COURT FILE NO.: CV-18-597346-00CL

DATE: 20211012

ONTARIO

SUPERIOR COURT OF JUSTICE

(COMMERCIAL LIST)

BETWEEN:

MURRAY LEITCH

Applicant

– and –

GLOBAL ATOMIC CORPORATION

Respondent

John Porter and Alexander Soutter for the Applicant

Peter-Paul E. Du Vernet for the Respondent

HEARD: September 29, 2021

PENNY J.

REASONS FOR JUDGMENT

1Mr. Leitch was both a shareholder in Silvermet Inc. and in Global Atomic Fuels Corporation (“Global Fuels”). Management of both corporations proposed to amalgamate. The amalgamation was overwhelmingly approved by the shareholders of both corporations. The amalgamated corporation is the respondent, Global Atomic Corporation.

2The applicant opposed the amalgamation and chose to exercise his dissent rights as a shareholder of Global Fuels. The applicant refused to accept the offer of payment made by the respondent.

3In this application, the applicant asks the court to fix a fair value for his shares under s. 185(4) of the Ontario Business Corporations Act. Section 185 establishes the rights and obligations of a shareholder who chooses to dissent from a proposed amalgamation with another corporation. The applicant asks the court to fix a fair value of his 1,150,000 common shares in Global Fuels at $1.4706 per share for a total value of $1,691,190.

4There are two issues:

(1) is this application out of time by virtue of the applicant’s admitted failure, under s. 185(19) of the OBCA, to apply to the court to fix a fair value for his shares within 20 days of his “failure to accept an offer” from the respondent? and

(2) if not, what is a fair value for the applicant’s shares?

Background

5The essential facts are not in dispute.

6Mr. Leitch acquired 1,150,000 shares in Global Fuels through private placements. One million shares were acquired at $0.05 per in May 2005. An additional 150,000 shares were acquired later at $1.00 per share, the last transaction being in August 2014. His total cost was $200,000.

7On August 17, 2017, Silvermet and Global Fuels executed an agreement to amalgamate. On September 29, 2017, the corporations held back to back special meetings of shareholders to consider the amalgamation. The shareholders of both corporations voted overwhelmingly to approve the amalgamation. The Silvermet shareholders meeting was held first. After the Silvermet shareholders had voted to approve the amalgamation, the chairman and CEO of both corporations, Mr. Roman, answered questions from the floor. The evidence is that Mr. Roman, in answer to a question from Mr. Leitch, stated that, for the purposes of this amalgamation, Global Fuels had been valued at $100 million and Silvermet had been valued at $50 million. In a subsequent answer to a similar question from another shareholder in the same meeting, Mr. Roman described these values as a “guess”.

8Mr. Leitch says that on the strength of Mr. Roman’s statement, he believed his 1,150,000 shares in Global Fuels were worth $1.47 each ($100 million divided by 68 million shares outstanding) for a total of $1.691 million. Based on this calculation, he elected to dissent under s. 185 of the OBCA.

9The amalgamation came into effect on December 22, 2017. On December 27, 2017, Mr. Leitch received a written offer to pay from the respondent offering to purchase his shares for $100,000, which amounts to $0.0869 per share.

10Under the dissent rules, because Mr. Leitch did not accept the respondent’s offer, he was required to apply to court for the determination of fair value within 70 days of the effective date of the amalgamation, that is, March 4, 2018. Mr. Leitch did not initiate this proceeding until May 8, 2018.

11Apart from this one missed deadline, it is not in dispute that Mr. Leitch otherwise complied with the formal requirements of s. 185 and, subject to that one dispute, is entitled to a payment under s. 185(4) representing “a fair value” for his shares.

12Section 185(4) provides that fair value is to be “determined as of the close of business on the day before the resolution was adopted”. The resolution was adopted on September 29, 2017. Accordingly, the effective date to determine a fair value is September 28, 2017.

Analysis

Is the Application Out of Time?

13The combined effect of ss.185 (18 ) and (19) is that dissenting shareholders may apply to the court to fix a fair value for their shares within 70 days after the amalgamation, “or within such further period as the court may allow”.

14The respondent takes the position that having failed comply with this deadline, the application is out of time and should be dismissed.

15The parties have been unable to find any judicial consideration of how or when the discretion under the proviso in both ss. 185(18) and (19), “or within such further period as the court may allow”, is to be exercised.

16Both parties cite, by analogy to other circumstances where the court exercises discretion to extend deadlines, factors such as the explanation for the delay, the length of the delay, whether there was a continuing intention to seek the relief, whether the relief sought raises a “triable” issue and whether the opposing party has suffered prejudice.

17These seem to me to be useful factors to take into consideration. The respondent submits, however, that no explanation whatsoever has been offered for the applicant’s two-month delay; that alone, it says, should disqualify the applicant from relying on the exercise of discretion by the court under s. 185(19).

18I am unable to agree. The object of the s. 185 exercise is to determine “a fair value”. The court has broad jurisdiction to fashion the appropriate remedy. I regard the factors listed above as relevant considerations – perhaps among others – but not as a cumulative five-part test. Here, the applicant is entitled to some remedy; the OBCA is clear on the point. Although the respondent has undertaken to Mr. Leitch and the court that its $100,000 offer remains outstanding and available to Mr. Leitch, the legislation itself provides, in s. 85(17) that “any such offer lapses if the corporation does not receive an acceptance thereof within 30 days after the offer has been made.”

19Here, there is a prima facie meritorious case for relief of some kind being granted to Mr. Leitch. The delay was not inordinate. It is a reasonable inference from the evidence that Mr. Leitch had a continuing intention to dissent and to seek a fair value for his shares. The company’s statement, that it concluded Mr. Leitch was not seeking to proceed with his claim and “has conducted its affairs accordingly”, does not, standing alone, constitute any evidence of prejudice. By contrast, the dismissal of Mr. Leitch’s action would be hugely prejudicial. While it would have been prudent to provide an explanation for the delay, I am not prepared to find that the lack of any explanation is, by itself, sufficient to disentitle Mr. Leitch to the favourable exercise of the court’s discretion to allow the application to be commenced in “such further period” as seems appropriate in the circumstances.

20I therefore declined to dismiss the application on this ground.

What Is A Fair Value For The Applicant’s Shares?

21The relief sought in this application is often called the “dissent and appraisal” remedy. This remedy has its roots in equity and represents an attempt to balance the different interests of minority and majority shareholders. Fair value is not synonymous with fair market value. The concept of fair value embraces some notion of equitable treatment – what is just and equitable in the circumstances. Section 185 confers a broad and flexible jurisdiction on the court to determine the value of a dissenting shareholders shares: Ford Motor Company of Canada v. OMERS, 2006 CanLII 15 (ON CA) at para. 131.

22The concept of fair value cannot be reduced to a set of rules or to a formula or equation. Each case must be examined on its own facts. Each case presents its own difficulties. The one true rule is to consider all the evidence that might be helpful, to consider the particular factors in the particular case, and to exercise the best judgment that can be brought to bear on all the evidence and all the factors. It is, in the end, a question of judgment: Cyprus Anvil Mining Corp. v. Dickson, 1986 CanLII 811 (BC CA).

The Applicant’s Proposed Fair Value

23The sole basis upon which the applicant seeks a fair value of $1.4706 per share is the statement of Mr. Roman during the question and answer period following the Silvermet shareholder vote approving the amalgamation. On the evidence, I must accept that the statement was made. There is no contrary evidence and the applicant was not cross-examined. But, what the statement means, the context in which it was made and whether the statement can be regarded as reasonable and/or reliable, and the reasonableness of Mr. Leitch’s alleged reliance upon it, are in serious dispute.

24The applicant says Mr. Roman statement is an unambiguous representation of a senior officer of both Silvermet and Global Fuels that Global Fuels was, the day before the vote, worth $100 million. He further maintains that this representation was made in the formal setting of a shareholders meeting specifically called to approve the proposed amalgamation. The applicant submits the statement is unqualified and that it was represented as true. He further submits that the statement was intended to be, and was, reasonably relied upon for concrete purposes. These purposes include, in the applicant’s case in particular, deciding whether to dissent from the amalgamation and to exercise dissent rights under s. 185 of the OBCA.

25Not all representations (or even misrepresentations) are actionable. This is not an action for breach of contract nor is it an action for negligent or fraudulent misrepresentation. Nevertheless, concepts such as the nature and reliability of the representation, the reasonableness of any reliance placed on the representation and whether, in fact, detrimental reliance took place, may assist in determining a fair value in the unique circumstances of this case.

26It is by no means clear to me what Mr. Roman’s statement means or what it purports to be. What is the $100 million purported value based on? Is it a value attributable to the post- amalgamation or pre-amalgamation period? I find it difficult to read this statement as an unambiguous representation that there was a bona fide third party valuation of Global Fuels as of September 27, 2017 concluding that Global Fuels had a pre-amalgamation value of $100 million. Among other things, the evidence reveals that when the issue came up again shortly after the applicant’s question, Mr. Roman described the $100 million value as a “guess” and that it was a “forward looking” assessment.

27Even if I could read this statement as a factual representation of Global Fuels’ pre-amalgamation value, there remains the issue of whether the statement could reasonably be relied upon for the purposes of giving rise to a fair value for the applicant’s Global Fuels shares.

28Prior to the shareholder meetings, the applicant was, along with all other shareholders, provided with management information circulars for Global Fuels and Silvermet. These circulars are carefully drafted legal documents required by the OBCA to provide full and fair disclosure to shareholders. The contents of the Global Fuels circular constitute important context to assess the reasonableness of basing a fair value on Mr. Roman’s statement.

29The applicant admits he read the Global Fuels and Silvermet circulars before the shareholder meetings. He would, in any event, be deemed to have read them because he, along with the other shareholders, clearly had the opportunity to do so.

30Schedule A to the Global Fuels circular contains information about Silvermet. Among other things, it provides the high and low prices of Silvermet shares for the last 12 months (September 2016 to August 2017) which show a range from $0.03 to $0.18. On August 17, 2017, the last trading day prior to the date of the public announcement of the proposed amalgamation, the closing price of Silvermet shares on the TSXV was $0.11. The amalgamation was premised on an exchange ratio of 2.147 Silvermet shares for each Global Fuels share. Thus, for the purposes of the proposed amalgamation and disclosure to the shareholders of Global Fuels, the implied value of a Global Fuels share on August 17, 2017 was $0.236 ($0.11 x 2.147).

31Evans & Evans, Inc. prepared a fairness opinion dated August 17, 2017 which was disclosed to the shareholders as Appendix C to the Silvermet circular. Evans & Evans noted that Silvermet’s average trading prices over the 10, 30, 90 and 180 trading days preceding the effective date of its opinion ranged from $0.07 to $0.09. Evans & Evans noted that Silvermet issued press releases regarding the potential merger from October 2016 to May 2017 “but there were no material changes in the trading price”.

32The Evans & Evans fairness opinion noted that neither of the companies had completed a significant equity financing in the three years preceding the transaction. Private equity placements were done with Global Fuels in 2014 and 2015, including an investment of $1.25 million from Silvermet, at US $1.00 per share. However, Evans & Evans specifically noted that “given the lack of significant financings in the 18 months preceding the Opinion, Evans & Evans was of the view the last financing price was not indicative of the current value of either of the Companies”. Evans & Evans also reviewed the market values of public uranium companies and found “significant declines in market values over a three-year period.” It also found that the values implied by the proposed amalgamation were “within the range of values identified in the precedent transactions” it reviewed.

33Finally, Evans & Evans also noted that Silvermet had $3 million in cash, no debt and $4 million of working capital. In contrast, Global Fuels had nominal cash, $2.1 million in debt, negative working capital of over $5 million and that it had been “funded from promissory notes from a Director, other related parties and Silvermet”.

34The inescapable conclusion from the information contained in the circulars, both of which were read and considered before the meeting by the applicant, is that the implicit value of Global Fuels’ shares, immediately pre-amalgamation, was at best $0.236 ($0.11 x 2.147).

35Given the carefully drafted information disclosed in the circulars, compared to the qualified, unsupported and undocumented opinion (“guess”) offered by Mr. Roman in the Q&A given after the vote by the Silvermet shareholders had already been taken, I am unable to accept that the applicant’s purported reliance on Mr. Roman’s statement was reasonable in the circumstances. The applicant may have been naïve or he may have been extremely sharp and strategic in his purported reliance (the applicant is a lawyer and experienced mining investor) but, in the face of the carefully documented disclosure in the circulars, the one thing that reliance was not, was reasonable.

36For this reason, while I find that the applicant is entitled to be paid a fair value for his shares, the applicant has not established that fair value as being $1.4706 per share totalling $1,691,190.

The Respondent’s Fair Value

37On December 27, 2017, the respondent provided the applicant with an offer to purchase his 1,150,000 common shares of Global Fuels for $100,000 (about $0.087 per share). That letter offered no background, justification, analysis or supporting calculations for this proposed value.

38Many months later, on September 14, 2018, well after this litigation had been initiated, the respondent provided a document entitled Outline: Summary of Value Considerations. It is undated and unsigned. Only later, on September 27, 2021, in a supplementary responding affidavit filed two days before the hearing of this matter, did Mr. Lehari, who is the CFO of the respondent, indicate that the Outline had been prepared by him.

39The Outline essentially says that:

(i) Global Fuels’ sole asset prior to the amalgamation was six mining permits in Central Niger scheduled to expire in 2019 unless exploration and evaluation activities had been completed;

(ii) Global Fuels was unable to fund even minimal operating activities;

(iii) in contemplation of the amalgamation, Global Fuels tried to raise $10 million from a private placement structured at $0.25 per share. The private placement was a failure, receiving only $325,000 worth of subscriptions;

(iv) as of September 28, 2017 Global Fuels had approximately $6 million in accounts payable, accrued liabilities and notes payable with virtually no cash on hand. To support continued operations, senior management had worked without pay since May 2015;

(v) a pre-amalgamation fair value for Mr. Leitch’s shares was assessed on the basis of market share price and comparable public companies;

(vi) as Global Fuels was a private, illiquid company, “in accordance with valuation principles discounts in the range of 35% to 60% would be applicable” and, in view of the financial circumstances of Global Fuels, “a discount rate at the high-end of the range is indicated.” This produced a market share value of $0.09 per share “concurrent with the amalgamation”, or $103,500 for Mr. Leitch’s shares; and

(vii) another uranium company with assets in Niger, Goviex was listed on the TSXV, and, again applying a 60% discount, would have had a value of approximately $0.08 per share, or $92,000 for the applicant’s total shares.

40The Outline, again, provides no supporting documentation, and precious little analysis, for any of the assertions made.

41While Mr. Lehari is the CFO of the respondent, he has provided no CV or summary of qualifications that would qualify him to assess the fair value of Global Fuels’ shares as at September 28, 2017. Further, as a senior officer of the respondent, his interest is obviously in conflict with the applicant. Mr. Lehari can in no way be regarded as independent or objective in this matter.

42The Outline itself serves to demonstrate the largely subjective nature of the respondent’s fair value analysis. There is simply no justification offered, for example, for the range of majority discounts or any real analysis why, in the circumstances, Global Fuels would be at the high end that range. Many of the assertions in the Outline, and its conclusions, represent little more than that speculation or unsupported opinion, indistinguishable from guesswork. I am not prepared to accept the respondent’s offer letter and Outline as any acceptable basis for finding a fair value for the applicant’s shares.¹

Conclusion on A Fair Value

43Neither party filed any expert valuation evidence. Neither party was cross-examined. As I have found neither party’s evidence of fair value compelling, or even reasonable, I turned again to the only somewhat objective, publicly available, information of value which is contained in the information circulars. The prevailing price of Silvermet shares immediately pre-amalgamation was $0.11. The exchange ratio adopted for the amalgamation was 2.147 Silvermet shares for each Global Fuels share. This gives rise to an implied share value, as noted above, of $0.236.² These and other factors were the foundation for the Evans & Evans fairness opinion. There is no reliable evidence before me the to justify a different value. Nor is there any evidence to support any so-called minority discount, or, even if appropriate, what it should be. Accordingly, I find $0.236 per share, or $271,400 to be an appropriate fair value for the applicant’s shares under s. 185(18) of the OBCA.

Conclusion

44For the forgoing reasons, I grant a declaration that the fair value at which the applicant’s shares shall be purchased, under s. 185(4) of the OBCA, is $0.236 per share, or $271,400.

45Section 185(27) of the OBCA provides that the court may award a reasonable rate of interest on the amount payable to a dissenting shareholder. In LoCicero v. BACM Industries Ltd., 1984 CanLII 3804 (MB QB) at para. 59, Monnin J., considering an analogous provision, held that where the fair value of the shares in question is found to be greater than the corporation’s offer, it would be appropriate to award interest at a rate approximating the return of a long-term investment since the valuation date. In that case, the long term return was found to be 8%. However, there is simply no evidence in this case of the long term rate of return, or any other lost opportunity cost, since September 28, 2017. According, pre- and post-judgment interest shall be calculated in accordance with the Courts of Justice Act.

46I order that the aforesaid payment, with interest, shall be made within 30 days.

Costs

47While Mr. Leitch was not successful in his claim for a fair value of $1.4706 per share, what he actually achieved is considerably more (almost three times) what the respondent was proposing. Accordingly, Mr. Leitch is entitled to partial indemnity costs in the agreed amount of $30,000.

Penny J.

Released: October 12, 2021

COURT FILE NO.: CV-18-597346-00CL

DATE: 20211012

ONTARIO

SUPERIOR COURT OF JUSTICE

(COMMERCIAL LIST)

Footnotes

1. 1In Ford Motor Company of Canada v. OMERS, the Court of Appeal found that, where the triggering event is a squeeze out, fair value should not be reduced for a minority discount: para. 132. The respondent submits that Ford Motor is distinguishable because, in this case, the triggering event is not a squeeze out but a shareholder vote in favour of an amalgamation. While the point is taken, no explanation has been offered for why this distinguishing feature means that a minority discount is warranted in the circumstances of this case. Thus, for both legal and factual reasons, I reject the importation of any minority discount as unjustified and unproved.
2. 2After the shareholders’ meetings and the vote (and after the consolidation of share capital of both corporations approved at the meetings), but before the amalgamation was concluded on December 22, 2017, on November 14, 2017, a private placement brokered by Cantor Fitzgerald was announced, seeking to raise $3 million, priced at $0.25 per Silvermet share. This was the financing referred to in the Outline, which turned out to be a complete failure. It is, however, some further evidence of what value was reasonably thought to be before the amalgamation was actually concluded later in December 2017.