] 1 S.C.R. 897; 150 N.R. 321; 23 B.C.A.C. 1; 39 W.A.C. 1, refd to. [para. 38, foot­note 4].

Revlon v. McAndrews & Forbes Holdings Inc. (1986), 506 A.2d 173 (Del.), refd to. [para. 61].

Barkan v. Amsted Industries Inc. (1989), 567 A.2d 1279 (Del.), refd to. [para. 62].

Fort Howard Corp. Shareholders Litig., Re, [1988] WL 83147 (Del. Ch., C.A. No. 991), refd to. [para. 63].

Westfair Foods Ltd. v. Watt et al., [1990] 4 W.W.R. 685; 106 A.R. 40 (Q.B.), affd. [1991] 4 W.W.R. 695; 115 A.R. 34 (C.A.), refd to. [para. 66].

Naneff v. Con-Crete Holdings Ltd. et al. (1995), 85 O.A.C. 29; 23 O.R.(3d) 481 (C.A.), refd to. [para. 68].

Arthur v. Signum Communications Ltd., [1993] O.J. No. 1928 (Div. Ct.), refd to. [para. 68].

Rizzo & Rizzo Shoes Ltd. (Bankrupt), Re, [1998] 1 S.C.R. 27; 221 N.R. 241; 106 O.A.C. 1 (S.C.C.), refd to. [para. 90].

Saunders v. Cathton Holdings Ltd. et al. (1997), 88 B.C.A.C. 264; 144 W.A.C. 264 (C.A.), refd to. [para. 90].

C.T.C. Dealer Holdings Ltd. and Billes et al. v. Securities Commission (Ont.) and Canadian Tire Corp. et al. (1987), 21 O.A.C. 216; 35 B.L.R. 117 (Div. Ct.), refd to. [para. 90].

Slattery v. Slattery, [1945] O.R. 811 (C.A.), refd to. [para. 98].

Statutes Noticed:

Business Corporations Act, R.S.O. 1990, c. B-16, sect. 134, sect. 248 [para. 4, foot­note 2, Appendix].

Authors and Works Noticed:

Driedger, Elmer A., Construction of Stat­utes (3rd Ed. 1994), p. 131 [para. 90].

Maxwell on the Interpretation of Statutes (12th Ed. 1969), p. 228 [para. 90].

Morden, The Partnership of Bench and Bar (1982), 16 Law Soc. Gaz. 46, pp. 89 to 95 [para. 90].

Counsel:

Lyndon A.J. Barnes and David A. Stamp, for the appellant, Maple Leaf Foods;

Harvey T. Strosberg, Q.C., G. Wesley Voorheis and Michael Woolcombe, for the appellant, Pente Investment Manage­ment Ltd. and Cascade Holdings Ltd.;

J.D.G. Douglas and Freya Kristjonson, for the respondents, J.M. Schneider Family Holdings Ltd.;

Thomas G. Heintzman, R. Paul Steep and Susan Rothfels, for the respondent, Smithfield Foods Inc.;

Alan H. Mark, Jessica A. Kimmel and Nando DeLuca, for the respondents, Schneider Corporation, Douglas W. Dodds, Gerald A. Hooper, Frederick D. Morash, Larry J. Pearson, Brian J. Ruby, Ronald J. Simmons and Hugh W. Sloan.

This appeal was heard on August 4, 5 and 6, 1998, by Osborne, Weiler and Feldman, JJ.A., of the Ontario Court of Appeal.

The decision of the Court of Appeal was released on October 20, 1998, by Weiler, J.A.