The Supreme Court of Canada has upheld an Ontario Securities Commission decision to look the other way while minority shareholders were abused.

The court has rejected an appeal by the Committee for Equal Treatment of Asbestos Minority Shareholders in its case against the OSC.

In a case dating back to the early 1980’s, an Ontario divisional court found that the OSC had made a mistake when it failed to punish Quebec for abusing minority shareholders of Abestos Corp., and it set aside the OSC’s decision.

However, the appeals court reversed the lower court decision, reinstating the OSC’s original ruling. Yesterday, the highest court in the land supported the appeals court and the OSC.

At issue for the court was the nature and scope of the OSC’s public interest jurisdiction to intervene in activities related to Ontario capital markets, and whether commission’s decision not to exercise its public interest jurisdiction in this case was reasonable.

In 1977, the Quebec government decided to take control of Asbestos Corp., a leading asbestos producer in the province. The common shares of Asbestos traded on the Toronto Stock Exchange and the Montreal Stock Exchange. Approximately 30% of the Asbestos common shares were held by minority shareholders resident in Ontario, while General Dynamics Canada, a subsidiary of General Dynamics in the U.S., held the controlling interest.

To take control of Asbestos, Quebec incorporated the Société nationale de l’amiante, as a provincially owned crown corporation. In 1981, Quebec reached an agreement with General Dynamics, which would see SNA acquire voting control of General Dynamics Canada and, indirect control of Asbestos.

Despite statements from the Quebec Minister of Finance that it would make a follow-up offer to the minority shareholders of Asbestos, Quebec announced that it did not intend to make such an offer. In response to that announcement, the shares of Asbestos fell to a four-year low. Five years later, SNA purchased the remaining common shares of General Dynamics Canada.

The minority shareholders sought an order from the OSC removing Quebec’s and SNA’s trading exemptions. Even though the OSC found that the actions of the Quebec Government and SNA were abusive of the minority shareholders of Asbestos and were manifestly unfair to them, the OSC declined to exercise its public interest jurisdiction and take away Quebec’s trading exemption in the Ontario capital markets.

The court ruled that “The OSC has the jurisdiction and a broad discretion to intervene in Ontario capital markets if it is in the public interest to do so. The permissive language of [the Act] expresses an intent to leave it to the OSC to determine whether and how to intervene in a particular case. However, the discretion to act in the public interest is not unlimited. In exercising its discretion, the OSC should consider the protection of investors and the efficiency of, and public confidence in, capital markets generally. [It] cannot be used in response to Securities Act misconduct alleged to have caused harm or damages to private parties or individuals.”

The court wrote in its decision that, “The OSC did not commit a reviewable error. First, the OSC did exercise the discretion that is incidental to its public interest jurisdiction. Second, the OSC’s decision not to grant a remedy to the aggrieved minority shareholders through the exercise of its jurisdiction to act in the public interest was reasonable.”