Court File and Parties

COURT FILE NO.: CV-11-00009222-00CL DATE: 20240325 ONTARIO - SUPERIOR COURT OF JUSTICE – COMMERCIAL LIST

IN THE MATTER OF AN APPLICATION BY 1843208 ONTARIO INC. TO DETERMINE THE FAIR VALUE FOR THE SHARES OF BAFFINLAND IRON MINES CORPORATION AS AT MARCH 21, 2011

APPLICATION UNDER THE BUSINESS CORPORATIONS ACT, R.S.O. 1990, C. 8.16, S. 185, AS AMENDED, AND RULES 14.05(2) AND 14.05(3) OF THE RULES OF CIVIL PROCEDURE

RE: 1843208 Ontario Inc., Applicant AND: Baffinland Iron Mines Corporation, Respondent

BEFORE: Peter J. Osborne J.

COUNSEL: Steve Tenai, Miranda Spence and Adam West, for the Applicant Dimitri Lascaris and Ashley Seely, for the Respondent, Dissenting Shareholders of Baffinland Iron Mines Corporation

HEARD: June 9, 2023

Supplementary Endorsement re Costs

[1] By Reasons September 29, 2023, I concluded that the fair value of the shares as at the Valuation Date was $1.50.

[2] I encouraged the parties to agree on costs, and directed that if they were unable to do so, they may make brief submissions in writing and file those together with any Bill of Costs. They were not able to agree, with the result that both the Applicants and the Respondents (the Dissenting Shareholders) have filed submissions regarding costs.

[3] The Applicant filed Costs Submissions together with a Bill of Costs, and following discussions between the parties, subsequently filed an Amended Bill of Costs. The effect of the amendments was to reduce the costs claimed by the Applicants in respect of one invoice of Duff & Phelps Canada Limited which the parties agreed should be treated as being entirely applicable to a related class action proceeding, and not this Application.

[4] In this Endorsement, references to the costs claimed by the Applicant shall be deemed to be references to the amended costs claim. Defined terms in this Endorsement have the meaning given to them in my earlier Reasons unless otherwise stated.

[5] The Applicant seeks a total amount on a partial indemnity basis, inclusive of fees, disbursements and taxes, of $1,460,512.35. That total is comprised of a claim for fees on a partial indemnity basis of $325,790.70 (plus applicable taxes of $42,352.79), and the balance of $1,092,368.86 relates to disbursements, overwhelmingly comprised of expert fees to support the valuation, which the Applicants claim on a full indemnity basis.

[6] The Amended Bill of Costs also reflects that if fees were awarded on a substantial indemnity basis, that portion of the total would increase by approximately $100,000 to $436,688.60 (plus $56,769.52 in applicable taxes).

[7] The Applicant submits that the court accepted its position in the Application that the fair value of the common shares as at the Valuation Date was $1.50, and that nearly all of the legal fees incurred by the Applicant were necessitated by the requirement to respond to the position maintained throughout by the Dissenting Shareholders that the fair value of the shares was $8.91.

[8] The Dissenting Shareholders submit that no costs should be payable by any party, on the basis that the fair value determined by the court of $1.50 per share exceeded the value per share formally offered to the Dissenting Shareholders pursuant to s.185(15) of the Ontario Business Corporations Act, R.S.O. 1990, c.B.16, as amended (the “OBCA”). The Dissenting Shareholders also submit that they were successful in their position with respect to interest, and finally, that the fees and disbursements claimed by the Applicant are unreasonable.

[9] Largely in support of its submission that the costs claimed by the Applicants are unreasonable, the Dissenting Shareholders have also submitted their own Bill of Costs. That reflects total fees and disbursements on a partial indemnity basis of $616,528.14, of which over 50%, or $377,707.39 relates to disbursements (inclusive of taxes) which are largely the expert fees. The Bill of Costs of the Dissenting Shareholders further reflects that if the fees were increased to a substantial indemnity basis, the total fees and disbursements would be $696,142.29.

The Applicable Principles

[10] Pursuant to s.131 of the Courts of Justice Act, R.S.O. 1990, c.C.43, costs of a proceeding are in the discretion of the court, and the court may determine by whom and to what extent the costs shall be paid.

[11] Rule 57.01 of the Rules of Civil Procedure provides that in exercising its discretion under s.131, the court may consider, in addition to the result in the proceeding (and any offer to settle or contribute), the factors set out in that Rule.

[12] The overarching objective is to fix an amount that is fair, reasonable, proportionate and within the reasonable expectations of the parties in the circumstances: Boucher v. Public Accountants Council for the Province of Ontario, (2004) 71 O.R. (3d) 291 (C.A.).

[13] Generally, the successful party is entitled to its costs of a proceeding.

[14] The OBCA includes provisions relevant to costs specific to a fair value Application such as this. If a corporation fails to deliver a written offer to a dissenting shareholder to pay for the shares held, the costs of the application are to be borne by the corporation unless the court orders otherwise. That has no application here.

[15] The OBCA clearly contemplates the possibility that dissenting shareholders will be liable for costs if unsuccessful, since s.185(20) provides that a dissenting shareholder is not required to give security for costs in a fair value application.

[16] Courts have held that dissenting shareholders in valuation proceedings such as this do not have a “free ride” such that they are immune from the financial burden of the proceedings. Smeenk v. Dexleigh Corp., (H.C.J.) (“Smeenk”) was a fair value application under the Canada Business Corporations Act, although the same principles are applicable to this proceeding. The court there stated:

In my opinion, the factors relevant to the issues to interest and costs before the court may be summarized thus:

(i) Liability is not the issue as the corporation is required to pay for the shares; the issue is quantum -- what is a fair value for the corporation to pay and which it will be ordered to pay.

(ii) If the shareholder does not accept the corporation's mandatory offer for the shares, it is to be inferred that it is not agreed by the shareholder to be an offer of fair value. While the shareholder is by s. 190 entitled to have the court fix a fair value, the Act does not contemplate a "free ride"; the court's discretion as to interest and costs is in part at least an instrument to distribute the financial burden resulting from the court proceeding.

It is my opinion that, in the circumstances of this case, the failure of the applicants to accept any of the Dexleigh offers is a factor that weighs in favour of solicitor-and-client costs, particularly having regard to the broad discretion conferred by the C.B.C.A. In addition, rule 49.13 fortifies by analogy the exercise of the broader discretion and the circumstances of this case.

I add one further comment: s. 190(12) in what is uncommon in litigation, requires the corporation to make an offer for the dissenting shares. It is my opinion that this adds an unusual dimension to the disposition of the rights of the dissenting shareholders in that the company must offer to settle and to explain the basis of its calculation. The attitude of the court ought, therefore, to be to look at the reasonableness or otherwise of the mandatory offer, and the reasonableness or otherwise of its rejection: Domglas, supra. It is, in my opinion, appropriate and fair to use the "carrot and stick approach" (Mr. Scott's language) to achieve reasonableness on the part of the company in making its offer which ought to be its best; and to achieve reasonableness in the expectations of the shareholder in deciding whether to accept the company's offer. Neither the company nor the shareholder ought to expect a "free ride" in the court if they do not agree. In my opinion, the party who is seen to be unreasonable ought to pay for intransigence by having to assume some or all of the financial burden of the proceedings.

Application of the Principles to this Proceeding

[17] This proceeding was significant to the parties, as reflected both in the scope of the litigation brought about as a result of the acquisition by the Applicant of control of Baffinland Iron Mines Corporation, and by the quantum of the amounts at issue.

[18] Moreover, and as noted above, the delta between the positions of the respective parties with respect to the Fair Value of the shares was dramatic, in both absolute and relative numbers: the Fair Value submitted by the Dissenting Shareholders was approximately six times that submitted by the Applicant. Given that the 57 Dissenting Shareholders held 2,586,176 shares to which they attributed a fair value of $8.91 per share, they were seeking to be paid a total of $23,042,828.20 plus accrued interest. The quantum at issue on this Application was therefore in excess of $19,700,000, before accumulated interest.

[19] It is therefore not surprising that there was significant and extensive valuation and other expert evidence adduced by both sides. As described in my earlier reasons:

[The Applicant] relies on Application materials comprising almost 8500 pages including the following:

a. the Affidavit and Supplemental Affidavit of Bruce Walter (“Walter”) sworn February 10, 2020 and October 13, 2021 respectively, together with exhibits to both affidavits. Those exhibits include technical reports and feasibility studies, among other things. Walter was a director of Baffinland;

b. the Affidavit of Brent Walker of Morrison Park Advisors (“Walker”) sworn October 13, 2021, together with Exhibit “A” thereto, which consists of his expert report. He was retained by 208 to address whether the option process for Baffinland was prematurely terminated by virtue of the Joint Bid discussed below;

c. the Affidavit and Supplementary Affidavit of Alan Lee of Duff & Phelps Canada Limited sworn January 30, 2020 and October 14, 2021 respectively, together with exhibits to both affidavits. Lee is a chartered business valuator, and the principal exhibits to his affidavits consist of his two valuation reports;

d. the Affidavit and Supplemental Affidavit of Stephan Altmann of Morrison Park Advisors (“Altmann”) sworn October 14, 2021 and April 7, 2022 respectively, together with exhibits to both affidavits. Altmann was retained by 208 to offer an opinion on the significance to a potential buyer of one of the studies relied upon. The principal exhibits to his affidavits consist of his expert reports;

e. the Affidavit of Linh Nguyen sworn April 8, 2022, which summarizes recorded climate information, among other material; and

f. transcripts of cross examinations, exhibits and answers to undertakings.

The Dissent Group relies upon a responding record of just over 2000 pages in length (regrettably not hyperlinked) including:

g. the Affidavit and Supplementary Affidavit of Gordon McCreary (“McCreary”) affirmed April 5, 2021 and February 8, 2022 respectively, together with exhibits to each. McCreary was previously a director and the President and CEO of Baffinland;

h. the Affidavit of Richard McCloskey (“McCloskey”) affirmed April 8, 2021, together with exhibits thereto. McCloskey was previously a director and the Chairman of Baffinland, as well as interim President and CEO;

i. the Affidavit of Peter Neumann affirmed April 13, 2021, together with exhibits thereto. Neumann is one of the Dissenting Shareholders;

j. the Affidavit of James Canessa of Forensic Economics Inc. (“Canessa”) sworn April 9, 2021, together with exhibits thereto, the principal exhibit of which consists of his expert report;

k. the Report (without Affidavit) of Kenneth Kuchling dated April 10, 2021. Kuchling runs his own mining consulting firm; and

l. the Affidavit of Ashley Seely sworn February 8, 2022, under cover of which are filed certain securities documents largely downloaded from SEDAR.

[20] As is apparent, and not unexpectedly, the expert technical opinions and the expert valuation opinions represented on both sides a very significant amount of work and indeed were to a very large extent the material that underpinned the respective positions of the parties. Both the technical opinions and the financial/valuation opinions were central to the issues and the determination of the fair value of the shares.

[21] I have considered the factors set out in r. 57.01.

[22] Again, the Applicant was overwhelmingly successful on this Application. With respect to its success, I observe briefly two points.

[23] First, I reject the submission of the Dissenting Shareholders that one of the principal reasons that the Applicant should not be entitled to any costs is that the court should be guided by the fact that the offer required by s.185(15) of the OBCA made by the company here was $1.10 per share, a value that is less than the determination I made in the Application of $1.50 per share, and that they rely on in Smeenk.

[24] The Dissenting Shareholders submit that they first learned that the company was seeking an order fixing the Fair Value of the shares at $1.50 per share when it received the company’s factum, years after this Application had been commenced and significant fees and disbursements had already been incurred.

[25] The challenge with this submission is that the Dissenting Shareholders had been offered $1.50 for their shares on at least two occasions. The first was part of the successful takeover bid announced on January 14, 2011, before this Application was commenced. They had the option to tender their shares at that time if they chose to do so. The second occasion was when the plan of arrangement of the company was approved by this Court on February 18, 2011.

[26] The fact that the Dissenting Shareholders were not interested in selling their shares at $1.50 on either of these two occasions (or at any other time) is perhaps not surprising given the exponential difference between that amount and the value to which they ascribed to their shares as noted above which exceeded that by approximately six times. However, the objective fact is that they were not interested in $1.50 per share for their shares.

[27] As noted in my Reasons, this was not a case where the rain between the parties was relatively incremental (i.e., in the order of 5%, or 10% or even 20%). It was many multiples: approximately 600%. In my view, the position of the Dissenting Shareholders was unreasonable and unrealistic. Smeenk supports the conclusion that they should assume some or all of the financial burden of the proceedings.

[28] Second, the Dissenting Shareholders submit that success was divided in that while the Applicant was successful on the substantively issue of the Fair Value of the shares, the Applicant also submitted that no interest should be payable given that the Dissenting Shareholders were responsible for much of the lengthy delay in this matter, and I concluded that there was no reason to deny the claim of the Dissenting Shareholders for interest.

[29] Clearly, I concluded that interest should be payable pursuant to s.185(27) of the OBCA, and the Dissenting Shareholders were successful on this point. However, their argument on this point was not the subject of any evidence (either fact evidence reflected in the affidavits or expert evidence reflected in the expert reports). It represented literally only a few minutes of time in oral argument.

[30] In the circumstances, in my view it does not amount to a factor that justifies an adjustment either way to what would otherwise be an appropriate award of costs.

[31] As noted above, this proceeding was immensely complex. The issues, both technical and financial, were numerous and sophisticated, and involved the consideration and application of numerous financial and technical assumptions, projections and estimates by the parties, their experts and ultimately, by the court.

[32] Given the amount at issue (as noted above, in excess of $19,700,000 before interest), it is and was reasonable for all parties to expect that the costs (and the disbursements relating to experts, given that they were such a central part of this Application) would be very significant. That this is true is reflected in both Bills of Costs submitted and summarized above. All the Applicant seeks is a significantly greater amount than would have been claimed by the Dissenting Shareholders, their own Bill of Costs reflecting a total of approximately $700,000.

[33] The complexity of the matter and therefore the corresponding complexity of both the fact evidence necessary to underpin the assumptions and projections relied upon by the experts is also reflected in the voluminous material filed by all parties as referred to above. In my view, the material filed by the Applicant was necessary, appropriate and proportionate to the issues. It consisted primarily of the affidavit evidence from Mr. Bruce Walter that described the Mary River Project, the failed search by the Company for a strategic partner and the takeover auction chronology, and the ultimate plan of arrangement and the dissent rights triggered. That evidence underpinned the valuation report of Mr. Alan Lee of Duff & Phelps. That report in turn necessarily inappropriately reviewed, analyzed and compared the different valuation approaches to arrive at the opinion tendered.

[34] The Dissent Group responded with three factual affidavits, two from former directors of the company, and expert evidence from two experts, one technical and one financial (Messrs. Kuchling and Canessa).

[35] That necessitated, in turn, reply evidence from the company which included additional fact and technical evidence in the reply report from Mr. Lee, as well as valuation support from Morrison Park Advisors (MPA) relating to investment banking.

[36] The Dissenting Shareholders then filed what were effectively sur-reply materials in response to which the company filed a further expert report from MPA responding directly to the various acquisition scenarios raised in the sur-reply materials and in particular the evidence of Mr. McCreary.

[37] What followed were approximately eight days of cross-examinations of the fact and expert witnesses on all sides.

[38] Having considered the success in this matter, reviewed the entire record again, reviewed in detail the respective Bills of Costs submitted by the parties (which inform their reasonable expectations, subject to the points stated above) and having applied the factors as set out in r. 57.01 to this case, in my view, an appropriate, fair and just award of costs is $1,075,000, inclusive of fees, disbursements and taxes. This amount is payable by the Dissenting Shareholders to the Applicant within 60 days.

Osborne J.