The Superior Court of Justice of Ontario (Commercial List) rendered judgment on August 22, 2002, dismissing an oppression remedy action brought by various holders of Rio Algom Ltd.’s convertible debentures. The debentureholders argued that Rio Algom and its directors ignored their interests by inducing and supporting the takeover bid by Billiton Plc, without ensuring that an acceptable offer was also made to the debentureholders, and that Billiton and its directors had disregarded the interests of the debentureholders by utilizing compulsory acquisition provisions to acquire the 5 per cent balance of Rio Algom shares that were not tendered into the bid. The natural consequence of the acquisition of 100 per cent of the shares was the delisting of the shares. The debentureholders submitted that the delisting eliminated their conversion option. The debentureholders contended that they should be awarded a 25 per cent premium to par that they could have realized if Rio Algom had otherwise been entitled to redeem the debentures at the time of the takeover.
Justice James Spence held that the debentureholders had a proper interest in receiving the benefit of the terms of their contract—namely, the trust indenture. The indenture made provision both for the listing of the shares and for the payment of par plus accrued interest in the event of default, which included the breach of the listing covenant in the indenture. The trust indenture also referred to the potential for a permitted bid for all Rio Algom shares.
Justice Spence found that the debentureholders could not have reasonably expected that a takeover and delisting would not be permitted to occur, and that the debentureholders could reasonably only have expected that they would be entitled to a payment of par plus accrued interest in the context of a takeover. The judge also found that the use of the compulsory acquisition provisions was simply the exercise of statutory rights that Billiton acquired following the takeover bid. Moreover, the judge found that the application was barred as against all respondents pursuant to a no-action clause in the trust indenture.
Rio Algom and its directors were represented by Peter Roy and David O’Connor (commercial) of Fasken Martineau DuMoulin LLP. Joel Richler and Jeff Galway of Blake, Cassels & Graydon LLP acted for Billiton and its directors. Robert Staley and Robyn Ryan Bell of Bennett Jones LLP acted for the debentureholders.