The two sides in a 20-year-old battle over the rights of minority shareholders remain at odds. The latest clash results from a Supreme Court of Canada ruling handed down in June. It’s another blow to minority shareholders of Asbestos Corp., which has been controlled by the Quebec government since its deal with General Dynamic in 1981.

The high court justices unanimously ruled to endorse the Ontario Securities Commission’s 1994 decision not to review the Quebec government’s deal, or its impact on minority shareholders.

The long-awaited ruling immediately sent Asbestos’s share prices plummeting 80%. André Blanchet, a lawyer representing Asbestos investors, said the latest ruling would have a “devastating effect for people who have confidence in the marketplace.” However, Toronto lawyer Sheila Block, who represented the Quebec government, disagreed with Blanchet.

“There was uncontroverted evidence the that the integrity of the capital markets was not affected in any way by this transaction. They were acting entirely legitimately, and it wasn’t something the Ontario commission should have reached its long arm to prevent or interfere with.”

Moreover, says Block, the 1981 transaction was entered into in the public interest — for the purpose of keeping secondary manufacturing jobs in Quebec.

Michel Jolin, a Sainte-Foy, Que. lawyer who also represented the Quebec government, said the original deal must be viewed in its 1981 legal context. As the time, he says, there were no rules on follow-up offers to minority shareholders and a private corporation would have been treated identically had it been engaged in the same conduct.
Jolin doubts there will be any loss of confidence in the capital markets because of the ruling. He says that 10 years after the deal the Quebec government told the OSC that Ontario residents held significantly more Quebec public bonds and debentures than they did in 1981 — and that’s evidence, he says, of public confidence in the capital markets.

The OSC ended up in the brouhaha after about 1,000 aggrieved Ontario shareholders formed the Committee for the Equal Treatment of Asbestos Minority Shareholders, and pressed securities regulators in both Ontario and Quebec to look into the transaction.

In 1988, the OSC decided to hold hearings to determine whether the transaction was a take-over bid under Ontario rules, which would require a follow-up offer, and whether it should exercise its jurisdiction to “protect the public interest” and yank the Quebec government’s ability to participate in Ontario’s capital markets.

Quebec immediately went to court to challenge the OSC’s power to even look into the transaction, but after almost five years it got nowhere. The OSC panel heard the matter and released a decision in 1994. The commission concluded that both Quebec and General Dynamics failed to comply with “the spirit” of Ontario’s take-over bid rules. It also ruled that Quebec and a Crown corporation it created to do the deal with General Dynamic, Société nationale d’amiante (SNA), had been “abusive of the minority shareholders of Asbestos and were manifestly unfair.”

Nevertheless, the OSC said there wasn’t a “sufficient Ontario nexus” for it to act. And even though Quebec could have been more forthright about its intention not to have a minority follow-up offer, the shareholders weren’t misled, so they couldn’t get relief from the OSC.

The shareholders appealed. In 1997 Ontario’s Divisional Court sent the matter back to the OSC, ruling the commission was wrong to find it had no jurisdiction to hear the case. The court directed the OSC to order the Quebec government to make an offer to the minority shareholders within 90 days — plus pay the shareholders’ past and future court costs.
However, in 1999 the Ontario Court of Appeal reversed the Divisional Court and the entire matter went to the Supreme Court of Canada.

Supreme Court Justice Frank Iacobucci found that the OSC has a broad discretion to act in the public interest. And its powers under Section 127 of the Ontario Securities Act are established to protect investors “from unfair, improper or fraudulent practices” and to “foster fair and efficient capital markets and confidence in capital markets.

“In considering an order in the public interest, it is an error to focus only on the fair treatment of investors. The effect of an intervention in the public interest on capital market efficiencies and public confidence in the capital markets should also be considered,” writes Justice Iacobucci in his decision.

@page_break@Bresner says the minority shareholders’ legal remedies are not yet exhausted. The Quebec Securities Commission has yet to deliver its ruling on the deal — it’s currently wrangling over evidentiary issues — and any final ruling could be appealed to the Supreme Court, too.