When does an outside adviser cross over into being a promoter of a company, with all the liability that comes with it? The Court of Appeal for Ontario recently provided some comfort on that question in the context of the Securities Act.

The plaintiff in Goldsmith vs. National Bank of Canada, 2016 ONCA 22, argued that the bank was a promotor of Poseidon Concepts Inc. under the statutory definition having: (i) provided a credit facility; (ii) issued a fairness opinion on a proposed reorganisation; (iii) acted as lead underwriter on an offering pursuant to the reorganisation; and (iv) because of a personal friendship between the underwriter and management at the company.

In other words, the plaintiff took the position that the bank was a promoter by virtue of having provided its client with fairly traditional banking services and because of a personal friendship between one of the bankers and the company’s officer.

The Securities Act provides that an “influential person” may be held civilly liable for a company’s misrepresentation if he or she “knowingly influenced” the release of a document containing a misrepresentation. Generally, an influential person is an insider of the company, like a control person. A promotor may also be an influential person, as someone “who... takes the initiative in founding, organising or substantially reorganising” the company.

The plaintiff argued that “initiative” connoted influence over the decision-maker or participation in the venture; the court disagreed. Upholding the lower court’s decision, the Court of Appeal held that the phrase “taking the initiative” requires active and autonomous action.

In the style of Lord Denning, Justice Belobaba in the lower court analogised to a common neighbourhood scene: “[A]fter a snow storm, I may take the initiative and shovel my elderly neighbour’s sidewalk. However, if I do no more than tell my neighbour about an easy-to-use snow shovel that is now available at the corner hardware store and he goes and buys the shovel and clears the snow himself, the most I can say is that I took the initiative to provide some snow shovel advice. I cannot say that I took the initiative to shovel his sidewalk. It was my neighbour who made the decision to act on my advice, purchase the shovel and clear the snow himself.”

Jul-Sep 2016 issue

Lenczner Slaght LLP