Bison Acquisition Corp. and Brookfield Infrastructure Corporation Exchange Limited Partnership | Inter Pipeline Ltd. and Pembina Pipeline Corporation

ALBERTA SECURITIES COMMISSION

DECISION

Citation: Re Bison Acquisition Corp., 2021 ABASC 188

Date: 20211221

Bison Acquisition Corp. and Brookfield Infrastructure Corporation Exchange

Limited Partnership

-and-

Inter Pipeline Ltd. and Pembina Pipeline Corporation

Kari Horn

Panel:

Tom Cotter

Timothy Robson

Danielle Mayhew

Tracy Clark

Representation:

Tonya Fleming

for Commission Staff

Shane D'Souza

Kara Smyth

John Osler

Robert Richardson

William Main

for Bison Acquisition Corp. and Brookfield

Infrastructure Corporation Exchange Limited

Partnership

Jeffrey Sharpe

Andrew Sunter

Paul Chiswell

Joanne Luu

for Inter Pipeline Ltd.

David Tupper

Alyssa J. Duke

for Pembina Pipeline Corporation

Gordon Tarnowsky, Q.C.

for the Special Committee of the Board of

Inter Pipeline Ltd.

5998105.1

July 9, 2021

Submissions Completed:

July 12, 2021

Date of Oral Decision:

December 21, 2021

Date of Written Reasons:

TABLE OF CONTENTS

I.

INTRODUCTION ...............................................................................................................1

BACKGROUND .................................................................................................................2

II.

A.

Parties and Witnesses...............................................................................................2

1.

2.

3.

4.

Brookfield Entities.......................................................................................2

IPL................................................................................................................2

Pembina........................................................................................................3

Staff..............................................................................................................4

B.

Submissions and Evidence.......................................................................................4

III.

IV.

CHRONOLOGY OF SIGNIFICANT EVENTS.................................................................4

PRELIMINARY MATTERS.............................................................................................13

A.

B.

Confidentiality .......................................................................................................13

Admissibility and Weight of Certain Evidence .....................................................13

1.

2.

Background................................................................................................13

Arguments of the Parties............................................................................14

(a)

(b)

Brookfield ......................................................................................14

IPL..................................................................................................15

3.

Analysis and Conclusions..........................................................................16

V.

THE APPLICATIONS ......................................................................................................18

A.

B.

C.

The Brookfield Application...................................................................................18

The IPL Application ..............................................................................................19

The Pembina Application ......................................................................................21

VI.

GENERAL PRINCIPLES .................................................................................................21

A.

B.

C.

D.

The ASC's Public Interest Jurisdiction ..................................................................21

The Business Judgment Rule.................................................................................24

Swaps.....................................................................................................................24

The Take-Over Bid Regime...................................................................................25

1.

2.

Overview....................................................................................................25

2016 Amendments to the Take-Over Bid Regime.....................................26

(a)

(b)

(c)

(d)

Relevant 2016 Amendments..........................................................26

Minimum Initial Deposit Period....................................................26

Minimum Tender Condition ..........................................................26

Early Warning Regime ..................................................................26

3.

Acquisitions by Offeror During Take-Over Bid........................................27

E.

Voting Threshold for a Plan of Arrangement ........................................................28

VII. THE BROOKFIELD APPLICATION ..............................................................................28

A. Defensive Tactics – General ..................................................................................28

1.

2.

Governing Principles .................................................................................28

Arguments of the Parties............................................................................29

(a)

(b)

(c)

Brookfield ......................................................................................29

IPL and Pembina............................................................................30

Staff................................................................................................30

3.

Brief Conclusion........................................................................................30

B.

C.

D.

The IPL SRPs.........................................................................................................31

1.

Additional Background and Evidence .......................................................31

(a)

(b)

General...........................................................................................31

Expert Evidence.............................................................................32

(i)

(ii)

Brookfield ..........................................................................32

IPL......................................................................................33

2.

3.

Applicable Law..........................................................................................33

Arguments of the Parties............................................................................36

(a)

(b)

(c)

Brookfield ......................................................................................36

IPL and Pembina............................................................................37

Staff................................................................................................38

4.

Analysis and Conclusion............................................................................39

The Break Fee........................................................................................................42

1.

Additional Background and Evidence .......................................................42

(a)

(b)

General...........................................................................................42

Expert Evidence.............................................................................45

(i)

(ii)

Brookfield ..........................................................................45

IPL......................................................................................47

2.

3.

Applicable Law..........................................................................................48

Arguments of the Parties............................................................................49

(a)

(b)

(c)

Brookfield ......................................................................................49

IPL and Pembina............................................................................50

Staff................................................................................................53

4.

Analysis and Conclusion............................................................................53

Fairness of the Strategic Review............................................................................55

1.

Additional Background and Evidence .......................................................55

(a)

(b)

General...........................................................................................55

Expert Evidence.............................................................................56

(i)

(ii)

Brookfield ..........................................................................56

IPL......................................................................................56

2.

3.

Applicable Law..........................................................................................57

Arguments of the Parties............................................................................57

(a)

(b)

Brookfield ......................................................................................57

IPL..................................................................................................59

4.

Analysis and Conclusion............................................................................61

VIII. THE IPL APPLICATION AND THE PEMBINA APPLICATION.................................63

A. Additional Legal Principles ...................................................................................63

1.

CSA Proposals and Amendments..............................................................63

(a)

(b)

(c)

History............................................................................................63

Puri's Comments ............................................................................65

Mitts' Comments............................................................................65

2.

Sears Decision ...........................................................................................66

(a)

(b)

(c)

History............................................................................................66

Puri's Comments ............................................................................67

Mitts' Comments............................................................................67

3.

4.

Empty Voting and Hidden Ownership.......................................................68

(a)

(b)

(c)

Overview........................................................................................68

Puri's Comments ............................................................................68

Mitts' Comments............................................................................68

Materiality..................................................................................................68

B.

Additional Background and Evidence ...................................................................70

1.

2.

3.

4.

5.

6.

7.

Swap Agreements ......................................................................................70

IPL Swap Disclosure to IPL ......................................................................70

IPL Swap Public Disclosure and Associated Concerns.............................71

BMO's Swap Activities..............................................................................76

BMO NB's Engagement as Financial Advisor ..........................................76

Puri Report.................................................................................................76

Mitts Report ...............................................................................................77

(a)

(b)

Scope..............................................................................................77

US Decision in CSX.......................................................................77

C.

D.

Arguments of the Parties........................................................................................78

1.

2.

3.

IPL and Pembina........................................................................................78

Brookfield ..................................................................................................80

Staff............................................................................................................80

Analysis..................................................................................................................81

1.

Hidden Ownership and Empty Voting.......................................................81

(a)

(b)

Hidden Ownership .........................................................................81

Empty Voting.................................................................................81

2.

Effect of Hidden Ownership and Empty Voting........................................82

(a)

(b)

EWR Disclosure.............................................................................82

General Disclosure of IPL Swaps..................................................83

(i)

(ii)

Background........................................................................83

Context...............................................................................83

(iii) Discussion..........................................................................85

(A)

Disclosure – Brookfield Offer, IPL Shareholder

Letters ....................................................................85

Disclosure – June 4 News Release.........................86

Disclosure – Relationship with BMO....................86

(B)

(C)

(c)

(d)

Clearly Abusive .............................................................................88

(i)

(ii)

Entire Context....................................................................88

EWR Threshold .................................................................88

(iii) Brookfield's Disclosure Generally.....................................90

"Animating Principles" ..................................................................91

E.

F.

Conclusion .............................................................................................................91

Remedies for Disclosure Contraventions and Clearly Abusive Behaviour...........91

1.

2.

3.

General.......................................................................................................91

Jurisdiction under Sections 179 and 198 of the Act ..................................91

Orders Sought ............................................................................................92

(a)

Proposed Voting Order ..................................................................92

(i) Arguments of the Parties....................................................92

(A) IPL and Pembina....................................................92

(B)

(C)

Brookfield ..............................................................93

Staff........................................................................93

(ii)

Analysis..............................................................................93

(iii) Conclusion .........................................................................93

Proposed Brookfield Offer CTO....................................................93

(b)

(c)

(d)

(i)

Arguments of the Parties....................................................93

(A)

(B)

(C)

IPL and Pembina....................................................93

Brookfield ..............................................................93

Staff........................................................................94

(ii)

Analysis..............................................................................94

(iii) Conclusion .........................................................................94

Proposed Disclosure Order ............................................................94

(i)

Arguments of the Parties....................................................94

(A)

(B)

(C)

IPL and Pembina....................................................94

Brookfield ..............................................................95

Staff........................................................................95

(ii)

Analysis..............................................................................96

(iii) Conclusion .........................................................................97

Proposed Minimum Tender Order.................................................98

(i)

Arguments of the Parties....................................................98

(A)

(B)

(C)

IPL and Pembina....................................................98

Brookfield ..............................................................98

Staff........................................................................98

(ii)

Analysis..............................................................................98

(iii) Conclusion .......................................................................101

IX.

ORDER............................................................................................................................101

1

I.

[1]

INTRODUCTION

On July 9, 2021, we held a hearing (the Hearing) of three applications seeking orders under

the Securities Act (Alberta) (the Act):



a June 9, 2021 application (the Brookfield Application) by Bison Acquisition

Corp. (Bison) and Brookfield Infrastructure Corporation Exchange Limited

Partnership (BICELP) (Bison and BICELP are two of the several entities relevant

to this matter that are connected to Brookfield Asset Management Inc. (BAM); we

refer to all of those connected entities collectively as Brookfield);



a June 18, 2021 cross-application (the IPL Application) by Inter Pipeline Ltd.

(IPL); and

a June 18, 2021 cross-application (the Pembina Application) by Pembina Pipeline

Corporation (Pembina).

[2]

We refer to the Brookfield Application, the IPL Application, and the Pembina Application

collectively as the Applications.

[3]

The Applications were made in connection with:



an unsolicited take-over bid for the common shares of IPL (the IPL Shares) made

by Brookfield on February 22, 2021 and varied on June 4 and June 21, 2021

(respectively, the February 22 Offer, the June 4 Offer, and the June 21 Offer;

and, collectively, the Brookfield Offer);

provisions in IPL's May 8, 2017 shareholder rights plan, as reconfirmed by IPL

shareholders on May 7, 2020 (the First SRP), and provisions in IPL's

March 31, 2021 supplemental shareholder rights plan (the Supplemental SRP;

and, together with the First SRP, the IPL SRPs);

a May 31, 2021 plan of arrangement agreement between IPL and Pembina (the

Pembina Arrangement), which included a termination fee of $350 million (the

Break Fee) payable by IPL to Pembina in certain circumstances if the arrangement

failed to proceed; and

certain cash-settled total return swaps (Swaps) referencing IPL Shares

(collectively, the IPL Swaps), entered into between Brookfield as swap investor

and Bank of Montreal as swap dealer between June and October 2020. Bank of

Montreal was not identified in any Brookfield disclosure of the IPL Swaps as of the

date of the Hearing, and was referred to only as an unnamed "ISDA swap dealer"

(ISDA is the International Swaps and Derivatives Association, Inc.). We use the

term BMO to refer to various Bank of Montreal entities, including Bank of

Montreal, BMO Nesbitt Burns Inc. (BMO NB), and BMO Capital Markets (BMO

CM). According to the evidence, BMO CM is a trade name, which includes BMO

and BMO NB. We do not differentiate among these unless stated otherwise.

2

[4]

On July 12, 2021, we delivered an oral ruling (the Oral Ruling) dismissing the Brookfield

Application and granting certain relief under the IPL Application and the Pembina Application, as

set out in an order of the same date cited as Re Bison Acquisition Corp., 2021 ABASC 107 (the

Order). These are our reasons for the Oral Ruling and Order.

II.

A.

BACKGROUND

Parties and Witnesses

1.

Brookfield Entities

[5]

As noted, several connected Brookfield entities were relevant or mentioned in the evidence.

We do not differentiate among them, unless stated otherwise.

[6]

Bison is an Alberta corporation and BICELP is an Alberta limited partnership. Each was

established for the purpose of making the Brookfield Offer.

[7]

Brookfield acquired IPL Shares between March and October 2020. At the time of the

February 22 Offer, Brookfield beneficially owned and exercised control and direction over

41,848,857 IPL Shares, or approximately 9.75% of the 429,219,175 IPL Shares issued and

outstanding as of February 19, 2021.

[8]

As of February 22, 2021, Brookfield also had economic exposure to 42,492,698 IPL Shares

(the Swap Shares), or approximately 9.9% of the IPL Shares, through the IPL Swaps. The

Brookfield Offer stated that Brookfield had no "right to vote, or direct or influence the voting,

acquisition, or disposition of" any Swap Shares held by the swap dealer, and that "no person acting

jointly or in concert with [Bison] beneficially owns or exercises control or direction over any

securities of IPL".

[9]

Brian Baker (Baker) is a Managing Partner and Chief Investment Officer with Brookfield

Infrastructure, which is BAM's "infrastructure investment management business". He was

Brookfield's primary fact witness and swore two affidavits that were tendered into evidence at the

Hearing: one dated June 17, 2021 (the Baker Affidavit) and one dated June 25, 2021. He was

cross-examined on his affidavits on June 28, 2021.

[10] Brookfield retained James Osler (Osler) to provide expert opinion evidence. He is one of

the founding principals of Origin Merchant Partners, which was described as an independent

Canadian financial advisory firm. He has approximately 27 years of experience in investment

banking, including experience advising on large corporate transactions. Osler swore an affidavit

on June 16, 2021 that appended his expert report dated June 16, 2021. Osler was cross-examined

on his affidavit on June 28, 2021.

2.

IPL

[11] At the time of the Hearing, IPL was an Alberta corporation in the petroleum transportation

and natural gas liquids processing business. It owned and operated certain western Canadian

energy infrastructure assets, including the Heartland Petrochemical Complex (the HPC). The HPC

was described as North America's first integrated propane dehydrogenation and polypropylene

facility that would convert propane into higher-value polypropylene.

3

[12] The IPL Shares were listed and posted for trading on the TSX.

[13] The evidence at the Hearing included an affidavit sworn by Margaret McKenzie

(McKenzie) on June 22, 2021. During the time relevant to the Applications, McKenzie was an

independent director and chair of IPL's board of directors (the IPL Board), as well as chair of the

IPL Board's Special Committee (the Special Committee) formed in February 2021 to undertake

a strategic review of IPL's options (the Strategic Review) and assist in responding to the

Brookfield Offer. She was cross-examined on her affidavit on June 27, 2021.

[14] William Quinn (Quinn) is the Executive Managing Director and Co-Head of Mergers and

Acquisitions at TD Securities Inc. (TD Securities), which the IPL Board retained as its financial

advisor in November 2020. Quinn was a senior member of the TD Securities advisory team that

worked on this matter, and swore an affidavit on June 22, 2021 (the Quinn Affidavit).

[15] Andrew Castaldo (Castaldo) is a Managing Director in the Global Mergers and

Acquisitions, North America Group at J.P. Morgan Securities LLC, with authority to act on behalf

of certain affiliates including J.P. Morgan Securities Canada Inc. (collectively, J.P. Morgan). The

Special Committee retained J.P. Morgan as its financial advisor effective February 18, 2021, and

Castaldo was the lead J.P. Morgan mergers and acquisitions (M&A) professional involved. He

swore an affidavit on June 22, 2021 (the Castaldo Affidavit).

[16] In addition to these fact witnesses, IPL retained two expert witnesses: Cameron Plewes

(Plewes) and Poonam Puri (Puri), each of whom swore an affidavit on June 22, 2021 (the Plewes

Affidavit and the Puri Affidavit, respectively).

[17] Plewes is the president of Peters & Co. Limited, described as an independent investment

dealer that specializes in investments in the Canadian energy industry. He is a Chartered

Accountant, Chartered Financial Analyst, and Chartered Business Valuator, and indicated that he

has been involved in numerous M&A transactions.

[18] Puri is a professor at Osgoode Hall Law School, where she teaches corporate and securities

law. Among other qualifications, she is the co-founder and Academic Director of an investor

protection clinic that provides pro bono legal advice to investors, a former director and Head of

Policy and Research at the University of Toronto's Capital Markets Institute, director of several

public companies, and a former commissioner of the Ontario Securities Commission (the OSC).

[19] Quinn, Castaldo, and Plewes were each cross-examined on their affidavits on

June 27, 2021. Puri was not subject to cross-examination.

3.

Pembina

[20] Pembina is an Alberta corporation that provides pipeline and midstream services and owns

various facilities and infrastructure. Its common shares (the Pembina Shares) are listed and posted

for trading on the TSX and the NYSE. Like IPL, Pembina's business includes the transportation,

storage, and processing of natural gas.

4

[21] Pembina's fact witness was J. Scott Burrows (Burrows), who swore an affidavit on

June 22, 2021. He is Pembina's Senior Vice-President and Chief Financial Officer, and oversees

Pembina's financial operations, corporate planning, capital market financings, and corporate

development, including M&As.

[22] Pembina's expert witness was Joshua Mitts (Mitts), an associate professor at Columbia

Law School and the principal of M Analytics LLC, a financial economics consulting firm in New

York. His June 22, 2021 affidavit appended his expert report of the same date (the Mitts Report).

[23] Burrows and Mitts were cross-examined on their affidavits on June 24 and June 25, 2021,

respectively.

4.

Staff

[24] Staff (Staff) of the Alberta Securities Commission (the ASC) Corporate Finance division

participated in the Hearing process but did not introduce any evidence.

B.

Submissions and Evidence

[25] All of the aforementioned affidavits and cross-examination transcripts were entered into

evidence at the Hearing with the exception of the Puri Affidavit, which is addressed later in these

reasons. A June 25, 2021 affidavit sworn by a litigation clerk employed at the office of Brookfield's

counsel and attaching certain documentation was also admitted into evidence, as were the

undertaking responses from Baker's cross-examination.

[26] Since there was no viva voce evidence led at the Hearing, all references in these reasons to

a witness's cross-examination are references to cross-examinations on affidavits.

[27] In addition to the evidence, we received written submissions from counsel for Brookfield,

IPL, Pembina, and Staff. We heard oral submissions at the Hearing from the same parties, as well

as from counsel for the Special Committee.

III.

CHRONOLOGY OF SIGNIFICANT EVENTS

[28] The background facts of this matter were complex and involved numerous significant

dates. For convenience we set them out in the form of a chronology of significant events.

March 2020

Brookfield identified IPL as an investment opportunity and

began acquiring IPL Shares on the TSX

April 24, 2020

Brookfield (through two limited partnerships) executed two IPL

Swap agreements with BMO (together, the Swap Agreements)

(although no transactions occurred under the agreements until

June 2020)

June 2020

Brookfield reached an ownership position of approximately 9%

of the issued and outstanding IPL Shares, then began entering

into IPL Swaps under the Swap Agreements for "further

economic exposure" to IPL

5

June 15, 2020

Brookfield's first IPL Swaps with BMO were confirmed pursuant

to two letter agreements on BMO CM letterhead (together, the

IPL Swap Letter Agreements)

Baker spoke with IPL's Vice-President, Corporate Development,

Spil Kousinioris (Kousinioris); they had a general discussion

regarding IPL and the HPC, and Baker suggested a follow-up

discussion in early autumn

June 18, 2020

Brookfield's combined beneficial ownership of IPL Shares

(39,917,357) and economic exposure to IPL Shares through the

IPL Swaps (3,424,900) exceeded 10% (10.098%) of the total

issued and outstanding IPL Shares (429,219,175)

September 11, 2020 Baker and another Brookfield executive, Paul Hawksworth

(Hawksworth), met with Kousinioris and IPL's President and

Chief Executive Officer, Christian Bayle (Bayle), to discuss

Brookfield's business, energy infrastructure trends, and

challenges facing IPL

October 5, 2020

Brookfield stopped entering into IPL Swaps

November 4, 2020

Baker and Hawksworth met with Bayle and Kousinioris again;

according to Baker, they told Bayle and Kousinioris that

Brookfield was a significant shareholder of IPL, had additional

economic exposure through the IPL Swaps, and was interested

in "exploring a potential strategic acquisition of IPL"

McKenzie confirmed that IPL first learned of Brookfield's

interest in an acquisition on November 4, 2020, but stated that

Bayle and Kousinioris did not remember Brookfield mentioning

the IPL Swaps during their meeting, and that the IPL Board did

not hear about the IPL Swaps until December

November 5, 2020

Baker called Kousinioris to offer another meeting and was told

that Brookfield should submit a written expression of interest for

the IPL Board to consider

November 11, 2020 Brookfield sent IPL a letter confirming Brookfield's interest in

exploring a potential strategic transaction and reiterating that

Brookfield was one of IPL's largest investors

November 18, 2020 Baker and another Brookfield executive, Sam Pollock (Pollock),

spoke with Bayle and Richard Shaw, Q.C. (Shaw), McKenzie's

predecessor as chair of the IPL Board; Bayle and Shaw asked

6

Brookfield to send "an indicative non-binding proposal" to the

IPL Board for consideration

November 27, 2020 Brookfield sent a non-binding proposal (the November

Proposal) to IPL that contemplated a consensual take-private

acquisition whereby Brookfield would acquire all IPL Shares at

a value of $17.00 to $17.50 per IPL Share (payable in cash and

up to 10% in Brookfield Infrastructure Corporation (BIPC)

shares (the BIPC Shares), which are listed and posted for trading

on the TSX and the NYSE)

The November Proposal attached a term sheet that indicated the

deal would be subject to "customary, market terms, including

(i) standard break-fee and reverse break-fee provisions, (ii) an

agreed-upon go-shop mechanic, and (iii) other customary deal

protections"; it did not mention the size of Brookfield's interest

in IPL

After receiving the November Proposal, the IPL Board retained

counsel and TD Securities for legal and financial advice,

respectively

December 1, 2020

Effective December 1, 2020, Brookfield engaged BMO NB as its

financial advisor for the possible acquisition of IPL; the

engagement was confirmed in a letter agreement on BMO CM

letterhead dated January 27, 2021 (the BMO Engagement

Letter), which provided for a $15 million completion fee

payable to BMO NB on Brookfield's acquisition of IPL (the

BMO Completion Fee)

December 11, 2020

December 18, 2020

Call among Bayle, Shaw, Baker, and Pollock; IPL indicated that

the value of the November Proposal was too low, but that it was

open to further discussions at a higher value

According to McKenzie, IPL first learned of the IPL Swaps

during a conversation between Baker and Bayle

Brookfield sent a revised non-binding proposal (the December

Proposal) to IPL increasing the consideration to $18.25 per IPL

Share (payable in cash and up to 20% in BIPC Shares), which

represented a premium of 40% to 50% over the TSX trading

prices for IPL Shares

The December Proposal referred to Brookfield "as a shareholder

with an economic interest in IPL of near 20%", and attached a

7

term sheet with the same "customary, market terms" as the

November Proposal

January 8, 2021

Call among Bayle, Shaw, Baker, and Pollock; IPL indicated that

it was unwilling to have further discussions at the value set out

in the December Proposal, and suggested that Brookfield meet

with TD Securities to discuss Brookfield's valuation assumptions

January 12, 2021

January 25, 2021

Baker, Hawksworth, and another Brookfield executive spoke to

a representative from TD Securities regarding Brookfield's

valuation assumptions

IPL sent a letter to Brookfield stating that IPL would not move

forward based on the December Proposal valuation and wanted

a pre-emptive offer of $24 or more per IPL Share (the closing

price for IPL Shares on the TSX that day was $13.36)

January 27, 2021

Bayle said that Baker told him Brookfield would respond to IPL's

January 25 letter by the end of the next week or early the week

following

According to Baker, Brookfield concluded that IPL "had no

serious intention of engaging with us", and began considering an

unsolicited take-over bid

February 10, 2021

Pollock called Shaw and told him Brookfield thought the IPL

Board was not meaningfully engaging with the December

Proposal and that IPL shareholders deserved to know about it

Brookfield issued a news release announcing its intention to

make the February 22 Offer; McKenzie said that this news

release was the first time Brookfield publicly mentioned its

"aggregate economic interest" in IPL of 19.65%

February 12, 2021

February 18, 2021

The IPL Board established the Special Committee comprised of

IPL's independent directors

IPL issued a news release announcing the Special Committee and

IPL's commencement of the Strategic Review

The Special Committee retained J.P. Morgan as its financial

advisor

February 22, 2021

Brookfield made the February 22 Offer, at $16.50 cash or 0.206

of a BIPC Share per IPL Share, each subject to proration based

8

on a maximum of 76.2% cash ($4.9 billion) and 23.8% (or

19,040,258) BIPC Shares; open for acceptance until June 7, 2021

IPL issued a news release urging IPL shareholders not to take

action regarding the February 22 Offer until the conclusion of the

Strategic Review

February 25, 2021

Pembina's board of directors (the Pembina Board) met and

discussed IPL's Strategic Review and a potential acquisition of

certain IPL assets

"early March 2021" Bayle and Pembina's Chief Executive Officer, Michael Dilger

(Dilger), had preliminary discussions about a possible

transaction

March 7, 2021

At a Special Committee meeting, TD Securities and J.P. Morgan

gave their opinions that the February 22 Offer was inadequate

Pembina asked IPL if it would agree to a break fee if a superior

offer were provided

March 9, 2021

IPL filed a Directors' Circular dated March 8, 2021 (the March

8 Directors' Circular), which recommended that IPL

shareholders reject the February 22 Offer; it also called on

Brookfield to make public disclosure of certain particulars

concerning the IPL Swaps

March 31, 2021

April 10, 2021

The IPL Board adopted the Supplemental SRP

Dilger and the Pembina Board's chair, Randall Findlay

(Findlay), had a call with Bayle and McKenzie; they discussed

a potential all-share transaction whereby Pembina would acquire

either all of IPL, or 100% of IPL's natural gas liquids (NGL)

business and a partial interest in the HPC

April 13, 2021

April 15, 2021

Brookfield sent a letter to IPL in an attempt to re-start discussions

Dilger emailed IPL proposing that Pembina acquire a partial

interest in the HPC and either 100% of IPL's NGL business or

certain other assets

April 20, 2021

IPL sent a letter in response to Brookfield's April 13

correspondence stating that while Brookfield's offers to date did

not reflect fair value, IPL was open to Brookfield participating in

the Strategic Review and submitting an improved offer; IPL also

said that to receive non-public information about IPL, Brookfield

9

would have to sign a non-disclosure agreement (the Definitive

NDA) including standstill protections, as all other interested

parties in receipt of IPL's non-public information had done

April 21, 2021

April 26, 2021

Bayle told Dilger that IPL was not interested in Pembina's

April 15 proposal, but was open to an en bloc bid

BMO NB's Bradley Wells (Wells) advised Baker that the Special

Committee's advisors told him that Brookfield would have to

sign a preliminary NDA (the Pre-NDA) to govern negotiations

of the Definitive NDA, and that the Definitive NDA would have

to include a condition that Brookfield would not revoke or

increase the consideration in the February 22 Offer without the

Special Committee's approval

According to McKenzie, TD Securities and J.P. Morgan offered

to send Brookfield's advisors the proposed form of agreements,

but Wells told them not to

April 28, 2021

April 29, 2021

Brookfield issued a news release stating that IPL was not

engaging in a manner that would allow Brookfield to be part of

the Strategic Review, and that IPL was seeking unreasonable

conditions for accessing due diligence information

IPL issued a news release stating that Brookfield declined to

receive a non-disclosure agreement and negotiate customary

terms; it also stated that IPL would provide an update on the

Strategic Review before the February 22 Offer expired on

June 7, 2021

May 10 or 11, 2021 Brookfield and IPL agreed to a Pre-NDA

May 12 or 13, 2021 Brookfield and IPL executed a Definitive NDA

May 14, 2021

May 18, 2021

Brookfield accessed IPL's data room

Pembina engaged Scotia Capital as its financial advisor for a

potential IPL acquisition and told IPL that Pembina was

interested in acquisition via an all-share transaction

May 19, 2021

Dilger and Findlay advised McKenzie and Bayle that Pembina

was authorized to pursue an all-share acquisition of IPL at a value

of $18.00 per IPL Share

Pembina entered into a confidentiality agreement with IPL to

access IPL's data room; the agreement included a standstill

10

provision; after it was executed, Pembina commenced due

diligence

May 20, 2021

May 25, 2021

IPL entered into a reciprocal confidentiality agreement with

Pembina to access Pembina's data room

Pembina and IPL began to negotiate an all-share transaction

under s. 193 of the Business Corporations Act (Alberta) (the

ABCA); Pembina sought a $400 million break fee

Brookfield made a revised proposal to IPL that included an

option for IPL shareholders to continue to hold an interest in the

HPC through a proposed separate Brookfield entity (the HPC

GrowthCo)

May 26, 2021

The Special Committee met to consider the Pembina and

Brookfield proposals, and decided neither one was in the best

interests of IPL's shareholders

Pembina made a management presentation to IPL; IPL advised

that Pembina's proposal was not in IPL's best interests, but

negotiations continued

May 28, 2021

May 29, 2021

IPL proposed a reciprocal break fee of $300 million to Pembina

Brookfield representatives had meetings with IPL

representatives to discuss the HPC and the merits of the proposed

BIPC Share consideration

Baker and other Brookfield representatives had a call with

McKenzie and other IPL representatives to discuss the HPC

GrowthCo proposal; according to Baker, Brookfield got the

strong impression that the IPL Board was not interested

Pembina proposed a break fee of $350 million and IPL proposed

a reciprocal break fee in the same amount; Burrows, Dilger, and

Findlay presented a revised offer to the Special Committee (the

Revised Pembina Offer) at a value of approximately $18.80 per

IPL Share

May 30, 2021

McKenzie asked Pembina for further improvements to its offer,

including confirmation that monthly dividends would be raised,

the exchange ratio would be increased to 0.505 of a Pembina

Share per IPL Share, and a break fee of $250 million to

$300 million payable to IPL would be included

11

Pembina revised its proposal by increasing the dividend,

increasing the exchange ratio to 0.49325 (the mid-point between

the 0.4815 Pembina proposed and the 0.505 IPL requested), and

agreeing to a break fee of $300 million; the Special Committee

met and agreed to continue discussions with Pembina to improve

the Revised Pembina Offer even further

According to Baker, McKenzie told him and Pollock that another

bidder had made an en bloc offer and asked for Brookfield's "best

and final offer"; she suggested that the offer should not reference

the HPC GrowthCo proposal

Brookfield made what it described as its "BEST AND FINAL

OFFER" (original emphasis) at $19.00 or 0.219 of a BIPC Share

per IPL Share, each subject to proration based on a maximum of

73% cash ($5.4 billion) and 27% (or 23,000,000) BIPC Shares;

open for acceptance until 12:00 p.m. EST May 31, 2021 (the

May 30 Offer)

The May 30 Offer indicated it would be subject to "[c]ustomary

Brookfield . . . deal protections"

May 31, 2021

Castaldo of J.P. Morgan emailed Baker to advise that the IPL

Board was still reviewing proposals and needed more time –

Brookfield therefore extended the deadline for the May 30 Offer

from 12:00 p.m. to 2:00 p.m. EST; later that day, Brookfield was

informed that the IPL Board was inclined to accept the

competing proposal but had not yet agreed to it; Brookfield

responded that it would make a further improved offer, and sent

another "BEST AND FINAL OFFER" at $19.50 or 0.225 of a

BIPC Share per IPL Share, each subject to proration based on a

maximum of 74% cash ($5.6 billion) and 26% (or 23,000,000)

BIPC Shares; open for acceptance until 4:00 p.m. EST

May 31, 2021 (the May 31 Offer)

The May 31 Offer indicated it would be subject to "[c]ustomary

Brookfield . . . deal protections"

Pembina made the Final Pembina Proposal, which increased

the exchange ratio to 0.50 of a Pembina Share per IPL Share

(reflecting a value of $19.45 per IPL Share), confirmed the

dividend increase, and provided for a reciprocal $350 million

break fee

The Special Committee met to consider the Final Pembina

Proposal and Brookfield's May 31 Offer; the Special Committee

12

concluded that the Final Pembina Proposal was superior, and

decided to recommend that the IPL Board approve entering the

Pembina Arrangement

Pembina and IPL entered into an exclusivity agreement and

McKenzie informed Brookfield that IPL had entered exclusive

negotiations with the competing bidder

June 1, 2021

June 2, 2021

Pembina and IPL executed the Pembina Arrangement and

announced it in a joint news release

Brookfield issued a news release announcing its intention to vary

the February 22 Offer "at a price per IPL [Share] currently valued

at $19.75" (according to the Baker Affidavit, $19.75 was a

typographical error – the news release should have said $19.74)

June 3, 2021

June 4, 2021

IPL issued a news release acknowledging Brookfield's intention,

but confirming that it continued to recommend the Pembina

Arrangement to IPL shareholders

Brookfield made the June 4 Offer, at $19.50 cash, 0.225 of a

BIPC Share, or 0.225 of a BICELP limited partnership unit

(BICELP Unit) per IPL Share, each subject to proration based

on a maximum of 74% cash ($5.56 billion) and 26% (or

23,000,000) combined BIPC Shares and BICELP Units; open for

acceptance until June 22, 2021

Brookfield issued the Brookfield June 4 News Release

June 10, 2021

IPL issued a news release confirming its support for the Pembina

Arrangement

IPL filed a notice of change to the March 8 Directors' Circular

dated June 9, 2021 (the June 9 Directors' Circular), and

included commentary about the importance of retaining a 28%

interest in the HPC under the Pembina Arrangement

Brookfield filed the Brookfield Application

June 18, 2021

Brookfield issued a news release announcing its intention to vary

the June 4 Offer by removing the limit on the cash consideration

option (thus allowing IPL shareholders to elect 100% cash

consideration without proration), and by increasing the

consideration by up to $0.90 per IPL Share if the Break Fee were

removed or decreased

13

IPL filed the IPL Application and Pembina filed the Pembina

Application

June 21, 2021

IPL issued a news release acknowledging Brookfield's

announcement, but confirming its continued support for the

Pembina Arrangement

Brookfield made the June 21 Offer, removing the proration on

the cash consideration; the BIPC Share and BICELP Unit

consideration remained the same as in the June 4 Offer; open for

acceptance until July 13, 2021

June 23, 2021

Brookfield filed an application with the ASC seeking an

exemption from s. 150(1)(b) of the ABCA regarding certain

proxies solicited in connection with the shareholder vote on the

Pembina Arrangement; the order was granted by the ASC's

Corporate Finance division on June 29, 2021 (the Proxy

Solicitation Order, cited as Re Inter Pipeline Ltd., 2021 ABASC

100)

June 25, 2021

The IPL Board amended the Supplemental SRP so that it expired

the day after the IPL shareholder vote on the Pembina

Arrangement

IV.

A.

PRELIMINARY MATTERS

Confidentiality

[29] On July 8, 2021, we issued a confidentiality order (the Confidentiality Order) under

s. 221 of the Act (cited as Re Bison Acquisition Corp., 2021 ABASC 105) concerning certain

defined Confidential Information that was provided to the ASC for the purposes of the

Applications and the Hearing.

[30] Under that order, the Confidential Information will be held in confidence by the ASC until

otherwise ordered, unless it becomes publicly available by other means or the ASC is required by

law to disclose it. Additionally, any facts from the Confidential Information included in the written

submissions of Brookfield, IPL, or Pembina are not protected by the Confidentiality Order.

B.

Admissibility and Weight of Certain Evidence

1. Background

[31] Before arguing the merits of the Brookfield Application, Brookfield submitted that there

were two preliminary issues: (i) whether the Puri Affidavit attaching her expert opinion (the Puri

Report) should be admitted into evidence and, if it were, the weight it should be given; and (ii) the

weight that should be given to the evidence and opinions of two of IPL's financial advisors,

Castaldo and Quinn. Brookfield challenged the admissibility of the Puri Affidavit, and suggested

that Castaldo's and Quinn's evidence should be given little weight.

14

[32] According to the Puri Report, Puri has significant experience with change of control

transactions, and has previously testified on issues relating to corporate governance, securities

regulation, and investor protection in Canada and other jurisdictions. IPL retained her to provide

expert opinion evidence regarding the IPL Swaps and the Supplemental SRP. She described her

mandate:



From a capital markets public policy perspective and investor protection standpoint,

comment on [Brookfield's] conduct in connection with, and any impact on investors and

the integrity of the capital markets resulting from, the series of [IPL Swaps] that Brookfield

. . . entered into with an unknown ISDA swap dealer between June and October 2020, as

well as [Brookfield's] subsequent take-over bid for IPL and [Brookfield's] public disclosure

in connection with [the IPL Swaps] and take-over bid; and



From a capital markets public policy perspective and investor protection standpoint,

comment on the [Supplemental SRP] that the [IPL Board] approved on March 31, 2021,

subsequent to [Brookfield's] commencement of its take-over bid, including my views on

whether the [Supplemental SRP] held, and continues to hold, any benefit to IPL

shareholders and the integrity of the capital markets more generally.

[33] While the Castaldo Affidavit and the Quinn Affidavit were accepted into evidence at the

Hearing as mentioned, the Puri Affidavit was marked as an exhibit for identification only. We

indicated that we would make our decision on the admissibility of the Puri Affidavit in the course

of deciding the Applications and include our reasons for that ruling in this written decision.

2.

Arguments of the Parties

[34] Brookfield and IPL were the only parties that made submissions on these issues.

(a)

Brookfield

[35] According to Brookfield, Puri's expert opinion was unnecessary and an improper attempt

to usurp this panel's role in this proceeding. In addition, Castaldo and Quinn lacked sufficient

independence to provide reliable opinion evidence.

[36] Brookfield acknowledged that pursuant to s. 29(f) of the Act, ASC hearing panels are not

bound by the laws of evidence and have wide discretion as to what evidence to admit and the

weight it should be given.

[37] However, Brookfield suggested that when considering an evidentiary issue, there is

authority for the proposition that ASC panels will generally take into account the policy reasons

and legal requirements underlying the relevant evidentiary rules.

[38] Brookfield cited the recent decision in Re Solar Income Fund Inc., 2021 ONSEC 2, and an

OSC panel's conclusion that expert opinion evidence is presumptively inadmissible in commission

proceedings unless it is necessary because the subject matter is outside the commission's expertise

(at para. 55). Brookfield also relied on several past ASC panel decisions in which it was held that

expert opinion evidence will be given little weight where it purports to reach a conclusion on the

ultimate issue to be decided, or where it is not based on an independent analysis of the facts (see,

for example, Re De Gouveia, 2013 ABASC 106 at para. 106 and Re Ironside, 2006 ABASC 1930

at para. 424, aff'd. sub nom. Ironside v. Alberta (Securities Commission), 2009 ABCA 134).

15

[39] In light of these authorities, Brookfield submitted that Puri's opinion should not be admitted

into evidence because we have specialized expertise and are capable of making the necessary

determinations in this matter without the aid of expert evidence. In Brookfield's view, Puri opined

on issues in which we are well-versed – including public policy in the context of the capital market

and investor protection – and introduced legal argument disguised as opinion evidence. Brookfield

argued that Puri also went outside the role of an expert witness by giving her opinion as to what

she believes the law should be concerning two issues relevant to the Applications, equity interests

and beneficial share ownership.

[40] Brookfield took issue with the Castaldo Affidavit and the Quinn Affidavit because they

were submitted as fact affidavits, and in Brookfield's assessment, their content was more akin to

expert opinion evidence. Because Castaldo and Quinn served as the financial advisors to the

Special Committee and to the IPL Board respectively, Brookfield submitted that they had an

interest in the outcome of the Applications and could not be considered independent or neutral.

Therefore, any opinion evidence (as opposed to fact evidence) they gave should be given little, if

any, weight.

(b)

IPL

[41] IPL argued that this panel should consider all of the relevant evidence led and use our broad

discretion as to the weight to be given to that evidence. It disagreed that the approach to expert

evidence applied by the OSC panel in Solar Income should be applied in Alberta, and pointed out

that in Re Workum and Hennig, 2008 ABASC 363, aff'd. sub nom. Alberta (Securities

Commission) v. Workum, 2010 ABCA 405, an ASC hearing panel admitted certain expert evidence

despite finding that it was capable of conducting its own analysis on the pertinent issues.

[42] Accordingly, IPL argued that we should admit and consider the expert evidence – including

the Puri Report – that we find helpful, and afford it the weight we consider appropriate. IPL further

pointed out that the Puri Report was tendered in part in response to the evidence given by

Brookfield's expert, Osler, which IPL said similarly offered opinions on some of the issues we

must determine in deciding the Applications.

[43] As for the Castaldo Affidavit and the Quinn Affidavit, IPL emphasized that these

individuals were its financial advisors during the relevant period, and that most of their evidence

simply outlined the facts of their involvement. As financial advisors, they necessarily gave

analyses and opinions at the time, and IPL argued that summarizing those analyses and opinions

in their affidavits post facto did not make the affidavits opinion evidence in the legal sense.

However, IPL argued, even if they did constitute opinion evidence, they could still be considered

and made subject to weight.

[44] IPL also disagreed that Castaldo and Quinn lacked independence, as the compensation paid

to J.P. Morgan and TD Securities was not contingent on any particular party's successful

acquisition of IPL. In their respective affidavits, Castaldo and Quinn confirmed that J.P. Morgan

and TD Securities had no financial incentive to prefer one deal over another, as they would get

their fees upon the completion of any transaction.

16

3.

Analysis and Conclusions

[45] It is well-established that as an expert tribunal, certain issues are within a securities

commission panel's expertise, experience, and knowledge, and third-party expert evidence on

those issues is not required (see, for example, Re Magna International Inc. (2010), 33 O.S.C.B.

6013 at para. 40; Re Aitkens, 2018 ABASC 27 at para. 137; and Re Chilean Metals Inc.,

2019 BCSECCOM 24 at paras. 77-79). However, ss. 29(e) and (f) of the Act make clear that ASC

hearing panels have wide discretion to decide what evidence to admit and what weight it should

be given. Those two subsections state:

(e)

(f)

the [ASC] . . . shall receive that evidence that is relevant to the matter being heard;

the laws of evidence applicable to judicial proceedings do not apply[.]

[46] As Brookfield pointed out, although the laws of evidence do not apply, when making

decisions about admissibility and weight, we generally consider the policy reasons underlying any

relevant evidentiary rules and the legal requirements of those rules (as discussed in Re Sentinel

Financial Management Corp., 2008 ABASC 477 at para. 10).

[47] In R. v. Mohan, [1994] 2 S.C.R. 9, the Supreme Court of Canada (the SCC) held that in

proceedings before the courts, expert evidence is admissible if: (i) it is relevant; (ii) it is necessary

in that it is information outside the ordinary experience and knowledge of the trier of fact; (iii) no

other exclusionary rule applies; and (iv) it is given by a properly qualified expert (see paras. 17

and 21).

[48] In Solar Income, the OSC panel relied on the Mohan criteria and declined to admit an

expert report on the grounds that it was irrelevant and gave an opinion on an issue (the reasonable

expectations of investors) that was for the panel to determine, and on which the panel did not

require expert assistance (see paras. 6, 55, 92, 99, and 101-103).

[49] However, this is not the position in Alberta. As IPL noted, in Workum and Hennig, the

ASC panel admitted expert evidence that was not strictly necessary because the panel had the

expertise to decide the issue itself. On appeal to the Alberta Court of Appeal, the appellants argued

that the ASC panel erred in doing so, and relied on Mohan (see paras. 22 and 69). The Court

dismissed the appeal and held that the Mohan criteria do not apply in the administrative law

context, although it also indicated that consideration of the Mohan criteria may lead a tribunal to

give more or less weight to the expert evidence at issue (at paras. 82-84).

[50] Past ASC decisions indicate that even where expert evidence is not strictly necessary, a

panel may admit and rely on it if it is helpful to the analysis, even if it simply confirms the panel's

own views.

[51] For example, in Workum and Hennig, the panel found that it was fully capable of

conducting its own analysis and reaching its own conclusions without the expert evidence, but still

referred to some of Staff's expert's testimony in its decision. The testimony confirmed the panel's

conclusions, even though it did not "present or illuminate new and unknown principles" (at para.

105).

17

[52] In Ironside, the panel accepted an expert "in the area of securities law" (at para. 78), and

another "on the issue of materiality in the securities industry" (at para. 300), despite the fact that

both were squarely within its own expertise.

[53] At least one earlier OSC panel decision suggested a similar approach. In Re Biovail

Corporation, 2010 ONSEC 21, the panel admitted expert evidence it concluded was not required

or necessary on the basis that it may have been "relevant or useful" (at paras. 80, 201, 213, and

238).

[54] Even if admitted, an ASC panel is not bound by the expert evidence tendered. In Workum

and Hennig, the panel specifically noted that the evidence was not determinative of the issues it

had to decide and that it was not bound to accept all of the expert's opinions (at paras. 105 and

108). In De Gouveia, the panel found that it was not bound by the expert's opinion on the ultimate

issue, and that it remained the panel's task to consider and weigh that evidence along with all of

the other relevant evidence (at paras. 66 and 71). The panel explained (at para. 104):

We found Stewart [the expert] to be a credible witness. We gave great weight to her explanations

of various trading practices and their consequences, and her testimony was of considerable

assistance to us in our review of some of the documentary trading evidence. That said, we were not

bound to accept her conclusions. Rather, we considered and analyzed all the evidence and reached

our own conclusions, taking into account, but not dictated by, Stewart's opinions and conclusions.

Although her conclusions did not dictate our findings, we regard the parallels between them as

important corroboration of our analysis.

[55] In view of the foregoing principles, we decided to exercise our discretion to admit the Puri

Affidavit into evidence as Exhibit #19. While not strictly necessary given this panel's expertise

and experience, we found Puri qualified to express her opinions and found some of those opinions

both helpful and relevant to the issues before us. We did not consider ourselves bound by her

evidence, but as will become apparent later in these reasons, we took her evidence on certain

matters into account and gave it commensurate weight where we concluded it was appropriate and

useful to do so, and where it corroborated our own independent conclusions. We gave her evidence

little to no weight where her opinions were more in the nature of legal argument or policy

recommendation.

[56] As for the Castaldo Affidavit and the Quinn Affidavit, we agreed that both expressed

opinions and even addressed some of the opinions given by Brookfield's expert witness, Osler, in

a manner somewhat reminiscent of rebuttal expert reports. However, we also agreed with IPL that

as its financial advisors at the relevant time, in recounting the facts of their involvement, Castaldo

and Quinn necessarily referred to the advice and opinions they had given. That they confirmed

their advice and opinions in their affidavits – including by way of contrast with Osler's opinions –

did not make the affidavits expert opinion evidence in the usual sense. Indeed, most of the fact

witnesses expressed their personal views on the events that occurred and the issues raised.

[57] In weighing their evidence on the matters at issue, we took into account the roles Castaldo

and Quinn played in the events under consideration, as well as their M&A experience, the basis of

their evidence, and its consistency with other reliable evidence. We took the same approach with

all of the witnesses whose evidence was tendered at the Hearing, especially where one or more of

the parties raised concerns about that evidence.

18

[58] Where these or other arguments or aspects of the evidence factored into our analysis, they

are discussed further in later sections of this decision.

V.

A.

THE APPLICATIONS

The Brookfield Application

[59] Initially, Brookfield applied for orders under ss. 179 and 198 of the Act in connection with

what it described as the inappropriate defensive tactics taken by the IPL Board in response to the

Brookfield Offer: adopting the Supplemental SRP and agreeing to pay Pembina the $350 million

Break Fee. The precise relief sought was:

(a)

an order pursuant to section 198 of the [Act] that all trading cease in respect of any

securities that are proposed to be issued or exchanged in connection with the rights issued

under the IPL [SRPs], including the issuance of any IPL . . . Shares upon exercise of such

rights;

(b)

(c)

an order pursuant to section 179(1) of the [Act] restraining IPL from paying, and the IPL

Board from causing or permitting IPL to pay, the . . . Break Fee to Pembina;

an order pursuant to section 198 of the [Act] that all trading cease in respect of any

securities that are proposed to be issued or exchanged in connection with the [Pembina]

Arrangement, including, without limitation, in respect of the proposed transfer of all of the

outstanding IPL . . . Shares to Pembina in exchange for [Pembina Shares] pursuant to the

plan of arrangement attached as Schedule "A" to the [Pembina] Arrangement [a]greement;

and

(d)

such further and other relief as the [ASC] deems appropriate.

[60] In reply, IPL argued that the ASC does not have the jurisdiction to interfere with the

payment of the Break Fee under s. 179 of the Act. That section states:

179(1) On application by an interested person, if the [ASC] considers that a person has not

complied or is not complying with this Part or the regulations, the [ASC] may make an

order

(a)

(b)

restraining the distribution of any document, record or materials used or issued in

connection with a take-over bid or issuer bid,

requiring an amendment to or variation of any document, record or materials used

or issued in connection with a take-over bid or issuer bid and requiring the

distribution of amended, varied or corrected information,

(c)

(d)

directing any person or company to comply with this Part or the regulations,

restraining any person or company from contravening this Part or the regulations,

or

(e)

directing the directors and officers of any person or company to cause the person

or company to comply with or to cease contravening this Part or the regulations.

19

(2)

On application by an interested person, the [ASC] may order that a person or company is

exempt from any requirement under this Part or the regulations if the [ASC] considers it

would not be prejudicial to the public interest to do so.

[61] Since s. 179 only applies "if the [ASC] considers that a person has not complied or is not

complying with this Part [i.e., Part 14 of the Act, Take-over Bids and Issuer Bids] or the regulations

[e.g., National Instrument 62-104 Take-Over Bids and Issuer Bids (NI 62-104)]", IPL pointed out

that s. 179 did not apply here because Brookfield neither alleged nor proved that IPL breached or

would breach the Act or regulations by agreeing to or paying the Break Fee. Further, it argued,

only certain types of orders can be granted under s. 179, none of which would provide the relief

sought by Brookfield.

[62] Pembina agreed. In its view, to direct IPL not to pay the Break Fee to Pembina would be

to direct IPL to breach a contract – which is not within the ASC's jurisdiction.

[63] Staff were of the same opinion. They stated that while the IPL SRPs and the Pembina

Arrangement could be cease traded under s. 198 of the Act, s. 179 does not provide authority to

restrain payment of the Break Fee.

[64] Although Brookfield initially argued that s. 179(1) gives us the authority to grant the order

sought on the basis that agreeing to the Break Fee was an improper defensive tactic, Staff pointed

out that defensive tactics are addressed only in a policy, not in the Act or regulations. Moreover,

Staff argued, the Pembina Arrangement did not fall under Part 14 because it was not a take-over

bid or an issuer bid – it was a plan of arrangement under s. 193 of the ABCA.

[65] Staff submitted that we have the authority to cease trade the Pembina Arrangement if we

determined that the Break Fee was clearly abusive of investors and the capital market. While doing

so would effectively restrain payment of the Break Fee, Staff cautioned that it would also deprive

IPL shareholders of the opportunity to choose the Pembina Arrangement.

[66] While we agreed with IPL, Pembina, and Staff, we were not required to make a decision

on the point. After listening to the other parties' arguments, Brookfield indicated at the Hearing

that it had been persuaded by Staff's submissions and withdrew its application for relief under

s. 179 of the Act. As a result, we considered the parties' arguments concerning the Break Fee solely

in the context of orders permitted under s. 198.

B.

The IPL Application

[67] IPL asserted that Brookfield's conduct in connection with the IPL Swaps was abusive of

IPL shareholders and the capital market on four grounds:



using the IPL Swaps to avoid early warning reporting obligations under NI 62-104;

failing to make proper public disclosure regarding the IPL Swaps, including as

required under NI 62-104;



using the Swap Shares "held by a captive and compliant [swap] counterparty (which

Brookfield [had] recently characterized as forming part of the 'Brookfield Block' in

20

its public disclosure) to try to defeat shareholder approval of the Pembina

Arrangement"; and



using the Swap Shares to try "to meet the minimum tender condition of 50% of IPL

. . . Shares beneficially owned or over which control or direction is exercised by

parties other than Brookfield or parties acting jointly or in concert with Brookfield",

under s. 2.29.1(c) of NI 62-104.

[68] The IPL Application sought the following relief in relation to the IPL Swaps under ss. 179

and 198 of the Act:



a s. 198 order directing Brookfield to issue a notice of change to the Brookfield

Offer and provide public disclosure of:



the material aspects of the IPL Swaps (including dates, parties, relationship

between Brookfield and other parties, and fee arrangements);

the terms and conditions of the IPL Swaps (including details of Brookfield's

economic exposure and any option to acquire IPL Shares);

the expiry or termination dates and events of the IPL Swaps (including

anything that could give the swap dealer an incentive to tender Swap Shares

to the Brookfield Offer); and



the IPL Swap instruments or contracts

(collectively, the Proposed Disclosure Order);



a s. 179 or s. 198 order directing that the Swap Shares be considered beneficially

owned or controlled by Brookfield or a person acting jointly or in concert with

Brookfield for the purpose of s. 2.29.1(c) of NI 62-104 (and therefore excluding the

Swap Shares from the minimum tender condition amount, which is discussed later

in these reasons) (the Proposed Minimum Tender Order); and

a ss. 198 and 199 order deeming the Swap Shares to be voted at the IPL

shareholders meeting scheduled for July 29, 2021 regarding the Pembina

Arrangement (the IPL Shareholders Meeting) in the same proportions for or

against the arrangement as all other non-Brookfield-owned or controlled IPL

Shares, or preventing the Swap Shares from being voted regarding the Pembina

Arrangement (the Proposed Voting Order) (as s. 199 deals solely with

administrative penalties, we assumed that IPL's reference to s. 199 here was an error

and it is not addressed further in these reasons).

[69] Initially, IPL also applied for relief under s. 179 of the Act on the basis that certain

Brookfield entities should have signed the required certification for the Brookfield Offer.

However, IPL withdrew this aspect of its application after Brookfield changed the certification.

21

C.

The Pembina Application

[70] Pembina adopted the IPL Application, and sought an additional order under s. 198 of the

Act cease trading any securities proposed to be issued or exchanged in connection with the

Brookfield Offer, including the proposed transfer of IPL Shares pursuant to the Brookfield Offer

(the Proposed Brookfield Offer CTO).

VI.

A.

GENERAL PRINCIPLES

The ASC's Public Interest Jurisdiction

[71] As mentioned, each of the Applications sought relief under s. 198 of the Act, which

provides that the ASC may make a variety of orders if we consider that "it is in the public interest

to do so". Similar provisions are included in securities regulatory statutes across Canada.

[72] The leading case on Canadian securities commissions' public interest jurisdiction is the

SCC's decision in Committee for the Equal Treatment of Asbestos Minority Shareholders v.

Ontario (Securities Commission), 2001 SCC 37.

[73] In Asbestos, the SCC considered an OSC panel's application of s. 127 of the Securities Act

(Ontario) (the Ontario Act), that province's version of Alberta's s. 198. The SCC made the

following findings:



Section 127 of the Ontario Act provides the OSC with very wide discretionary

power to intervene in the public interest in activities related to the Ontario capital

market. The section's permissive language expresses a legislative intent "to leave it

for the OSC to determine whether and how to intervene in a particular case" (at

paras. 39 and 49).



While no breach of the statute is required to trigger the section, the OSC's public

interest jurisdiction "is not unlimited" (at paras. 41-42).

The precise nature and scope of the public interest jurisdiction should be assessed

by considering the OSC's mandate "to provide protection to investors from unfair,

improper or fraudulent practices" and "to foster fair and efficient capital markets

and confidence in the capital markets." Therefore, both "the fair treatment of

investors" and "[t]he effect of an intervention in the public interest on capital market

efficiencies and public confidence in the capital markets" should be considered

before making an order in the public interest (at para. 41).



In deciding whether to exercise its public interest discretion in the Asbestos case,

the OSC panel below correctly considered whether the transactions at issue were

"clearly abusive" of investors and the integrity of the capital market (at para. 52).

[74] Similar principles were articulated some years prior to Asbestos. In Re Canadian Tire Corp.

(1987), 10 O.S.C.B. 857, the hearing panel concluded that its public interest jurisdiction could be

used "to deal with situations that are inconsistent with the best interests of investors or where a

transaction constitutes a flagrant abuse of the marketplace" (at para. 124), and "to restrain a

22

transaction that is clearly abusive of investors and of the capital markets, whether or not that

transaction constitutes a breach of the [Ontario Act], the regulations or a policy statement" (at para.

130).

[75] While such an intervention might be necessary to fulfill the OSC's mandate to regulate the

capital market in the public interest and avoid a loss of confidence in the market, the Canadian

Tire panel acknowledged that the power still must be used cautiously (at paras. 126, 130, and 151).

It explained (at para. 154):

Participants in the capital markets must be able to rely on the terms of the documents that form the

basis of daily transactions. And it would wreak havoc in the capital markets if the [OSC] took to

itself a jurisdiction to interfere in a wide range of transactions on the basis of its view of fairness

through the use of the cease-trade power under s. 123 [now s. 127 of the Ontario Act]. . . . The

[OSC's] mandate under s. 123 is not to interfere in market transactions under some presumed rubric

of insuring fairness.

[76] In Re Carnes, 2015 BCSECCOM 187, a panel of the British Columbia Securities

Commission (the BCSC) similarly explained the need for caution (at para. 129):

We recognize that when a panel issues an order in exercise of its public interest jurisdiction, the

order has the effect of restraining or prohibiting conduct that is not prohibited specifically by

legislation. Market participants should be able to structure their affairs within the context of the

specific provisions of the [Securities Act (British Columbia) (the B.C. Act)], without fear of

enforcement actions alleging wrongdoing that is not encoded in the [B.C.] Act, regulation or rules

of the [BCSC].

[77] According to the Canadian Tire panel, this is why the conduct or transaction in question

must rise to the level of "clearly abusive" before the OSC's public interest jurisdiction is engaged

(at para. 155):

To invoke the public interest test of s. 123, particularly in the absence of a demonstrated breach of

the [Ontario] Act, the regulations or a policy statement, the conduct or transaction must clearly be

demonstrated to be abusive of shareholders in particular, and of the capital markets in general. A

showing of abuse is something different from, and goes beyond, a complaint of unfairness. A

complaint of unfairness may well be involved in a transaction that is said to be abusive, but they are

different tests. Moreover, the abuse must be such that it can be shown to the [OSC]'s satisfaction

that a question of the public interest is involved. That almost invariably will mean some showing of

a broader impact on the capital markets and their operation.

[78] It is in such a case that "the exercise of private legal rights must give way to broader

considerations" – namely, "the equitable operation of [Ontario's] capital markets" (Canadian Tire

at para. 158).

[79] These principles have been applied and reiterated in numerous Canadian securities

commission decisions since Canadian Tire and Asbestos (see, for example, AbitibiBowater inc.

(Produits forestiers Résolu) v. Fibrek inc., 2012 QCBDR 17 at paras. 96 and 98; Re Neo Material

Technologies Inc. (2009), 32 O.S.C.B. 6941 at paras. 33-35; Re Patheon Inc., 2009 ONSEC 13 at

para. 114; and Re ARC Equity Management (Fund 4) Ltd., 2009 ABASC 390 at paras. 65-67 and

70).

23

[80] While it was not in dispute among the parties that the principles set out in Asbestos apply

in Alberta, IPL further argued that in determining if certain conduct is abusive, the focus should

be the effect of the conduct on investors and the integrity of the capital market, not the impugned

party's subjective intent or motivations. It cited Re H.E.R.O. Industries Ltd. (1990), 13 O.S.C.B.

3775, in which an OSC panel held that regardless of a party's motives, the more important question

is the effect its actions had on the public interest. In that case, the effect was that one party would

have received a premium for its shares while the other shareholders received nothing and lost the

opportunity to tender to a competing bid. The panel therefore concluded that the conduct in

question was clearly abusive of the integrity of the capital market (at paras. 28-29).

[81] IPL also suggested that in addition to or as an alternative to the "clearly abusive" test, the

ASC can intervene in the public interest on a broader basis where the letter of the applicable

securities law, policy, or rule has been complied with, but the "animating principles" or spirit

underlying those rules have not. IPL cited H.E.R.O. (at para. 18) and Patheon (at para. 116) in this

regard, but the concept has also been referenced in other OSC decisions, including Re Magna

International Inc., 2010 ONSEC 13 (at paras. 184 and 186) and Re VenGrowth Funds (Special

Committee of Directors), 2011 ONSEC 17 (at para. 67).

[82] In VenGrowth, for example, the panel found that one of the fundamental tenets of the take-

over bid regime in Canada is that a shareholder's right to choose between competing proposed

transactions must be protected. Therefore, a provision in support agreements entered into between

the hostile offeror and target company shareholders that prevented the shareholders from later

changing their minds and choosing a different transaction was found to have undermined an

animating principle of the Ontario Act and, consequently, the public interest – even though the

hostile offeror's solicitation of the agreements was not contrary to Ontario securities laws and the

panel concluded that there was no abuse (at para. 52, 54, 57-60, 62, and 67).

[83] Brookfield disagreed that the "animating principles" standard had any application in this

case. It argued that the ASC has not adopted that standard, whereas the "clearly abusive" standard

was confirmed in Re Perpetual Energy Inc., 2016 ABASC 2 (at para. 46).

[84] Brookfield also pointed out that in Re PointNorth Capital Inc., 2017 ABASC 121, the panel

rejected PointNorth's argument that it should exercise its public interest jurisdiction on the basis

that the conduct at issue was contrary to the "animating principles" of securities laws, which

PointNorth contended was a standard lower than "clearly abusive" (at paras. 26 and 39).

[85] The PointNorth panel noted the distinction drawn in some decisions between conduct on

which securities laws are silent – and where the "animating principles" standard could apply, if

adopted – and conduct falling into an area on which securities laws "articulate 'specific acts which

constitute misconduct'" – where the "clearly abusive" standard applies (at paras. 30, 34, and 36).

Because Alberta securities laws "set out comprehensive and detailed requirements" for the conduct

at issue in PointNorth (proxy solicitation and the conduct of brokers), the panel held that the

appropriate test was whether the conduct was "clearly abusive of shareholders and of the capital

market in general" (at paras. 37 and 39). It therefore did not decide whether the "animating

principles" standard should be adopted in Alberta.

24

[86] As discussed later in these reasons, in granting the IPL Application and the Pembina

Application in part, we were satisfied that Brookfield's conduct met the clearly abusive standard.

Therefore, as in PointNorth, it was not necessary for us to decide whether the animating principles

standard applies in Alberta in general, or applied in this case in particular.

B.

The Business Judgment Rule

[87] Despite the broad discretion Canadian securities commissions have to act in the public

interest, it is also true "that a degree of deference is owed to the decision of the board of directors

of a market participant with respect to the issue under review" (Neo at para. 35). This is to give

effect to the well-known "business judgment rule" that is also applied in the courts. The Court

described the rule in Mudrick Capital Management LP v. Wright, 2019 ABQB 662 (at para. 92):

The Business Judgment Rule is a rebuttable presumption, originating in US law, that the decisions

of corporate directors are made on an informed basis and in good faith and therefore in the best

interests of the company. Judges are not to second-guess the decisions of duly elected directors but

rather, deferring to their autonomy and expertise, consider only whether the decision was

reasonable, not whether it was perfect . . .

[88] As long as a decision made by a board of directors falls within the range of reasonable

alternatives in the circumstances, deference to the decision should be shown (Neo at para. 103; see

also CW Shareholdings Inc. v. WIC Western International Communications Ltd. (1998), 39 O.R.

(3d) 755 (Ont. Gen. Div.) (CW Shareholdings (Ont. Gen. Div.)) at para. 66, and Pente Investment

Management Ltd. v. Schneider Corp. (1998), 42 O.R. (3d) 177 (ONCA) at paras. 34 and 36).

[89] The Ontario Court (General Division) explained further in the context of a contested take-

over bid (CW Shareholdings (Ont. Gen. Div.) at para. 62):

The directors' actions are not to be judged against the perfect vision of hindsight, and should be

measured against the facts as they existed at the time the impugned decision was made. In addition,

the court should be reluctant to substitute its own opinion for that of the directors where the business

decision was made in reasonable and informed reliance on the advice of financial and legal advisors

appropriately retained and consulted in the circumstances.

[90] In Pente, the Ontario Court of Appeal drew the same conclusion if a board acted on the

advice of an independent committee that made an informed, good-faith recommendation as to the

best available transaction for shareholders (at para. 38).

[91] This is not to suggest that blind deference should be shown to any decision made by a board

of directors in any circumstances, as Brookfield cautioned against in its written submissions. The

board's decision must still be a reasonable one given the situation and the applicable law and

policy. In the present context, that includes the overall objectives of the take-over bid regime.

C.

Swaps

[92] We accepted the description of Swaps given by Mitts, Pembina's expert witness:

A swap is a contract where two parties agree to exchange cash flows in the future. In a cash-settled

total return swap, one party (the "buyer") agrees with the other party (the "counterparty") to

exchange cash flows arising from an underlying asset, like shares of stock. The counterparty

typically agrees to pay the buyer (a) interest, dividends or other distributions which are paid to

25

holders of the underlying asset and (b) any appreciation in the market value of the underlying asset

upon expiration of the swap. Should the underlying asset decline in value, the buyer agrees to pay

the difference to the counterparty.

A typical cash-settled total return swap thus yields the buyer a financial payoff which is

economically equivalent to buying the underlying asset, holding that asset for the duration that the

swap contract is open, and selling the asset at the market price upon termination of the swap. Absent

any hedging, the counterparty has a financial payoff which is the reverse of the buyer's–that is,

economically equivalent to selling the underlying asset and repurchasing that asset from the buyer

at the market price upon termination of the swap. However, . . . a swap counterparty typically hedges

its exposure to the underlying asset (including by purchasing the asset) and profits by charging a fee

for acting as a dealer. [original emphasis; footnotes omitted]

D.

The Take-Over Bid Regime

1.

Overview

[93] National Policy 62-203 Take-Over Bids and Issuer Bids (NP 62-203) sets out the objectives

of the take-over bid regime in Canada (at s. 2.1):

The [take-over bid regime in NI 62-104 and NP 62-203] is designed to establish a clear and

predictable framework for the conduct of bids in a manner that achieves three primary objectives:



equal treatment of offeree issuer security holders;

provision of adequate information to offeree issuer security holders; and

an open and even-handed bid process.

[94] Section 1.1(2) of National Policy 62-202 Take-Over Bids – Defensive Tactics (NP 62-202)

also discusses the regime's objectives:

The primary objective of the take-over bid provisions of Canadian securities legislation is the

protection of the bona fide interests of the shareholders of the target company. A secondary objective

is to provide a regulatory framework within which take-over bids may proceed in an open and even-

handed environment. The take-over bid provisions should favour neither the offeror nor the

management of the target company, and should leave the shareholders of the target company free to

make a fully informed decision. The Canadian securities regulatory authorities are concerned that

certain defensive measures taken by management of a target company may have the effect of

denying to shareholders the ability to make such a decision and of frustrating an open take-over bid

process.

[95] Section 1.1(5) of NP 62-202 refers to the desirability of unrestricted auctions in the take-

over bid context:

The Canadian securities regulatory authorities consider that unrestricted auctions produce the most

desirable results in take-over bids and they are reluctant to intervene in contested bids. However,

they will take appropriate action if they become aware of defensive tactics that will likely result in

shareholders being deprived of the ability to respond to a take-over bid or to a competing bid.

[96] The regime requires an offeror to deliver a take-over bid circular to each target shareholder

(NI 62-104 at s. 2.10). That circular must be in a required form (Form 62-104F1 Take-Over Bid

Circular (Form 62-104F1)) and contain extensive specified disclosure to ensure that target

shareholders have sufficient information from the offeror on which to base an informed decision.

26

It must also include a certificate stating that the circular contains no untrue statements or omissions

of material facts.

2.

2016 Amendments to the Take-Over Bid Regime

(a) Relevant 2016 Amendments

[97] Take-over bid regime amendments – and associated policy guidance – came into force in

Canada effective May 9, 2016 (the New Bid Regime). Three significant changes relevant to the

Applications were:



a mandatory minimum initial deposit period of 105 days from the date of the take-

over bid (increased from the previous 35-day minimum) (see NI 62-104 at

s. 2.28.1);



a mandatory minimum tender condition of more than 50% (the Minimum Tender

Condition) (see NI 62-104 at s. 2.29.1(c)); and

a statement of the effect of potential deemed beneficial ownership of securities in

certain circumstances under the early warning regime (the EWR) (see NP 62-203

at s. 3.1 in the context of NI 62-104 at s. 5.2).

(b)

Minimum Initial Deposit Period

[98] The mandatory minimum initial deposit period is the length of time an offeror must allow

for target shareholders to decide whether to deposit their securities to a take-over bid. It allows the

target and its shareholders time to analyze the take-over bid, and gives the target the opportunity

to attract or search for rival bidders.

[99] This period was increased from 21 days to 35 days in 2001, then increased to 105 days in

2016. The 2016 increase affected the law relating to shareholder rights plans, as discussed later in

this decision.

(c)

Minimum Tender Condition

[100] Pursuant to s. 2.29.1(c) of NI 62-104, the Minimum Tender Condition prohibits an offeror

from taking up securities deposited under a take-over bid unless:

. . . more than 50% of the outstanding securities of the class that are subject to the bid, excluding

securities beneficially owned, or over which control or direction is exercised, by the offeror or by

any person acting jointly or in concert with the offeror, have been deposited under the bid and not

withdrawn.

[101] Brookfield originally made its offer subject to its own requirement that at least 66 2/3% of

IPL Shares – including those owned by Brookfield – be deposited to the Brookfield Offer before

it would take up those shares. That condition was removed in later iterations of the Brookfield

Offer, leaving only the statutory Minimum Tender Condition.

(d)

Early Warning Regime

[102] Take-over bid regulation includes the EWR. This requires an entity to file an early warning

report once it acquires 10% or more of a company's issued and outstanding securities (see

27

NI 62-104 at s. 5.2). The EWR reporting requirement applies even if that entity is not planning to

make a take-over bid at the time it reaches or exceeds 10%. After an entity files an early warning

report, it must also make further disclosure of any increases or decreases of 2% or more in its

beneficial ownership.

[103] An EWR report alerts the market to a potential take-over bid and prevents "creeping take-

overs", in which an entity acquires control of a company or gets close to a control position (through

transactions such as private placements and market purchases that are exempt from take-over bid

rules) without paying a premium for the target company's securities (see D. Johnston, K. Rockwell,

and C. Ford, Canadian Securities Regulation, 5th ed. (Markham: LexisNexis, 2014) at

para. 11.31). One criticism of Swaps is that they could effectively allow circumvention of the

EWR, as IPL and Pembina alleged occurred here.

[104] In discussing the purpose of the EWR, Staff referred to a September 4, 1998 Canadian

Securities Administrators (the CSA) Notice (Proposed National Instrument: NI 62-103 – The Early

Warning System and Related Take-Over Bid and Insider Reporting Requirements) (at p. 2):

The early warning system contained in the securities legislation of most jurisdictions requires

disclosure of holdings of securities that exceed certain prescribed thresholds in order to ensure that

the market is advised of accumulations of significant blocks of securities that may influence control

of a reporting issuer. Dissemination of this information is important because the securities acquired

can be voted or sold, and the accumulation of the securities may signal that a take-over bid for the

issuer is imminent. In addition, accumulations may be material information to the market even when

not made to change or influence control of the issuer. Significant accumulations of securities may

affect investment decisions as they may effectively reduce the public float, which limits liquidity

and may increase price volatility of the stock. Market participants also may be concerned about who

has the ability to vote significant blocks as these can affect the outcome of control transactions, the

constitution of the issuer's board of directors and the approval of significant proposals or

transactions. The mere identity and presence of an institutional shareholder may be material to some

investors.

[105] Only beneficial ownership of voting or equity securities is currently subject to the EWR

disclosure requirements. Interests in Swaps and similar derivatives are not subject to those

requirements, although guidance added in 2016 to NP 62-203 (at s. 3.1) provides that beneficial

ownership can be deemed in some circumstances, which would be relevant for EWR compliance:

An investor that is a party to an equity swap or similar derivative arrangement may under certain

circumstances have deemed beneficial ownership, or control or direction, over the referenced voting

or equity securities. This could occur where the investor has the ability, formally or informally, to

obtain the voting or equity securities or to direct the voting of voting securities held by any

counterparties to the transaction. This determination would be relevant for compliance with the early

warning and take-over bid requirements under [NI 62-104].

[106] We discuss the interaction of Swaps with EWR requirements later in this decision.

3.

Acquisitions by Offeror During Take-Over Bid

[107] After an offeror announces a take-over bid, it may not acquire any of the target securities

outside of the take-over bid, subject to certain exceptions (NI 62-104 at s. 2.2). The exception

relevant to this matter is the 5% Exemption, which permits an offeror to acquire another 5% of

28

the target's issued and outstanding securities as at the date of the take-over bid if certain conditions

are met (see NI 62-104 at s. 2.2(3)).

[108] As an OSC panel explained in Re Falconbridge Limited, 2006 ONSEC 21 (at para. 73):

From a policy perspective, the purchases under the 5% Exemption contribute to liquidity in the

target company's shares, provide all target shareholders with an equal opportunity to sell their target

shares prior to conclusion of the bid, raise the market price of the shares, and encourage bidders to

raise their offer prices.

E.

Voting Threshold for a Plan of Arrangement

[109] Voting on the Pembina Arrangement at the July 29, 2021 IPL Shareholders Meeting was

subject to the majority voting requirement set out at s. 193(6)(a) of the ABCA. At least 66 2/3%

of the votes cast by shareholders voting on the resolution had to be in favour of the Pembina

Arrangement for it to be approved.

VII. THE BROOKFIELD APPLICATION

A.

Defensive Tactics – General

[110] As mentioned, the Brookfield Application challenged the defensive tactics taken by the

IPL Board in response to the Brookfield Offer. Brookfield suggested that there were two broad

issues for determination by this panel:



Did the Supplemental SRP prejudice IPL shareholders, including Brookfield?

Did the quantum of the Break Fee prejudice IPL shareholders?

[111] We consider the IPL SRPs and the Break Fee in detail later in these reasons, but set out

here some general principles concerning defensive measures and the parties' positions as to the

application of those principles in this case.

1.

Governing Principles

[112] As its title – Take-Over Bids – Defensive Tactics – suggests, NP 62-202 sets out the views

of Canadian securities regulators concerning defensive tactics that may be employed by a target

company subject to a take-over bid. Sections 1.1(2) and (5) were cited above. The following

additional portions of s. 1.1 are also relevant to the Brookfield Application:

1.1(1) . . . Management of a target company may take one or more of the following actions in

response to a bid that it opposes:

1.

2.

Attempt to persuade shareholders to reject a take-over bid.

Take action to maximize the return to shareholders including soliciting a higher

bid from a third party.

3.

Take other defensive measures to defeat the bid.

. . .

(3)

. . . Canadian securities regulatory authorities wish to advise participants in the capital

markets that they are prepared to examine target company tactics in specific cases to

29

determine whether they are abusive of shareholder rights. Prior shareholder approval of

corporate action would, in appropriate cases, allay such concerns.

[113] These statements reflect the applicable case law. Canadian securities commission decisions

have typically recognized that in discharging its fiduciary duty to the corporation, a target's board

of directors may legitimately employ defensive measures such as shareholder rights plans in a

genuine attempt to increase value for the target shareholders above that represented by a hostile

bid (see, e.g., Re Royal Host Real Estate Investment Trust, [1999] 47 B.C.S.C.W.S. 43 at para. 73

and Re Icahn Partners LP, 2010 BCSECCOM 432 at paras. 32-33 and 50).

[114] Canadian courts have made similar observations. In Rogers Communications Inc. v.

Maclean Hunter Ltd. (1994), 45 A.C.W.S. (3d) 1215 (Ont. Gen. Div.), the Court held, "[i]t is

reasonable that a target board not roll over and play dead. If it were completely passive, it would

be soundly criticized for not doing anything to maximize the situation for the target organization"

(at para. 18). It also acknowledged that, "[l]egitimate actions of a target board (to maximize

shareholder value) may thwart a complainant's bid" (at para. 23).

[115] At the same time, however, commission panels have recognized that even if they are

generally reluctant to do so, it may be necessary to exercise their public interest jurisdiction to

constrain or dismantle defensive tactics that impede shareholders' ability to dispose of their shares

as they wish or to choose a proposed transaction, including a hostile bid (see Re Canadian Jorex

Ltd. (1992), 15 O.S.C.B. 257; Re Suncor Energy Inc., 2015 ABASC 984 at para. 13; and Royal

Host at para. 73).

[116] Whether a defensive tactic is appropriate will depend on the circumstances of the case (see

CW Shareholdings (Ont. Gen. Div.) at paras. 57 and 97). The Ontario Court (General Division)

described it as "a question of balance, proportionality and commercial reasonableness in the overall

context of the take[-]over bid and the directors['] mandate to enhance and maximize value for the

shareholders as a whole" (ibid. at para. 97).

2.

Arguments of the Parties

(a) Brookfield

[117] In Brookfield's submission, the IPL SRPs and the Break Fee undermined the objectives of

the take-over bid regime set out in NP 62-202: the protection of the bona fide interests of the

shareholders of the target company, and the provision of a regulatory framework within which

take-over bids may proceed in an open and even-handed environment. It argued that IPL's

defensive tactics constrained the auction, prejudiced Brookfield as both an IPL shareholder and a

bidder, unfairly favoured the Pembina Arrangement, frustrated and undermined the Brookfield

Offer, frustrated IPL shareholders from receiving an enhanced Brookfield Offer, and were

generally abusive of IPL shareholders and the capital market.

[118] Brookfield further argued that NP 62-202 indicates that defensive tactics during contested

take-over bids are tolerated in Canada only to the extent that they give a target company's board

of directors an opportunity to maximize shareholder value by seeking a better bid or alternative

transaction. It brought the Brookfield Application arguing that relief from this panel was necessary

to level the playing field by preventing IPL's defensive tactics from depriving IPL shareholders of

Brookfield's best offer.

30

(b)

IPL and Pembina

[119] IPL suggested that the narrow issues on the Brookfield Application were whether the

Supplemental SRP or the Break Fee was clearly abusive to IPL shareholders and the integrity of

the capital market, and, if so, the appropriate relief to be granted. In its submission, neither was

clearly abusive, and the Brookfield Application should be dismissed.

[120] Pembina likewise disagreed with Brookfield's assertion that the Supplemental SRP and the

Break Fee were improper defensive tactics. To the contrary, it argued, both promoted shareholder

democracy, created choice for IPL shareholders, and helped overcome "the unfair advantage that

Brookfield created with its abusive use of [IPL Swaps]". Neither the Supplemental SRP nor the

Break Fee prejudiced IPL shareholders or the capital market, and therefore they did not raise public

interest concerns that should be addressed by this panel.

[121] IPL pointed out that defensive tactics are permissible under the take-over bid regime, and

argued that they are appropriate where necessary to protect a target company and its shareholders.

It submitted that the ASC should not get involved unless, as set out in NP 62-202, a defensive

tactic will deprive the target shareholders of the ability to respond to a bid. Although NP 62-202

also indicates that a secondary objective of the take-over bid regime is to provide a regulatory

framework within which take-over bids may proceed in an open and even-handed environment,

IPL argued that that provision is intended for the benefit of shareholders, not hostile bidders.

[122] IPL also cited NP 62-202 in support of its argument that in contested bids, the target board's

task is to maximize shareholder value and protect the integrity of the process to ensure shareholders

have an opportunity to make an informed decision. There is no single prescribed method for a

target board to fulfill its fiduciary duty, and its decisions should not be second-guessed if it has

acted reasonably.

(c)

Staff

[123] Like Brookfield, Staff cited the objectives of the take-over bid regime as described in

s. 1.1(2) of NP 62-202. They argued that this panel's review of defensive tactics should be based

on those objectives, ensuring that target shareholders can make fully informed decisions, and

preserving the shareholders' right to choose among competing transactions.

[124] Staff noted that defensive tactics in the take-over bid context are reviewable by a

commission panel pursuant to both our public interest jurisdiction and NP 62-202. They

acknowledged that while defensive measures may be genuinely employed in an attempt to secure

a better bid, if they impair the take-over bid regime's objectives and deny or severely limit the

ability of target shareholders to respond to a bid, we should intervene.

3.

Brief Conclusion

[125] In our Oral Ruling, we indicated that we were not satisfied that IPL engaged in any

improper defensive tactics, and found that Brookfield did not establish sufficient grounds for us to

exercise our public interest jurisdiction and make the orders sought. We therefore dismissed the

Brookfield Application.

31

[126] Our reasons for these conclusions are set out in the next sections of this decision.

B.

The IPL SRPs

1. Additional Background and Evidence

(a) General

[127] According to McKenzie, after Brookfield made the February 22 Offer and the Strategic

Review commenced, the Special Committee grew increasingly concerned about the effect

Brookfield's IPL Swaps would have on the Strategic Review, the take-over bid process, and the

IPL Board's efforts to maximize value for shareholders.

[128] In March 2021, IPL's advisors indicated that when they contacted other potential bidders,

some voiced reluctance to participate because of the size of Brookfield's economic interest in IPL.

Based on investor calls and several inaccurate media reports, it also appeared that the market was

confused about the difference between Brookfield's ownership of IPL Shares and its economic

interest in additional IPL Shares through the IPL Swaps.

[129] IPL thought that Brookfield's 19.65% position created a perception that it would be difficult

for any other bidder to succeed in acquiring IPL without Brookfield's support, which discouraged

competing bidders from coming forward. Brookfield's position also raised the concern that IPL

shareholders would not come out to vote on any alternative transaction that arose if they were

under the impression that the February 22 Offer was a "done deal" and they had no real choice

other than to tender their IPL Shares to Brookfield.

[130] IPL feared that if Brookfield further increased its position by entering into additional IPL

Swaps and acquiring additional IPL Shares under the 5% Exemption, the situation would be

exacerbated. As McKenzie stated in her affidavit:

. . . with its 19.65% interest, the Special Committee was concerned that even the acquisition of an

additional 5% of IPL Shares in the market within the take[-]over bid rules could effectively end the

Strategic Review, such that even if a superior competing transaction came forward, it would not

have a fair opportunity to be considered by IPL shareholders.

[131] During cross-examination, McKenzie further explained that given its historically low voter

turnout, IPL was concerned that if more IPL Shares were held by swap counterparties who had no

economic incentive to vote on a competing transaction and Brookfield held as many as 15% of the

IPL Shares and voted them against such a transaction, other IPL shareholders' votes would

effectively not count. In her words, "the more shares that are held in [IPL Swaps], the more likely

it becomes that the Brookfield ownership of [IPL Shares] has a greater and greater weight on the

overall outcome".

[132] Castaldo provided a similar explanation:

Even if the [Swap] Shares underpinning the [IPL Swaps] could not be voted or tendered in

connection with any change of control transaction, by entering into further [IPL Swaps], Brookfield

could effectively take additional blocks of IPL voting shares out of play. This would give

Brookfield's remaining beneficial holding disproportionately greater weight in any vote[.]

32

[133] These issues are discussed in more detail later in this decision in the context of the IPL

Application and the Pembina Application.

[134] In response to these concerns, IPL's financial and legal advisors recommended that IPL

adopt the Supplemental SRP.

[135] If triggered by a single shareholder acquiring 20% or more of the IPL Shares, the First SRP

would have given IPL shareholders the right to buy additional IPL Shares at a steep discount. The

Supplemental SRP maintained the 20% threshold, but expanded the definition of "Beneficial

Ownership" from the First SRP to include "Derivative Transactions". This had the effect of treating

Brookfield's IPL Swaps as equivalent to beneficial ownership of additional IPL Shares for the

purpose of the trigger. According to McKenzie, this was intended to ensure all IPL shareholders

were treated equally in the face of a take-over bid and prevent the aforementioned "creeping"

acquisitions of control.

[136] IPL's news release advising that it had adopted the Supplemental SRP specifically indicated

that it was a response to Brookfield's February 22 Offer, but explained:

The Supplemental [SRP] is not intended to prevent Brookfield . . . or its affiliates from acquiring

[IPL] pursuant to its hostile take[-]over bid dated February 22, 2021 . . . . The Supplemental [SRP]

includes a technical revision to [IPL]'s [First SRP] to treat certain financial derivatives, which have

already been utilized by Brookfield, as equivalent to beneficial share ownership. [original emphasis]

[137] The Supplemental SRP was initially set to expire on September 30, 2021 unless approved

by IPL shareholders prior to that date. As noted in the Chronology, it was amended on

June 25, 2021 so that it would expire at the close of business on the first business day following

the IPL Shareholders Meeting held to vote on the Pembina Arrangement.

(b)

Expert Evidence

(i) Brookfield

[138] Brookfield retained Osler to provide expert opinion evidence concerning the IPL SRPs, the

Break Fee, and, generally, the matters an investment banker would advise a target board to consider

when choosing between competing acquisition proposals.

[139] Osler observed that shareholder rights plans are typically adopted for the purposes of giving

a target board sufficient time to undertake a strategic review process and find other potential

transactions, giving shareholders the time and information they need to make a fully informed

decision, and ensuring that all shareholders are treated fairly in the event of a take-over bid. In his

view, shareholder rights plans are intended to be temporary, and cease to be of use once a superior

transaction is identified and presented to a target company's shareholders.

[140] According to Osler, with the advent of the New Bid Regime in 2016 and its extended

timelines and Minimum Tender Condition, the need to implement a shareholder rights plan in

Canada has diminished. In the circumstances here, Osler opined that there was no longer a

compelling commercial rationale for maintaining the IPL SRPs once the IPL Board decided to

recommend the Pembina Arrangement.

33

(ii)

IPL

[141] As mentioned, Puri was retained by IPL in part to provide expert opinion evidence

concerning its adoption of the Supplemental SRP.

[142] Puri acknowledged that since the mandatory bid period was extended under the New Bid

Regime, fewer shareholder rights plans are implemented for the purpose of giving a target board

more time to consider strategic alternatives to an unsolicited bid. However, she noted that such

plans are still useful for protecting against "creeping" bids. In her view, shareholder rights plans

can help to "level the playing field" in change of control transactions, as they may be used to

prevent a bidder from assembling a negative control block that would unreasonably limit

shareholder choice in the ways described by McKenzie and Castaldo.

[143] Puri also explained that while the provisions in the Supplemental SRP that included

derivatives in the definition of beneficial ownership are novel in Canada, they are common in the

United States (the US). She considered IPL's implementation of these provisions reasonable and

appropriate to allow the Special Committee to conduct an effective Strategic Review and give

shareholders the opportunity to make a choice.

[144] Puri suggested that maintaining the IPL SRPs until IPL shareholders voted on the Pembina

Arrangement was also reasonable and appropriate, as it prevented Brookfield from gaining a

negative blocking position. Without it, Brookfield could have purchased another 5% of IPL's

shares on the market and increased its IPL Swap position, which would have given it enough of

an interest to have negative control and defeat the required 66 2/3% vote on the Pembina

Arrangement.

[145] Puri emphasized that the Brookfield Offer was a permitted bid under the Supplemental

SRP. Therefore, it did not prevent Brookfield from pursuing its bid, or deprive IPL shareholders

of the opportunity to tender their shares to the Brookfield Offer. Instead, it legitimately preserved

IPL shareholders' ability to choose between the Brookfield Offer, the Pembina Arrangement, and

any other alternative that may have emerged as a result of the Strategic Review.

2.

Applicable Law

[146] Past securities commission decisions are clear that adoption of a shareholder rights plan is

not in and of itself unusual or improper, whether or not it is adopted in response to a hostile bid

(see, e.g., Re High Arctic Energy Services Limited Partnership, 2006 ABASC 1510 at para. 74;

ARC Equity at para. 85; and Falconbridge at para. 36). Shareholder rights plans are permitted

under NP 62-202 (Falconbridge, ibid.).

[147] However, as mentioned, unrestricted auctions are preferred in change of control scenarios

to maximize shareholder value. Canadian securities commissions have therefore traditionally

taken the view that shareholder rights plans should be "tolerated" rather than "promoted" – and

then only for the limited purpose of giving a target board of directors time to fulfill its fiduciary

duty to maximize shareholder choice and value, including by conducting a strategic review (see,

e.g., Re Inco Ltd., 2006 LNONOSC 747 at para. 22; Re BGC Acquisition Inc., [1999]

25 B.C.S.C.W.S. 44 at p. 4; Re MDC Corporation and Regal Greetings and Gifts Inc. (1994),

17 O.S.C.B. 4971 at p. 4979; and Icahn at para. 56; in the courts, see also Pente at para. 16). The

34

question addressed in many of the cases is therefore not if a shareholder rights plan should "go" or

cease to operate, but rather, when (High Arctic at para. 74; Re Pulse Data Inc., 2007 ABASC 895

at para. 96; and Icahn at paras. 32-33).

[148] In High Arctic, an ASC hearing panel cease traded a shareholder rights plan when it found

that there was no prospect (despite the target board's efforts) of an alternative bid being made

before the hostile bid expired. If the plan had not been terminated, it could have left the target

shareholders with no bid to consider (see paras. 79 and 84). BCSC panels reached similar

conclusions in BGC Acquisition (at p. 7) and Re Inmet Mining Corporation,

2012 BCSECCOM 442 (at para. 30), as did the panel in Re CW Shareholdings Inc. (1998),

21 O.S.C.B. 2899 (CW Shareholdings (Comm. #1)) (at paras. 75-76).

[149] In Suncor, an ASC panel weighed the possibility of other offers if the plan were left in

place against the risk that Suncor would not extend its hostile bid if the plan stayed in place for its

full term. To balance the two considerations, the panel issued an order cease trading the plan, but

not until after it continued to operate for an additional short period (see paras. 73-74, 89, 97, 100,

and 103-106).

[150] In Re Afexa Life Sciences Inc., 2011 ABASC 532, the shareholder rights plans gave the

target board time to generate another bid, but the hearing panel found that in the circumstances of

the case, eventually the plans' operation would prevent shareholders from getting a better offer

from the hostile bidder (see para. 43). The panel concluded that at that point, the competing offers

should be left to unfold without the hindrance of the shareholder rights plans. It therefore directed

that the plans remain in place until the end of the target company's go-shop period, but not

thereafter (at para. 47).

[151] In Re Baffinland Iron Mines Corp. (2010), 33 O.S.C.B. 11385, the panel was similarly

concerned that the shareholder rights plan at issue would deprive the target shareholders of the

ability to tender to the unsolicited offer or prevent the unsolicited bidder from increasing its offer

(see paras. 14 and 25). It concluded that the possibility of the unsolicited bidder making a better

offer was a potential benefit to Baffinland shareholders that justified cease trading the plan (see

para. 38).

[152] Some securities commission decisions have recognized that giving a target board more

time to find a better offer in the face of a hostile bid is not the only legitimate reason for

implementing a shareholder rights plan. In Neo, an OSC panel said that "shareholder rights plans

may be adopted for the broader purpose of protecting the long-term interests of the shareholders,

where, in the directors' reasonable business judgment, the implementation of a rights plan would

be in the best interests of the corporation" (at para. 112 (original emphasis); see also para. 107). In

Falconbridge, the panel observed that the target board had identified a number of concerns that

could be addressed by a shareholder rights plan, including the prospect of a creeping take-over bid

(see para. 20).

[153] As mentioned previously, under the New Bid Regime, time for a board to consider a bid

and find a superior alternative transaction is built into NI 62-104, making that justification for

maintaining a shareholder rights plan less significant. However, as Institutional Shareholder

35

Services observed in a document appended to the Baker Affidavit and entitled, Proxy Voting

Guidelines for TSX-Listed Companies, Benchmark Policy Recommendations (Effective for

Meetings on or after February 1, 2021), "'new generation' shareholder rights plans will continue to

serve an important purpose because they ensure that shareholders are treated equally in a control

transaction by precluding creeping acquisitions or the acquisition of a control block through private

agreements between a few large shareholders" (at p. 28).

[154] Whatever the motivation for adopting a shareholder rights plan, it appears to be common

ground among the case authorities that the plan should cease to operate once that goal has been

achieved and there is no longer a basis for allowing the plan to continue (see, e.g., Icahn at

para. 56). At some point, a target company's shareholders must be given an opportunity to decide

for themselves whether to tender to a take-over bid or support an alternative transaction, and it is

in the public interest to ensure that they have that chance (see Icahn at paras. 32-33 and 89, and

Pulse Data at para. 95).

[155] In Re Cara Operations Ltd. (2002), 25 O.S.C.B. 7997, an OSC panel explained (at

para. 53):

While it may be important for shareholders to receive advice and recommendations from the

directors of the target company as to the wisdom of accepting or rejecting a bid, and for directors to

be satisfied that a particular bid is the best likely bid under the circumstances, in the last analysis

the decision to accept or reject a bid should be made by the shareholders, and not by the directors

or others.

[156] Accordingly, shareholder rights plans should cease to have effect once they no longer

benefit shareholders and enhance their choice, but instead interfere with that choice or otherwise

"impair [shareholders'] ability to exercise their fundamental right to decide whether to accept or

reject a take-over bid for their shares" (Afexa at para. 28).

[157] Similar conclusions were drawn in Canadian Jorex (at p. 4), Icahn (at para. 47), Re Aurora

Cannabis Inc., 2018 ONSEC 10 (at para. 148), Baffinland (at para. 26), and Neo (at para. 144). As

the Afexa panel described it, the applicable test is "whether there is, and remains, a real and

substantial possibility that, given a reasonable period of further time under the protection of the

plan, the directors of the target company can increase shareholder choice and maximize

shareholder value" (at para. 28).

[158] If the answer to that inquiry is "no" and a shareholder rights plan impedes shareholders'

ability to choose, a securities commission may intervene (BGC Acquisition at pp. 4-5). Hearing

panels have the discretion to make that determination, which will depend upon the facts and

circumstances of the case (Afexa at para. 28; see also High Arctic at para. 76 and Falconbridge at

para. 36).

[159] To guide the determination, many past decisions cite the non-exhaustive list of factors set

out in Royal Host (at para. 74, cited, e.g., in Falconbridge at para. 35, Pulse Data at para. 96, High

Arctic at para. 76, Suncor at para. 14 et seq., and Neo at paras. 40-42):



whether shareholder approval of the rights plan was obtained;

when the plan was adopted;

36



whether there is broad shareholder support for the continued operation of the plan;

the size and complexity of the target company;

the other defensive tactics, if any, implemented by the target company;

the number of potential, viable offerors;

the steps taken by the target company to find an alternative bid or transaction that would

be better for the shareholders;



the likelihood that, if given further time, the target company will be able to find a better

bid or transaction;

the nature of the bid, including whether it is coercive or unfair to the shareholders of the

target company;



the length of time since the bid was announced and made;

the likelihood that the bid will not be extended if the rights plan is not terminated.

[160] Not all of these factors will apply in every case, and despite listing them, the Royal Host

panel recognized that no specific test would provide the answer in every situation: "Take[-]over

bids are fact specific; the relevant factors, and the relative importance to be attached to each, will

vary from case to case" (at para. 76; see also Icahn at paras. 32-33 and Neo at para. 43).

[161] Likewise, in Baffinland (at para. 29), an OSC panel adopted some of the language from the

Royal Host decision and held that, "at the end of the day, there is no one test or consideration that

constitutes the 'holy grail' when deciding whether a rights plan should remain in place or be cease

traded"; the hearing panel must decide what course of action is in the public interest in the

circumstances. The primary consideration is always the best interests and fair treatment of the

target shareholders (ibid.; see also Cara Operations at para. 55, Pulse Data at para. 94, and High

Arctic at paras. 48 and 76).

3.

Arguments of the Parties

(a) Brookfield

[162] Brookfield argued that the Supplemental SRP was an improper defensive tactic that was

unfairly adopted in direct response to the Brookfield Offer. In its submission, the plan unduly and

unfairly interfered with the rights of IPL shareholders – including Brookfield qua shareholder –

and frustrated the take-over bid process.

[163] Brookfield emphasized that the IPL Board neither sought nor obtained shareholder

approval of the Supplemental SRP, which had the effect of improperly substituting the board's

views concerning the Brookfield Offer and the Pembina Arrangement for that of IPL's

shareholders, who should have been permitted to decide for themselves.

[164] Brookfield further argued that in this case, the Supplemental SRP did not benefit IPL

shareholders because it prevented IPL's largest shareholder, Brookfield, from exercising its

statutory right to purchase additional IPL Shares on the secondary market under the 5%

Exemption. This not only prejudiced Brookfield, but also denied other IPL shareholders liquidity

and the chance at a premium if they wanted to sell their shares on the market.

[165] Although IPL maintained – and Baker acknowledged during his cross-examination – that

the 5% Exemption was still available to Brookfield as long as it terminated a corresponding portion

of its IPL Swaps so that its total interest in IPL did not exceed 20%, Brookfield contended that it

should not have to terminate an agreement with a third party entered into for bona fide commercial

37

reasons before it could exercise its legal rights. It pointed out that this suggestion ignored the

difficulty it would have terminating its IPL Swaps and the time it would take to do so and then

acquire another 5% of the IPL Shares on the market.

[166] Brookfield also argued that because it beneficially owned only 9.75% of the IPL Shares,

another 5% would not have given it a veto over the Pembina Arrangement or positioned it to end

the auction prematurely. Brookfield argued that the Swap Shares were irrelevant to that assessment

because the uncontradicted evidence was that Brookfield had no right to control whether the Swap

Shares were voted or how. Having 14.75% would not raise the potential for abusive conduct,

either, as Brookfield could not waive the Minimum Tender Condition under the New Bid Regime.

[167] In Brookfield's view, if the Supplemental SRP ever served a bona fide purpose for IPL's

shareholders – which was denied – it had served that purpose once the IPL Board decided to

support the Pembina Arrangement and the Special Committee acknowledged it was no longer

looking for another bidder, because Brookfield considered the Strategic Review concluded at that

point. Although IPL indicated that it considered the Strategic Review unfinished until IPL

shareholders had a chance to vote on the Pembina Arrangement, Brookfield suggested that showed

the IPL Board was improperly protecting the Pembina transaction.

[168] Given the Supplemental SRP's negative effects and the fact that it had ceased to serve any

legitimate purpose that it may once have had, Brookfield submitted that it should be cease traded.

(b)

IPL and Pembina

[169] IPL and Pembina took the position that IPL properly adopted the Supplemental SRP to

support, facilitate, and protect the integrity of the Strategic Review process, support the fair

treatment of all IPL shareholders, preserve shareholder choice, protect against a creeping bid, and

stem what McKenzie described as "the harm and potential abuse" caused by Brookfield's use and

incomplete disclosure of the IPL Swaps. Pembina argued that it was appropriate for the IPL Board

to protect shareholders' interests in this manner, and that doing so was consistent with the

objectives of the take-over bid regime.

[170] IPL pointed out that because the Brookfield Offer was a "Permitted Bid" under both the

First SRP and the Supplemental SRP, neither plan prevented IPL shareholders from tendering to

the Brookfield Offer if they wished to. Likewise, the IPL SRPs applied to all market participants,

and therefore did not unfairly target Brookfield.

[171] IPL and Pembina disagreed that the IPL SRPs no longer served a purpose once the Strategic

Review resulted in the Pembina Arrangement. As McKenzie indicated during her cross-

examination, IPL was no longer looking for another bidder, but it did not consider the Strategic

Review process concluded until the shareholder vote.

[172] Until then, IPL and Pembina argued, the Supplemental SRP continued to be in the best

interests of IPL shareholders because it was the only thing protecting the integrity of the vote by

preventing Brookfield from increasing its economic interest in IPL above 20%. Additional IPL

Swaps may have sidelined additional Swap Shares, giving Brookfield sufficient negative control

to block the Pembina Arrangement or any other alternative transaction, and depriving other IPL

38

shareholders of their right to choose. As Pembina pointed out, with even a 25% interest, historically

low voter turnout at IPL shareholders meetings could have meant that Brookfield's blocking

position was insurmountable.

[173] Pembina cited the Falconbridge decision as factually analogous. The hostile bidder there

had acquired almost 20% of the target's shares, and if it acquired another 5%, it would have been

in a position to block the white knight transaction and end the auction prematurely. To minimize

that risk, the OSC panel determined that it was in the public interest for it to allow the shareholder

rights plan to continue for a further brief period. Since the same risk was present in this case,

Pembina submitted, the Supplemental SRP should be allowed to continue for a further brief period.

[174] In its submissions, Brookfield had argued that Falconbridge was distinguishable.

Brookfield was not in a position to block a competing bid because documents governing the IPL

Swaps provided that Brookfield "shall not acquire any right to vote, or direct or influence the

voting, acquisition or disposition of any [Swap] Shares" (emphasis added).

[175] Both IPL and Pembina disagreed with this distinction. They argued that Brookfield

nonetheless retained the ability to influence voting of the Swap Shares, especially given the

significant business relationships between Brookfield and BMO discussed later in these reasons.

Moreover, if the Swap Shares were not voted, the proportionate weight of Brookfield's IPL Shares

would increase.

[176] As for Brookfield's argument that the Supplemental SRP was suspect because it was not

approved by IPL's shareholders, Pembina pointed out that there was no practical benefit to seeking

a shareholder vote for that purpose because the Supplemental SRP would expire the day after the

vote on the Pembina Arrangement. In Pembina's submission, the vote on the Pembina Arrangement

was therefore tantamount to a vote on the Supplemental SRP.

[177] Pembina also disagreed that the Supplemental SRP deprived IPL shareholders of liquidity.

It emphasized that IPL's share price had risen above the headline value of both the Brookfield

Offer and the Pembina Arrangement, which suggested strong demand for IPL Shares should any

IPL shareholders seek to sell.

(c)

Staff

[178] Consistent with the case law, Staff observed that while shareholder rights plans are no

longer required to achieve some of the objectives they served before the New Bid Regime, they

may still be adopted for other legitimate purposes. Although much of the commission

jurisprudence concerning shareholder rights plans prior to the advent of the New Bid Regime in

2016 tended to focus on whether a plan should survive beyond the minimum deposit period (which

is no longer an issue), Staff argued that the decisions still provide useful guidance on the principles

Canadian securities regulators will apply when reviewing a shareholder rights plan.

[179] Staff emphasized that our assessment of the IPL SRPs should take into account the over-

arching public interest principles underlying the New Bid Regime and NP 62-202. They

recommended that we consider the following questions:

39

(a)

Do the IPL [SRPs] have the effect of denying IPL shareholders the ability to make a fully

informed decision about the Brookfield Offer and frustrating an open take-over bid

process?

(b)

(c)

(d)

Will the IPL [SRPs] likely result in shareholders being deprived of the ability to respond

to a take-over bid or competing bid?

Has prior shareholder approval of the IPL [SRPs] been obtained and/or is there information

available that indicates the views of shareholders?

Are the IPL [SRPs] designed to facilitate an auction or a genuine attempt to obtain a better

bid?

[180] Staff argued that the answer to the first question was likely "no". To the contrary, the

Supplemental SRP may have been necessary to give IPL shareholders the opportunity to make a

decision about the Pembina Arrangement. The limitation on Brookfield's ability to acquire an

interest in IPL above the 20% threshold may also have been a necessary response to Brookfield's

lack of early warning disclosure and the uncertainty around whether and how the Swap Shares

would be voted.

[181] Staff were of the view that the answer to the second question was also likely "no". The IPL

SRPs did not preclude IPL shareholders from tendering to the Brookfield Offer or prevent

Brookfield from taking up and paying for any IPL Shares tendered. However, they did increase

the likelihood that IPL shareholders would have the opportunity to choose the Pembina

Arrangement, because they made it more difficult for Brookfield to acquire a de facto blocking

position prior to the vote.

[182] Staff noted that the answer to the third question was "no". Only the First SRP was approved

and confirmed by IPL shareholders, while the Supplemental SRP was not. Further, IPL confirmed

that it did not intend to submit the Supplemental SRP for shareholder ratification because it was

set to expire immediately following the vote on the Pembina Arrangement.

[183] As to the fourth question, Staff submitted that the answer was "yes". They were of the view

that without the Supplemental SRP and its limitation on Brookfield's ability to increase its interest

in IPL, Pembina may not have made a competing bid and created an auction. They agreed with

IPL and Pembina that the circumstances in Falconbridge were analogous to this case, as the OSC

panel had been concerned about the possibility of a blocking position. Staff therefore suggested

that we could follow Falconbridge and let the Supplemental SRP stand for a short time until after

the vote on the Pembina Arrangement.

[184] Staff concluded that, "in the specific circumstances before the Panel, the [Supplemental

SRP] is a reasonable defensive tactic of the IPL [B]oard that will preserve the IPL shareholders'

ability to choose between the Brookfield Offer and the Pembina Arrangement."

4.

Analysis and Conclusion

[185] As discussed, even before the New Bid Regime, providing time for a board of directors

facing a hostile take-over bid to conduct a strategic review process was not considered the only

valid reason for a company to adopt a shareholder rights plan. In our view, whether related to the

40

provision of additional time or not, a plan that furthers the objectives of the take-over bid

provisions set out in NP 62-202 – protecting the bona fide interests of the shareholders of the target

company and providing a framework within which bids may proceed in an open and even-handed

manner – may be entirely appropriate, depending on the circumstances of the case.

[186] Here, the IPL Board identified several legitimate concerns raised by the size and nature of

Brookfield's interest in IPL, including its effect on the willingness of other prospective bidders to

participate in an auction, the willingness of other shareholders to make the effort to vote on a

competing transaction, and the outcome of any vote that would take place.

[187] We discuss the possible implications of Brookfield's IPL Swaps on such a vote in detail

later in these reasons in the context of the IPL Application and the Pembina Application. For the

purposes of this discussion, it suffices to say that we agreed with the IPL Board's assessment that

the Swap Shares had the potential to unfairly distort the outcome whether they were voted against

an alternative transaction or not voted at all. If Brookfield were at liberty to continue to increase

its interest – including through a potentially unlimited number of IPL Swaps – the effect would

have been compounded.

[188] We were therefore satisfied that the IPL Board acted reasonably when it adopted the

Supplemental SRP in response to these concerns.

[189] The evidence was that the directors followed the advice of their legal and financial advisors

and exercised their business judgment in doing so, with the goals of facilitating an auction,

generating a better bid that would have a fair chance of success, and preserving IPL shareholders'

ability to make a meaningful choice. Because the Supplemental SRP applied to all bidders and was

implemented before the Pembina Arrangement was on the table, we were not persuaded that it

unfairly targeted Brookfield or improperly protected the board-supported transaction. The

Brookfield Offer was a "Permitted Bid" under both the First SRP and the Supplemental SRP, and

neither plan precluded Brookfield from increasing its offer.

[190] More importantly, we were satisfied that the Supplemental SRP did not prejudice IPL

shareholders.

[191] To the contrary – and with reference to the questions Staff suggested should guide our

analysis – the IPL SRPs operated to the shareholders' benefit and supported their interest in

maximizing value for their IPL Shares. While the IPL SRPs did not preclude shareholders from

tendering to the Brookfield Offer, they did prevent Brookfield from accumulating a negative

control position that could have blocked a genuine preference for the Pembina Arrangement or

any other alternate transaction. IPL amended the Supplemental SRP to terminate after the vote on

the Pembina Arrangement – the time at which we concluded the plan would have served its

legitimate purpose. If IPL had not done so, we would have issued an order with the same effect.

[192] Brookfield pointed out that it, too, was an IPL shareholder whose bona fide interests should

have been supported in accordance with the objectives of the take-over bid regime. However,

Brookfield's interest in having the IPL SRPs cease traded so it could increase its shareholding

position and therefore its chance of acquiring the company as cheaply as possible was clearly not

41

the same as the interests of other IPL shareholders, who wanted to obtain the highest value possible

for their shares. It is the latter group's interest that was intended to take precedence, and not

Brookfield's interest qua bidder who also happened to be a shareholder.

[193] We were not persuaded by Brookfield's argument that the IPL SRPs denied other

shareholders liquidity because Brookfield could not purchase additional IPL Shares on the market

without terminating an equivalent interest in the Swap Shares. The evidence was that the IPL Share

price was increasing at the relevant time and the shares were already liquid. We considered it

unlikely that an IPL shareholder who wanted to sell on the market would have had difficulty doing

so.

[194] Similarly, we were not persuaded that it would have been too difficult for Brookfield to

terminate some of its IPL Swaps and then make additional market purchases to acquire a beneficial

interest in a corresponding number of IPL Shares. There was no evidence this was the case beyond

Baker's speculation in that regard, and no evidence Brookfield even attempted this course of action

to avail itself of the 5% Exemption. In fact, the terms of the IPL Swap Letter Agreements provided

for Brookfield's optional termination of all or a portion of the IPL Swaps.

[195] It was suggested in argument that a decision not to cease trade the IPL SRPs would be

tantamount to a decision to endorse treating derivative interests as equivalent to beneficial

ownership, contrary to the CSA's decision not to do so in 2016 after running a full stakeholder

consultation process prior to implementing the New Bid Regime (as discussed later in this

decision).

[196] We disagreed. Although that possibility is contemplated in s. 3.1 of NP 62-203 ("[a]n

investor that is a party to an equity swap or similar derivative arrangement may under certain

circumstances have deemed beneficial ownership, or control or direction, over the referenced

voting or equity securities"), a decision whether to cease trade a shareholder rights plan is based

on the facts and circumstances of the particular case. Our conclusions concerning the Supplemental

SRP or the IPL Swaps more generally are not intended to be a general pronouncement on the

treatment of derivative interests in all situations.

[197] In arriving at our decision, we considered the factors set out in Royal Host. As in other

cases, not all of the factors were relevant here – particularly since a number of them are oriented

toward shareholder rights plans adopted for the purpose of giving a target company's board of

directors time to conduct a strategic review.

[198] Brookfield emphasized the factors relating to shareholder approval, given that the IPL

Board adopted the Supplemental SRP without submitting it to a shareholder vote. It is true that

lack of express shareholder support for a plan has had significance in some past securities

commission decisions, but the decisions also note that shareholder approval is not necessarily

determinative (see, e.g., Cara Operations at para. 65, Falconbridge at para. 46, Suncor at para. 27,

and Neo at paras. 44-45).

[199] Here, as in Suncor (at para. 29), we considered it a neutral factor. Broad IPL shareholder

support for a shareholder rights plan with most of the same provisions as the Supplemental SRP

42

was established with shareholder approval of the First SRP, reconfirmed as recently as

May 7, 2020. In addition, we agreed with Pembina that there was no point seeking a vote on the

Supplemental SRP given that it was to terminate immediately following the shareholder vote on

the Pembina Arrangement. In the circumstances, that vote would have served as a proxy for a vote

on the Supplemental SRP.

[200] As Brookfield pointed out, in CW Shareholdings (Comm. #1), the panel suggested that

because the shareholder rights plan at issue was adopted in the face of a hostile bid and without

the approval of target shareholders, the target company should have demonstrated that "it was

necessary to do so because of the coercive nature of the [hostile bid] or some other very substantial

unfairness or impropriety" (at para. 74). While this harkens back to one of the Royal Host factors,

we did not consider it to be a general principle applicable in all cases. Even if it were, we were

satisfied that whether the Brookfield Offer could be considered coercive or not, it was reasonable

for the IPL Board to have concluded it was necessary to implement the Supplemental SRP to

address the potential unfairness posed by Brookfield's use and disclosure of the IPL Swaps.

[201] In support of its argument that the Supplemental SRP had outlived its usefulness once IPL

entered into the Pembina Arrangement, Brookfield relied on the fact that compared to the plans in

other cases, the Supplemental SRP was to be in place for a relatively long time – from

March 31, 2021 until the end of July 2021, a period of approximately four months. Some past

decisions have held that the longer a plan has been in place, the higher the onus on the proponents

of the plan to show it still serves the interests of the shareholders (see, e.g., Cara Operations at

para. 60).

[202] In our view, although the length of time a plan has operated may be a significant

consideration in some circumstances, there is no hard and fast rule in that regard. The real focus

of the inquiry is whether a plan continues to operate in the best interests of target shareholders.

Brookfield argued that the Supplemental SRP no longer served a purpose once IPL and Pembina

agreed on a transaction. We were satisfied that its purpose – to address concerns relating to the

effects of the IPL Swaps – continued until the shareholder vote. Moreover, as we have already

observed, the plan did not interfere with shareholder choice or otherwise frustrate the take-over

bid process.

[203] In the result, we dismissed this part of the Brookfield Application. We found that the IPL

Board's decision to adopt the Supplemental SRP and maintain it until the IPL Shareholders

Meeting was reasonable in the circumstances.

C.

The Break Fee

1. Additional Background and Evidence

(a) General

[204] As set out in the Chronology, Burrows indicated that Pembina first raised the issue of a

break fee with IPL on March 7, 2021. The evidence was unclear as to how IPL responded to that

inquiry at the time, but the subject arose again between the two parties on May 25, 2021 as they

discussed a possible all-share transaction.

43

[205] Burrows explained that based on advice from its financial advisors, Pembina initially

proposed a break fee of $400 million, which it considered was an amount commensurate with its

risk and consistent with comparable past transactions. Further negotiations followed, and break

fee numbers ranging from $250 million to $400 million were discussed, as was a reciprocal or

reverse break fee payable to IPL.

[206] Ultimately, the parties agreed on the reciprocal $350 million break fee set out in the

Pembina Arrangement. According to Burrows, IPL accepted this number in exchange for

Pembina's agreement to other contractual terms, including an increase in the consideration it

offered per IPL Share and its agreement to pay a post-closing dividend. Both McKenzie and

Burrows described the Break Fee as having been heavily negotiated between the parties as just one

element of a complex deal with many parts, and McKenzie said she did not believe the deal would

have proceeded without it.

[207] Quinn said the Break Fee represented approximately 2.3% of IPL's enterprise value and

approximately 4.2% of equity value. He explained that equity value "theoretically quantifies the

break fee relative to the consideration to be received by shareholders" and enterprise value

"theoretically quantifies the break fee relative to the overall size of the target company, reflecting

the value of both the equity consideration and the debt or other securities outstanding".

[208] IPL's witnesses further explained that the Special Committee wanted to secure the

transaction because it had concluded that the Pembina Arrangement was in the best interests of

IPL and its shareholders and clearly superior to the Brookfield Offer – including the two offers

each described as Brookfield's "BEST AND FINAL OFFER". McKenzie, Quinn, and Castaldo

gave some of the reasons for that conclusion:

(a)

Based on Pembina's May 28, 2021 share closing price, the Pembina

Arrangement had a headline value of $19.525 per IPL Share. Based on

Pembina's May 31, 2021 share closing price, it had a headline value of

approximately $19.45 per IPL Share. Both exceeded the headline value of

Brookfield's May 31 Offer of approximately $19.42 per IPL Share, based

on the closing price of the BIPC Shares on May 31, 2021.

(b)

(c)

J.P. Morgan thought that Pembina Shares were undervalued on the market,

so the Pembina Arrangement gave IPL shareholders an opportunity to

acquire Pembina Shares at a relatively low value. Pembina Shares are far

more liquid than BIPC Shares, and J.P. Morgan had concerns about the

BIPC Shares' valuation.

The combination of IPL's and Pembina's complementary assets would result

in greater "vertical integration, expanded customer service offerings and

enhanced global market reach" – i.e., a stronger combined company that

would allow IPL shareholders to participate in both the upside of Pembina's

business and the upside of IPL's standalone business.

44

(d)

(e)

(f)

The Pembina Arrangement would create "significant value through the

realization of near term synergies and high return growth opportunities" by

merging two of Canada's largest midstream companies. Pembina estimated

that the combined company would achieve $150 million to $200 million in

"synergies".

IPL shareholders would retain an implicit 28% interest in the HPC, which,

once in full service, was expected to help the combined company to generate

$1.1 billion to $1.4 billion in adjusted cash flow from operating activities

after dividends annually. Under the Brookfield Offer, IPL shareholders

would retain an indirect interest of 3% or less.

IPL shareholders would receive a 175% increase in their monthly dividend

upon closing.

[209] As McKenzie explained, the Special Committee considered a break fee a customary term

in a transaction like the Pembina Arrangement, and understood that break fees tend to be higher

than average in white knight transactions such as the Pembina Arrangement. Quinn was of the

view that break fees are a standard term included in almost all public company M&A transactions

in Canada. TD Securities' research revealed that of 298 transactions involving Canadian public

companies with an equity value of over $500 million over the last 20 years, there were break fees

in 293 or 98.3%.

[210] Concerning the quantum of the Break Fee, Quinn cautioned against over-reliance on

precedent given the variability of the circumstances surrounding different transactions. However,

he confirmed that in TD Securities' view, the fee here was consistent with the precedent range,

which has averaged 3.1% of enterprise value and 3.5% of equity value over the past 20 years and

3.3% of enterprise value and 3.9% of equity value and over the past 10 years.

[211] Quinn also indicated that before agreeing to the Break Fee, IPL satisfied itself that it had

thoroughly canvassed the market and conducted a fair auction process that led to the highest value

transaction possible. He pointed out that the risk of a failed transaction was enhanced in this case

because of the size of Brookfield's interest in IPL, its opposition to a deal with Pembina, and the

fact that it was not constrained by a standstill agreement and could have responded to the Pembina

Arrangement by making an improved competing offer directly to IPL shareholders. Quinn

considered that the reluctance of other parties to enter the auction because of Brookfield's position

negatively affected IPL's bargaining power and the size of the break fee Pembina sought.

[212] Quinn concluded:

Based on the above analysis and TD Securities' experience, the [B]reak [F]ee associated with the

Pembina Arrangement . . . was, in the view of TD Securities, reasonable, standard, within the

precedent range, and was consistent with the average on a percentage of equity value basis, and

below the average on a percentage of enterprise value basis, of sell-side break fees offered in

Canadian target transactions with greater than $500 million implied equity value over the past

10 years arising from strategic review processes similar to the IPL Strategic Review.

45

[213] From Pembina's perspective, Burrows explained that Pembina sought the Break Fee as

compensation for its investment of resources and the expenses it incurred to pursue IPL on an

accelerated timeline, as well as its lost opportunity costs – i.e., the loss of its ability to pursue other

transactions during the IPL negotiations and the value of any impact on its business operations

from its focus on the negotiations. Pembina also sought compensation for the risk it undertook in

agreeing to a deal with IPL, including the potential risk to its reputation and share price if the

transaction failed.

[214] Pembina confirmed that in its view, the risk of a failed transaction was higher than normal

in these circumstances, given the size of Brookfield's economic interest in IPL and the possibility

that Brookfield may have had the ability to influence the voting of the Swap Shares. Like

McKenzie, Burrows suggested that break fees are typically higher following an auction and where

a white knight is involved because of the risk of bidding into a hostile take-over. He also pointed

out that Pembina faced additional risk by sharing its confidential information with IPL, a

competitor in the same industry.

[215] Although Brookfield maintained that it never sought a break fee during its dealings with

IPL, McKenzie contended that was not true. Brookfield's November and December Proposals both

contemplated transaction documentation with "standard break-fee" provisions and "other

customary deal protections". Brookfield's May 30 and May 31 proposals likewise indicated that

Brookfield expected any agreement to include "[c]ustomary Brookfield . . . deal protections",

which the Special Committee and its advisors understood would include a break fee.

[216] McKenzie acknowledged during cross-examination that Brookfield never proposed a break

fee number and IPL never asked it for one. However, in her affidavit, she pointed out that was

because Brookfield did not provide a form of arrangement agreement or a mark-up of IPL's form

of agreement. According to Quinn, it would generally not be until after a party's bid was

determined to be superior and negotiations of a final agreement were underway that he would seek

specific information about a break fee or other deal protections. He and Castaldo both assumed

Brookfield would ask for a break fee similar to what Pembina sought, since that figure was in line

with market precedent.

(b)

Expert Evidence

(i) Brookfield

[217] Osler acknowledged that there have been break fees in the vast majority of Canadian public

M&A transactions over the last 20 years with an equity value of $500 million or more. In his

opinion, a break fee is generally appropriate in contested M&A transactions when it is necessary

to induce an offeror to make a materially superior proposal. He confirmed that offerors seek break

fees as compensation for their time and out-of-pocket expenses incurred in completing due

diligence, negotiating an agreement, and satisfying closing conditions, and for both their

opportunity costs and the risks posed to their reputation and share price by the prospect of an

unsuccessful transaction.

[218] Osler observed that while an offeror will always want the greatest deal protections it can

get, a target board has a responsibility to minimize those protections so they do not preclude other

proposals or result in a disproportionate amount of the value of a proposal going to the break fee

46

recipient. Deal protections should not have the effect of depriving target shareholders of their right

to make a decision among competing proposals.

[219] To assess the appropriateness of agreeing to a break fee, Osler suggested that a target board

should consider whether:

(i)

the solicited proposal will create more value for shareholders than the business's

standalone prospects;

(ii)

the solicited proposal is superior to the unsolicited proposal (in terms of value and

likelihood of timely completion); and

(iii) the board is satisfied that it has explored all other reasonable alternatives and

determined that none will deliver the same or better value to shareholders or has a

higher likelihood of completion.

[220] Applying these considerations to this case, Osler concluded that based on the information

he reviewed, the IPL Board appeared to have determined that at least as of May 30, 2021, the

Brookfield and Pembina proposals were superior to IPL's standalone prospects and preferable to

continuing the status quo. It was then the board's responsibility to secure the best deal possible. If

the IPL Board concluded that Pembina's offer was superior, Osler acknowledged that it was

appropriate for IPL to have attempted to secure the transaction by offering deal protections,

including a break fee.

[221] However, Osler disagreed with the IPL Board that Pembina's offer was clearly superior to

Brookfield's. In addition to pointing out the small difference in the respective headline values of

the two offers as of May 31, 2021 and concerns he had about the value of Pembina Shares

compared to BIPC Shares, he questioned the ostensible value added by the estimated "synergies"

IPL and Pembina touted. He also pointed out that Brookfield's offer was predominantly in cash. In

his opinion, cash is typically better than non-cash consideration because it is not volatile and,

unlike share consideration, it is not subject to discounting. Similarly, he contended that any

deferred, contingent, or restricted consideration may need to be discounted because it can be

uncertain and beyond the control of the target board.

[222] Osler further opined that the Brookfield Offer was superior in terms of its timing,

conditionality, and transaction certainty, because an acquisition that can close quickly with little

risk of non-completion is preferable to one that will be slower to complete or has a higher level of

conditionality or uncertainty of completion. While Brookfield had already obtained all necessary

regulatory approvals and anticipated paying IPL shareholders their total consideration within

21 days, Pembina did not yet have those approvals and did not expect to close the Pembina

Arrangement until later in 2021.

[223] In addition, Osler noted that it was uncertain whether the Pembina Arrangement would

garner the necessary 66 2/3% approval by IPL shareholders when IPL's largest shareholder,

Brookfield, intended to vote against it. He thought that the IPL Board should have taken that

uncertainty into account before agreeing to the Break Fee.

47

[224] Given his conclusion that the Pembina Arrangement presented only a "marginal, if any"

premium over the Brookfield Offer, Osler was of the view that the Break Fee was excessive

relative to the value offered, even if the IPL Board had determined in good faith that the Pembina

Arrangement was superior. At 4.2% of equity value, he considered the Break Fee to be at the very

high end of the precedent range.

[225] Osler also commented on the possible chilling effect of a break fee where there is another

bidder in play that might otherwise increase its offer. He stated in his report that he did not think

it was clear in this case that the auction had ended before the IPL Board agreed to the Break Fee,

as Brookfield's use of the word "FINAL" in its last few written offers should not have been taken

literally. In his view, IPL lost value for its shareholders as a result. Instead of paying additional

consideration to IPL shareholders, Brookfield would end up paying it to Pembina in the form of

the Break Fee.

(ii)

IPL

[226] Plewes was retained by IPL to provide expert opinion evidence about its Strategic Review

and the Break Fee. Like Osler, he opined that break fees are a standard component of almost all

Canadian M&A transactions, and that a target board should generally avoid agreeing to a break

fee that would prevent a better offer from being made to shareholders. He suggested that the

following factors are relevant when negotiating a break fee:

(i)

the absolute size of the fee;

(ii)

the absolute size of the transaction;

(iii) the percentage of enterprise value that the fee represents;

(iv)

(v)

the percentage of equity value that the fee represents;

the relative size of the parties to the transaction;

(vi)

the value and benefits to shareholders that directors are seeking to protect;

(vii) the competitive dynamics of the transaction;

(viii) other terms and conditions of the transaction agreement; and

(ix)

the degree to which the protection provided by the fee is important to

entering into a transaction agreement.

[227] Plewes considered that it would be inappropriate for him to critique any single factor in

this case in isolation, given that he was not directly involved in the negotiations between IPL and

Pembina and did not have access to each party's relevant confidential information. He pointed out

that in negotiating the Break Fee, Pembina was aware of the outstanding Brookfield Offer and no

doubt weighed the likelihood that Brookfield – or another third party – would make further

competing proposals.

[228] In cross-examination, Plewes agreed with Brookfield's counsel that in the context of an

auction with two competing offers, a target company's board should understand and, if necessary,

seek out all the terms and conditions of both proposals and how they compare, including whether

deal protections such as a break fee are being sought. However, in his report he made note of the

fact that in IPL's data room, both Brookfield and Pembina had access to the process letter and IPL's

proposed form of arrangement agreement, which included termination provisions. He therefore

concluded that both Brookfield and Pembina were given multiple opportunities to improve their

48

respective offers, and that both were made aware a termination fee would form part of any

arrangement agreement.

[229] Since Plewes did not give an opinion about the appropriateness of the Break Fee in this

case, Brookfield argued that we should have drawn an adverse inference that his view would not

have supported IPL's position. In response, IPL pointed out that Plewes was not asked for that

opinion – either in preparing his report or by Brookfield when it had the opportunity to do so

during cross-examination on the Plewes Affidavit.

2.

Applicable Law

[230] There appear to be a limited number of reported decisions that discuss break fees – also

described as bust-up, break-up, termination, or kill fees. However, the decisions cited by the parties

generally agreed that such fees are common in M&A transactions, and that they can be legitimate

deal protection mechanisms (see, e.g., Re Pacifica Papers Inc., 2001 BCSC 1069 at para. 49 and

CW Shareholdings (Ont. Gen. Div.) at para. 50).

[231] Break fees are intended to entice bidders to participate in an auction. As alluded to in the

previous section of this decision, they compensate a party for its wasted time, resources, and lost

opportunity costs should a proposed transaction fail (CW Shareholdings (Ont. Gen. Div.) at

para. 50). They can offset various potential risks, including disclosure risk and reputational risk.

From the target's perspective, agreeing to a break fee may assist it in its goal of generating the best

bid to maximize shareholder value. From the bidder's perspective, a break fee protects against "the

price being shopped and the transaction being abandoned in favour of a marginally better deal"

(Pacifica at para. 49).

[232] CW Shareholdings (Ont. Gen. Div.) is a leading case on the subject of break fees in Canada.

In its reasons, the Ontario Court accepted that a break fee is appropriate where (at para. 51):

(i)

it is needed to induce a competing bid;

(ii)

the bid represents better value for shareholders; and

(iii) the fee reflects "a reasonable commercial balance between its potential negative

effect as an auction inhibitor and its potential positive effect as an auction

stimulator" (the CW Shareholdings Test).

[233] However, if the quantum of a break fee is unreasonable in the circumstances, it could be

considered an improper defensive tactic (Re CW Shareholdings Inc. (1998), 21 O.S.C.B. 2910

(CW Shareholdings (Comm. #2)) at para. 52).

[234] In Abitibi, Québec's Bureau de décision et de révision (the Québec BDR) found that a

break fee in the amount of 5% of equity value and subject to further escalation was "unjustified"

and "overly generous", but did not prohibit the bid to which it related (at paras. 55-56, 226, and

229; see also the Québec Court of Appeal's affirming decision, 2012 QCCA 569 at paras. 19 and

55-56). By contrast, in Pacifica, the British Columbia Supreme Court noted that the evidence had

49

shown that at 4.5% of equity value, the break fee was within "the accepted range" of 3% to 5% (at

paras. 118 and 152).

[235] In Re Alamos Gold Inc. and Aurizon Mines Ltd., 2013 BCSECCOM 393, as in this case,

the bidder, Alamos, argued that the break fee agreed between the target and a competing bidder

was an improper defensive tactic, while those parties argued that the fee had been heavily

negotiated and was necessary to induce the competing offer (at paras. 18-20). The BCSC panel

agreed that the fee was necessary, and was not simply an attempt to frustrate the Alamos bid (at

para. 21). At $27.2 million or 3.5% of the transaction's value, the panel concluded that the break

fee was within the acceptable range (at paras. 8 and 23).

[236] In CW Shareholdings (Ont. Gen. Div.), the target agreed to a break fee of $30 million, or

2.6% of the proposed transaction value (at paras. 5, 34, and 107). The Ontario Court noted that the

fee had been the subject of negotiations between the parties, and its quantum had varied during

their discussions from a low of $25 million to a high of $40 million (at para. 83). The Court found

the break fee (and another proposed condition that was not relevant to this matter) justified in the

circumstances of the case to induce a second bid where there was otherwise no competing bidder

(at para. 69). In addition, the Court concluded that the break fee was "well within the normal

parameters for such inducements in the industry", and was satisfied that it had achieved a result

that benefited the target shareholders (at para. 107).

3.

Arguments of the Parties

(a) Brookfield

[237] As mentioned, Brookfield took the position that like the Supplemental SRP, the Break Fee

was an improper defensive tactic that was contrary to the best interests of IPL shareholders because

it inhibited the auction and prevented shareholders from receiving a better offer. Brookfield

acknowledged that break fees are typical in M&A transactions and that the Break Fee at 4.2% of

equity value was within the range set by precedent transactions, but also pointed out that it was at

the high end of that range.

[238] In Brookfield's submission, the Break Fee did not satisfy the CW Shareholdings Test.

[239] First, Brookfield questioned whether the Break Fee – or at least a break fee in that amount

– was needed to induce the competing bid from Pembina. Because the Special Committee did not

raise the subject of a break fee with Brookfield, Brookfield argued that IPL failed to try to leverage

its break fee discussions with Pembina by playing the two offering parties against each other. The

IPL Board therefore failed in its duty to negotiate the lowest break fee that would still induce

Pembina to make an offer better than Brookfield's. Instead, IPL agreed to a break fee that was

disproportionate to the minimal amount of time and resources Brookfield thought Pembina would

have expended on due diligence, negotiations, and seeking regulatory approvals during the short

period that it was involved in the Strategic Review.

[240] In addition, Brookfield was of the view that IPL did not need to agree to such a high break

fee when it was in a positive bargaining position with Pembina – it had the Brookfield Offer in

hand, and knew or ought to have known that Brookfield would come back with an even better

offer if the auction had continued. According to Brookfield, that should have been apparent from

50

the fact that Brookfield was IPL's largest shareholder, it had been pursuing a transaction with IPL

for the previous seven months, and it had significantly improved its offer twice within the 24 hours

preceding IPL's agreement to the Pembina Arrangement.

[241] Second, Brookfield argued that the Pembina Arrangement did not represent better value

for IPL shareholders – or, as Brookfield described it, "excess value realized" – largely for the

reasons cited by Osler. Brookfield pointed out that the Break Fee did not protect a premium, since

it had calculated that Pembina's offer at $19.45 per IPL Share was less than the Brookfield Offer

at $19.50 per IPL Share (or 0.225 of a BIPC Share), subject to proration. Brookfield also suggested

that IPL shareholders who were IPL employees faced the prospect of job losses as a result of the

planned "synergies" between IPL's and Pembina's operations if the Pembina Arrangement

proceeded.

[242] Moreover, even if the IPL Board reasonably concluded that the Pembina offer was superior,

Brookfield argued that it was not sufficiently superior to justify a break fee of $350 million.

According to Brookfield's review of the case law, there are no Canadian precedents in which a

target company's board agreed to a break fee – much less an "exorbitant" break fee – where the

white knight offer was lower or, at best, only marginally better than the unsolicited offer.

[243] In Brookfield's submission, the size of the Break Fee was also disproportionate to the

likelihood that it would have to be paid. The ABCA requires that a plan of arrangement must be

approved by at least 66 2/3% of the votes cast by shareholders. Brookfield beneficially owned

9.75% of the IPL Shares and was of the view that its May 31 Offer was better than the Pembina

Arrangement. Therefore, a "no" vote was reasonably foreseeable when IPL agreed to the Break

Fee.

[244] Finally, Brookfield argued that the Break Fee was not an auction stimulator, because

Brookfield was already at the table with a superior offer. To the contrary, it was an auction

inhibitor: it negatively affected Brookfield's ability to improve its offer further because the Break

Fee added another $350 million to its costs. Brookfield asserted that it would make a better offer

but for the Break Fee, and that it would increase its offer by an amount commensurate with any

reduction in or elimination of the Break Fee ordered by this panel.

(b)

IPL and Pembina

[245] IPL argued that s. 198 of Act does not give the ASC jurisdiction to make an order cease

trading, eliminating, or reducing the Break Fee as Brookfield requested. Citing the decision in CW

Shareholdings (Comm. #2) (at para. 49), IPL submitted that there is no jurisdiction to interfere in

private contracts, and that there did not appear to be any Canadian securities commission cases in

which a break fee was reduced or eliminated. IPL therefore characterized Brookfield's public

statements about increasing its bid in accordance with any reduction or elimination of the Break

Fee as misleading and improper.

[246] IPL acknowledged that the ASC does have the jurisdiction to cease trade securities in the

public interest, and that in CW Shareholdings (Comm. #2), it was noted in obiter that the quantum

of a specific break fee could amount to an improper defensive tactic warranting a cease-trade order.

However, IPL stated it was unable to locate any cases in which a Canadian securities commission

51

actually issued such an order. Even in Abitibi, where the break fee was found to be an improper

and abusive defensive tactic, IPL pointed out that the Québec BDR did not prohibit the subject

bid.

[247] IPL also argued that because break fees are a usual feature in the take-over bid context, it

would "wreak havoc" in the markets if orders cease trading bids on that basis were routinely

granted. As stated in ARC Equity (at para. 69):

In our view, this cautious approach [to exercising the ASC's public interest jurisdiction] recognizes

the danger that a well-intentioned panel minded to address a harm discerned in a particular set of

facts could inadvertently respond too aggressively or with too broad a brush, with unintended and

undesirable consequences, including consequences for participants in other, unobjectionable

transactions or circumstances. Accordingly, we believe that a panel would be ill-advised to rely

solely on its public interest authority to intervene in a transaction and interfere with negotiated, and

otherwise legal, arrangements or outcomes unless there is compelling evidence that a failure to

intervene would truly be abusive to investors and the integrity of the capital market.

[248] IPL disagreed with the applicability of the CW Shareholdings Test, as that test was

articulated in the context of an oppression action under the Canada Business Corporations Act and

not in the context of an application under securities laws. However, even if the test were applicable

to the Brookfield Application, IPL argued that Brookfield misquoted it, misapplied it, and ignored

the Court's observation that directors of target corporations must be afforded flexibility when

carrying out their duties.

[249] Pembina similarly pointed to the business judgment rule, and maintained that the IPL

Board's decision to agree to the Break Fee was reasonable and is owed deference by this panel. It

was of the view that the Break Fee satisfied each of the three criteria set out in the CW

Shareholdings Test. It argued that the evidence established the Break Fee was necessary to induce

it to make its offer, especially in light of the size of Brookfield's economic interest in IPL – which

not only inhibited other bidders' willingness to come forward, but also increased the risk that there

would be low IPL voter turnout at any vote held to approve an alternative transaction. This in turn

increased the risk that the transaction might fail and negatively impact Pembina's reputation and

share price.

[250] Both IPL and Pembina relied on the evidence showing that the Break Fee was fairly

negotiated between them along with all of the other terms of the Pembina Arrangement. The

quantum under discussion varied as other terms were settled, and Pembina pointed out that its

unwillingness to enter into an arrangement agreement without a break fee was demonstrated by

the fact that it first raised the issue with IPL over two months before it made its initial offer. IPL

reiterated its success in the negotiations, given that it got Pembina to agree to both a lower break

fee than originally sought, and a reciprocal break fee in IPL's favour.

[251] IPL noted that in relying on the CW Shareholdings Test, Brookfield suggested that a bid

must represent "excess value realized" for shareholders before it is appropriate to agree to a break

fee. However, the Court referred only to "better value", which IPL argued is not the same as price

alone. It pointed to its reliance on the advice of its financial advisors and all of the factors it

considered in determining that the Pembina Arrangement offered better value, as set out

previously.

52

[252] Pembina similarly argued that Brookfield misinterpreted the CW Shareholdings Test and

that its offer represented better value for IPL shareholders than the Brookfield Offer. It cited

considerations comparable to those cited by IPL, including the liquidity of the Pembina Shares

IPL shareholders would receive in exchange for their IPL Shares.

[253] IPL disagreed with Brookfield's contention that the Break Fee was not an auction stimulator

because Brookfield was already at the table. The possibility of a break fee attracted Pembina, and

Pembina's involvement created an auction that led to higher offers from both Pembina and

Brookfield.

[254] Concerning quantum, IPL noted that Brookfield conceded in its written submissions that

at 4.2% of equity value, the Break Fee fell within the range set by precedent transactions of

comparable size. However, in IPL's view, because it had significant debt and was in the same

industry as Pembina, the better measure was the Break Fee's percentage of IPL's enterprise value

(2.3%). Enterprise value takes a target's debt and equity into account rather than just the offer price,

and therefore reflects both the scale of the target's operations and the risk borne by the bidder in

light of the target's debt load and capital structure.

[255] Pembina pointed out that data compiled by its financial advisor, Scotia Capital, indicated

that the amount of the Break Fee was below the precedent range. It further pointed out that even

Brookfield's expert, Osler, had acknowledged during cross-examination that enterprise value is the

more appropriate measure where, as here, the target corporation is highly leveraged and involved

in the same industry as the bidder.

[256] As for Brookfield's complaint that IPL agreed to the Break Fee without first seeking an

improved Brookfield Offer or asking whether Brookfield would require its own break fee, IPL

emphasized the Brookfield communications that had indicated it expected a break fee among other

"customary" deal protections. Further, IPL said it never reached the stage at which it would have

had a reason to inquire further, because Brookfield's bid was never "in the lead" on or after

May 29, 2021. There was no evidence to support Brookfield's contention that the Special

Committee should have known Brookfield was willing to pay more than what was set out in either

"BEST AND FINAL OFFER", and IPL argued that the ASC should not protect Brookfield from

its own bad business decision not to make its true best offer when it had the opportunity to do so.

[257] In sum, IPL denied that the Break Fee was an improper defensive tactic intended to protect

an inferior bid. It argued that Brookfield did not demonstrate otherwise, or to show that the Break

Fee was so abusive of shareholders and the capital market that it warranted a cease-trade order that

would deprive IPL shareholders of the opportunity to choose the Pembina Arrangement.

[258] In Pembina's submission, the Break Fee accomplished exactly what was intended. Despite

the chilling effect of Brookfield's near-20% economic interest in IPL, the Break Fee brought

another bidder to the table and stimulated an auction, which resulted in greater value for IPL

shareholders than the Brookfield Offer. Until the IPL Board decided to proceed with the Pembina

Arrangement, there was no agreement on the Break Fee and IPL remained free to accept a better

offer from Brookfield, had Brookfield presented one.

53

(c)

Staff

[259] Like IPL, Staff noted that an order cease trading the Pembina Arrangement to prevent

payment of the Break Fee would deprive IPL shareholders of the opportunity to make a choice

between the Pembina Arrangement and the Brookfield Offer. Such an order would only be

appropriate if we determined that the Break Fee was a clear abuse of the public interest, and in

Staff's view, it was not. They recommended that we focus on satisfying ourselves that: (i) IPL

shareholders were not denied their right to tender to the Brookfield Offer; (ii) the IPL Board was

mindful of that right when it agreed to the Break Fee; and (iii) market participants have assurance

that a target board cannot inappropriately deny shareholders the right to tender to an offer the board

does not endorse.

[260] Like Pembina, Staff submitted that the Break Fee met the CW Shareholdings Test. First,

the evidence strongly suggested that the Break Fee was necessary to induce the Pembina offer,

given the risk Pembina faced in making a white knight offer when there was an extant bid by a

hostile offeror with substantial resources and a significant toehold position. Second, there was no

reason to dispute the IPL Board's conclusion that it should support the Pembina Arrangement.

Third, this panel could conclude that the Break Fee struck a reasonable commercial balance

between its potential negative effect as an auction inhibitor and its potential positive effect as an

auction stimulator as long as we were satisfied that the quantum of the Break Fee was within the

acceptable range, and that the IPL Board only agreed to the Break Fee after a robust auction process

that focused on maximizing shareholder value.

[261] As a percentage of equity value, Staff contended that while the Break Fee was at the higher

end of the established range, it was likely justifiable given the level of risk that Pembina assumed.

Staff also submitted that the evidence showed that the IPL Board reasonably relied on professional

advice and conducted an auction that resulted in a better deal for shareholders.

[262] Accordingly, Staff were of the view that there was no evidence of a flawed process that

would justify the conclusion that we should not defer to the IPL Board's business judgment or that

the Break Fee was contrary to the public interest.

4.

Analysis and Conclusion

[263] As discussed, a break fee is not improper or unusual. It is a common term in Canadian

M&A transactions, and can serve as a legitimate deal protection measure. The evidence suggested

that Brookfield was aware of this, as its early correspondence specifically contemplated a break

fee, and its later correspondence contemplated "[c]ustomary . . . deal protections" – which was

reasonably interpreted by the IPL Board as including a break fee. Moreover, the evidence showed

that Brookfield has had the benefit of break fees in some of its previous transactions.

[264] However, also as discussed, where the quantum of a specific break fee is excessive in the

circumstances, it may draw scrutiny as an improper defensive tactic. As stated in CW

Shareholdings (Comm. #2) (at para. 52):

Although break-up fees have become a more or less usual feature of the take-over bid landscape,

the quantum of a specific fee could, in our view, result in the agreement to pay such a fee being an

improper defensive tactic. However a break-up fee in an appropriate amount could, in our view, be

54

properly agreed to by a target company if it were necessary to agree to it in order to induce a

competing bid to come forward. As a result, we are unable to conclude, without entering into an

examination of the factual background, that the mere existence of the break-up fee constitutes an

improper defensive tactic.

[265] In other words, the determination is highly fact-specific. While there is no fixed minimum

or maximum break fee, a target board of directors could be at risk of breaching its fiduciary duty

if it agrees to a break fee so large it deters other bidders or deters the board from considering other

offers.

[266] In terms of remedies, we agreed with IPL that we do not have the jurisdiction to reduce or

eliminate the Break Fee as Brookfield suggested. Section 198 of the Act allows us to make a variety

of orders in the public interest, but an order varying contractual terms between private parties is

not among them. The only suitable remedy here would have been a cease-trade order under s. 198,

if warranted in the circumstances.

[267] However, we were satisfied that the Break Fee met each element of the CW Shareholdings

Test. As Brookfield acknowledged in its written submissions, the evidence of the parties involved

in the negotiations was clear: Pembina would not have made a competing bid without the Break

Fee. In addition to the usual reasons for seeking a break fee – including compensation for time and

resources expended, opportunity costs, and the risk to a bidder's reputation and share price –

Pembina faced additional risk and a greater possibility of a failed transaction in these

circumstances. We agreed that Pembina made an offer in the face of a hostile bid by a party with

substantial resources and a significant toehold position in IPL that presumably opposed any deal

but its own. Further, we agreed that the negotiations themselves were risky for both IPL and

Pembina, given that each disclosed confidential information to a competitor in the same industry.

[268] Other than its objection to the size of the Break Fee, Brookfield's primary point of

contention appeared to be whether the Pembina Arrangement met the second part of the CW

Shareholdings Test and represented a better value for shareholders than the Brookfield Offer.

Brookfield maintained that the Brookfield Offer was superior, but the evidence included detailed

information about the IPL Board's assessment of the value of a combination with Pembina, and

why it concluded that the Pembina Arrangement was preferable. We saw no reason to dispute that

assessment. We agreed with the Court in Re Sterling Centrecorp Inc. (2007), 159 A.C.W.S. (3d)

323 (Ont. S.C.J.) (at para. 59):

The concept of "maximizing shareholder value" as that term is used in the cases referred to above,

does involve a number of factors including price. In my view, "maximizing shareholder value" does

not necessitate accepting the merest possibility of a higher [price] and ignoring other factors that

may contribute to that value.

[269] Choosing to endorse the Pembina transaction was a reasonable exercise of the IPL Board's

business judgment, based on the results of the Strategic Review and the advice of its professional

advisors. We should give deference to that decision. As the OSC panel stated in VenGrowth, "[i]t

is not the role of the [securities regulator] to assess the business or financial merits of any proposed

transaction or transactions" (at para. 34).

55

[270] In this regard, we noted that even though Osler disagreed that the Pembina Arrangement

was better than the Brookfield Offer, he acknowledged that if the IPL Board were satisfied that it

was, it was appropriate for IPL to agree to a break fee to secure the transaction. He also

acknowledged that both J.P. Morgan and TD Securities were qualified financial advisors, and it

was appropriate for the IPL Board to rely on their advice.

[271] Further, we were satisfied that the Break Fee reflected a reasonable commercial balance

between its potential negative effect as an auction inhibitor and its potential positive effect as an

auction stimulator. We accepted that because of its size and the uncertainties around Brookfield's

interest in IPL, it was likely that IPL lost some of the bargaining power it may otherwise have had.

Nonetheless, the Break Fee was negotiated down from Pembina's original position, and the Special

Committee succeeded in making it a reciprocal obligation. It conducted an auction to satisfy itself

it had found the best deal possible, and the agreed conditions for paying the Break Fee were not

unusual.

[272] Most importantly, we were satisfied that the Break Fee did not inhibit the auction or deprive

IPL shareholders of the opportunity to choose between the two proposed transactions. Brookfield

remained at liberty to improve its offer further. IPL had no obligation to instigate a break fee

discussion with Brookfield before agreeing to the Break Fee with Pembina.

[273] As for the size of the Break Fee, we agreed with Quinn that because the circumstances

surrounding a transaction are so variable, one should not place too much reliance on precedents.

That said, precedents can serve as a guide as to the size of the break fees that other commercial

actors have found sufficient to stimulate an auction and protect a desirable transaction without

depriving shareholders of their right to choose.

[274] Here, we were satisfied that in the circumstances, enterprise value was the better measure

for the reasons described earlier: IPL was highly leveraged and in the same industry as Pembina.

At 2.3% of IPL's enterprise value, the Break Fee was below average and well within the precedent

ranges suggested by the evidence. However, even at 4.2% of equity value, we found that the

quantum of the Break Fee was still within reason because of the atypical risks Pembina faced in

pursuing a transaction with IPL.

[275] In the result, Brookfield did not persuade us that the Break Fee was an improper defensive

tactic warranting the exercise of our public interest jurisdiction. It was abusive of neither investors

nor the capital market. To the contrary, if we had granted the relief sought by Brookfield and cease

traded the Pembina Arrangement, IPL shareholders would have been deprived of one of their two

choices.

[276] We therefore dismissed this part of the Brookfield Application.

D.

Fairness of the Strategic Review

1. Additional Background and Evidence

(a) General

[277] In addition to its specific submissions about the IPL SRPs and the Break Fee, Brookfield's

application materials included a number of references to other aspects of the Strategic Review and

56

its interactions with IPL that it considered part of an unfair "seven month long campaign of delay,

avoidance, and obfuscation" designed to "thwart [Brookfield's] attempts to unlock value for the

benefit of all IPL shareholders". We understood that Brookfield made these points – which are

detailed further below – in further support of its submission that the Pembina Arrangement should

be cease traded.

[278] On IPL's behalf, McKenzie denied that the approach or any of the steps taken by the Special

Committee during the Strategic Review were intended to frustrate the Brookfield Offer. In her

view, the safeguards put in place by the Special Committee were meant to promote a fair,

competitive, and effective process, the goal of which was to achieve the highest value for IPL

shareholders. She described the Strategic Review as full and fair, and explained that the Special

Committee not only evaluated third party offers and alternatives during the Strategic Review, but

also undertook a comprehensive review of IPL's standalone prospects and intrinsic value to inform

its evaluation of any proposals made.

[279] As one of the financial advisors involved, Quinn was similarly of the view that IPL ran a

full and fair Strategic Review process, since it did a full market canvas, made sure bidders all had

equal access to information, and gave the bidders multiple opportunities to make their best offers.

(b)

Expert Evidence

(i) Brookfield

[280] Osler did not address Brookfield's allegations of unfairness except as they related to the

IPL SRPs and the Break Fee. However, he did provide some comments concerning the key

considerations an investment banker would advise a target board to consider when choosing

between competing acquisition proposals: the value offered to shareholders, the certainty of that

value (if not payable in cash), transaction timing, and the risk of non-completion.

(ii)

IPL

[281] Plewes indicated that he had been asked to comment on IPL's approach to and execution

of its Strategic Review. He cited IPL's March 8 Directors' Circular, in which IPL stated that the

mandate of the Strategic Review was to:

. . . evaluat[e] a broad range of options, including exploring a possible corporate transaction . . .

strategic alternatives may include, but are not limited to, possible change of control transactions or

asset sales with one or more third parties, partnerships with strategic or financial partners or

remaining independent and pursuing [IPL's] existing strategy as a stand-alone entity.

[282] In his view, this was a full and expansive mandate "consistent with the form of mandate

given to a special committee charged with exploring all potential alternatives that may be available

to maximize shareholder value". Further, in his opinion:

The formation of a Special Committee, the retention by the Special Committee of independent legal

counsel and an independent financial advisor, a public announcement of the Strategic Review

[p]rocess, and moving quickly with respect to all of the foregoing are best practices and indicative

of an intention on the part of the [IPL] Board and the Special Committee to execute the stated

Strategic Review [p]rocess mandate purposefully.

57

[283] Plewes observed that IPL granted Brookfield access to IPL's confidential information, and

that the terms of such access can be difficult to negotiate with an unsolicited bidder. That IPL did

so suggested to him that the Special Committee considered it to be in the best interests of IPL's

shareholders for Brookfield to participate fully in the Strategic Review process without being

subject to an informational disadvantage.

[284] Plewes concluded:

In my opinion, the approach to the Strategic Review [p]rocess was sound, consistent with market

practice and well-executed. It achieved its stated purpose of surfacing value maximization

alternatives for the [IPL] Board to consider, negotiate and, as was deemed appropriate, ultimately

recommend to the shareholders of IPL, resulting at this juncture in the Pembina Arrangement. The

Strategic Review [p]rocess was managed so that whichever, if either, of the [c]ompeting [p]roposals

or other potential offers that the [IPL] Board ultimately elected to pursue would be finalized on an

expedited basis pursuant to an arm's length negotiation of certain key transaction terms, including a

termination fee.

[285] In cross-examination, Plewes agreed that in a full and fair strategic review process, a target

company's directors should consider all relevant information, act in no more haste than the

circumstances require, treat all bidders fairly (with as much of a level playing field as possible),

and not prejudge the outcome. He also agreed that an auction should continue until the target

company's board is satisfied that it has the bidders' best and final offers.

2.

Applicable Law

[286] As cited previously, s. 1.1(2) of NP 62-202 identifies as a secondary objective of the take-

over bid regime in Canada the provision of "a regulatory framework within which take-over bids

may proceed in an open and even-handed environment". Shareholders of the target company must

be free to make a fully informed decision, and management must not frustrate an open take-over

bid process.

[287] In Cara Operations, the OSC panel said the following about fairness in the take-over bid

context (at paras. 58-59):

First, there is the principle of procedural fairness for all: bidders, potential bidders, existing

shareholders, management and those whose business fortune is tied to any one of these groups. The

rules of the game should be clear and consistently applied to encourage bidders to come forward.

And the game must be played in an acceptable timeframe.

A fair process with clear rules and timelines for take-over bids is in the best interest of shareholders

generally: it encourages bidders to come forward and gives shareholders opportunities to realize

upon their investment at optimum values.

3.

Arguments of the Parties

[288] Brookfield and IPL were the only parties that made submissions on the fairness of their

interactions and the general conduct of the Strategic Review.

(a)

Brookfield

[289] Brookfield argued that IPL did not conduct the Strategic Review or the auction fairly,

contrary to the IPL Board's obligation to ensure shareholders realized the best value on their

58

investments. It claimed that IPL "played favourites" between Brookfield and Pembina throughout,

and denied McKenzie's claim that the Strategic Review process was "full, fair, competitive and

effective".

[290] In support of these contentions, Brookfield pointed to the following:



While the IPL Board told Brookfield in January 2021 that a valuation of at least

$24 per IPL Share was a "condition precedent" to negotiations, there was no

indication that IPL told Pembina the same thing.



IPL delayed granting Brookfield access to the IPL data room for 93 days, claiming

that it needed to offset Brookfield's "head start". However, Brookfield denied that

it had a head start, as it had access only to IPL's public information prior to entering

the data room, just like any other bidder. By contrast, IPL granted Pembina access

to the data room the day after Pembina indicated it was interested in an all-share

transaction.



Prior to allowing Brookfield to access the data room, IPL required Brookfield to

sign a Pre-NDA before it would negotiate a Definitive NDA. It did not require

Pembina to enter into a Pre-NDA.

IPL indicated that any Definitive NDA would have to include a standstill provision

precluding Brookfield from revoking or increasing the February 22 Offer without

the approval of the Special Committee. Brookfield argued that this was another

improper defensive tactic, as it provided the Special Committee with a veto over an

enhanced Brookfield Offer.



While IPL entered into a confidentiality agreement with Pembina that allowed IPL

reciprocal access to Pembina's data room, IPL never sought to enter into a

confidentiality agreement with Brookfield that would allow it to do due diligence

on BIPC – even though BIPC Shares were part of the Brookfield Offer.

IPL started negotiating the terms of a draft arrangement agreement with Pembina

on May 25, 2021, but did not have comparable negotiations with Brookfield at any

time. Brookfield acknowledged that it had not complied with IPL's requirement that

bidders submit a mark-up of IPL's draft template arrangement agreement, but

pointed out that Pembina had not done so either. Further, IPL did not go back to

Brookfield to ask for its form of arrangement agreement, nor did it ever tell

Brookfield that its failure to provide a mark-up was prejudicial to its offer.



On May 27, 2021, McKenzie met with Brookfield to discuss its latest offer, and

indicated that the Special Committee preferred cash consideration to BIPC Shares.

The next day, she told Brookfield's representatives that IPL viewed BIPC Shares as

equivalent to cash. However, IPL did not ask for cash consideration from Pembina

and instead agreed to an all-share transaction.

59



Although the IPL Board had publicly touted the long-term value of the HPC, it said

it was not interested in Brookfield's proposal to offer IPL shareholders a continuing

interest in the asset through the HPC GrowthCo. IPL then touted the benefits of IPL

shareholders continuing to have an interest in the HPC under the Pembina

Arrangement.

McKenzie was instructed by the Special Committee on the evening of

May 30, 2021 to contact Pembina and seek an improved offer, but it did not instruct

her to contact Brookfield. McKenzie said that the Special Committee thought the

May 30 Offer was as high as Brookfield was prepared to go, but Brookfield

contended that there was no reason for the Special Committee to have thought so.

After Brookfield submitted its further improved May 31 Offer, IPL did not come

back to discuss the offer or to try to negotiate an even better bid. Although the

May 30 Offer and the May 31 Offer each stated that they represented Brookfield's

"BEST AND FINAL OFFER", Brookfield argued that IPL should have known

that did not mean Brookfield could not make further improvements.



IPL abruptly ended the Strategic Review the evening of May 31, 2021. It had

previously indicated that the process would continue until the expiry of the

Brookfield Offer on June 7, 2021.

On June 2, 2021, Brookfield announced its intention to improve its bid even further,

but the IPL Board continued to recommend the Pembina Arrangement.

(b)

IPL

[291] IPL argued that its Strategic Review process was a success for its shareholders, as it

resulted in improved offers from Brookfield, found an alternative transaction superior to the

Brookfield Offer, and increased the price of IPL Shares on the TSX. It described the Brookfield

Application as "[s]our grapes" that was at its core a criticism of the IPL Special Committee for

believing Brookfield when it described its May 30 Offer and its May 31 Offer as "BEST AND

FINAL". In IPL's submission, "perceived slights in a private negotiation" are insufficient to

engage the panel's public interest jurisdiction, which should be reserved for cases involving

conduct that is clearly abusive of shareholders and the integrity of the capital market.

[292] IPL further argued that Brookfield's submissions erroneously implied that Brookfield was

somehow legally entitled to "the exact same communications, access, information and negotiation

points that Pembina received, and at the same time" (original emphasis). IPL denied that

Brookfield had any such entitlement.

[293] Concerning the specific issues Brookfield raised, IPL took the position that any delay in

gaining access to the data room was Brookfield's fault for not seeking access earlier, and for not

entering into the Pre-NDA and Definitive NDA sooner. Once Brookfield executed the Definitive

NDA, it was given access to the data room the next day.

60

[294] McKenzie pointed out that in addition to the information in the data room, Brookfield

received a detailed presentation from IPL management, four additional sessions with management

to discuss specific commercial and technical matters, access to a detailed financial model for IPL's

business, and a site visit to the HPC. IPL and its advisors also responded to hundreds of questions

and supplemental information requests from Brookfield and its advisors over the course of

approximately 12 days.

[295] However, McKenzie acknowledged that IPL had not wanted to let Brookfield into the data

room too early, as it was concerned about a chilling effect on other potential bidders who perceived

that Brookfield had an undue advantage. Brookfield indicated that as early as January 2021, it had

already engaged external consultants, conducted a detailed analysis, and only required three to

four weeks for confirmatory due diligence. IPL wanted to even the playing field for other potential

bidders to encourage the best offers possible, and give them time to catch up to Brookfield's "head

start".

[296] As for the conditions it imposed before allowing Brookfield to access the data room, IPL's

position was that the conditions were necessary to safeguard its interests and protect the integrity

of the Strategic Review. The IPL Board had been told by its advisors that allowing a hostile bidder

into a target company's data room was unusual and risky. It was on their advice that IPL sought to

protect the confidentiality of Definitive NDA negotiations by requiring Brookfield to enter into

the Pre-NDA. If it had not done so and the negotiations were unsuccessful, Brookfield would have

been at liberty to disclose the negotiations to the market, which IPL feared may have had a negative

effect on the Strategic Review.

[297] IPL was also concerned that Brookfield would alter its offer in a manner prejudicial to IPL

and its shareholders by using information that was disclosed in the data room, or that it would

access the data room and then announce that it was only going to increase its bid by a nominal

amount. IPL feared that this could have created a negative market perception of its value that

would discourage other bidders from getting involved and decrease its share price. IPL offset these

concerns by seeking the standstill provision, which it considered equivalent to the standstill

provisions in the non-disclosure agreements it had entered into with other interested parties.

[298] In any event, McKenzie pointed out, IPL and Brookfield ultimately agreed that instead of

the standstill IPL originally sought, Brookfield would refrain from increasing its offer for a one-

year period unless it planned to offer at least $17.95 per IPL Share or more, and made the increased

offer no sooner than the close of business on May 27, 2021.

[299] IPL explained that it did not enter into draft agreement negotiations with Brookfield as it

did with Pembina because Brookfield failed to provide the mark-up requested in the data room

process letter. Pembina addressed that requirement by submitting its own draft agreement that

accomplished the same thing – it provided a starting point for negotiations on definitive terms. IPL

disputed that it had an obligation to go back to Brookfield to prod it for its form of agreement.

[300] Concerning its request for a cash offer from Brookfield and not from Pembina, IPL pointed

out that IPL and Brookfield are very different companies, whereas IPL and Pembina are

61

competitors in the same industry. This made a share-for-share transaction with Pembina an

attractive way to maximize shareholder value that was not possible with Brookfield.

[301] As for Brookfield's suggestion that the IPL Board had made a valuation of at least $24 per

IPL Share a "condition precedent" to negotiations, IPL stated that its January 25, 2021 letter to

Brookfield had only said $24 "was the level at which the IPL Board was willing to engage in pre-

emptive and exclusive discussions with Brookfield, without doing a prior market canvass"

(emphasis added).

[302] IPL also pointed to the distinct nature of Brookfield's and Pembina's businesses in response

to Brookfield's complaints about how IPL addressed the HPC. In IPL's view, Brookfield's proposal

to preserve for IPL shareholders a 3% interest in the asset through the stand-alone HPC GrowthCo

was fundamentally different than the 28% interest in the HPC that IPL shareholders would have

retained after a combination with Pembina. While the Pembina Arrangement would have kept the

HPC as a strategic asset within an integrated midstream business comparable to IPL's, Brookfield's

HPC GrowthCo proposal would not.

[303] IPL disagreed that it ended the auction abruptly, without regard for whether Brookfield

would make another improved offer. McKenzie reiterated that not only did Brookfield's May 30

Offer and May 31 Offer each state that it was a "BEST AND FINAL OFFER", but both also had

a short deadline for reply. IPL therefore assumed that a sophisticated party like Brookfield meant

what it said and did not think it was willing to offer more.

[304] In addition, IPL's fact witnesses said that before moving ahead with the Pembina

Arrangement, IPL contacted Brookfield to advise that IPL was prepared to proceed with another

proposal, and invited Brookfield to provide any other information it wanted the Special Committee

to consider before it formally agreed to the competing proposal. In IPL's view, this gave Brookfield

another opportunity to improve its last offer, and fair warning that the auction was coming to an

end. IPL further pointed out that even if it did not ask Brookfield for a further offer, there was

nothing preventing Brookfield from submitting one.

[305] IPL also noted that in the Definitive NDA, Brookfield acknowledged and agreed that IPL

"reserve[d] the right, in its sole discretion, to accept or reject any potential counterparty proposal

or offer and to reject any and all proposals made by [Brookfield] or its Representatives", and to

terminate discussions and negotiations with Brookfield at any time.

4.

Analysis and Conclusion

[306] As a starting point (and referring to factors cited in Neo at para. 119), we were satisfied

that the Special Committee was comprised of qualified independent directors whose primary

objective was achieving the best deal possible for IPL and its shareholders. It retained and relied

on professional advisors as necessary, articulated and executed its mandate to find and consider

options (including the status quo), and succeeded by finding a second option and negotiating

higher bids. After implementing what it considered appropriate safeguards, the Special Committee

even took the unusual step of allowing a hostile bidder into IPL's data room in the hope of

encouraging a better offer.

62

[307] We were not persuaded that the Special Committee or the IPL Board did anything untoward

in their handling of the Strategic Review process.

[308] The evidence was clear that IPL negotiated differently with Brookfield than it did with

Pembina in some respects. However, we agreed with IPL that Brookfield and Pembina are very

different companies involved in different businesses with different circumstances. Even within the

Strategic Review, the two were positioned differently and had a different relationship with IPL.

One was a hostile bidder with an outstanding offer to shareholders on the table, and the other was

a solicited bidder that entered the process later as a white knight and proposed a plan of

arrangement with IPL Board support. One was also a financial buyer while the other was a strategic

buyer – which explains why IPL viewed the Brookfield Offer less favourably than an all-share

transaction with Pembina.

[309] In our view, it was neither unexpected nor improper for IPL to communicate with the two

parties in different ways. We did not interpret IPL's conduct as suggestive of an intent to prejudice

Brookfield's position, which in turn could have prejudiced IPL's own shareholders. IPL gave

logical business reasons for the decisions it made, and we were satisfied that Brookfield's

"perceived slights" (as IPL described them) were exactly that – merely perceived. We found no

basis to conclude that the IPL Board deliberately "played favourites" or had improper motives.

[310] Although NP 62-202 speaks of creating "an open and even-handed environment" in the

take-over bid context, it does not indicate that all parties must be treated exactly the same in all

respects – and we were not directed to any authority suggesting that there is such a requirement.

To the contrary, in Rogers, the Court observed that, "[a] potential acquiror is not owed a duty by

the target board nor is there any requirement that the acquiror be permitted to dictate terms" (at

para. 20). The Court then went on to cite an American decision in which the US Court held that,

"'[t]he hostile offeror is not entitled to have Boards of Directors smooth his path to control'" (ibid.).

[311] In CW Shareholdings (Ont. Gen. Div.), the hostile bidder's complaints about the process

undertaken by the target board were similar to some of those raised by Brookfield, including

complaints about access to the target's data room and the target's failure to contact the hostile

bidder for a better offer before entering into an alternative agreement with another bidder. The

Court rejected all of these complaints, and specifically concluded that the target had no obligation

to contact the hostile bidder for another offer – the target board made a "business and negotiating

judgment call", and was entitled to do so (at paras. 67-70; see also Pente at para. 65).

[312] We were of the view that the same applied in this case. There was no reasonable basis to

conclude that IPL should have been prescient and known that Brookfield's self-described "BEST

AND FINAL OFFER" was not actually its best and final offer. IPL was not obliged to go back

looking for a further offer, just as it was not obliged to seek out Brookfield's proposed form of

arrangement agreement. If anything, Brookfield should have known from its communications with

IPL representatives on May 30 and 31, 2021 that the auction was coming to an end and it had

limited time to respond further (Pente at para. 65). Indeed, we found Brookfield's attempt to

characterize itself as a "David" rather than a "Goliath" in its negotiations with IPL to be bordering

on the absurd.

63

[313] In short, we were not persuaded that anything about the conduct of the IPL Board prior to,

or the conduct of the IPL Board or the Special Committee during, the Strategic Review could be

characterized as abusive of shareholders or the capital market warranting an exercise of our public

interest jurisdiction. Even if we, Brookfield, or another board or special committee would have

proceeded differently, this does not mean that the IPL Board or the Special Committee erred or

misconducted itself. As the Court held in Rogers, a target board must act reasonably, but should

not be second-guessed if it chooses among several reasonable alternatives (at paras. 18-19).

[314] We therefore dismissed the Brookfield Application on this ground as well.

VIII. THE IPL APPLICATION AND THE PEMBINA APPLICATION

A.

Additional Legal Principles

1. CSA Proposals and Amendments

(a) History

[315] The history of amendments and proposed amendments to MI 62-104 Take-Over Bids and

Issuer Bids (MI 62-104; now NI 62-104), NP 62-203, and NI 62-103 was relevant to the Swap

issue in this matter.

[316] On March 13, 2013, the CSA published for comment proposed amendments to MI 62-104,

NP 62-203, and NI 62-103 (the March 2013 Proposal, cited as (2013), 36 O.S.C.B. 2675),

including a proposal to decrease the early warning threshold from 10% to 5%. The most relevant

proposals for present purposes concerned the disclosure of certain "empty voting" and "hidden

ownership" arrangements (at pp. 2678-2679):

We believe that changes to the scope of the early warning framework are required in order to ensure

proper transparency of securities ownership in light of the increased use of derivatives by investors.

A sophisticated investor may be able, through the use of equity swaps or similar derivative

arrangements, to accumulate a substantial economic interest in an issuer without public disclosure

and then potentially convert this interest into voting securities in time to exercise a vote (this is

referred to as "hidden ownership").

It is also possible for an investor, through derivatives or securities lending arrangements, to hold

voting rights in an issuer and possibly influence the outcome of a shareholder vote, although it may

not have an equivalent economic stake in the issuer (this is referred to as "empty voting").

These types of arrangements may not be disclosed under current securities law requirements since

these requirements are generally based on the concept of beneficial ownership of, or control or

direction over, voting or equity securities. The disclosure of these arrangements would be helpful in

maintaining transparency and market integrity.

We are therefore proposing amendments intended to include certain types of derivatives that affect

an investor's total economic interest in an issuer for the purposes of determining the early warning

reporting threshold trigger. For the purposes of early warning reporting disclosure, the Proposed

Amendments would require disclosure of an investor's economic interest in an issuer as well as its

voting interest in the case of securities lending arrangements. An investor would also have to

disclose that it has entered into related financial instruments and other arrangements with respect to

the securities of the issuer, if this is the case.

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[317] Based on that reasoning, the proposal was to create a new definition of "equity equivalent

derivative", so that "certain equity derivative positions that are substantially equivalent in

economic terms to conventional equity holdings" would be included in the early warning threshold

calculations (at p. 2679; original emphasis). A Swap would have been included in that new

definition, along with "other derivatives that provide the party with the notional 'long' position

with an economic interest that is substantially equivalent to the economic interest the party would

have if the party held the securities directly" (ibid.). This would address various transparency

concerns (ibid.):

In [Swaps] and similar derivative instruments, the counterparty (typically, a dealer) will in many

cases have a strong economic incentive to hedge its obligations under the arrangement through

holding the reference securities and may decide to vote in accordance with its client's wishes or to

make the securities available to the client on request.

Hidden ownership strategies can significantly undermine the early warning regime since an investor

may have de facto access to securities held by the derivative counterparty but avoid a disclosure

obligation which has traditionally been premised on de jure ownership or control.

The fact that a substantial block of securities has been "tied up" (i.e., is being held by counterparties

to a substantial undisclosed equity derivative position), and is therefore not available to market

participants, may be highly relevant information to market participants.

[318] In evidence were several comments received by the CSA in response to the March 2013

Proposal. Relevant comments included:



reporting an equity equivalent derivative position could lead to over-reporting if the

swap investor were interested only in the economic position and not in future

ownership of the underlying securities;



"Investors with only a synthetic position in a security should not be required to

disclose their positions, or be prevented from adding exposure to those positions,

as there would be no value to such information to other persons investing in the

ordinary course";



requiring EWR disclosure of derivative products used solely for hedging long

positions "could allow the market to deduce certain investment strategies which

could be detrimental to institutional investors";

the swap investor typically will not have ownership rights or voting rights in the

underlying securities, and reporting requirements would be better based on voting

rights;



hedging by the swap dealer could take the form of further derivative transactions,

which could multiply the reporting requirements and lead to over-reporting;

consideration would have to be given to the breadth of an underlying index or

basket of securities if the equity equivalent derivative concept were to be used as a

basis for disclosure;

65



"market integrity is compromised when synthetic exposure is swept into actual

ownership disclosure regimes";

"Full disclosure of the material deal terms should not be required if the stated

purpose of the transaction does not relate to soliciting proxies, changes to the board

or any other events that underlie the CSA's policy concerns";



while supported in concept, the CSA's proposed definition of equity equivalent

derivatives was too uncertain and imprecise; and

the CSA's approach seemed logical if "the equity equivalent definition captures

instruments that are substantially equivalent in economic terms to conventional

equity holdings".

[319] On October 10, 2014, the CSA announced that it would not be proceeding with the

proposed decrease of the early warning threshold from 10% to 5%, nor with the proposed inclusion

of equity equivalent derivatives in determining the threshold (see CSA Notice 62-307 Update on

Proposed Amendments to Multilateral Instrument 62-104 Take-Over Bids and Issuer Bids,

National Instrument 62-103 Early Warning System and Related Take-Over Bid and Insider

Reporting Issues and National Policy 62-203 Take-Over Bids and Issuer Bids).

[320] The CSA's February 25, 2016 revised notice of amendments (see (2016), 39 O.S.C.B.

1745) stated that it was not appropriate at that time to proceed with the proposal to include equity

equivalent derivatives in the early warning threshold calculation (at p. 1748):

. . . a number of commenters submitted that there is no clear evidence to suggest that derivatives are

used in Canada as a means to accumulate substantial economic positions in issuers without public

disclosure to exert influence over the issuers or voting outcomes. Instead, these commenters

contended that investors use derivatives for risk management purposes or as part of a trading

strategy. Some commenters also expressed concern that the inclusion of "equity equivalent

derivatives" within the early warning threshold calculation would create a significant compliance

burden. The commenters cautioned that this change may render the early warning threshold

calculation unduly complex and onerous for investors and, moreover, would not provide relevant

information to the market.

[321] As mentioned, s. 3.1 was added to NP 62-203, effective May 9, 2016.

(b)

Puri's Comments

[322] Puri highlighted the importance of the EWR and the CSA's comments that the EWR levels

the playing field so that investors are aware of an entity's accumulation of shares and potential

take-over bid intentions. She noted that investors could be harmed by selling their shares at a lower

price than if that information were disclosed and reflected in the market price.

(c)

Mitts' Comments

[323] Mitts emphasized that swap investors do not have the voting rights for the referenced

securities. He opined that the particular circumstances affect the important balance between

allowing the stealthy acquisition of a block of securities and requiring greater transparency for an

66

acquisition – that balance typically results in mandatory disclosure once an ownership threshold is

crossed.

[324] Mitts also stated:

As a core purpose of mandatory position disclosure is to ensure that information regarding block

holdings is made available to shareholders in a timely fashion, the use of cash-settled [Swaps] to

evade position disclosure prior to launching an unsolicited take-over bid raises substantial public

policy concerns.

2.

Sears Decision

(a) History

[325] Re Sears Canada Inc. (2006), 35 O.S.C.B. 8781, appeared to be the only securities

commission decision in Canada discussing Swaps in a comparable context.

[326] In Sears, a subsidiary of Sears Holdings Corporation (Sears Holdings) offered to acquire

all outstanding common shares of Sears Canada Inc. (Sears Canada), with a plan for a subsequent

take-private transaction that would require approval of a majority of the minority of the shares not

taken up by Sears Holdings. Sears Holdings applied to the OSC for orders against several entities,

including Pershing Square Capital Management L.P. (Pershing), alleging various breaches of the

Ontario Act. Through investment funds, Pershing had an 11.6% economic interest in Sears Canada,

comprised of 5.2% of the outstanding Sears Canada shares and a 6.4% economic interest through

Swaps (the Sears Swaps; percentages approximate).

[327] The evidence showed that Pershing had sold all of its shares in Sears Canada between

October 2005 and December 8, 2005 (the bid was announced on December 5, 2005). Pershing then

started to enter into some Sears Swaps. Pershing's intention when entering into the Sears Swaps

was to minimize its exposure to Canadian taxes while maintaining an economic interest in Sears

Canada. In the months after Sears Holdings announced the take-over bid, Pershing entered into

additional Sears Swaps (and purchased and sold Sears Canada shares).

[328] Pershing issued an April 7, 2006 news release when its ownership of Sears Canada shares

(excluding its economic interest in Sears Swaps) exceeded 5%, which was the EWR reporting

threshold during the course of an active take-over bid.

[329] Sears Holdings alleged that Pershing used the Sears Swaps to retain control or direction

over the referenced Sears Canada shares and to "park" the referenced shares so they would not be

voted in the minority approval of the take-private transaction. Sears Holdings also alleged that

Pershing failed to disclose its Sears Swap holdings to the public.

[330] The OSC panel accepted Pershing's tax rationale for entering into the first set of Sears

Swaps. It also accepted that Pershing entered into a second set of Sears Swaps (after the take-over

bid was launched in February 2006) to avoid antagonizing the chairperson of Sears Holdings, with

whom one of the principals of Pershing wished to conduct future business. The panel concluded

that there was no evidence that Pershing had any control or direction over any of the Sears Swap

referenced shares (or any right to terminate the Sears Swaps before expiration), and that Pershing

had not contravened the Ontario Act by not reporting its interest in the Sears Swaps.

67

[331] Sears Holdings further contended that Pershing's conduct was abusive of the capital

market, such that the OSC should exercise its public interest jurisdiction against Pershing, even in

the absence of breaches of Ontario securities laws. Pershing argued that Swaps are normal

economic transactions, commonly entered into by an investor seeking an economic benefit without

ownership.

[332] The OSC panel found in Pershing's favour in the circumstances (at paras. 110-111):

Based on the evidence we heard and in light of [Pershing's] explanation as to the reason [it entered

into the Sears Swap transactions], we have concluded that there is insufficient evidence to support

a finding that Pershing's conduct in this regard was abusive of the capital markets so as to invoke

our public interest jurisdiction under [the Ontario Act].

This finding is based on the evidence and circumstances of this case. We wish to underscore that

there might well be situations, in the context of a take-over bid, where the use of swaps to "park

securities" in a deliberate effort to avoid reporting obligations under the [Ontario Act] and for the

purpose of affecting an outstanding offer could constitute abusive conduct sufficient to engage the

[OSC's] public interest jurisdiction. This is not such a case.

[333] In our view, the crucial aspect of that cited hypothetical is the possibility that Swaps could

be deliberately used to avoid reporting obligations and to affect an outstanding offer.

(b)

Puri's Comments

[334] Puri stated that following the Sears decision, "Canadian law firms and industry experts

have cautioned market participants about the improper use of derivative instruments to avoid

public disclosure requirements under the take-over bid rules".

(c)

Mitts' Comments

[335] Mitts also referred to Sears (specifically, the comment that the use of Swaps could

constitute abusive conduct in some circumstances). He noted that the CSA's conclusion not to

include Swaps routinely in the calculation of beneficial ownership (except as provided in

NP 62-203 at s. 3.1, as set out previously) did not show a lack of concern by the CSA about

potential abuse, but indicated that the CSA considered it important to examine the particular

circumstances of each case.

[336] Mitts set out a framework of six factors he considered important in the US context for

assessing whether the use of Swaps in a particular instance was for the purpose of evading or

circumventing reporting requirements. Brookfield pointed out that this framework had apparently

not been formally applied or endorsed by the US Securities and Exchange Commission (the SEC)

as at the date of the Hearing. Although these factors were generally informative, a comprehensive

assessment of whether such factors should be applied in securities laws in Alberta (or across

Canada) is a policy matter not appropriate to undertake during the adjudication of a specific

application. Accordingly, we did not address those factors here.

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3.

Empty Voting and Hidden Ownership

(a)

Overview

[337] In a Swap, the economic interest in the referenced securities is separated from the voting

rights – the swap investor has the former and the swap dealer (if hedging by owning the referenced

securities) has the latter. This results in "empty voting" because the swap dealer has voting rights

but no economic interest comparable to that of regular shareholders. "Hidden ownership" is the

corollary, as the swap investor has economic exposure to securities (with no voting rights) and that

economic interest is concealed unless disclosure is otherwise required or is voluntarily made.

[338] Empty voting and hidden ownership can lead to complex and potentially troubling issues

in the take-over bid context, as happened here.

(b)

Puri's Comments

[339] Although she did not use the terms "empty voting" or "hidden ownership", Puri did discuss

those potential harms to target shareholders. For example, she stated that both investor protection

and capital market policy would benefit from including the Swap Shares when calculating

Brookfield's beneficial ownership of IPL Shares. She also noted that a swap dealer's identity and

the key terms of a Swap would be relevant in determining if a swap investor had control or

direction over the referenced securities.

(c)

Mitts' Comments

[340] Mitts noted that a long-standing relationship between certain swap parties could give the

swap dealer an incentive to vote referenced securities in the interests of the swap investor. Mitts

also stated that such a potential conflict of interest would be heightened if the swap investor were

to launch a hostile take-over bid for the company whose securities are the subject of Swaps because

the incentive of the offeror (and swap investor), who wants to pay the lowest possible price, is

opposed to that of the regular shareholder, who wants to receive the highest possible price.

[341] Mitts viewed as possibly substantial the resulting pressure for the swap dealer to vote

hedged securities consistent with the swap investor's interest. He further noted that even a swap

dealer abstaining from voting on a transaction could affect the result because such abstention may

vary "the number of shares required to achieve a majority of the votes of independent

shareholders". Such factors can cause market uncertainty.

4.

Materiality

[342] The concept of materiality is relevant to IPL's and Pembina's assertions that Brookfield

made inadequate disclosure of the IPL Swaps in the Brookfield Offer and other documents,

including news releases and communications to IPL shareholders.

[343] NI 62-104 and Form 62-104F1 address the required contents of a take-over bid circular. In

addition to specified topics, Item 23 of Form 62-104F1 requires a description of "any material facts

concerning the securities of the offeree issuer", as well as any other matter not disclosed in the

circular or previously generally disclosed that is known to the offeror and "would reasonably be

expected to affect the decision of the security holders of the offeree issuer to accept or reject the

offer". Item 26 of Form 62-104F1 requires a certificate from the offeror stating that the circular

"contains no untrue statement of a material fact and does not omit to state a material fact that is

69

required to be stated or that is necessary to make a statement not misleading in the light of the

circumstances in which it was made".

[344] Section 1(gg) of the Act defines a material fact as "a fact that would reasonably be expected

to have a significant effect on the market price or value of the securities".

[345] In Re Osum Oil Sands Corp., 2021 ABASC 81, an ASC panel discussed materiality in the

context of s. 92(4.1) of the Act, which is comparable to the requirement in Form 62-104F1 (at

paras. 100-101):

We are satisfied that the materiality standard in the present context is comparable to that used in the

disclosure and misrepresentation context; . . . we rely on the discussion of materiality as set out in

recent decisions by panels of the ASC. In Re Rustulka, 2020 ABASC 93 at paras. 234-[235], an

ASC panel stated:

The last element addresses the materiality of a misstatement or omission. As

explained in Re Fauth (2018 ABASC 175 at para. 258):

The inquiry as to whether or not a statement or omission "would

reasonably be expected to have a significant effect on the

market price or value of a security" may be usefully restated as

an inquiry into "whether there is a substantial likelihood that

such facts would have been important or useful to a reasonable

prospective investor in deciding whether to invest in the

securities on offer at the price asked" [Re Arbour Energy Inc.,

2012 ABASC 131 at para. 765, citing Re Capital Alternatives

Inc., 2007 ABASC 79 at para. 239 and Sharbern [Holding Inc.

v. Vancouver Airport Centre Ltd., 2011 SCC 23] at para. 61].

. . .

With respect to how this element may be proved by Staff, the panel in . . . Aitkens

explained (. . . at para. 137):

. . . "[c]ommon-sense inferences . . . may suffice in certain

cases" (Arbour at para. 764, citing Sharbern . . . at paras. 58

and 61). While investors' evidence with respect to the impact

the information may have had on their investment decisions

may be considered (see, for example, [Re] Aurora[, 2011

ABASC 501] at para. 146), neither that evidence nor expert

evidence on market price or value is required to meet the legal

test (Arbour at paras. 763-[766]; see also R. v. Zelitt, 2003

ABPC 2 at paras. 32-34, distinguishing, inter alia, R. v. Coglon,

[1998] B.C.J. No. 2573 (British Columbia Supreme Court)).

That is because an ASC panel is itself an expert tribunal with

the specialized knowledge and experience necessary to "draw

inferences as to the objective view of a reasonable investor"

(Arbour at para. 765).

Accordingly, we examine the evidence to determine what, if any, information was not disclosed by

Waterous and whether there was a substantial likelihood that any such information would have been

important or useful to a reasonable Osum shareholder in deciding whether to tender that

shareholder's Osum Shares to the Offer.

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[346] We were satisfied that the same principles applied in this case when we considered whether

Brookfield should have made additional disclosure about certain aspects of the IPL Swaps in the

Brookfield Offer documents, as well as in news releases and communications to IPL shareholders.

B.

Additional Background and Evidence

1. Swap Agreements

[347] The two Swap Agreements governing the IPL Swaps were standard ISDA 2002 Master

Agreements between BMO and Brookfield (each through a different Brookfield limited

partnership). They were both dated as of April 24, 2020. Two associated IPL Swap Letter

Agreements were also in evidence, both dated June 15, 2020. The IPL Swap Letter Agreements

stated that BMO could hedge the IPL Swaps by acquiring IPL Shares or otherwise, and that if

BMO hedged by acquiring IPL Shares, Brookfield would not have "any right to vote, or direct or

influence the voting, acquisition or disposition of" such IPL Shares, nor could Brookfield control

the unwinding of the BMO hedge. However, the IPL Swap Letter Agreements provided that

Brookfield could terminate all or a portion of the IPL Swaps at its option and, as noted by counsel

for IPL's Special Committee, Brookfield could control when Swap Shares would likely re-enter

the market because BMO (or other hedging swap dealers) would likely sell Swap Shares when

Brookfield chose to terminate the IPL Swaps.

2.

IPL Swap Disclosure to IPL

[348] Baker stated that Brookfield first disclosed to IPL that it was a significant IPL shareholder

in a November 4, 2020 conversation with Bayle and Kousinioris, and disclosed to IPL that it was

IPL's largest shareholder in its November 11, 2020 letter suggesting a potential strategic

acquisition. Baker acknowledged that the first time Brookfield told IPL that Brookfield's economic

interest was about 20% was in the December Proposal (dated December 18, 2020). Baker thought

it was in a conversation at approximately the same time as the December Proposal that he told

Bayle that Brookfield was not required to disclose the almost 20% combined interest and

voluntarily chose not to disclose it, after which Bayle "thanked us for not doing it". According to

Baker, Bayle also expressed surprise at the size of Brookfield's position. McKenzie could not

confirm or refute some of Baker's statements, but agreed with that general timing, stated that IPL

first learned of the IPL Swaps in December 2020, and noted that she herself was surprised to learn

of the size of the interest that Brookfield had acquired without having made public disclosure. It

was irrelevant to our decision whether certain of that information was communicated from

Brookfield to IPL in November or December.

[349] McKenzie stated that IPL's primary concern with the IPL Swaps in December 2020 and

January 2021 was understanding what Brookfield's almost 20% interest was and what disclosure

obligations IPL might have once it had knowledge of that material fact. IPL did not ask Brookfield

any questions about the IPL Swaps in December or January, and was satisfied with Brookfield's

IPL Swap disclosure at that time. She also stated that IPL started thinking in late January 2021

about the impact Brookfield's economic interest could have on the process if Brookfield were to

pursue a take-over bid.

[350] Castaldo and McKenzie stated that there was no need for IPL to discuss any IPL Swap

concerns with Brookfield after the Supplemental SRP was in place (because the plan prevented

Brookfield from increasing its IPL Swap interest or purchasing additional IPL Shares without first

71

terminating some of its existing IPL Swaps). McKenzie also noted that although some additional

information about the IPL Swaps was provided by Baker in his affidavits, that information had not

been provided to IPL earlier.

3.

IPL Swap Public Disclosure and Associated Concerns

[351] As noted, by mid-June 2020, Brookfield's aggregate interest in IPL exceeded 10%, but the

February 10, 2021 news release issued by Brookfield announcing its intention to make a hostile

bid for IPL was the first public disclosure of the extent of Brookfield's ownership of IPL Shares

and economic interest through the IPL Swaps. The news release stated in part:

Brookfield . . . is currently the largest investor in IPL with an aggregate economic interest in

84,341,555 IPL Shares, representing approximately 19.65% of the issued and outstanding shares of

IPL on an undiluted basis. Brookfield . . . began to accumulate a position in [IPL] for investment

purposes beginning in March 2020.

This position is comprised of beneficial ownership and control of an aggregate of 41,848,857 IPL

Shares, representing approximately 9.75% of the issued and outstanding IPL Shares on an undiluted

basis, and in addition, a cash-settled [Swap] that provides Brookfield . . . with economic exposure

to an aggregate of 42,492,698 IPL Shares. The [Swap] affords economic exposure comparable to

beneficial ownership but does not give Brookfield . . . any right to vote, or direct or influence the

voting, acquisition, or disposition of any IPL Shares.

[352] Similar information about the IPL Swaps was included in Brookfield's February 22 Offer

documentation, which disclosed that:



In March 2020, Brookfield began acquiring IPL Shares.

In June 2020, Brookfield "began acquiring exposure to the economics of [IPL]

Shares through [Swaps] with an ISDA swap dealer (which swap exposure does not

give Brookfield any right to vote, or direct or influence the voting, acquisition, or

disposition of any [IPL] Shares by the ISDA swap dealer)".



Brookfield continued to accumulate IPL Shares and additional economic exposure

through IPL Swaps until October 2020.

Brookfield beneficially owned 41,848,857 IPL Shares (approximately 9.75%) as of

February 22, 2021.

Under the IPL Swaps, Brookfield had economic exposure to 42,492,698 IPL

Shares, but did not have "any right to vote, or direct or influence the voting,

acquisition, or disposition of any [IPL] Shares" held by the ISDA swap dealer.

[353] Brookfield's February 22, 2021 letter to IPL shareholders described Brookfield as "the

largest single investor in IPL, with an aggregate economic interest of 19.65%". That document did

not mention the IPL Swaps or the amount (shares or percentage) of Brookfield's beneficial

ownership of IPL Shares. However, it specifically referred to Brookfield acquiring IPL Shares

starting in March 2020 (thus strengthening the impression that Brookfield's interest was composed

of beneficial IPL Share ownership).

72

[354] The June 4 Offer documentation also referred to the IPL Swaps and Brookfield's economic

interest in IPL (in addition to its beneficial interest):



Brookfield stated that the trading value of the Pembina Arrangement's share

consideration was "likely to be impacted by the overhang of newly issued shares".

Brookfield described itself as an IPL shareholder "with an ~20% economic interest

in IPL" (explaining the IPL Swaps in a footnote using similar language to that in

the earlier disclosure) and said it intended to vote against the Pembina

Arrangement.



Brookfield stated that if the Pembina Arrangement succeeded, Brookfield would

have an approximate $1.6 billion economic interest in Pembina and "would look to

exit at the earliest opportunity".

[355] Baker acknowledged that an accompanying June 4 letter to IPL shareholders did not

distinguish between the two components of the approximately 20% economic interest, but

explained that that was "because it had been previously disclosed a number of times".

[356] In the Baker Affidavit, Baker explained:

Brookfield . . . does not have legal ownership of the IPL . . . Shares that are subject to the . . . Swap

and there is no agreement for such shares to be returned to or otherwise made available to Brookfield

. . . to be voted or tendered. Similarly, Brookfield . . . has no understanding or arrangement with the

swap dealer on how that dealer might exercise its rights from the IPL . . . Shares it owns, assuming

it is inclined to at all.

[357] IPL's disclosure gave the market additional context for the IPL Swaps and raised some

issues. For example, the March 8 Directors' Circular stated:



IPL's Strategic Review was announced February 18, 2021 (after Brookfield's public

disclosure of the IPL Swaps in its February 10 news release). By the March 8

Directors' Circular date, IPL had already "received inquiries from, and ha[d]

initiated contact with[,] a number of third parties".



IPL said Brookfield's IPL Swap disclosure in the February 22 Offer contained

errors or misleading statements, and that the IPL Swaps raised significant public

policy concerns. Specifically:

. . . the Brookfield [Offer] fails to disclose the particulars of the [IPL Swap]

including its date(s), the identities of the parties including the unnamed ISDA

swap dealer, and its terms and conditions, including the nature and extent of

Brookfield's economic exposure to [IPL] Shares, its expiry or termination date(s),

and whether it may be early terminated or extended by Brookfield or the [swap

dealer]. Nor does the Brookfield [Offer] disclose the nature and extent of any

business or other relationships between the members of the [Brookfield group]

and the ISDA swap dealer, which may motivate the ISDA swap dealer to tender

the [IPL] Shares referenced in the [IPL Swap] to the [Brookfield Offer] or

73

otherwise act in accordance with the wishes of the [Brookfield group] with respect

to the referenced [IPL] Shares.

Further, Canadian securities laws require that if a change occurs in the information

contained in a take-over bid circular that would reasonably be expected to affect

the decision of the security holders of the offeree issuer to accept or reject the bid,

the offeror must promptly (i) issue and file a news release, and (ii) send a notice

of the change to every person to whom the bid was required to be sent.

. . .

The Canadian securities regulatory authorities have previously expressed

concerns with strategies (which they describe as "hidden ownership strategies")

whereby a sophisticated investor may use derivatives such as the [IPL Swap] to

accumulate a substantial economic position in a public company without public

disclosure and then potentially convert this interest into voting securities. Among

other things, such hidden ownership strategies may significantly undermine the

early warning disclosure regime under Canadian securities laws (i.e., the general

requirement to disclose a 10% holding), as an investor in a [Swap] may have de

facto access to securities held by the derivative counterparty. The lack of

disclosure of such accumulations disadvantages other shareholders and market

participants. In a previous instance, a Canadian securities regulatory authority

commented that "there may be situations where in the context of a take-over bid,

where the use of swaps to 'park securities' in a deliberate effort to avoid

reporting obligations under the [Ontario Act] and for the purpose of affecting

an outstanding offer could constitute abusive conduct sufficient to engage the

[OSC's] public interest jurisdiction". [emphasis added by IPL]

[358] IPL's June 9 Directors' Circular stated:



IPL's Supplemental SRP had "the effect of treating certain derivative transactions,

including the [IPL Swaps] being utilized by Brookfield, as equivalent to beneficial

share ownership for purposes of the 20% triggering threshold in the Supplemental

[SRP]".



Brookfield had failed to remedy the IPL Swap errors and misrepresentations as

alleged by IPL in the March 8 Directors' Circular.

[359] In their respective applications, IPL and Pembina reiterated the concerns expressed in the

March 8 Directors' Circular and the June 9 Directors' Circular that Brookfield should have

disclosed certain additional information about the IPL Swaps.

[360] Burrows stated that he was concerned with the IPL Swap disclosure in Brookfield's

February 10, 2021 news release because it looked to him like Brookfield had found a way to get

around the 10% early warning threshold. In his view, Brookfield was over the 10% threshold,

which could have been a significant disadvantage to Pembina in pursuing IPL. Burrows was not

aware whether Swap particulars such as those sought here had been disclosed in any earlier

Canadian M&A transactions, but he also was not aware of Swaps being used this way in such a

transaction before.

74

[361] McKenzie set out several examples of media reports that confused IPL shareholders and

prospective IPL bidders by apparently conflating Brookfield's ownership of IPL Shares and its

economic interest in the Swap Shares:



A February 10, 2021 Financial Post article stated that Brookfield was "currently the

largest shareholder in [IPL], with 19.65 per cent of the outstanding float".

A February 11, 2021 NS Energy article stated that Brookfield "holds a stake of

around 19.65% in [IPL], which makes it the single largest investor in the latter".

A February 12, 2021 Financial Post article (by the same writer as the February 10

Financial Post article) described Brookfield as "own[ing] nearly 20 per cent of

[IPL]".



A February 22, 2021 yahoo!finance article stated that Brookfield had already

"acquired a 19.65% economic interest in [IPL]" and was IPL's "top shareholder".

A May 6, 2021 Oil Sands Magazine article stated that "Brookfield already owns a

20% stake in [IPL]."

A June 1, 2021 Motley Fool Canada article stated that Brookfield "actually scooped

up just below a 20% stake in [IPL] during the pandemic market crash".

[362] Baker stated that Brookfield did not receive any shareholder inquiries for clarification

about Brookfield's IPL Swap disclosure. Referred to the media excerpts cited above, he stated that

Brookfield believed its disclosure was clear regarding its IPL Share ownership and IPL Swap

holdings, and therefore did not correct any media reporting.

[363] In contrast, McKenzie stated that she believed IPL media relations personnel tried on

numerous occasions "to help the press to understand the distinction" between Brookfield's two

types of interest. McKenzie also stated that IPL worked with some larger institutional shareholders

that had been confused about Brookfield's beneficial interest and economic interest.

[364] The Brookfield June 4 News Release contained wording criticized by IPL and Pembina:

As IPL's largest shareholder, with 9.75% ownership of IPL shares and a total economic interest in

[IPL] of 19.65%, we are not supportive of the all-share [Pembina Arrangement] and intend to vote

against it. In the event the [Pembina Arrangement] is successful, Brookfield . . . will become a

significant shareholder in Pembina with up to an approximately C$1.6 billion economic interest

("Brookfield Block"). Brookfield . . . does not intend to be a long-term investor in Pembina. The

Brookfield Block, in addition to the shares then held by event-driven funds and any other

institutional shareholders who lack desire to own shares in Pembina, will therefore create a

substantial and protracted overhang on [the Pembina Shares]. The IPL Board and its advisors ought

to have considered these obvious factors in making its determination of the value of the all-share

consideration offered in the [Pembina Arrangement]. [original emphasis]

[365] Baker explained that the term "Brookfield Block" described "the combined position of

Pembina [S]hares and other economic interests that Brookfield . . . would end up holding if the

75

Pembina Arrangement [were] approved by shareholders and completed". He said it was not used

in the context of "blocking" the Pembina Arrangement, but would only arise if the Pembina

Arrangement were completed.

[366] Brookfield's June 18, 2021 news release (the same day the IPL Application and Pembina

Application were filed) also used the term "Brookfield Block", there describing Brookfield's

"C$1.6 billion economic interest" as being part of "a substantial and protracted overhang on [the

Pembina Share] price", should the Pembina Arrangement succeed.

[367] Brookfield's June 21 Offer post-dated the Applications and contained no disclosure

relevant to the IPL Swaps.

[368] On behalf of IPL, Quinn stated that TD Securities was told by prospective buyers that they

were not interested in bidding for IPL because Brookfield's disclosure of an almost 20% economic

interest had created the impression that Brookfield "effectively already had control or had 'won'".

He concluded that this had a chilling effect on the process and made it more challenging for IPL

to obtain competing offers. McKenzie made similar statements. She clarified that such parties were

not confused by the composition of Brookfield's interest, but were reluctant to participate in the

process because of Brookfield's large economic interest. She also noted a concern that IPL

shareholders may have not voted on the Pembina Arrangement, as they could have assumed that

the Brookfield Offer "was a done deal".

[369] IPL pointed out that as of the date of the Hearing, Brookfield still had not publicly disclosed

details about the IPL Swaps. Materials containing some of those details were provided to the panel

for the Hearing, but were not provided to the public.

[370] Baker was cross-examined on Brookfield's decision to keep its total economic interest

below 20% and its IPL Swaps below 10%. He confirmed that the IPL Swaps were kept below 10%

perhaps in part to avoid triggering an early warning reporting requirement for BMO and further

stated:

. . . I think us stopping where we did, there's a couple of reasons. One is from an economic

perspective. We invested a fair bit of capital, and we're kind of getting up, you know, to almost a

billion dollars in invested capital.

So from an exposure perspective, where we didn't have certainty in terms of, you know, being able

to execute on a transaction, I think we were getting, you know, close to a limit where we felt we

didn't want to go a lot more.

At that point in time we were also starting to engage with IPL, and, because of that, we felt it was

important from -- you know, being transparent with them and trying to do something with them over

time, that we weren't acquiring more [IPL Swaps] when we were having those conversations with

them. We didn't feel that was appropriate.

And, look, from an optics perspective, when we step back and -- we understand the prominence of

the 20 percent threshold in the market and we felt optically, you know, staying below that 20 percent

threshold was probably better than going over it, even though with the [IPL Swaps] we had every,

you know, option and availability or right to do that.

76

4.

BMO's Swap Activities

[371] Brookfield did not present direct evidence from anyone at BMO, but Baker referred to

discussions he had with a BMO representative. Also in evidence were some BMO documents

relating to the IPL Swaps, including the Swap Agreements and the IPL Swap Letter Agreements.

[372] Baker stated that Brookfield used BMO as the swap dealer because Brookfield had

agreements in place from previous Swaps with BMO, and BMO had the "ability to manage the

stake in the IPL [Shares] in the market". Baker also stated that the extent of Brookfield's

relationship with BMO in the past had nothing to do with Brookfield's decision to use BMO for

the IPL Swaps and BMO NB as a financial advisor for the acquisition of IPL.

[373] According to Baker, he understood from the BMO representative that BMO's business unit

responsible for Swap transactions had hedged a portion of its position in the IPL Swaps by entering

into subsequent transactions with other swap dealers it did not identify. BMO also told Baker that

it "does not have the right to vote or tender 9.9% of IPL [Shares] while subject to these subsequent

transactions". Baker also stated that Brookfield did not enter the IPL Swaps "for the purpose of

affecting a change of control transaction, to exert pressure on IPL, or to affect any voting outcome".

He understood from BMO that it "does not vote or tender shares that hedge its equity swap

positions at the direction or under the influence of its swap counterparties or their affiliates", that

BMO "acts in its own commercial interests", and that BMO had "no formal, informal or other

understanding with Brookfield . . . under which Brookfield . . . may direct or obtain the vote or

tender of any [Swap] Shares".

[374] During his cross-examination, Baker confirmed that Brookfield did not have a contractual

arrangement with BMO regarding whether BMO would vote the Swap Shares or not, and said:

"We understand their practice is to not vote shares." This appeared to be Baker's understanding

from the conversation or conversations he had with BMO personnel. Although Baker said that he

understood BMO would act "in its own commercial interests", there was no other evidence that

BMO would refrain from voting any Swap Shares, nor was there any evidence as to what any other

swap dealers would choose to do with any Swap Shares they may have held.

5.

BMO NB's Engagement as Financial Advisor

[375] The BMO Engagement Letter stated that BMO NB (defined in the BMO Engagement

Letter as BMO CM) was to provide Brookfield with financial advisory services in connection with

its proposed acquisition of IPL. BMO NB would earn the BMO Completion Fee if Brookfield

were to close an acquisition of IPL.

6.

Puri Report

[376] As noted, IPL retained Puri to provide expert opinion evidence concerning the IPL Swaps.

[377] Overall, Puri considered that undisclosed use of Swaps could be abusive of the capital

market in some circumstances, and that Brookfield's IPL Swap conduct here could be seen as

abusive of securities regulation, specifically take-over bid regulation.

[378] Puri considered that Brookfield's public disclosure about its IPL Shares and IPL Swaps

was "confusing, contradictory and non-transparent, and inconsistent with public policy

77

objectives". Those concerns were based on Brookfield's disclosure that it had no right to direct or

influence the voting of the Swap Shares, while characterizing itself as having an economic interest

in IPL of almost 20% and having a "Brookfield Block" in connection with the Pembina

Arrangement. Puri stated that it was difficult to assess the accuracy of Brookfield's public

disclosure relating to the IPL Swaps because Brookfield did not identify the swap dealer or the

terms and conditions of the IPL Swaps.

[379] Puri also noted her concern with a comment made by Osler, Brookfield's expert witness.

Osler stated that "almost 20% of the IPL [Shares] have no economic incentive to vote in favour of

the Pembina [Arrangement]". Puri queried if this meant that Osler knew about the terms and

conditions of the IPL Swaps, as well as any understandings between Brookfield and the (at the

time) unidentified swap dealer. However, we disregarded Puri's query, as we concluded that Osler's

comment could be viewed as a simple recognition that the IPL Swaps, if hedged, would result in

the separation of economic interest from voting rights in the Swap Shares.

[380] Puri suggested that the panel may want to consider whether Brookfield should have

disclosed when its beneficial ownership of IPL Shares plus its economic interest in the IPL Swaps

first reached the 10% early warning threshold. She also suggested that the panel may want to

consider whether Brookfield's silent aggregation of close to a 20% economic interest in IPL was

acceptable conduct for a market participant (for Brookfield or for others in the future). We

disregarded these comments, as we found that they (and other similar comments) strayed outside

the realm of expert opinion.

[381] Puri agreed with other evidence indicating that Brookfield would have avoided paying a

premium for its 19.65% economic interest because the market was not aware that Brookfield was

accumulating that position in IPL. Puri noted that non-disclosure may have been in Brookfield's

best interest, but such actions by Brookfield – and others in the future – could risk undermining

securities regulatory objectives in general and take-over bid regulatory objectives in particular.

7.

Mitts Report

(a) Scope

[382] Mitts described his expert report as discussing "the role and impact of [Swaps] in

connection with the unsolicited take-over bid by [Brookfield for IPL Shares]".

[383] As noted, Mitts referred to the OSC panel's decision in Sears. He also commented on US

cases and various articles. He opined that Swaps are being used with increasing frequency and

coming under increased regulatory scrutiny in the US. He cited a May 6, 2021 comment by SEC

Chair Gensler that SEC staff are considering whether to include Swaps in new disclosure

requirements.

(b)

US Decision in CSX

[384] The US case CSX Corp. v. Children's Inv. Fund Mgmt. (UK) LLP, 562 F. Supp. 2d 511

(S.D.N.Y. 2008); aff'd in part, vacated in part, and remanded in part on appeal 654 F.3d 276

(2d Cir. 2011) was discussed in the Mitts Report and became the subject of questioning during

Mitts' cross-examination.

78

[385] In CSX, the defendants (one of which was TCI) were two hedge funds that amassed a large

economic position in CSX Corporation (CSX) as swap investors (or long parties) with certain

swap dealers (or short parties), and failed to make the required 5% early warning threshold

disclosure (akin to our 10% threshold). The two then launched a proxy fight for control of CSX.

The trial judge did not find it necessary to conclude that the defendants beneficially held some or

all of the referenced securities because the relevant US securities law deemed beneficial ownership

when an arrangement is part of a plan or scheme to avoid disclosure requirements (at p. 517; see

also p. 552).

[386] The trial judge discussed some characteristics of Swaps that were also raised during this

Hearing, including: (1) a swap investor has no right to vote; (2) a swap dealer often hedges by

purchasing referenced securities; (3) Swap terms are negotiated between the counterparties,

including termination and unwinding provisions; and (4) a swap investor may benefit from

concealing its interest until it is ready to disclose.

[387] The trial judge discussed the broad meaning of beneficial ownership in the context of the

5% disclosure threshold, including that the legal right to vote may not be determinative because

the swap investor may have economic or other power to direct the swap dealer's voting. The trial

judge also stated that a determination of beneficial ownership had to take into account practical

realities (at p. 547).

[388] The trial judge found it inevitable that the swap dealers would hedge by buying CSX

securities and that TCI knew that (at p. 542), concluding that TCI had the ability to cause – or, at

the very least, to influence – the swap dealers to buy or sell referenced securities, as they would

do so when TCI entered or unwound Swaps (at p. 546). Also, TCI could unwind the Swaps at any

time and receive CSX securities instead of cash, which gave TCI significant leverage over CSX

(at p. 542).

[389] On appeal, the majority decided that a narrow point not relevant to this matter needed to

be remanded for the trial judge to make a specific finding.

C.

Arguments of the Parties

1. IPL and Pembina

[390] IPL contended that the key issue was whether Brookfield's conduct was abusive of IPL's

other shareholders and the integrity of the capital market in all of the circumstances, including:



the timing of Brookfield's IPL Swap acquisitions;

the timing and content of Brookfield's disclosure of the IPL Swaps; and

Brookfield's use of the phrase "Brookfield Block" in disclosure and, potentially, to

affect voting.

[391] IPL alleged that Brookfield's conduct was abusive in three ways:

79



it undermined the EWR by acquiring an economic interest in IPL of almost 20%

while deliberately not triggering the 10% EWR reporting threshold;

it made misleading disclosure regarding its interest in IPL and only disclosed the

IPL Swaps at the time of its initial take-over bid offer to increase its chance of

success; and



it could influence BMO's voting of Swap Shares against the Pembina Arrangement,

and knew that holders of Swap Shares may abstain from voting on the Pembina

Arrangement, which would effectively enhance the voting power of Brookfield's

IPL Shares, particularly given IPL's historic low voter turnout – either outcome

would hinder a fair and informed shareholder vote.

[392] Pembina's submissions were similar, but phrased differently. Pembina argued that

Brookfield's use of the IPL Swaps had "three dangerous effects" – "hidden ownership, improper

influence and 'empty voting'". As a result, according to Pembina, "Brookfield has deceived the

market, supressed the price of IPL Shares, frustrated an auction process, and kept its bid cheap, all

at the expense of IPL shareholders". Pembina argued that Brookfield's use of the IPL Swaps

contravened the EWR and take-over bid rules and created public policy issues, thus undermining

shareholder democracy and capital market integrity. According to Pembina, those effects were

more damaging here because IPL had a large number of retail investors relying on the ASC's

protection.

[393] IPL emphasized that Brookfield chose BMO as the swap dealer at least in part because of

BMO's position as a market maker for IPL Shares, meaning that BMO already "had a significant

enough portion that it would be able to hedge stock without significantly moving the market". IPL

also noted Brookfield's and BMO's other significant relationships, including BMO's shareholdings

in various Brookfield entities, BMO's lending activities with Brookfield, and BMO's securities-

related activities with Brookfield (including recent underwriting and investment banking). IPL

argued that Brookfield had been entertaining pitches from investment banking syndicates during

the time that Brookfield was entering into the IPL Swaps, meaning that Brookfield was at least

considering a take-private transaction at that time.

[394] Pembina made similar arguments, also emphasizing that Brookfield, despite its extensive

relationship with BMO, had not publicly disclosed BMO as the swap dealer. IPL and Pembina

were both concerned that Brookfield retained BMO NB as its financial advisor for the IPL

acquisition and agreed to the BMO Completion Fee despite the existing IPL Swaps and other

relationships between Brookfield and BMO. While Brookfield had said it had significant

relationships with other banks too, Pembina argued that the competition gave BMO even more of

an incentive to please Brookfield.

[395] IPL maintained that Brookfield had breached the take-over bid requirements in the Act or

the regulations, thus making available remedies under s. 179 of the Act. In the event we did not

conclude that Brookfield had breached the Act or the regulations, IPL argued that our s. 198 public

interest powers are sufficiently broad to allow us to make the orders sought (relying on ARC Equity

80

at paras. 63-65), on the basis of Brookfield's clearly abusive behaviour or conduct violating the

animating principles of the take-over bid regime.

2.

Brookfield

[396] Brookfield characterized its IPL Swaps as a "bet" that gave Brookfield no control over any

securities. Brookfield criticized IPL's and Pembina's arguments as tactical attempts to give

Pembina an advantage in the battle for IPL. Brookfield contended that IPL and Pembina could

each have earlier raised concerns with the IPL Swaps, the IPL Swaps did not contravene Alberta

securities laws, and Brookfield's use of the IPL Swaps was not clearly abusive of the capital

market.

[397] Brookfield argued that it was not obliged under securities laws to stop its accumulation of

IPL Shares and IPL Swaps, to notify IPL about the IPL Swaps (either in November 2020, as

Brookfield stated, or December 2020, as IPL stated), or to disclose publicly details of its IPL

Shares and IPL Swaps on February 10, 2021 (when Brookfield issued its news release announcing

its intention to make the February 22 Offer). Brookfield submitted that its goal in entering the IPL

Swaps was not to avoid the EWR reporting requirements or affect IPL shareholder voting, but to

increase its economic exposure to IPL. Brookfield emphasized that it could not vote the Swap

Shares and claimed to have only a limited knowledge of BMO's hedging activities related to the

IPL Swaps. As Baker stated, Brookfield had "no knowledge of what [BMO] will or will not do,

and is not counting on it doing or not doing anything". Brookfield submitted that it disclosed the

fact that it had no ability to vote, or to direct or influence the voting of, any Swap Shares, and did

not have to disclose all the evidence supporting that disclosure.

[398] Brookfield stated that it complied with the EWR, its IPL Swap disclosure was not

materially misleading, and the remedies sought by IPL and Pembina were inappropriate.

Brookfield emphasized that the EWR sets out a bright line test, with which it complied. Brookfield

contended that granting the relief sought by IPL and Pembina would generate uncertainty about

the EWR and the take-over bid framework.

3.

Staff

[399] In the context of the IPL Swaps, Staff provided submissions on:



the panel's power to grant the remedies sought;

whether the panel should cease trade the Brookfield Offer; and

whether the panel should grant the Proposed Voting Order, the Proposed Disclosure

Order, or the Proposed Minimum Tender Order.

[400] Staff focused on the background and purpose of the EWR, including the CSA's decision

not to expand the EWR to include "equity equivalent derivatives", such as Swaps. Staff generally

suggested caution, indicating that some of the IPL Swap issues of concern may be better addressed

through policy development.

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D.

Analysis

1. Hidden Ownership and Empty Voting

(a) Hidden Ownership

[401] As noted, hidden ownership concerns arise when Swaps are used to accumulate an

economic interest with no public disclosure. Those concerns are magnified as the size of the

economic interest increases, and further magnified by the potential conversion of that economic

interest into voting securities. As the entity with the hidden ownership would control the timing of

any such conversion, there is the possibility of abuse in some circumstances.

[402] Conversion could be accomplished directly by converting Swaps into the referenced

securities, if contemplated under the terms of the particular swap agreement. Alternatively, a swap

investor could effect conversion indirectly by terminating the Swap and then purchasing

referenced securities either on the market or from the swap dealer (if the swap dealer had hedged

by purchasing the referenced securities and was selling them after the swap investor terminated

the Swap). Either way, the swap investor would control the timing of conversion.

[403] The evidence here was that by June 18, 2020, Brookfield's aggregate economic interest in

IPL reached 10%, and by October 5, 2020, Brookfield had accumulated an aggregate economic

interest of 19.65% in IPL through the combination of its beneficial ownership of 9.75% of IPL

Shares and its 9.9% economic exposure from the IPL Swaps. The extent of Brookfield's economic

interest in IPL was not publicly disclosed until February 10, 2021 when Brookfield issued a news

release announcing its intention to make the February 22 Offer. Had Brookfield's beneficial

ownership increased by only 0.25% of the outstanding IPL Shares before launching its take-over

bid in February 2021, it would have reached the 10% early warning threshold and been required

to disclose its position. Here, Brookfield effectively doubled its economic exposure to IPL Shares

without triggering the IPL Share price premium that might have been expected had it reached the

10% threshold through IPL Share purchases rather than IPL Swaps.

(b)

Empty Voting

[404] Also as noted, empty voting occurs when voting rights and economic interests are separated

so that the holder of the voting rights may not have the same economic interest as regular beneficial

shareholders. The effect of this separation is the same in the context of tendering, as the holder of

the ability to tender may not have the same economic interest as regular beneficial shareholders.

[405] The difference in economic interests could affect how the holder with the right to vote or

tender decides to vote, tender, or abstain, to the possible detriment of regular beneficial

shareholders. This concern is exacerbated in the take-over bid or plan of arrangement context, as

the existence and future direction of the target company are at stake – with the success or failure

of such proposals potentially depending on those holding empty voting or tendering rights.

[406] Here, Brookfield was a shareholder of IPL and had a further economic interest through the

IPL Swaps. However, Brookfield's interests as a 9.75% shareholder were different than those of

regular beneficial IPL shareholders – Brookfield was interested in acquiring IPL at the lowest price

per IPL Share, while regular beneficial IPL shareholders were interested in Brookfield paying the

highest price per IPL Share. Regular beneficial IPL shareholders may also have evaluated the

Pembina Arrangement on different criteria than would Brookfield, although it is possible that their

82

interests could have been aligned on that. The evidence was that BMO would vote (or, presumably,

tender) in its own commercial interests, but there was no specific evidence as to how those interests

would lead it to vote or tender the Swap Shares under its control.

2.

Effect of Hidden Ownership and Empty Voting

[407] Given those circumstances, there were two issues. First, whether Brookfield was required

to disclose its combination of a 9.75% beneficial ownership interest and a 9.9% economic interest

to avoid contravening the EWR requirements (if so, such disclosure should have occurred in June

2020, when Brookfield reached the 10% threshold). Second, whether Brookfield's use of the IPL

Swaps was clearly abusive of investors and the capital market.

(a)

EWR Disclosure

[408] The EWR does not generally require Swaps to be included when reporting beneficial

ownership of 10% or more. As mentioned, there is guidance in s. 3.1 of NP 62-203 (which we note

is a policy, not a rule) that a swap investor may be considered to have beneficial ownership of

referenced securities if that swap investor has the ability to obtain the referenced securities or to

direct the voting of them.

[409] We were satisfied that Brookfield did not have the legal right to control or direct the voting

of Swap Shares held by BMO. We were also satisfied that Brookfield did not have a contractual

right to influence BMO's voting decisions for its Swap Shares. To the contrary, the evidence was

that BMO would act in its own commercial interests when making decisions related to such voting.

Therefore, Brookfield was not required to include any of its 9.9% economic interest in the IPL

Swaps when determining its beneficial ownership for EWR reporting purposes.

[410] However, the issue of whether the existence and extent of the relationship between

Brookfield and BMO could have influenced BMO's voting decisions for its Swap Shares is

important here. This is a different consideration than whether Brookfield itself exercised direct

influence over BMO and is discussed below in the disclosure context.

[411] There was evidence indicating that BMO entered into further transactions with other swap

dealers, but there were no specifics. Brookfield had no involvement in any such transactions and

appeared to have no knowledge of them, including the identity of any additional swap dealers.

Swap Shares held by any of those other swap dealers also had the voting rights separated from the

economic interests, and there was no indication that Brookfield had any influence over the voting

decisions of other swap dealers. For the purpose of required EWR reporting, we were satisfied that

Brookfield did not need to include its interest in any Swap Shares held by BMO or counterparty

swap dealers.

[412] We concluded that Brookfield did not have an obligation under Alberta securities laws to

report when its combined holdings of IPL Shares and economic exposure to IPL through the IPL

Swaps exceeded 10% on June 18, 2020, nor an obligation to make such disclosure on any later

date. Earlier we discussed the CSA initiative that could have resulted in changes to this aspect of

the EWR, but such changes were ultimately not made.

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[413] Given our conclusion that Brookfield was not required to file EWR reports, we need not

address contentions that its disclosure under the EWR (such as under s. 3.1 of NI 62-103) was

inadequate.

(b)

General Disclosure of IPL Swaps

(i) Background

[414] IPL and Pembina contended that the fairness of the bid process and the Strategic Review

was compromised by problems with Brookfield's IPL Swap disclosure, including the lack of detail

about the relationship between Brookfield and BMO, the "Brookfield Block" statement, and

misunderstandings in the media.

[415] In the March 8 Directors' Circular, IPL pointed specifically to Items 15, 16, and 23 of Form

62-104F1 as requiring Brookfield to make additional disclosure in the Brookfield Offer:



Item 15 of Form 62-104F1 requires an offeror to disclose any agreements,

commitments, or understandings "relating to the bid" that the bidder has with

another security holder of the offeree issuer. The disclosure is to cover the purpose,

date, and terms of any such agreement, as well as the identity of the parties;

Item 16 of Form 62-104F1 requires an offeror to disclose particulars of any

agreements, commitments, or understandings that relate to the bid or could affect

control of the target issuer and would reasonably be considered material by an

offeree security holder; and

Item 23 of Form 62-104F1 requires an offeror to describe: (1) "any material facts

concerning the securities of the offeree issuer"; and (2) any other matter known to

the offeror, not generally disclosed, and "that would reasonably be expected to

affect the decision of the security holders of the offeree issuer to accept or reject

the offer" (emphasis added).

[416] Given our conclusion below that the Brookfield Offer failed to comply with the

requirements of Item 23 of Form 62-104F1, we did not need to address IPL's contention that the

Brookfield Offer also did not comply with Items 15 and 16.

[417] We rejected Brookfield's contention during oral submissions that the IPL Swaps were

merely a "bet" that the IPL Share price would increase in the future and that Swaps in general have

nothing to do with securities. To the contrary, the IPL Swaps and the facts surrounding them clearly

concerned the securities of IPL. Swaps are typically hedged by the purchase of the referenced

securities, and those referenced securities can then be dealt with, for example, by voting or

tendering. Further, Brookfield's own public disclosure described the IPL Swaps in terms of the

number of IPL Shares they represented.

(ii)

Context

[418] We earlier outlined the law relating to material facts and materiality. Here, the question

was essentially "whether there is a substantial likelihood that [the omitted] facts would have been

important or useful to a reasonable prospective investor in deciding whether to invest in the

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securities on offer at the price asked" (Aitkens at para. 138, citing Arbour at para. 765 and Sharbern

at para. 61) – or, in these circumstances, whether to tender the IPL Shares at the price offered. We

were required to determine if general or specific information about the IPL Swaps was material

such that Brookfield was required to include it in the Brookfield Offer.

[419] IPL contended that Brookfield should have disclosed the purpose of the IPL Swaps,

Brookfield's future intention, and agreements that altered Brookfield's economic exposure – in

other words, aspects of the IPL Swaps that IPL submitted would be important or useful to

reasonable investors. Specifically, IPL submitted that the following information was material and

should have been disclosed in the Brookfield Offer:



the date each IPL Swap was acquired;

the identity of the swap dealer – BMO;

the relationship between Brookfield and BMO, including all fee arrangements;

how BMO was hedging the IPL Swaps, including the number of IPL Shares held

by BMO;



any restrictions on BMO's ability to deal with or vote its IPL Shares, and whether

BMO gave Brookfield assurance that BMO would not vote its IPL Shares;

terms and conditions of the IPL Swaps, including the nature and extent of

Brookfield's economic exposure to IPL Shares and any option Brookfield had to

acquire IPL Shares; and



the expiry or termination dates and events for the IPL Swaps, including any that

may have given BMO an incentive to tender its Swap Shares to the Brookfield

Offer, and any early termination rights held by Brookfield.

[420] As set out above, there was evidence presented relating to possible harms to IPL

shareholders and the capital market stemming from Brookfield's lack of disclosure:



some prospective buyers declined to consider bidding on IPL because they had the

impression Brookfield "effectively already had control or had 'won'", although not

all of those parties were necessarily confused about the nature of Brookfield's IPL

Swap interest;



some institutional IPL shareholders were confused about Brookfield's beneficial

interest and economic interest in IPL;

various media reports described Brookfield as owning, or having a stake of, almost

20% in IPL, with no mention that 9.9% of that was an economic interest with no

voting rights (this seemed most likely to have affected retail IPL shareholders); and

85



there was no way for prospective buyers, IPL shareholders, or media to know that

Brookfield had an extensive pre-existing relationship with its swap dealer (because

BMO was not identified as such), including that BMO NB was to receive the BMO

Completion Fee if the Brookfield Offer were to succeed – either or both of which

could influence BMO's dealings with its Swap Shares.

(iii)

Discussion

(A) Disclosure – Brookfield Offer, IPL Shareholder Letters

[421] Brookfield's first public disclosure of the IPL Swaps was in the February 10, 2021 news

release announcing its intention to make the February 22 Offer. Brookfield mentioned its total

economic interest, then briefly explained its IPL Swaps. In both that news release and the

February 22 Offer, Brookfield noted that it had no right to vote or to direct or influence voting,

acquisition or disposition of any Swap Shares. That was confirmed during the Hearing by wording

in the IPL Swap Letter Agreements between Brookfield and BMO.

[422] In its February 22, 2021 letter to IPL shareholders (accompanying the February 22 Offer),

Brookfield described itself as "the largest single investor in IPL, with an aggregate economic

interest of 19.65%". Brookfield's June 4, 2021 letter to IPL shareholders (accompanying the

June 4 Offer) also did not distinguish between the two components of Brookfield's interest in IPL.

The IPL Swaps aspect was disclosed in the June 4 Offer, but with even less clarity than the relevant

disclosure in the February 22 Offer.

[423] Baker explained that Brookfield's June 4, 2021 letter to IPL shareholders did not

distinguish between the two types of interest it held because the information "had been previously

disclosed a number of times". We rejected that explanation. To the contrary, the lack of disclosure

in that letter – sent to the IPL shareholders intended to be protected by the take-over bid regime –

highlighted Brookfield's pattern of not giving in a direct way even the basic information about the

nature of its interest in IPL or its relationship with BMO.

[424] The same was true for the February 22, 2021 letter from Brookfield to the IPL shareholders.

We also noted that although the February 22, 2021 letter stated that Brookfield started to acquire

IPL Shares in March 2020, it did not mention the IPL Swaps at all, thus implying that Brookfield's

almost 20% interest in IPL was held directly in IPL Shares. The negative consequences of these

two letters to IPL shareholders were heightened because short letters to shareholders are more

likely to be read by retail investors than is a lengthy offering circular.

[425] We concluded that Brookfield's disclosure in the February 22, 2021 and June 4, 2021 letters

to IPL shareholders was a deliberate and tactical attempt by Brookfield to imply to IPL

shareholders that Brookfield held or controlled almost 20% of the outstanding IPL Shares. This

could have led IPL shareholders to perceive the Brookfield Offer as having a greater chance of

success than if Brookfield had clearly disclosed in those documents that it had only a 9.75% voting

interest in IPL. This was material information, as it would have been useful to reasonable IPL

shareholders in deciding whether to tender to the Brookfield Offer (and, eventually, whether to

vote in favour of or against the Pembina Arrangement).

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(B)

Disclosure – June 4 News Release

[426] The Brookfield June 4 News Release was concerning. It defined Brookfield's $1.6 billion

and 19.65% economic interest in IPL as the "Brookfield Block". Brookfield correctly noted that

the term was used in the context of Brookfield's anticipated approach in the event the Pembina

Arrangement succeeded, not in the context of voting on the Pembina Arrangement or tendering to

the Brookfield Offer. However, we concluded that the wording was carefully structured to create

the impression that the entire 19.65% interest was against the Pembina Arrangement (and thus

perhaps also in favour of the Brookfield Offer). In other words, we find that Brookfield deliberately

conveyed to the public that Brookfield was potentially in a position to block the Pembina

Arrangement from succeeding.

[427] In the same news release, Brookfield further stated that the Brookfield Block of 19.65%

IPL Shares, as well as IPL Shares held by "any other institutional shareholders who lack desire to

own shares in Pembina", would create a substantial overhang on the Pembina Shares. That implied

that the unidentified holder of the 9.9% of IPL Shares comprising part of the Brookfield Block

"lack[ed] desire to own shares in Pembina". That was inconsistent with Brookfield's claims that

the circumstances would not influence BMO; instead, it created the impression that the 19.65%

would vote as a block.

[428] We concluded that the wording in the Brookfield June 4 News Release was a deliberate

and tactical attempt by Brookfield to imply to IPL shareholders that Brookfield could (or would)

use its 19.65% economic interest in IPL to decrease the chance that the Pembina Arrangement

would succeed and increase the chance that the Brookfield Offer would succeed. Reasonable IPL

shareholders would have considered this misleading because Brookfield had only a 9.75% voting

interest in IPL. Reasonable IPL shareholders would also have considered that information to be

material or useful when deciding whether to tender to the Brookfield Offer and whether to vote in

favour of or against the Pembina Arrangement.

(C)

Disclosure – Relationship with BMO

[429] The problems set out above concerning specific documents were compounded by certain

of Brookfield's disclosure (or lack thereof) in the various Brookfield Offers regarding the nature

of its relationship with BMO – the unidentified swap dealer – and the potential conflict of interest

that the relationship created.

[430] Brookfield publicly disclosed that it had no voting rights in connection with the IPL Swaps

and no right to direct or influence the swap dealer. This was confirmed in the documentary

evidence before us. Baker stated that he learned from a BMO representative on June 25, 2021 that

BMO would act in its own commercial interests when dealing with the Swap Shares. We accepted

all of that evidence, including the hearsay evidence Baker relayed from his conversation with the

BMO representative.

[431] However, there is a difference between Brookfield having the right to direct or influence

BMO's voting decisions and Brookfield creating circumstances in which BMO's own commercial

interests would likely align with Brookfield's, thus having the effect of influencing BMO.

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[432] Here, Brookfield did not disclose the identity of BMO as the swap dealer, the dates of the

IPL Swaps, the extensive relationship between Brookfield and BMO, and the BMO Completion

Fee payable to BMO NB if the Brookfield Offer were to succeed. The circumstances potentially

gave BMO a reason to tender its Swap Shares to the Brookfield Offer, to vote against the Pembina

Arrangement, or both.

[433] Even assuming Brookfield did not realize until June 25, 2021 (the date of the conversation

between Baker and the BMO representative) that BMO would act in its own commercial interests

in dealing with Swap Shares, Brookfield knew from the time it entered into the Swap Agreements

with BMO on April 24, 2020 that Brookfield had an extensive pre-existing relationship with BMO.

That relationship became more significant once the IPL Swaps program started, and even more

significant once Brookfield retained BMO NB as its financial advisor for the acquisition of IPL

and agreed to pay the associated BMO Completion Fee.

[434] Therefore, Brookfield created a situation in which up to 9.9% of the IPL Shares had an

incentive to vote or tender in a way that was consistent with Brookfield's interests – or at least in

a way that was not necessarily aligned with the interests of regular IPL shareholders. As discussed

elsewhere, there was hearsay evidence that BMO had hedged at least some of the IPL Swaps by

entering into its own Swaps with other swap dealers; however, Brookfield did not adduce any

reliable or detailed evidence of such hedging.

[435] We reviewed the wording of Brookfield's disclosure, the details it did not disclose, its

failure to respond to the call in the March 8 Directors' Circular for additional disclosure, and the

fact that the letters from Brookfield to IPL shareholders did not distinguish between Brookfield's

two types of interest in IPL (nor explain the significance of that distinction). We also reviewed the

evidence of how Brookfield's disclosure was interpreted by at least some potential bidders,

institutional investors, and members of the media.

[436] We concluded that Brookfield knew its relationship with BMO could lead BMO to tender

or vote its Swap Shares in a way that aligned with Brookfield's interests. Although Brookfield had

no legal right to influence BMO's voting or tendering decisions, the entire context of their

relationship could itself influence how BMO would deal with its Swap Shares. Brookfield did not

disclose the extent or possible ramifications of that relationship.

[437] We concluded that certain details about the IPL Swaps and Brookfield's relationship with

BMO were material, as that information would have been useful to reasonable IPL shareholders

in deciding whether to tender to the Brookfield Offer (and, later, whether to vote in favour of or

against the Pembina Arrangement). The information was also material because of the possibility

that BMO (or subsequent swap dealers) may have refrained from voting, with the added factor that

IPL's historically low voter turnout could make Brookfield's 9.75% of the IPL Shares more

significant if most or all of the Swap Shares were not voted. (We were not persuaded by

Brookfield's contention that it was not responsible for IPL's historic voter turnout and, thus, that

low turnout should not be used as a reason to criticize Brookfield's disclosure.)

[438] Finally, we were not persuaded by Brookfield's argument that IPL and Pembina made

insufficient efforts to learn more about the IPL Swaps before filing the IPL Application and the

88

Pembina Application, respectively. This was irrelevant to Brookfield's obligation to make

adequate disclosure in accordance with NI 62-104 and Form 62-104F1. What Brookfield did or

did not discuss with IPL or Pembina (or both) at any point during the process was also irrelevant.

Although Brookfield did give information and explanations in the course of this Hearing, that was

not public disclosure and does not assist Brookfield.

[439] We concluded that Brookfield failed to comply with the disclosure required by NI 62-104,

specifically, Item 23 of Form 62-104F1.

(c)

Clearly Abusive

(i) Entire Context

[440] As stated in ARC Equity (at para. 77), determining whether conduct is clearly abusive

requires an examination of the facts and circumstances as a whole. Here, that included the entire

context for our earlier conclusions that: (1) Brookfield was not required to file a report under the

EWR because it did not meet or exceed the 10% beneficial ownership threshold; and

(2) Brookfield's disclosure in the Brookfield Offer did not comply with the requirements of

NI 62-104 and Form 62-104F1.

(ii)

EWR Threshold

[441] Brookfield stopped just short of the 10% threshold for mandatory reporting of its beneficial

ownership of IPL Shares. Brookfield then increased its economic exposure to IPL by entering into

the IPL Swaps, stopping just short of a 10% IPL Swap stake and of a 20% total economic interest.

Brookfield argued that it had legitimate reasons for keeping under those thresholds. As noted,

according to Baker, Brookfield was considering other options for its investment in IPL and did not

decide to pursue a take-over until January 2021 – and, in the meantime, it was aware of the "optics"

of staying below 20% total. Brookfield therefore submitted that its use of the IPL Swaps was not

a "deliberate effort" to avoid any reporting obligations.

[442] We concluded that Brookfield realized that reaching 10% beneficial ownership would:

trigger disclosure requirements; pique the interest of IPL, IPL shareholders, and other capital

market participants; remove Brookfield's potential advantage in a future attempt to acquire control

of IPL; and likely lead to an increase in the price of IPL Shares and less favourable terms on which

Brookfield could enter into further IPL Swaps, purchase additional IPL Shares, or structure its

take-over bid for IPL. It was in Brookfield's interest to avoid the EWR.

[443] Given Brookfield's size, complexity and sophistication, we were satisfied that Brookfield

or its advisors would have been aware of the 2013 to 2014 CSA take-over bid regime proposals

and policy discussions. Brookfield or its advisors would also have been aware of the CSA's

conclusion that equity equivalent derivatives would continue to be exempt from the EWR's 10%

reporting requirement, and the rationale stated in 2016 that there was at that time no clear evidence

that Swaps were being used to accumulate substantial economic positions without disclosure "to

exert influence over the issuers or voting outcomes". Further, we were satisfied that Brookfield or

its advisors would have been aware of the obiter comment in the Sears decision stating (at

para. 111) that the use of Swaps "in a deliberate effort to avoid reporting obligations under the

[Ontario Act] and for the purpose of affecting an outstanding offer could constitute abusive

conduct".

89

[444] Even if we had reached a different conclusion about Brookfield's knowledge at the time it

engaged in the IPL Swaps and disclosure, Brookfield would have known of the CSA's policy

concerns and the concerns expressed in the Sears decision by early March 2021 at the latest, as

both were referred to in the March 8 Directors' Circular. Although that was too late to affect

Brookfield's EWR threshold disclosure, Brookfield would have known by early March of the

hidden ownership and empty voting concerns with Swaps, the conflict in which Brookfield had

placed BMO, the potential for affecting IPL's ability to seek other options for its shareholders, and

the corresponding need for Brookfield to improve its disclosure.

[445] Further, Brookfield said it received pitches from "most investment banks" for several

months before engaging BMO NB and its other financial advisor. Those pitches, according to

Baker, were about advising Brookfield in the event of a take-private transaction of IPL, as IPL was

widely considered to be a potential target. Although Brookfield stated that it was normal for an

entity of its size to receive such pitches, Baker had acknowledged that those particular pitches

concerned IPL. Therefore, the pitches would have increased Brookfield's awareness of the interest

surrounding IPL and the significance of a take-over bid or other transaction in that environment.

This also meant that Brookfield would have been aware of that context at the time it entered into

the Swap Agreements, the IPL Swap Letter Agreements, and the IPL Swaps, as well as when it

reached 9.75% beneficial ownership of IPL Shares, then reached a 10% economic interest and

ultimately a 19.65% economic interest, each through a combination of IPL Share purchases and

IPL Swaps.

[446] Overall, Brookfield succeeded in keeping the IPL Share price lower until it made the

Brookfield Offer and succeeded in limiting the alternatives IPL could pursue during the Strategic

Review – which could have affected IPL's ability to find the maximum value available for its

shareholders. Brookfield's hidden ownership in IPL also allowed it to continue increasing its

economic interest while the IPL Share price remained supressed. This, in turn, deprived other IPL

shareholders of the opportunity to take advantage of the premium that typically accompanies EWR

reporting.

[447] IPL cited H.E.R.O. (at para. 28) in contending that the effect of Brookfield's actions, not

its intentions, should be determinative. Brookfield submitted that both intention and effects are

relevant, citing the comment from Sears (at para. 111) that clearly abusive behaviour could be

found in a take-over bid context if there were "a deliberate effort to avoid reporting obligations",

and that Brookfield here was merely structuring its affairs to remain under the 10% EWR

threshold.

[448] We were satisfied that Brookfield's intentions and the effects of its actions were aligned.

We found that Brookfield was at least considering the possibility of an acquisition of IPL during

the period of June through October 2020 when it entered into the IPL Swaps. Therefore,

Brookfield's reason for avoiding the 10% EWR threshold was not merely to structure its affairs,

but to structure its affairs to give itself an advantage in the context of a possible take-over bid.

[449] Regarding Brookfield's contention that we should not consider its behaviour to be clearly

abusive because the CSA "rejected" the proposal to add equity equivalent derivatives to the EWR,

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we noted that the CSA did not proceed with that proposal at the time because there was no evidence

of abuse. Here, we had evidence of exactly the type of abuse about which the CSA raised concerns.

[450] In all of the circumstances, and despite Brookfield's compliance with the EWR, we found

that Brookfield's use of the IPL Swaps to gain a 19.65% economic interest in IPL without making

any disclosure until it made the Brookfield Offer was clearly abusive of the Alberta capital market

in general and IPL shareholders in particular.

(iii)

Brookfield's Disclosure Generally

[451] Our conclusions about Brookfield's intentions and the effects of its IPL Swap actions were

supported by Brookfield's IPL Swap disclosure from the time it started entering into the IPL Swaps

until the time of this Hearing.

[452] We need not repeat here all of the details of Brookfield's disclosure and the problems

previously set out. We have already found that Brookfield's disclosure was inadequate to the point

of contravening the requirements of NI 62-104. Even apart from such contraventions, Brookfield's

disclosure was either deliberately obscure or Brookfield knowingly failed to correct obvious

misapprehensions among the media and capital market participants.

[453] Moreover, Brookfield created a conflict of interest by having an extensive pre-existing and

continuing commercial relationship with BMO, choosing BMO as the swap dealer, and engaging

BMO NB as financial advisor for the acquisition of IPL (with the BMO Completion Fee being

contingent on Brookfield's successful acquisition of IPL). There was no evidence that Brookfield,

in making those arrangements, gave sufficient thought to the conflict of interest being created or

to investigating whether BMO had any ethical walls in place to mitigate or eliminate any conflicts.

The seriousness and significance of this conflict was exacerbated when Brookfield failed to make

any disclosure of BMO's multiple roles. We noted, however, that there was no evidence BMO was

"captive and compliant" relative to Brookfield, as alleged by IPL and Pembina.

[454] We had no hesitation finding that Brookfield used the IPL Swaps in an attempt to gain an

insurmountable advantage in its quest to acquire IPL. As stated by the OSC in a different context

in Falconbridge (at para. 59), there was a risk here of the offeror being able to entrench its position,

which "could have a detrimental impact on the auction process".

[455] Brookfield compounded the effect of its IPL Swap strategy by making inadequate and

strategic disclosure. Even though Brookfield did not contravene the EWR when acquiring a

19.65% economic interest in IPL without making any EWR disclosure, the IPL Swap information

became material to the Brookfield Offer once made. Brookfield's failure to make proper disclosure

of the IPL Swap information led to uncertainty and confusion among IPL shareholders and in the

capital market generally.

[456] We also had no hesitation concluding that Brookfield's omitted disclosure would have been

important or useful to others potentially interested in participating in the Strategic Review process

and competing with Brookfield and Pembina for control of IPL. Such potential participants should

have had all of the relevant information necessary to allow them to participate in a fair and even-

handed process.

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[457] Brookfield's behaviour was clearly abusive of the capital market and of IPL shareholders

whose interests are intended to be protected by the take-over bid regime (i.e., the shareholders

other than Brookfield and the holders of Swap Shares who did not share the same economic interest

as other IPL shareholders).

(d)

"Animating Principles"

[458] IPL urged us to find that Brookfield's IPL Swap conduct violated animating principles of

Alberta securities laws. As mentioned, because we found that Brookfield's conduct was clearly

abusive, we did not need to address the submissions on animating principles.

E.

Conclusion

[459] For the reasons noted above, we concluded that Brookfield failed to meet its disclosure

obligations and also engaged in conduct that was clearly abusive of IPL shareholders and the

Alberta capital market in general.

F.

Remedies for Disclosure Contraventions and Clearly Abusive Behaviour

1. General

[460] Brookfield contended that granting the relief sought by IPL and Pembina would generate

uncertainty about take-over bids, the EWR, and the use of Swaps. In Brookfield's view, the dangers

of such uncertainty were heightened here because this was in the course of a contested proceeding

and the CSA had earlier declined to change the requirements for disclosure of Swaps, specifically

in the EWR.

[461] Staff noted that exercising our authority during a contested application could lead to

"broader and unintended consequences". However, Staff also stated that "the widespread tactical

use of [Swaps] in Canadian M&A transactions would not be a positive development given our

M&A [regime], overall emphasis on investor protection, informed decision-making, and allowing

auctions to develop and play through to their completion for the benefit of shareholders".

[462] IPL and Pembina urged us to conclude that the circumstances here warranted our

intervention, even where such intervention could be novel.

[463] In reaching our conclusions above on the substantive matters of inadequate disclosure and

clearly abusive conduct by Brookfield, we were mindful of the need for caution and restraint, as

set out, for example, in ARC Equity (at para. 69). The need for such caution and restraint applies

equally, in our view, to discerning appropriate measures to take in the public interest. With that in

mind, we turn to the specific orders sought here by IPL and Pembina.

2.

Jurisdiction under Sections 179 and 198 of the Act

[464] We received submissions from the parties regarding the scope of our jurisdiction to make

the orders sought under ss. 179 and 198 of the Act. Some of those positions evolved during the

course of written and oral submissions.

[465] As noted earlier in this decision, we have the jurisdiction to make various types of orders

under s. 179 of the Act, if there have been contraventions of Part 14 of the Act or of the regulations.

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We have the jurisdiction to make various types of order under s. 198(1) if it is in the public interest

to do so. Section 198(2) allows us to make a s. 198(1) order subject to terms and conditions.

[466] We concluded that the IPL Swap disclosure in the Brookfield Offer did not comply with

the requirements in NI 62-104. We have the jurisdiction to make certain orders under s. 179 or

s. 198 (or both) for that contravention, as discussed below.

[467] We also concluded that Brookfield's use of the IPL Swaps and its limited related disclosure

were clearly abusive and, therefore, contrary to the public interest. We have the jurisdiction to

make certain orders under s.198 for that clearly abusive conduct.

3.

Orders Sought

(a) Proposed Voting Order

(i) Arguments of the Parties

(A) IPL and Pembina

[468] IPL and Pembina argued that the requirement for 66 2/3% of the IPL Shares to be voted in

favour of the Pembina Arrangement at the IPL Shareholders Meeting would have been unfair in

these circumstances because Brookfield's ownership of IPL Shares in conjunction with its

economic interest through the IPL Swaps would have given Brookfield a blocking position.

Brookfield would have voted against the Pembina Arrangement. The evidence was that BMO

would have voted any Swap Shares it held in its own interests (which could include the option of

not voting).

[469] According to IPL, the evidence indicated it was unlikely that BMO would vote in favour

of the Pembina Arrangement. IPL and Pembina asserted that there was at least the appearance that

BMO had a conflict so that its own interests might align with Brookfield's – and even if not, BMO's

own interests would not be the same as those of a regular IPL shareholder. Given the historic low

voter turnout at IPL shareholder meetings, the 19.65% of IPL Shares in which Brookfield had an

economic interest could have formed a block, potentially depriving other IPL shareholders of

meaningful choice.

[470] IPL and Pembina sought the Proposed Voting Order under s. 198 of the Act (Pembina also

made a reference to s. 179). Under their proposed order, the Swap Shares would be voted in the

same proportion for or against the Pembina Arrangement as all other IPL Shares voted at the IPL

Shareholders Meeting except Brookfield's. This concept of a "contingent ballot" was included in

ISDA's July 16, 2013 response to the CSA's March 2013 Proposal. ISDA suggested a standardized

provision for inclusion in agreements between swap counterparties that would require any

referenced securities held as a hedge by the swap dealer be voted on the same basis as other

shareholders, excluding securities held by the swap investor. IPL and Pembina did not explain the

mechanics of their proposed proportional or contingent voting in these circumstances, in which it

would not be possible to identify which IPL Shares being voted at the IPL Shareholders Meeting

were Swap Shares. Pembina characterized the remedy sought as novel but warranted, calling it a

different way of counting votes rather than a denial of voting rights.

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Brookfield

(B)

[471] Brookfield argued that s. 179 of the Act does not give a panel the authority to make the

Proposed Voting Order because the exercise of s. 179 remedies requires a finding that the Act has

been contravened, and the s. 179 remedies are limited to those specified in s. 179(1). Brookfield

stated that no order should be made under s. 198 because its conduct was not clearly abusive.

Brookfield further contended that, even if the panel had jurisdiction, the Proposed Voting Order

should not be made because it would interfere with shareholder democracy, there was no evidence

as to how many Swap Shares were held by BMO, and there was no authority supporting this

approach.

(C)

Staff

[472] Staff submitted that none of the enumerated powers in s. 198 of the Act give the panel the

authority to make the Proposed Voting Order.

(ii)

Analysis

[473] By virtue of its non-compliance with the disclosure requirements in NI 62-104, Brookfield

contravened Part 14 of the Act. While that contravention provided us with the jurisdiction to make

orders under s. 179 or s. 198(1) of the Act, neither provision contemplates orders relating to voting

at shareholder meetings. Therefore, we lack the jurisdiction to make the Proposed Voting Order

under s. 179 or s. 198(1).

[474] We also noted concerns expressed that the Proxy Solicitation Order could enable

Brookfield to solicit proxies from BMO and other swap counterparties holding Swap Shares.

Brookfield denied having that intention, and its counsel offered to give his undertaking – one of

two undertakings he offered during the Hearing – that Brookfield would not engage in such

solicitation activities. We agreed with Staff that such proxy solicitation orders are routine, and

there was no evidence here that caused us concern with this particular Proxy Solicitation Order.

Had we been concerned, the offered undertaking would have provided little comfort – an

undertaking purporting to bind anyone other than the person providing it is not useful.

(iii)

Conclusion

[475] We do not have the jurisdiction to make the Proposed Voting Order.

(b)

Proposed Brookfield Offer CTO

(i) Arguments of the Parties

(A) IPL and Pembina

[476] Pembina sought the Proposed Brookfield Offer CTO because of the abusive nature of

Brookfield's inadequate disclosure. Pembina argued that such an order was appropriate because

Brookfield must be presumed to have been aware of the effects of its actions.

[477] IPL did not appear to take a position on this point.

(B)

Brookfield

[478] Brookfield did not specifically address the Proposed Brookfield Offer CTO, outside of its

argument that it made adequate disclosure and did not engage in clearly abusive conduct, so no

relief would be appropriate.

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(C)

Staff

[479] Staff submitted that we could make the Proposed Brookfield Offer CTO if we found clearly

abusive conduct by Brookfield. However, Staff noted that would be a drastic remedy, as it would

deprive IPL shareholders of the choice between the Brookfield Offer and the Pembina

Arrangement.

(ii)

Analysis

[480] We clearly have the jurisdiction to make the Proposed Brookfield Offer CTO.

[481] As stated in s. 1.1(2) of NP 62-202, one objective of take-over bid regulation is to "leave

the shareholders of the target company free to make a fully informed decision". That principle was

highly relevant here, when deciding if a bid should be permitted to continue. Cease trading the

Brookfield Offer would have denied IPL shareholders the ability to decide for themselves whether

to tender their IPL Shares to the Brookfield Offer.

[482] As noted, below, however, IPL shareholders were entitled to have all of the relevant

information to allow them to make a fully informed decision.

[483] In the circumstances, we considered the Proposed Brookfield Offer CTO too blunt a

remedy that would harm IPL shareholders by denying them a choice. The Proposed Disclosure

Order and Proposed Minimum Tender Order were better tools for addressing Brookfield's

disclosure contraventions and clearly abusive conduct, as discussed below.

(iii)

Conclusion

[484] We declined to make the Proposed Brookfield Offer CTO.

(c)

Proposed Disclosure Order

(i) Arguments of the Parties

(A) IPL and Pembina

[485] Pembina and IPL sought the Proposed Disclosure Order under s. 198 to ensure IPL

shareholders would be fully informed when making decisions regarding the Brookfield Offer

(including assessing the Brookfield Offer in contrast with the Pembina Arrangement).

[486] During oral submissions, IPL contended that four categories of information relating to the

IPL Swaps were material and should be ordered disclosed by Brookfield:



all information concerning BMO, as the swap dealer;

the nature of BMO's relationship with Brookfield, including the BMO Completion

Fee and other financial arrangements (or, as IPL described it, "all of the conflicts

of interest that exist here");



the dates, terms, conditions, and pricing of Brookfield's IPL Swaps; and

the termination rights and dates, including how termination would be triggered.

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[487] In its written submissions, IPL had argued for a few other types of disclosure (or described

some of the disclosure being sought slightly differently), and we include those categories here for

completeness:



how BMO was hedging the IPL Swaps, including the number of IPL Shares held

by BMO;

any restrictions on BMO's ability to deal with or vote its Swap Shares, and whether

BMO had given Brookfield assurance that BMO would not vote its Swap Shares;

terms and conditions of the IPL Swaps, including Brookfield's economic exposure

to IPL Shares and any option Brookfield had to acquire IPL Shares; and

the expiry or termination dates and events for the IPL Swaps, including any that

may have given BMO an incentive to tender its Swap Shares to the Brookfield

Offer.

[488] Pembina also contended that certain information relating to the IPL Swaps was material:

(a)

(b)

(c)

the identity of BMO as swap dealer;

the terms of the swap agreement between Brookfield and BMO;

the financial terms between Brookfield and BMO, including any fee payable if the bid of

Brookfield is successful;

(d)

the purpose of the [IPL Swaps], including particulars regarding why BMO stopped

adjusting the swap with Brookfield in October 2020 and why the swap agreement between

the parties was for an 18-month term;

(e)

(f)

the existence and extent of potential conflicts of interest arising [from] the fact that the

[IPL] Swaps are held by an affiliate of Brookfield's financial advisor; and

particulars of the increased exposure of Brookfield through the [IPL Swaps] for the period

between June 2020 and October 2020.

(B)

Brookfield

[489] Brookfield expressed concern that an order for additional disclosure could affect swap

contract economics, for example, if a swap dealer were required to be identified.

[490] Brookfield also questioned how certain information sought by the Proposed Disclosure

Order would be material to IPL shareholders, including BMO's identity, the dates Brookfield and

BMO entered into the IPL Swaps, the termination and extension provisions of the Swap

Agreements, and how many IPL Shares were held by BMO and other swap dealers.

(C)

Staff

[491] Staff acknowledged our jurisdiction to order Brookfield to make additional disclosure

under ss. 179 and 198, but suggested that any such order might be too late to affect the outcome.

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For example, Staff noted that it was too late for IPL shareholders to see the increase in the IPL

Share price that would typically follow disclosure that Brookfield had acquired a 10% or greater

interest in IPL.

[492] Staff submitted that any disclosure order the panel made should be limited to information

"truly material to IPL shareholders seeking to make a reasonably informed choice between the two

transactions based solely on considerations relevant to an investment decision". For example, Staff

questioned whether information about the BMO Completion Fee would be material. In contrast,

Staff submitted that material information might have included the obstacles that the Swap Shares

might have presented to the completion of the Pembina Arrangement, including the size of any

overhang on Pembina Shares.

(ii)

Analysis

[493] Earlier we found that Brookfield's disclosure contravened NI 62-104 and that its use of and

disclosure relating to the IPL Swaps was clearly abusive to IPL shareholders and the capital

market. Disclosure is a cornerstone of securities regulation, and violations of disclosure

requirements are a significant problem. However, there is a solution to disclosure problems such

as those here: an order requiring Brookfield to make proper disclosure of material facts and

allowing sufficient time for dissemination of that disclosure so that IPL shareholders would be

able to make a fully informed decision.

[494] We acknowledge Staff's argument that an order for additional disclosure could have been

too late to make a significant difference in certain respects. However, we concluded that, as at the

time of the Hearing, there was still time to ensure that IPL shareholders had the required disclosure

from Brookfield that should have been in the Brookfield Offer from the beginning. That additional

disclosure would then allow the IPL shareholders to make a fully informed decision between the

Brookfield Offer and the Pembina Arrangement, including whether to tender to the Brookfield

Offer. The loss of the opportunity to make a fully informed decision was the greatest negative

consequence of Brookfield's disclosure breach and clearly abusive conduct, and thus the most

important to mitigate.

[495] Section 179(1)(b) of the Act gives us jurisdiction to require amendments to any take-over

bid documents and the distribution of that amended information. We considered it appropriate here

to order additional disclosure and the distribution of such additional disclosure under s. 179.

[496] We were not concerned with Brookfield's contention that swap contracts in general might

be affected in the future by an order here that Brookfield identify BMO as its swap dealer and

provide additional disclosure. Our decision and ruling are limited in effect to the particular

circumstances and transaction before us. Regardless of whether our decision spurs reconsideration

of some aspects of regulating Swaps, prospective offerors need to be aware that actions such as

Brookfield's here could be found non-compliant with disclosure requirements, clearly abusive, and

contrary to the public interest. This should not affect the use of Swaps in general, but should affect

those who attempt to circumvent the cornerstone disclosure principles upon which our securities

regulatory system is based and to engage in clearly abusive conduct.

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[497] In our view, it was not appropriate to order all of the specific disclosure items sought by

IPL and Pembina. In particular, we concluded that the following were not material in these

circumstances: the specifics of BMO's hedging activities; the number of IPL Shares held by BMO;

restrictions on BMO's ability to vote its IPL Shares; additional terms and conditions of the IPL

Swaps; and specific expiry and termination dates and events for the IPL Swaps.

(iii)

Conclusion

[498] We concluded it was appropriate to order under s. 179(1)(b) that Brookfield make

additional disclosure related to the IPL Swaps – specifically, the following material information:



the name of the swap counterparty (BMO);

the dates of the Swap Agreements between Brookfield and BMO;

the dates of the IPL Swap transactions pursuant to which Brookfield acquired an

economic interest in IPL Shares;



material information concerning Brookfield's commercial relationship with BMO,

similar in nature to that contained in the analyst reports referred to at pages 36-40

of the transcript of the cross-examination of Baker on June 28, 2021 (see below);

and



the existence of, amount of, and conditions for the payment of the BMO

Completion Fee included in the BMO Engagement Letter.

[499] Regarding the required material information concerning Brookfield's and BMO's

commercial relationship, the information from Baker's June 28, 2021 cross-examination was,

briefly:



BMO undertook an underwriting liability with respect to Brookfield within the past

12 months;

BMO provided investment banking services with respect to Brookfield within the

past 12 months;

BMO managed or co-managed a public offering of securities with respect to

Brookfield within the past 12 months;

BMO or an affiliate received compensation for investment banking services from

Brookfield within the past 12 months;

BMO or an affiliate has a financial interest in 1% or more of any class of the equity

securities of Brookfield; and

BMO or an affiliate has a financial interest in 0.5% or more of the issued share

capital of Brookfield.

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[500] We also ordered that Brookfield distribute this additional disclosure in accordance with the

variation requirements set out in s. 2.12 of NI 62-104.

(d)

Proposed Minimum Tender Order

(i) Arguments of the Parties

(A) IPL and Pembina

[501] IPL and Pembina submitted that the Swap Shares should be excluded from the Minimum

Tender Condition, although they acknowledged that this was a novel form of relief.

[502] Responding to a question from the panel at the Hearing, IPL and Pembina agreed that the

panel would not have jurisdiction under s. 179 to make the requested order, but that it could be

done under ss. 198(1) and (2).

(B)

Brookfield

[503] Brookfield argued that it would be unfair and illogical to deem the Swap Shares to be

beneficially owned by Brookfield for the purposes of the Minimum Tender Condition because

Brookfield did not control what decisions would be made by the holders of the Swap Shares.

Brookfield also argued the panel had no jurisdiction to exclude the Swap Shares in that way.

[504] Brookfield submitted that the Proposed Minimum Tender Order would be an unreasonable

response to the circumstances here, particularly since the CSA decided not to proceed with adding

equity equivalent derivatives to the scope of the EWR and take-over bid regulation in general.

[505] Finally, Brookfield contended that it would be unfair to BMO (or another holder of Swap

Shares) to make an order against them without notice and without their participation. In its view,

this would tamper with the property rights of those parties (although Pembina countered that there

are no property rights in the Swap Shares because those have been separated).

(C)

Staff

[506] Staff stated that the limited remedies available under s. 179 of the Act provide no clear

authority for the panel to grant the Proposed Minimum Tender Order. Although noting that

s. 198(1) does not expressly include authority to make the Proposed Minimum Tender Order, Staff

acknowledged that ss. 198(1) and 198(2) could be used together to allow the panel to effectively

alter the statutory Minimum Tender Condition by ordering that Brookfield not take up and pay for

IPL Shares under the bid unless certain conditions were met.

(ii)

Analysis

[507] We were mindful of the dangers of exercising our public interest jurisdiction in the absence

of finding a specific contravention of Alberta securities laws. Although we did find that Brookfield

contravened the disclosure requirements during the course of the Brookfield Offer, we did not

consider that linked to the mechanics of the tendering process, specifically the Minimum Tender

Condition. That is, the disclosure order made to remedy the disclosure contraventions did not cure

the clearly abusive way in which Brookfield used the IPL Swaps. Therefore, we considered

whether the Proposed Minimum Tender Order, or an order modifying the Minimum Tender

Condition, was necessary and appropriate here.

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[508] In considering the appropriateness and extent of orders made in the public interest for

clearly abusive conduct, we found the following statement useful (ARC Equity at para. 66, citing

Re Cablecasting Ltd., [1978] O.S.C.B. 37 at p. 43):

If the transaction under attack was of an entirely novel nature, Commission action might seem more

appropriate. Another relevant consideration in assessing whether to act against a particular

transaction is whether the principle of the new policy ruling that would be required to deal with the

transaction is foreshadowed by principles already enunciated in the [Ontario] Act, the regulations

or prior policy statements. Where this is the case the [OSC] will be less reluctant to exercise its

discretionary authority than it will be in cases that involve an entirely new principle.

[509] Brookfield's contention that the Proposed Minimum Tender Order would be inconsistent

with the CSA's determination on equity equivalent derivatives missed an important point in the

current context. As noted, the CSA did not proceed with the proposed addition of equity equivalent

derivatives because there was no evidence at that time that Swaps were being used in a way that

would undermine take-over bid regulation. However, what had not yet happened then was

precisely the situation presented here – we found that Brookfield used the IPL Swaps to avoid the

EWR's 10% reporting threshold and to gain a tactical advantage in the battle for control of IPL,

thus engaging in clearly abusive conduct.

[510] Brookfield's conduct fit squarely within the above description from ARC Equity –

Brookfield's use of the IPL Swaps to further the Brookfield Offer was novel, and the concerns it

raised were foreshadowed by the CSA policy discussions several years ago, even though no policy

changes were made at that time.

[511] We were also satisfied that it would be unfair to regular IPL shareholders to allow the Swap

Shares to be included in the Minimum Tender Condition. The tendering rights of those Swap

Shares were separated from the economic interest in those shares (as were the voting rights).

Accordingly, in deciding whether to tender the Swap Shares, the holder of those shares would be

influenced by different considerations than those influencing holders of regular IPL Shares.

Similarly, there would be different considerations influencing decisions about IPL Shares

beneficially held by Brookfield – which is precisely why an offeror's shares are excluded from the

Minimum Tender Condition. Moreover, in the present case, BMO – which, as explained below,

we deemed to have had the right to tender the Swap Shares – may have been affected by

considerations stemming from BMO's extensive commercial relationship with Brookfield.

[512] We could not identify the holder or holders of the Swap Shares. That is, BMO would have

engaged in hedging activities to control the risk it assumed when entering into the IPL Swaps with

Brookfield. That hedging would take the form of purchasing IPL Shares (in addition to IPL Shares

BMO may have already owned as a market maker) or entering into its own Swaps as a swap

investor with other swap dealers. The evidence confirmed this – BMO hedged at least part of its

position through ownership of Swap Shares and part through Swaps with other swap dealers.

However, Brookfield tendered no evidence on how many Swap Shares were held by BMO or by

other swap dealers, thus there was no way for us to determine the relative hedging positions as

between BMO and any other swap dealer. Brookfield could have asked BMO for that information,

and if it were considered commercially sensitive, Brookfield could also have asked for a

100

confidentiality order as it did for other evidence submitted for the Hearing. Brookfield chose not

to seek that information, relying instead on oral hearsay that BMO's policy is not to vote hedged

shares at the direction of a swap investor (here, Brookfield), but that BMO will act in its own

commercial interests.

[513] We were left with the evidence that swap dealers in BMO's position would be expected to

hedge the IPL Swaps, and BMO was the only identified swap dealer. Whether through deliberate

obfuscation or carelessness in adducing its evidence, Brookfield left us little choice in how to treat

the Swap Shares. Accordingly, we determined that the fairest approach was to deem BMO to have

hedged all 9.9% of the IPL Swaps by holding or acquiring Swap Shares representing 9.9% of the

issued and outstanding IPL Shares.

[514] We accepted the evidence that BMO would consider its own commercial interests in

dealing with the Swap Shares. In the context of the Brookfield Offer, the choice was binary – either

accept the offer and tender the Swap Shares, or reject the offer and decline to tender the Swap

Shares.

[515] BMO had an extensive commercial relationship with Brookfield. In these circumstances,

we believed it highly unlikely that BMO would reject the Brookfield Offer and refuse to tender

the Swap Shares. Accordingly, we were prepared to assume that all of BMO's deemed holding of

Swap Shares would be tendered to the Brookfield Offer. In addressing our conclusion that

Brookfield's conduct was clearly abusive, we considered that the public interest called for the

protection of IPL shareholders (other than Brookfield and BMO) through modification of the

statutory Minimum Tender Condition to neutralize the effect of all of the Swap Shares being

tendered.

[516] The depository receiving the tender of IPL Shares to the Brookfield Offer would not have

been able to identify and separate Swap Shares, so they could not be neutralized by excluding them

together with Brookfield's 9.75% of the IPL Shares. However, we determined that the effect of the

Swap Shares could be neutralized by modifying the Minimum Tender Condition to arrive at a

similar outcome.

[517] The Minimum Tender Condition prescribed by s. 2.29.1(c) of NI 62-104 requires an offeror

to get the approval (by tendering) of shareholders representing more than half of the issued and

outstanding shares (excluding the offeror and connected entities). As we concluded that the Swap

Shares also had to be excluded from the number of IPL Shares counted toward the approval of the

Brookfield Offer, adjusting the Minimum Tender Condition from the statutorily required 50% of

the issued and outstanding IPL Shares not owned by Brookfield to 55% of those shares achieved

the desired outcome (the Modified Minimum Tender Condition):



Of the 429,219,175 issued and outstanding IPL Shares, Brookfield owned

41,848,857 IPL Shares and had an economic interest in an additional 42,492,698

Swap Shares.



If the Swap Shares were identifiable, the Minimum Tender Condition could have

been modified by requiring the tendering of more than 50% of the Regular IPL

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Shares (the IPL Shares not owned by Brookfield and not represented by the Swap

Shares) for the Brookfield offer to succeed:



0.50 × [429,219,175 issued and outstanding IPL Shares - (41,848,857

Brookfield-owned IPL Shares + 42,492,698 Swap Shares)] = 172,438,810

Regular IPL Shares.



The Swap Shares were not identifiable, and thus could not be excluded from the

Minimum Tender Condition together with the Brookfield-owned IPL Shares.

Therefore, to achieve the same result (i.e., requiring that more than 172,438,810

Regular IPL Shares be tendered for the Brookfield Offer to succeed), the Swap

Shares were added to the 172,438,810 Regular IPL Shares, and that sum was then

used to calculate the Modified Minimum Tender Condition:



172,438,810 Regular IPL Shares + 42,492,698 Swap Shares = 214,931,508

IPL Shares

214,931,508 IPL Shares ÷ (429,219,175 issued and outstanding IPL Shares

- 41,848,857 Brookfield-owned IPL Shares) = 0.55485 = approximately

55%.



Thus, to account for the assumed tendering of all of the Swap Shares, the Modified

Minimum Tender Condition required more than 55% of the issued and outstanding

IPL Shares to be tendered to the Brookfield Offer, excluding the Brookfield-owned

IPL Shares.

[518] Addressing Brookfield's argument about the property or other rights of holders of Swap

Shares, the Modified Minimum Tender Condition affected Brookfield's Offer, but it did not

preclude the Swap Shares from being tendered, nor did it deem the Swap Shares to be beneficially

owned by Brookfield.

(iii)

Conclusion

[519] We concluded that we have the jurisdiction under s. 198(1)(b) of the Act to order the

Modified Minimum Tender Condition – that Brookfield not purchase any IPL Shares deposited

under the Brookfield Offer, subject to terms and conditions ordered under s. 198(2). The condition

we imposed was that more than 55% of the IPL Shares subject to the Brookfield Offer, excluding

any IPL Shares beneficially owned by Brookfield or by any person acting jointly or in concert with

Brookfield, had to be deposited under the Brookfield Offer and not withdrawn before Brookfield

was able to purchase any IPL Shares deposited under the Brookfield Offer.

[520] We also ordered under s. 198(1)(g) and (h) of the Act that Brookfield disclose the Modified

Minimum Tender Condition in accordance with the process set out in s. 2.12 of NI 62-104.

IX.

ORDER

[521] As conveyed in the Order, we:

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(a)

(b)

dismissed the Brookfield Application; and

considering it to be in the public interest to do so, ordered that:

(i)

notwithstanding s. 2.29.1(c) of NI 62-104, under ss. 198(1)(b) and (2) of the

Act, Brookfield shall not purchase any IPL Shares deposited under the

Brookfield Offer unless more than 55% of the number of IPL Shares that

are subject to the Brookfield Offer, excluding any IPL Shares beneficially

owned by Brookfield or by any person acting jointly or in concert with

Brookfield, have been deposited under the Brookfield Offer and not

withdrawn;

(ii)

under s. 198(1)(g) and (h) of the Act, Brookfield shall publicly disclose the

Modified Minimum Tender Condition in accordance with the variation

requirements in s. 2.12 of NI 62-104; and

(c)

ordered under s. 179(1)(b) of the Act that Brookfield shall publicly disclose the

following in accordance with the variation requirements in s. 2.12 of NI 62-104:

(i)

the name of the swap counterparty (BMO);

(ii)

the dates of the Swap Agreements between Brookfield and BMO;

(iii) the dates of the IPL Swap transactions pursuant to which Brookfield

acquired an economic interest in IPL Shares;

(iv)

material information concerning Brookfield's commercial relationship with

BMO as set out in the Order, and, specifically (in brief), that:



BMO undertook an underwriting liability with respect to Brookfield

within the past 12 months;

BMO provided investment banking services with respect to

Brookfield within the past 12 months;

BMO managed or co-managed a public offering of securities with

respect to Brookfield within the past 12 months;

BMO or an affiliate received compensation for investment banking

services from Brookfield within the past 12 months;

BMO or an affiliate has a financial interest in 1% or more of any

class of the equity securities of Brookfield; and

BMO or an affiliate has a financial interest in 0.5% or more of the

issued share capital of Brookfield; and

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(v)

the existence of, amount of, and conditions for the payment of the BMO

Completion Fee included in the BMO Engagement Letter.

December 21, 2021

For the Commission:

"original signed by"

Kari Horn

"original signed by"

Tom Cotter