OSC will stay out of most TSX decisions

The Ontario Securities Commission has confirmed it will only interfere with decisions of the Toronto Stock Exchange on rare occasions, in a ruling involving a private placement by InterRent Real Estate Investment Trust.

The ruling follows speculation the commission would be more open to complaints from activist shareholders following its decision in HudBay Minerals Inc.’s acquisition of Lundin Mining Corp. earlier this year.

In HudBay Minerals Inc. and the Toronto Stock Exchange, the OSC reversed a decision of the TSX and required HudBay to obtain shareholder approval prior to completing its proposed acquisition of Lundin Mining.

“My view is what this means is the OSC will continue to provide a rigorous standard when asked to review decisions of the TSX,” says Torys LLP partner Linda Plumpton. “The standard that had previously applied, that it will only be on rare occasions that the decisions will be overturned and they will show deference to that standard, continues to apply.

“I would say it means the HudBay decision was an anomaly and not setting a new standard.”

Plumpton acted on behalf of the TSX in both InterRent and HudBay. She says cases where the OSC will intefere on TSX decisions are rare. One of the reference cases, Canada Malting in 1986, was more than two decades prior to HudBay.

“One of the interesting things about this area is from the decision in Canada Malting and HudBay that’s 23 years,” she says. “There have been very few of these applications. So HudBay comes out six months ago and then lo and behold we have another one within the year.

“That’s one of the fears people had that we were going to start seeing these all the time.”

In the recent decision, InterRent applied to the TSX for a placement of more than 9.3 million units, or 49 per cent of its issued and outstanding units. In addition, InterRent entered into an agreement to externalize its real estate investment trust property management services.

The TSX allowed the placement without a vote by InterRent’s unit holders. However, the property management transaction would be submitted to all unit holders, including those under the private placement, for approval.

The company’s largest unit holder, NorthWest Value Partners Inc., took issue with the placement saying it would materially affect control of InterRent.

In the decision, panelists James Turner, vice chairman of the OSC and chairman of the panel, and OSC lead director David Knight, wrote the challenge did not meet the standard needed for the commission to intervene.

“The commission will intervene in a TSX decision, however, only in the rare case where the applicant has met the heavy burden of proving such intervention is justified in accordance with the principles referred to in Canada Malting or on some other ground acceptable to the commission,” they wrote in the ruling.

Other grounds include where the TSX has proceeded on an incorrect principle; the TSX has erred in law; the TSX has overlooked material evidence; or new and compelling evidence is presented to the commission that was not presented to the TSX.

The Canada Malting test refers to whether the commission perceives public interest and the TSX are in conflict.

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