DATE: 20040121

DOCKET: C38844

COURT OF APPEAL FOR ONTARIO

ABELLA, MOLDAVER and FELDMAN JJ.A.

B E T W E E N:

CASURINA LIMITED PARTNERSHIP, FIRST WAVE INC. and JMM TRADING LLP

Robert W. Staley and Robyn M. Ryan Bell for the appellants

Applicants

(Appellants)

• and -

Peter L. Roy and

RIO ALGOM LIMITED, JAMES THOMPSON BLACK, WILLIAM ELWOOD BRADFORD, DEREK H. BURNEY, JOHN ARTHUR H. BUSH, GORDON CECIL GRAY, FAROKH SHAFIZADEH HAKIMI, PATRICK MICHAEL JAMES, DAVID S.R. LEIGHTON, JOHN WILLIAM LILL, WILLIAM ATWOOD MACDONALD, JAMES EDWARD NEWALL, JAMES E. PERRELLA, ROSS J. TURNER, JAMES D. WALLACE, MICHAEL H. WILSON, BILLITON PLC, DAVID CHARLES BRINK, MICHAEL LAWRENCE DAVIS, BRIAN PATRICK GILBERTSON, CORNELIUS ANTONIUS JOHANNES HERKSTROTER, JOHN BERNARD HAYSOM JACKSON, STEVE BOGDAN KESLER, DEREK LYLE KEYS, DAVID JOHN CHARLES MUNRO, ROBIN WILLIAM RENWICK, BARRY DAVID ROMERIL, MIKLOS SALAMON, MATTHYS HENDRIK VISSER and BILLITON COPPER HOLDINGS INC.

David F. O’Connor for the respondent Rio Algom Limited Joel Richler Jeffrey W. Galway and Charlotte Kanya-Forstner for the respondents Billiton

Respondents (Respondents)

Heard: June 9 and 10, 2003

On appeal from a judgment of Justice James M. Spence of the Superior Court of Justice dated August 22, 2002.

FELDMAN J.A.:

[1] The appellants are holders of convertible debentures of the respondent Rio Algom Limited. They complain that they were oppressed by the respondents, Rio Algom and its directors, and Billiton plc and its directors and Billiton Copper Holdings Inc., when Billiton made a successful takeover bid for all the shares of Rio Algom, whereupon the shares were delisted, rendering the convertible feature of the debentures of no further value. The oppression claim was dismissed by Spence J. based on the terms of the trust indenture that governs the debentures. In my view, Spence J. made no error in his analysis of the oppression application, and I would accordingly dismiss the appeal.

FACTS

[2] The history of the takeover is described in detail in the reasons of Spence J., 2002 9356 (ON SC), [2002] O.J. No. 3229 (Sup. Ct.). I will only outline the history briefly in order to discuss the issues raised on the appeal.

The Takeover Bid by Billiton

[3] In response to Noranda Inc.’s accumulation of Rio Algom shares in 1999 and 2000 with a view to a takeover of the company, the board of directors of Rio Algom looked for an alternative bidder and entered into negotiations with Billiton around August 2000. On August 22, 2000, Noranda announced its intention to make an all cash offer for all the shares of Rio Algom at $24.50 per share. In response, Billiton offered $27.00 per share for all of the shares, and Rio Algom agreed to recommend that offer to its shareholders and to waive the application of its shareholders rights plan.

[4] In its takeover bid circular, Billiton stated: (1) the purpose of the offer was to acquire all of the common shares of Rio Algom; (2) it intended to exercise its statutory right under the Ontario Business Corporations Act, R.S.O. 1990, c. B.16, if available, to acquire all of the common shares not deposited on the offer;[^1] and (3) once Billiton began to take up the offered shares, the liquidity and market value of the remaining shares could be adversely affected as the shares could be delisted by the Toronto Stock Exchange and the New York Stock Exchange if the minimum listing requirements were not being met.

[5] On October 3, 2000, Noranda announced that it would not top Billiton’s offer, leaving Billiton free to complete its bid. On October 6, 2000, Billiton announced that ninety-five per cent of Rio Algom’s common shares had been deposited, that it would forthwith take up and pay for the shares, and that it was extending its bid to October 16, 2000. On November 29, 2000, Rio Algom announced that as of that date, Billiton had acquired by compulsory acquisition the balance of Rio Algom’s common shares and that its shares would no longer be listed on the TSE or the NYSE. As Spence J. found, this was the inevitable result of the successful completion of the takeover bid.

Terms of the Trust Indenture

[6] In 1997, Rio Algom issued convertible debentures for a ten-year term pursuant to a prospectus and governed by the terms of a trust indenture dated February 4, 1997. The prospectus and the trust indenture set out the terms governing the debentures including the rights and obligations of the issuer, of the debenture holders and of the trustee under the indenture.

[7] The debentures are convertible into common shares during the ten-year term at the option of the debentureholder at the price of $40 per common share.

[8] Rio Algom was given the right to redeem the debentures prior to their maturity, but subject to the following restrictions: (1) the debentures were not redeemable before February 1, 2000; (2) between February 1, 2000, and January 31, 2002, the debentures were redeemable at par only if the average trading price of the common shares of Rio Algom was equal to 125 per cent of the conversion price; and (3) on or after February 1, 2002, the debentures were redeemable at par regardless of the trading price of the common shares.

[9] Rio Algom covenanted with the trustee for the benefit of the trustee and the debentureholders that it would ensure that while the debentures were outstanding, the corporation would maintain its status as a reporting issuer and not be in default of any securities legislation requirements that would adversely affect its ability to issue common shares or the debentureholders’ ability to trade its common shares after conversion, and that the debentures and common shares would be listed at the time of issue on the TSE or another Canadian stock exchange.

[10] Section 9 of the trust indenture required Rio Algom to protect the rights of the debentureholders in the event of a merger with another company or acquisition by another company, but with the caveat that the protection of rights was not required in the event of “any sale, lease or exchange of all or substantially all the property of the Corporation in the ordinary course of its business.” Spence J. found that this caveat applies to an acquisition of all of the shares of the company pursuant to a takeover bid.

[11] Finally, s. 7 of the trust indenture defines “Events of Default” and provides for the consequences of default by Rio Algom. The failure to observe or perform any covenant is an event of default if it continues for sixty days following written notice by the trustee to the company. Where there is a continuing event of default, the trustee may in its discretion and shall if so required by debentureholders’ resolution, give notice to the corporation declaring the principal and accrued interest under the debentures due and payable to the trustee to be distributed to the debentureholders, and take court action to enforce the obligations of the corporation. Section 7.5 provides:

7.5 Enforcement by the Trustee

If an Event of Default shall have occurred, but subject to section 7.4 and to the provisions of any Extraordinary Resolution that may be passed by the Debentureholders as hereinafter provided and subject to section 12.3:

(a) The Trustee (either in its own name or as trustee of an express trust, or as attorney-in-fact for the Debentureholders, or in any one or more of such capacities), may in its discretion proceed to enforce the rights of the Trustee and of the Debentureholders by any action, suit, remedy or proceeding authorized or permitted by this Indenture or by law or equity; and may file such proof of debt, amendment of proof of debt, claim, petition or other papers or documents as may be necessary or advisable in order to have the claims of the Trustee and of the Debentureholders filed in any bankruptcy, insolvency, winding-up or other judicial proceedings relating to the Corporation or its creditors or relating to or affecting its property;

(b) the Trustee is hereby irrevocably appointed (and the successive Holders of Debentures by taking and holding the same shall be conclusively deemed to have so appointed the Trustee) the true and lawful attorney-in-fact of the respective Debentureholders with authority to make and file in the respective names of the Debentureholders or on behalf of the Debentureholders as a class, subject to deduction from any such claims of the amounts of any claims filed by any of the Debentureholders themselves, any proof of debt, amendment of proof of debt, claim, petition or other papers or documents in any such proceedings and to receive payment of any sums becoming distributable on account thereof, and to execute any such other papers and documents and to do and perform any and all such acts and things for and on behalf of such Debentureholders, as may be necessary or advisable in the opinion of the Trustee, in order to have the respective claims of the Trustee and of the Debentureholders against the Corporation or its property allowed in any such proceeding, and to receive payment of or on account of such claims; provided, however, that nothing contained in this Indenture shall be deemed to give to the Trustee, unless so authorized by Extraordinary Resolution, any right to accept or consent to any plan of reorganization or otherwise by action of any character in such proceeding to waive or change in any way any right of any Debentureholder;

(c) no such remedy for the enforcement of the rights of the Trustee or the Debentureholderes shall be exclusive of or dependent on an other such remedy but any one or more of such remedies may from time to time be exercised independently or in combination;

(d) all rights of action hereunder may be enforced by the Trustee without the possession of any of the Debentures, or the production thereof on the trial or other proceedings relating thereto; and may in its discretion proceed to enforce the rights of the Trustee and of the Debentureholders by any action, suit, remedy or proceeding authorized or permitted by this Indenture or by law or equity;

(e) Upon receipt of a Debentureholders' Request, the Trustee shall exercise or take such one or more of such remedies as the Debentureholders' Request may direct provided that if any such Debentureholders' Request directs the Trustee to take proceedings out of court the Trustee may in its discretion take judicial proceedings in lieu thereof.

[12] Importantly, s. 7.6 entitled “Debentureholders May Not Sue” (the “no-action” clause) provides:

No Debentureholder shall have the right to institute any action, suit or proceeding or to exercise any other remedy authorized or permitted by this Indenture or by law or by equity for the purpose of enforcing payment of principal or interest owing on any Debenture or for the execution of any trust or power hereunder, unless:

(a) such Holder shall previously have given to the Trustee written notice of the occurrence of an Event of Default;

(b) the Debentureholders, by Extraordinary Resolution, shall have made a request to the Trustee to take action hereunder or the Debentureholders’ Request referred to in section 7.3 shall have been delivered to the Trustee, and the Trustee shall have been offered a reasonable opportunity either itself to proceed to exercise the powers hereinbefore granted or to institute an action, suit or proceeding in its name for such purpose;

(c) the Debentureholders or any of them shall have furnished to the Trustee, when requested by the Trustee, sufficient funds and an indemnity in accordance with subsection 12.3(2); and

(d) the Trustee shall fail to act within a reasonable time thereafter.

In such event but not otherwise, any Debentureholder acting on behalf of himself and all other Debentureholders, shall be entitled to take proceedings in any court of competent jurisdiction such as the Trustee might have taken under section 7.5, but in no event shall any Debentureholder or combination of Debentureholders have any right to take any other remedy or proceedings out of court; it being understood and intended that no one or more of the Debentureholders shall have any right in any manner whatsoever to enforce any right hereunder or under any Debenture except subject to the conditions and in the manner herein provided, and that all powers and trusts hereunder shall be exercised and all proceedings at law shall be instituted, had and maintained by the Trustee, except only as herein provided, and in any event for the equal benefit of all Holders of outstanding Debentures.

Negotiations with the Debentureholders

[13] Billiton, together with its legal and financial advisors, had concluded based on the terms of the trust indenture, that the debentureholders’ only entitlement was to be redeemed at par, because that was what they would be entitled to in the event of a default by Rio Algom if they called the debentures due. Billiton expected that when the Rio Algom shares were delisted, the debentureholders’ remedy under the trust indenture would be to cause notice of an event of default to be given and to eventually have their debentures redeemed at par. In mid-October 2000, Billiton offered to immediately redeem the convertible debentures at par without waiting for the sixty-day notice to be given, through an amendment to the trust indenture. Although the largest debentureholder and one other large institutional holder were prepared to accept the offer, that was not sufficient for the two-thirds majority required to amend the trust indenture and the redemption did not proceed.

Transfer of Rio Algom Subsidiaries to Billiton

[14] Following the completion of the takeover of Rio Algom by Billiton, on December 15, 2000, Rio Algom announced that it would transfer its interest in two wholly-owned subsidiaries, NAMD and Atlas Ideal Metals Inc., to wholly-owned subsidiaries of Billiton. These two subsidiaries represented approximately one quarter of Rio Algom’s assets.

[15] The price paid by Billiton to Rio Algom for the two subsidiaries of U.S. $410 million was made up of U.S. $60 million cash and U.S. $350 million by way of a debt instrument with a coupon bearing interest at LIBOR (London InterBank Offered Rate) plus three-quarters of one per cent. Although it was originally intended that this transaction would be subject to an independent valuation and the approval of a committee of independent directors of Rio Algom, Billiton refused to comply with the committee’s requests that it provide a letter of credit to secure its guarantee of the Rio Algom loan and enter into a unanimous shareholder agreement approving the transaction. Billiton also moved its shares in Rio Algom outside Ontario in order to avoid compliance with the type of valuation required by O.S.C. Policy 61.501. The committee ultimately required Billiton to approve the transaction through a unanimous shareholder resolution.

The Position of the Appellants

[16] The appellants did not seek to have the trustee call the debentures due based on the default of Rio Algom in allowing the delisting of its shares. Instead they brought an application for an oppression remedy against the respondents. Based on their interpretation of the trust indenture and of the prospectus, their position was that it was a reasonable expectation of the debentureholders that: (1) so long as the debentures were outstanding, the common shares of Rio Algom would always remain listed; (2) there would be no redemption of the shares by Rio Algom prior to February 2002 unless the debentureholders could instead elect to convert, then sell the common shares and receive a twenty-five per cent premium over par; and (3) Rio Algom was prohibited from entering into a merger or acquisition without protecting the conversion rights of the debentureholders. Therefore, by participating in the takeover by Billiton, which resulted in the delisting of its shares, Rio Algom breached its covenant that the shares would remain listed on the TSE. That breach was an event of default. It was also conduct that unfairly disregarded the interests of the debentureholders because it effectively removed their conversion privilege, a key component of the original value of the debentures.

[17] The appellants’ position was that because of the oppressive conduct of Rio Algom and its directors, they were not limited to their contractual remedy under the trust indenture based on the default, but were entitled to be compensated for the loss of the conversion privilege. Had the company not been able to force early redemption, it would only have been able to redeem between February 2000 and February 2002 if the debentureholders could receive a premium of twenty-five per cent over par. They sought redemption at that rate on the basis that the share price would have reached the required level during that time period. It did not lie in the mouths of the respondents to suggest that the Rio Algom share price would not have reached the needed level when it was the delisting of the shares as well as the denuding of the assets of Rio Algom that prevented the Rio Algom shares from achieving that value.

[18] The appellants sought to invoke the oppression remedy as against the Billiton respondents on the basis that once Billiton acquired ninety-five per cent of the Rio Algom shares it became an affiliate of Rio Algom and responsible under the oppression remedy for conduct that affected the interests of the debentureholders in Rio Algom.

THE FINDINGS OF SPENCE J.

[19] A. The Takeover and Resulting Delisting of the Shares did not Constitute Oppression by Rio Algom or Billiton

(1) Section 9 of the trust indenture which deals with mergers and acquisitions by another company and requires that the rights of the debentureholders be preserved in those events, has no application to a takeover bid followed by a forced acquisition of the shares of the corporation. The corporation cannot be in default where it is not a party to the transaction, which is between the acquirer and the shareholders.

(2) There is no provision in the trust indenture agreement that obliged Rio Algom to obtain compensation or other protection for the debentureholders in the event of a takeover of all the shares for the loss of their conversion privilege. Such a protective feature could have been included but was not.

(3) The trust indenture provides for the eventuality of the delisting of the shares by making it an event of default and providing a remedy: the debentures may be called immediately due and payable at par. That distinguishes this case from Highfields Capital I LP v. Telesystem International Wireless Inc. (2002), 2002 49639 (ON SC), 21 B.L.R. (3d) 133 (Ont. Sup. Ct.), and Deutshe Bank Canada v. Oxford Properties Group Inc. (1998), 1998 14809 (ON SC), 40 B.L.R. (2d) 302 (Ont. Sup. Ct.), where the court gave an oppression remedy when the events that occurred were not provided for in the respective trust indentures.

(4) Because the trust indenture provides for both the listing of the shares and for the consequences of delisting, it was not unfair for the takeover and forced acquisition to be carried out without any further protection of the conversion interests of the debentureholders than their rights contained in the indenture.

(5) The fact that the prospectus refers to a shareholder protection rights plan in the event of a takeover bid is further evidence that the debentureholders could not have had a reasonable expectation that a takeover and consequent delisting of the shares could not happen.

(6) As there was no impairment of the rights of the debentureholders under their indenture, no case of unfairness was made out.

(7) Billiton’s actions in acquiring the balance of the shares after it became an affiliate of Rio Algom did not constitute unfair disregard of the interests of the debentureholders. Billiton never had a relationship with the debentureholders. It was exercising its rights to acquire shares from shareholders as a third party to Rio Algom and not in any dealings with it. The debentureholders could not have had a reasonable expectation about a third party’s actions in buying shares of Rio Algom.

[20] B. The Transfer of the Rio Algom Subsidiaries to Billiton was Oppressive to the Debentureholders

(1) Although the delisting of the shares made the conversion right impractical (and both sides agreed, virtually worthless), it still had some value or potential value. That value was adversely affected by removing assets that would have augmented the share value of Rio Algom.

(2) Because the transaction was done on the approval of Billiton, the purchaser, it was thus a case of self-dealing and the onus was on Billiton to show that the transfer of the subsidiaries was in the best interests of Rio Algom. The transfers were done without the approval of the independent committee of the board and without the letter of credit the committee requested. The valuation obtained by Billiton was not in accordance with Ontario Securities Commission requirements and therefore does not meet the onus. As a result, the transfer of the subsidiaries to Billiton constituted conduct that unfairly disregarded the interests of the debentureholders.

(3) The remedy the debentureholders would be entitled to would depend on the value of the debentures. None of the valuation evidence accepted by the court put the value over par. However, the court accepted the appellants’ argument that the proper relief was to compensate the appellants for the loss of their reasonable expectation that they could only have been redeemed between February 2000 and February 2002 if they received a twenty-five per cent premium over par.

[21] C. The “No-Action” Clause, s. 7.6 of the Trust Indenture, Bars Oppression Claims by Individual Debentureholders

(1) Section 7.5 of the indenture authorizes the trustee to sue only where there has been an event of default. In that case, the trustee sues on behalf of all debentureholders for any remedy including an oppression remedy.

(2) Under s. 7.6, the “no-action” clause, the debentureholders are precluded from bringing proceedings to enforce payment of principal or interest or for the execution of any trust or power under the debenture without first seeking to have the trustee act. If the trustee does not act within a reasonable time, then “[i]n such event”, the debentureholders may sue, but only on behalf of all debentureholders, and for any remedy that the trustee could have sought under s. 7.5 including the oppression remedy. Therefore, the no-action clause does not deprive the debentureholders of the benefit of the oppression remedy.

(3) Section 7.6 goes on to provide: “[B]ut in no event shall any Debentureholder or combination of Debentureholders have any right to take any other remedy or proceedings out of court”. Spence J. rejected the appellants’ submission that these words refer back to “[i]n such event” and mean that in the event that the trustee fails to act, the debentureholders are only precluded from seeking an extrajudicial remedy, but are not precluded from suing for an oppression remedy. He held that the words mean that the debentureholders can never sue for any remedy except for the remedies available to the trustee under s. 7.5 if the conditions set out in s. 7.6 are met, nor may they seek any extrajudicial remedy. The balance of s. 7.6 provides that except as provided, the trustee is to bring all actions and they are to be for the equal benefit of all debentureholders.

(4) The no-action clause therefore precluded the action by the appellants against Rio Algom and its directors.

(5) Neither s. 7.5 nor s. 7.6 is limited by its terms to actions against the issuer only. Both the trustee’s right to sue under s. 7.5 upon an event of default, and the no-action provision in s. 7.6 that allows the debentureholders to sue in lieu of the trustee where the trustee fails to do so and precludes any other action by the debentureholders, are not limited to actions against Rio Algom but apply to actions against anyone. To confirm that conclusion, ss. 7.5 and 7.6 must be considered in the context of the other relevant provisions of the trust indenture. Section 12.11 of the trust indenture gives the trustee the general power to take all legal proceedings “as it may consider necessary or expedient to preserve, protect or enforce its interests and the interests of the Debentureholders.” Also, s. 7.11 provides that all remedies given to the trustee or debentureholders are cumulative and “in addition to every other remedy given hereunder or now or hereafter existing by law or by statute.” The no-action portion of s. 7.6 is worded very broadly and precludes debentureholders from every type of action that the trustee may take, including the trustee’s broad powers under s. 12.11. Therefore, the no-action clause precluded the oppression remedy action by the appellants not only against Rio Algom but also against Billiton.

ISSUES ON APPEAL

(1) Did the application judge err in finding that the conduct of the respondents in the takeover bid and the resulting delisting of the Rio Algom shares was not oppressive to the appellants?

(2) Did the application judge err in his finding that the trust indenture precluded the appellants from bringing an action for the oppression remedy, and that the preclusion applied not only to an action against the issuer, Rio Algom, but also against anyone, including Billiton?

ANALYSIS

The Standard of Review

[22] An appeal court is required to show deference to the decisions of trial and application judges on questions of fact including the drawing of inferences from facts, and on questions of mixed fact and law, and may only interfere if the judge has made a “palpable and overriding error”. On questions of law, the lower court must be correct, including where findings on issues of mixed fact and law include an erroneous statement of the applicable law: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235.

Issue 1: Did Spence J. err in his Findings of No Oppression?

[23] The findings of the application judge on the issue of oppression address: (a) the reasonable expectations of the debentureholders based on the terms of the prospectus and of the trust indenture as well as the evidence of the events; and (b) whether the actions of the respondents in not preserving the conversion option and not securing more than compensation at par for the debentureholders were fair to the debentureholders or unfairly disregarded their interests, assessed in the same context.

[24] Whether the security holders had a reasonable expectation is a question of fact: See Maple Leaf Foods Inc. v. Schneider Corp. (1998), 1998 5121 (ON CA), 42 O.R. (3d) 177 (C.A.) at 202; Arthur v. Signum Communications Ltd., [1993] O.J. No. 1928 (Div. Ct.) at paras. 6-7. Similarly, whether the actions of a corporation unfairly disregarded the interests of a security holder is also a question of fact.

[25] The appellants’ position is based on the proposition that the essence of a convertible debenture is the right to convert debentures into equity securities and to be able to eventually realize a gain due to the potential appreciation of the security. They submit that Spence J. erred by failing to find that the conduct of both Rio Algom and Billiton, once it became an affiliate of Rio Algom, was oppressive by allowing or facilitating the takeover bid when it had the effect of creating a self-induced event of default by removing the appellants’ conversion rights.

[26] However, Spence J. considered and rejected these submissions by analyzing the reasonable expectations of the debentureholders based on the terms of the prospectus and of the trust indenture that govern the debentures. He concluded that because the trust indenture provided that the event that occurred, namely the delisting of the shares of the corporation, was an event of default, and provided a remedy for that default, the debentureholders could not reasonably have expected that a delisting could not occur. Or, they could not reasonably have expected that if it did occur, they would be entitled to anything more than the remedy bargained for in the “documents of the deal,” that is redemption at par. He noted that the trust indenture could have included a provision to provide special compensation to the debentureholders in the case of a takeover bid, but it did not. As further evidence that the debentureholders could not have expected that there could be no successful takeover bid, he noted that the prospectus provided for a shareholders protection rights plan that would be in effect in the event of a takeover bid and contemplates a “Permitted Bid”.

[27] Spence J. also considered s. 9 of the trust indenture and the protection it accords the debentureholders in the event of a merger or acquisition of the corporation, but not in the event of a takeover. The appellants submit that the caveat for a takeover only applies where the takeover is hostile, but not where the company is co-operating with the acquirer, as in this case. This is not a case of a voluntary transaction by Rio Algom. Spence J. recognized that in this case there was going to be an acquisition of Rio Algom either by Noranda or by Billiton. Once Rio Algom was “in play,” its legal obligation was to try to maximize value for shareholders and it did that by co-operating with Billiton. That co-operation was not equivalent to a voluntary merger or sale undertaken by Rio Algom.

[28] Spence J. also addressed the relevant case law and distinguished the cases relied on by the appellants. He distinguished his own decision in Highfields, supra, where an oppression remedy was given to stop a bid that favoured some security holders over others, but where the terms of the securities in question did not provide for the consequences of what occurred. In Deutsche Bank, supra, a provision in the prospectus regarding the conversion rights of debentures was not included in the trust indenture. The court held that the conduct of the company in materially changing the deal when negotiating the terms of the indenture unfairly disregarded the interests of the debentureholders and constituted oppression. Spence J. noted that there was no such discrepancy between the prospectus and the trust indenture in this case.

[29] Spence J.’s analysis of the effect of the trust indenture is also consistent with the decisions of the Divisional Court and of this court in Armstrong v. Northern Eyes Inc., [2002] O.J. No. 1085 (C.A.), affirming (2000), 2000 29047 (ON SCDC), 48 O.R. (3d) 442 (Div. Ct.). In that case the shareholders agreement provided that the parties would arbitrate disagreements and provided a valuation formula for any share buyout. The shareholder wanted the court to assume jurisdiction over the dispute and to apply the oppression remedy in order to achieve a more advantageous valuation method. The court rejected the shareholder’s

action and held that the shareholders had provided their own remedy. There was no basis to deviate from what they had agreed to.[^2]

[30] After analyzing the reasonable expectations of the debentureholders and considering the case law, Spence J. concluded that the appellants were seeking to rely on the provisions of the trust indenture that were favourable to their case while ignoring the provisions that detracted from it. He rejected that approach as unreasonable, and concluded that the conduct of the respondents was not oppressive.

[31] There is no basis to interfere with those conclusions. There is no palpable or overriding error and no error of law. The appellants effectively ask this court to reject the analysis and conclusions reached by Spence J. and to substitute the conclusion suggested by the appellants.

[32] In respect of Billiton’s conduct in completing the takeover bid once it was an affiliate of Rio Algom and therefore subject to the oppression remedy, Spence J. relied on his conclusion that the debentureholders could not have had a reasonable expectation that

if there were a successful takeover bid for Rio Algom and the shares were consequently delisted, that they would be entitled to anything other than what was provided for in the trust indenture. He also concluded that although Billiton became an affiliate after it acquired ninety-five per cent of the Rio Algom shares, when it completed the takeover by acquiring the balance of the shares from the shareholders it did so based on statutory rights under the takeover provisions of the OBCA. When it initiated the bid, it was a third party with no fairness obligations to the debentureholders and furthermore, the debentureholders could not have had reasonable expectations of the actions of a third party.

[33] Spence J. made no error in his analysis or conclusion that the debentureholders could have no reasonable expectation of any greater compensation than that provided for in the trust indenture for the breach of the indenture by the delisting of the shares. To the extent that Billiton as an affiliate was responsible for that default, there was no oppression. That was the factual finding by Spence J. to which this court defers. The discussion of Billiton’s status as a third party is further obiter comment by the application judge and is unnecessary to his conclusion. I see no need to deal further with it.

Issue 2: Did the Application Judge err in Concluding that the No-Action Clause Precludes any Action by Individual Debentureholders Against Rio Algom and Billiton Except Where the Trustee has Declined to act on an Event of Default?

[34] The construction of a written instrument is a question of mixed fact and law: Petty v. Telus Corp. (2002), 2002 BCCA 135, 164 B.C.A.C. 152 at para. 14, referring to H.G. Beale, ed., Chitty on Contracts, 28 ed. (London: Sweet & Maxwell, 1998) at paras. 12-043 and 12-046:

12-043 Intention of the parties. The task of ascertaining the intention of the parties must be approached objectively: the question is not what one or other of the parties meant or understood by the words used, but "the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”. The cardinal presumption is that the parties have intended what they have in fact said, so that their words must be construed as they stand. That is to say the meaning of the document or of a particular part of it is to be sought in the document itself. "One must consider the meaning of the words used, not what one may guess to be the intention of the parties". However, this is not to say that the meaning of the words in a written document must be ascertained by reference to the words of the document alone. In the modern law, the courts will, in principle, look at all the circumstances surrounding the making of the contract which would assist in determining how the language of the document would have been understood by a reasonable man.

12-046 Law and fact. The construction of written instruments is a question of mixed law and fact. The expression "construction" as applied to a document includes two things, first, the meaning of the words; and, secondly, their legal effect, or the effect which is to be given to them. Construction becomes a question of law as soon as the true meaning of the words in which an instrument has been expressed and the surrounding circumstances, if any, have been ascertained as facts. However, the meaning of an ordinary English word, of technical or commercial terms and of latent ambiguities, and the discovery of the surrounding circumstances (when they are relevant) are questions of fact.

(Footnotes omitted.)

[35] The appellants submit that the trial judge erred in law because he did not refer to principles of construction of contracts in his analysis of the trust indenture. They say that the trust indenture is a contract of adhesion, and that the doctrine of contra proferentem should be applied to interpret the contract against the interests of Rio Algom in the event of an ambiguity. In that regard they say that the application judge interpreted the indenture to allow Rio Algom and Billiton to contract out of the oppression remedy and to give the benefit of the contract to Billiton who is not a party to it.

[36] I would not give effect to these submissions. Spence J. approached the construction of the trust indenture and of the no-action clause by considering the words of the clause in the context of the indenture read as a whole and of the purpose of the trust indenture: See Consolidated Bathurst Export Ltd. v. Mutual Boiler and Machinery Insurance Co., 1979 10 (SCC), [1980] 1 S.C.R. 888 at 901. He gave the words the meaning he believed they bore in that context. He also tested the meaning in the commercial context and concluded that there was nothing commercially unreasonable about it: See Guarantee Co. of North America v. Gordon Capital Corp, 1999 664 (SCC), [1999] 3 S.C.R. 423 at para. 62. He considered and applied the case law that considers the interpretation of trust indentures that govern convertible debentures: Millgate Financial Corp. v. BF Realty Holdings Ltd. (1994), 1994 7544 (ON SC), 15 B.L.R. (2d) 212 (Ont. Gen. Div.); Feldbaum v. McCrory Corp., 1992 Del. Ch. LEXIS 113 (June 1, 1992); Highfields Capital, supra; Deutshe Bank, supra.

[37] The respondents point out that there is no basis to suggest that the trust indenture is a contract of adhesion or that its terms were not negotiated as part of the underwriting process at the time the debentures were issued. The appellants, as purchasers of the debentures in the market, purchased the debentures subject to the terms of the trust indenture. However, they had the opportunity to consider their prospective purchase in the context of the terms governing the debentures and on that basis must have made a decision whether to invest or not. That is not a contract of adhesion.

[38] The appellants object that Spence J. did not follow the case of Millgate Financial Corp., supra, where Farley J. interpreted a no-action clause (that followed part of the wording of the no-action clause in this case) and limited the extent of the clause in two ways: to actions to enforce the debenture and not to oppression claims, and to actions against the issuer and not other parties. Spence J. distinguished Millgate on the basis that the trust indenture in that case did not contain the language in ss. 7.5 and 7.6 of the indenture in this case that gives the trustee the power to assert an oppression claim where there is an event of default and not only to claim redemption at par, and that gives the debentureholders the power to sue for the same relief that the trustee could have sought if the trustee fails to act. As well, in Millgate there was no final blanket clause prohibiting any other action by debentureholders. In that regard, Spence J. rejected the appellants’ argument that the words “in no event” must be read “in no such event”, saying that the reading suggested by the appellants would change the meaning of the clause as written.

[39] On the question whether the no-action clause applies not only to actions against the issuer where there is no language that limits it, but applies generally to prohibit any actions except by the trustee on behalf of all debentureholders, Spence J. referred to the Delaware Court of Chancery case of Feldbaum, supra, where Chancellor Allen explained the rationale for a broad prohibition as follows:

I rather conclude only that, absent circumstances making application of a no-action clause inappropriate such as those described above, courts systematically conclude that, in consenting to no-action clauses by purchasing bonds, plaintiffs waive their rights to bring claims that are common to all bondholders, and thus can be prosecuted by the trustee, unless they first comply with the procedures set forth in the clause or their claims are for the payment of past-due amounts.

Courts have implicitly concluded that this waiver by a bondholder applies equally to claims against non-issuer defendants as to claims against issuers. See Norte & Co. v. Manor Healthcare Corp., Del. Ch., C.A. Nos. 6827, 6831, Berger, V.C. (Nov. 21, 1985) (dismissing for failure to comply with a no-action clause breach of indenture claims against issuer and codefendants); Levy v. Paramount Publix Corp., N.Y. Supr., 266 N.Y.S. 271, aff’d, N.Y. App. Divl., 269 N.Y.S. 2d 997 (1934) (dismissing for failure to comply with a no-action clause breach of fiduciary duty claims against issuer’s directors in connection with issuer’s alleged fraudulent conveyance); Relmar Holding, 262 N.Y.S. 776[*26] (dismissing for failure to comply with no-action clause fraudulent conveyance claim against recipient of transferred assets).

The policy favoring the channelling of bondholder suits through trustees mandates the dismissal of individual bondholder actions no matter whom the bondholders sue. So long as the suits to be dismissed seek to enforce rights shared ratably by all bondholders, they should be prosecuted by the trustee. Moreover, like other no-action clauses, the clauses at issue here explicitly make their scope depend on the nature of the claims brought, not on the identity of the defendant. For example, the E-II clauses quoted earlier begin: “A Securityholder may not pursue any remedy with respect to this Indenture of the Securities unless …”

[40] Spence J. agreed with the rationale for giving a facially unlimited no-action clause a broad interpretation. However, in light of Millgate and the arguments of the appellants, he conducted a further analysis of the no-action clause read together with the broad powers of the trustee contained in s. 12.11 of the indenture before concluding, based on the wording of the indenture read as a whole, that the clause prevents individual bondholders from bringing an oppression action against the issuer or any other party.

[41] In my view, Spence J. made no error in his approach to the interpretation of the trust indenture. His analysis and conclusion are reasonable and deserve the deference of this court.

CONCLUSION

[42] In his reasons, Spence J. went on to deal with some matters that he described as obiter in light of his finding that the no-action clause barred the within action. These matters were based on his findings that the transfer by Billiton of the two Rio Algom subsidiaries to itself, constituted oppressive conduct by Billiton and that if there were to be a remedy, that the remedy would (or might) be redemption at twenty-five per cent over par. The Billiton respondents have argued on the appeal that the appellants’ original application did not suggest that the transfer of the subsidiaries constituted oppression but only that it may have impaired Rio Algom’s ability to honour its obligations to the debentureholders and that in any event, Spence J. did not come to a definite conclusion regarding the appropriate remedy.

[43] In light of the conclusion I have reached that the appeal must be dismissed, it is unnecessary to address these issues raised by the respondents.

[44] In the result, I would dismiss the appeal with costs on the partial indemnity scale. Counsel provided bills of costs following the oral hearing in this matter. The appellants requested $176,762.19 (had they won), Rio Algom requested $101,096.99 and Billiton requested $75,135.21. This is a commercial matter with a significant dollar amount at stake and where all parties are sophisticated investment entities. The costs are fixed at $50,000 to each respondent inclusive of disbursements and G.S.T.

Signed: “K. Feldman J.A.”

“I agree R.S. Abella J.A.”

“I agree M. J. Moldaver J.A.”

RELEASED: “RSA” JANUARY 21, 2004

[^1]: Section 188(1) of the OBCA provides:

If within 120 days after the date of a take-over bid or an issuer bid, the bid is accepted by the holders of not less than 90 per cent of the securities of any class of securities to which the bid relates, other than securities held at the date of the bid by or on behalf of the offeror, or an affiliate or associate of the offeror, the offeror is entitled, upon complying with this section, to acquire the securities held by dissenting offerees.

[^2]: The Divisional Court distinguished the case of Deluce Holdings Inc. v. Air Canada (1992), 1992 7654 (ON SC), 12 O.R. (3d) 131 (Gen. Div.), where Air Canada and Deluce Holdings owned seventy-five and twenty-five per cent respectively of Air Ontario. Air Canada had the option in the shareholder agreement of acquiring Deluce’s twenty-five per cent interest if Mr. Deluce was terminated from his position as vice-chairman and C.E.O. of Air Ontario. In order to acquire the shares, Air Canada used its majority position on the board of directors of Air Ontario to terminate Mr. Deluce. The court interpreted the agreement to mean that Air Canada could only exercise its rights on a proper termination of Mr. Deluce. If he was terminated for an improper purpose, then Air Canada’s actions to force the acquisition of Deluce’s twenty-five per cent interest could be viewed as oppressive of Deluce Holdings’ rights as a minority shareholder.