Ventas Inc. et al. v. Sunrise Senior Living Real Estate Investment Trust et al., (2007) 222 O.A.C. 102 (CA)

• Judge: Blair, MacFarland and LaForme, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: March 20, 2007
• Jurisdiction: Ontario
• Citations: (2007), 222 O.A.C. 102 (CA);2007 ONCA 205;85 OR (3d) 254;29 BLR (4th) 312;[2007] CarswellOnt 1705;[2007] OJ No 1083 (QL);156 ACWS (3d) 95;222 OAC 102;56 RPR (4th) 163

Ventas Inc. v. Sunrise Senior Living (2007), 222 O.A.C. 102 (CA)

MLB headnote and full text

Temp. Cite: [2007] O.A.C. TBEd. MR.081

Ventas, Inc., 2124678 Ontario Inc., and 2124680 Ontario Inc. (applicants/respondents in appeal) v. Sunrise Senior Living Real Estate Investment Trust, Sunrise Reit Trust, Sunrise Reit GP, Inc., Sunrise Senior Living Inc., and Health Care Property Investors, Inc. (respondents/appellants in appeal)

Sunrise Senior Living Real Estate Investment Trust, Sunrise Reit Trust, and Sunrise Reit GP, Inc. (applicants/appellants in appeal) v. Ventas SSL Ontario II, Inc. (formerly 2124678 Ontario Inc.), Ventas SSL Ontario I, Inc. (formerly 2124680 Ontario Inc.), Ventas Inc., Sunrise Senior Living, Inc., and Health Care Property Investors, Inc. (respondents/respondents in appeal (Ventas Inc. and numbered companies)/appellant by cross-appeal (Health Care Property Investors, Inc.))

(C46790; C46791)

Indexed As: Ventas Inc. et al. v. Sunrise Senior Living Real Estate Investment Trust et al.

Ontario Court of Appeal

Blair, MacFarland and LaForme, JJ.A.

March 23, 2007.

Summary:

In a two-stage auction, Ventas Inc. and Health Care Property Investors, Inc. (HCPI) submitted bids to acquire Sunrise, a real estate investment trust whose properties were managed by Sunrise Senior Living, Inc. (SSL). First round bidders signed confidentiality agreements that included standstill provisions preventing hostile unsolicited takeover bids. Ventas submitted a second round bid but HCPI withdrew. Ventas and Sunrise entered into a purchase agreement subject to unitholder approval. HCPI submitted an unsolicited bid at a higher per unit price than Ventas' bid. Pending the unitholder meeting, Ventas applied for a declaration that Sunrise was required to enforce its standstill agreement with HCPI. HCPI applied for a declaration that it was not prohibited by the confidentiality agreement from communicating with SSL.

The Ontario Superior Court allowed Ventas' application and declined to deal with HCPI's application, concluding that it was moot. HCPI and Sunrise appealed the decision allowing the Ventas application. HCPI cross-appealed regarding its application.

The Ontario Court of Appeal dismissed the appeal and held that it was unnecessary to deal with the cross-appeal.

Company Law - Topic 4266

Directors - Duties - General principles - Breach of fiduciary duty - What constitutes - In a two-stage auction, Ventas Inc. and Health Care Property Investors, Inc. (HCPI) submitted bids to acquire Sunrise, a real estate investment trust - First round bidders signed standstill agreements that prevented hostile unsolicited takeover bids - Ventas submitted a second round bid but HCPI withdrew - Ventas and Sunrise entered into a purchase agreement subject to unitholder approval - Sunrise agreed not to solicit other bids or to fail to enforce existing standstill agreements - However, the agreement also allowed Sunrise to consider bona fide unsolicited bids from third parties - HCPI submitted an unsolicited bid at a higher per unit price than Ventas' bid - Pending the unitholder meeting, Ventas applied for a declaration that Sunrise was required to enforce its standstill agreement with HCPI - The trial judge allowed the application, finding that Sunrise had agreed to enforce existing standstill agreements and any bid made in breach of such an agreement was not bona fide - HCPI and Sunrise appealed - The Ontario Court of Appeal dismissed the appeal - The court rejected the appellants' argument that the trial judge overlooked the importance of the "maximizing value" principle and the centrality of the trustee's fiduciary obligations - The trustees had complied with their fiduciary obligations by setting up an auction process as the best way to maximize value - They had not failed in their fiduciary obligations simply by agreeing to preclude earlier bidders from coming in after the auction and attempting to top up the successful bid - See paragraphs 51 to 58.

Contracts - Topic 7416

Interpretation - General principles - Most commercially reasonable interpretation - In a two-stage auction, Ventas Inc. and Health Care Property Investors, Inc. (HCPI) submitted bids to acquire Sunrise, a real estate investment trust - First round bidders signed standstill agreements that prevented hostile unsolicited takeover bids - Ventas negotiated a termination clause to its standstill agreement, but HCPI did not - Ventas submitted a second round bid but HCPI withdrew - Ventas and Sunrise entered into a purchase agreement subject to unitholder approval - Sunrise agreed not to solicit other bids or to fail to enforce existing standstill agreements - However, the agreement also allowed Sunrise to consider bona fide unsolicited bids from third parties - HCPI submitted an unsolicited bid at a higher per unit price than Ventas' bid - Pending the unitholder meeting, Ventas applied for a declaration that Sunrise was required to enforce its standstill agreement with HCPI - The trial judge allowed the application, finding that Sunrise had agreed to enforce existing standstill agreements and any bid made in breach of such an agreement was not bona fide - HCPI and Sunrise appealed - The Ontario Court of Appeal dismissed the appeal - The court rejected the appellants' argument that the trial judge's reasons defied commercial sense and reasonableness - An important purpose of the purchase agreement was to ensure enforcement of standstill agreements in the auction process - This was objectively reasonable given the negotiating context within which Ventas had skilfully protected its position - The safety valve for Sunrise was in the requirement of unitholder approval - See paragraphs 23 to 50.

Cases Noticed:

BG Checo International Ltd. v. British Columbia Hydro and Power Authority, [1993] 1 S.C.R. 12; 147 N.R. 81; 20 B.C.A.C. 241; 35 W.A.C. 241, refd to. [para. 24, footnote 1].

Scanlon v. Castlepoint Development Corp. et al. (1992), 59 O.A.C. 191; 11 O.R.(3d) 744 (C.A.), refd to. [para. 24, footnote 1].

Toronto-Dominion Bank v. Leigh Instruments Ltd. (Bankrupt) et al. (1998), 63 O.T.C. 1; 40 B.L.R.(2d) 1 (Gen. Div.), affd. (1999), 124 O.A.C. 87; 45 O.R.(3d) 417 (C.A.), refd to. [para. 24, footnote 2].

Venture Capital USA Inc. v. Yorkton Securities Inc. (2005), 197 O.A.C. 264; 75 O.R. (3d) 325 (C.A.), refd to. [para. 24, footnote 2].

Eli Lilly & Co. et al. v. Novopharm Ltd. et al., [1998] 2 S.C.R. 129; 227 N.R. 201, refd to. [para. 24, footnote 3].

Kentucky Fried Chicken Canada v. Scott's Food Services Inc. et al. (1998), 114 O.A.C. 357 (C.A.), refd to. [para. 24, footnote 3].

Consolidated-Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888; 32 N.R. 488, refd to. [para. 24, footnote 4].

CW Shareholdings Inc. v. WIC Western International Communications Ltd. et al. (1998), 61 O.T.C. 81; 39 O.R.(3d) 755 (Gen. Div.), refd to. [para. 53].

Paramount Communications Inc.v. QVC Network Inc. (1994), 637 A.2d 34 (Del.), refd to. [para. 54].

ACE Ltd. v. Capital Re Corp. (1999), 747 A.2d 95 (Del. Ch.), refd to. [para. 54].

Pente Investment Management Ltd. et al. v. Schneider Corp. et al. (1998), 113 O.A.C. 253; 42 O.R.(3d) 177 (C.A.), refd to. [para. 56].

Maple Leaf Foods Inc. v. Schneider Corp. - see Pente Investment Management Ltd. et al. v. Schneider Corp. et al.

Authors and Works Noticed:

McCamus, John D., The Law of Contracts (2005), p. 729 [para. 57].

Counsel:

Peter F.C. Howard and Eliot Kolers for the appellants (Sunrise Senior Living Real Estate Investment Trust, Sunrise REIT Trust, and Sunrise REIT GP Inc.);

Jeffrey S. Leon and Derek J. Bell, for the appellants (Health Care Property Investors, Inc.);

Mark A. Gelowitz and Laura K. Fric, for the respondents (Ventas, Inc. and numbered companies);

Luis G. Sarabia and Cynthia Spry, for the respondent, Sunrise Senior Living Inc.

This appeal and cross-appeal were heard on March 20, 2007, by Blair, MacFarland and LaForme, JJ.A., of the Ontario Court of Appeal. Blair, J.A., released the following judgment for the Court on March 23, 2007.