Ontario Court Grants Interlocutory Injunction in Hostile Bid Dispute

Strategic Insights -

The Ontario Superior Court of Justice has ruled in favor of Gold Reserve Inc. in a dispute surrounding a hostile bid by Rusoro Mining Ltd. for the Canadian mining company. On February 10, 2009, Justice Cumming granted an interlocutory injunction preventing Rusoro from advancing its bid, citing the misuse of confidential information by Rusoro's financial advisor, Endeavour Financial International Corporation.

In the matter, Gold Reserve had previously retained Endeavour as a financial advisor under an advisory agreement that included confidentiality provisions. However, Endeavour later began working for Rusoro on a hostile bid for Gold Reserve, allegedly using confidential information obtained from Gold Reserve. Justice Cumming found that Endeavour had breached its duties of confidence and fiduciary duty of loyalty to Gold Reserve, and that Rusoro was liable as a knowing and willing recipient of these services.

The decision highlights the importance of maintaining the independence and confidentiality of financial advisors in M&A transactions, particularly where they have previously worked with the target company or have financial interests in the parties involved. It also underscores the need for bidders to ensure that their financial advisors do not breach confidentiality obligations or fiduciary duties in favor of the target.

Key Takeaways:

  • Gold Reserve successfully obtained an interlocutory injunction preventing Rusoro from advancing its hostile bid on the basis of misuse of confidential information by Rusoro's financial advisor, Endeavour.
  • Endeavour, Rusoro, and several key Endeavour employees were found to have breached confidentiality provisions and fiduciary duties to Gold Reserve.
  • Justice Cumming found that the reasonable inference in this situation is that confidential information will be taken into account and used, even inadvertently, to the detriment of the provider of such information.
  • The decision confirms that Ontario courts generally give a broad effect to confidentiality provisions restricting the unauthorized use of a party's confidential information in M&A transactions.
  • Bidders should ensure the independence of their financial advisors, and that they do not breach confidentiality obligations or fiduciary duties in favor of the target.
  • Financial advisors should consider the impact of this decision on their existing and prior client relationships, and implement effective institutional ethical firewalls to prevent misuse of confidential information.

Statistics:

  • Gold Reserve successfully obtained an interlocutory injunction against Rusoro Mining Ltd. on February 10, 2009.
  • The advisory agreement between Gold Reserve and Endeavour was entered into in 2004, but was amended and restated in 2007.
  • The bid by Rusoro for Gold Reserve was made in August and October 2008, but Gold Reserve remained uninterested in negotiations.
  • Endeavour had previously acted as financial advisor to Gold Reserve for over four years, and was paid for its services.
  • The market valuation of Gold Reserve at the time of the offer was particularly depressed due to uncertainty with respect to the Venezuelan government's position vis-à-vis Gold Reserve and its project at Las Brisas del Chuyuni in Venezuela.

Sources:

  • Gold Reserve Inc. v. Rusoro Mining Ltd. and Endeavour Financial International Corporation, [2009] O.J. No. 147 (Ont. S.C.J.)
  • Mondaq, "Ontario Court Grants Interlocutory Injunction in Hostile Bid Dispute" (c) Mondaq Ltd, 2009