On January 21, 2019, the Quebec Court of Appeal ruled in O’Leary Funds Management c. Boralex Inc., 2019 QCCA 84, that dissident rights under business corporations acts do not apply to trusts. Unitholders of a trust must therefore ensure that their rights are recognized under the trust agreement or the Civil Code of Quebec. The Court was very clear that unitholders may not invoke the rights and protections of shareholders, even by analogy.
In the fall of 2010, Boralex Inc. (Boralex) decided to acquire its income trust fund, the Boralex Power Income Fund (Power Fund), in view of privatization. Boralex offered $5.00 per unit. The Board of Trustees convened an independent committee to consider the offer. The independent committee valued the fair market value of the units between $4.50 and $5.05 and, as a result, the Board of Trustees advised the unitholders to accept Boralex’s offer.
O’Leary Funds Management Ltd. (O’Leary) refused to tender its units, arguing that Boralex’s offer did not reflect fair market value or support the best interests of unitholders. Further, O’Leary contended that Boralex could not proceed with a compulsory acquisition because the trust agreement stipulated that Boralex required approval of at least 90% of the Power Fund units.
Owning only 73% of the units, Boralex decided to acquire the Power Fund through a business combination between the Power Fund and a shell company. In effect, the business combination allowed Boralex to force unitholders to exchange their units for shares of another Boralex shell company. To do so, Boralex took the following steps:
- convened a special meeting of unitholders;
- passed a resolution to exchange units in the Power Fund for redeemable shares in the shell company; and
- forced redemption of the shares at $5 each.
At the special meeting, 85.87% of unitholders approved the forced acquisition; O’Leary did not. Nevertheless, Boralex forced all minority unitholders to tender their units and, on November 2, 2010, O’Leary received payment for its units under protest.
O’Leary subsequently sued Boralex for damages caused by the allegedly unlawful acquisition of the Power Fund. A few months after Paquette J. of the Quebec Superior Court ruled against the plaintiff in O’Leary Funds Management c. Boralex inc., 2018 QCCS 842, the Quebec Court of Appeal affirmed that under both the trust agreement and the defendant’s other legal obligations, Boralex’s acquisition of the Power Fund was lawful.
- The QCCA reaffirmed that the governing law on trusts remains conceptually and practically different from corporate law:
The Fund is a trust created pursuant to articles 1260 to 1298 of the Civil Code of Quebec and, consequently, the laws governing corporations are not applicable. Yet, all the appellants arguments are intended to invoke rights and protections reserved for dissenting shareholders in corporate law. However, these laws do not apply here, even by analogy. The only rights of unitholders are those provided for in the trust arrangement. [Unofficial translation]
- Where claimants are unitholders of a trust, and not shareholders of a corporation, they may not claim rights and protections afforded to shareholders in corporate statute. The QCCA explained that unitholders cannot use corporate law to “distort the text of the trust deed and try to make it say what it does not say.”
- The only rights and protections afforded to unitholders are those found in trust agreements and the Civil Code of Quebec.
The author would like to thank Sophie Doyle, student-at-law, for her contribution to this article.