Can a bidder construction a proposal to discourage the train of a ROFR?

Will the existence of a Proper of First Refusal (“ROFR”) set off particular duties to ROFR holders on the a part of bidders and sellers? In Greta Power,^[1] the Court docket of Enchantment for Ontario held that bidders can construction provides to discourage using ROFRs, and sellers should not obliged to problem bid constructions, supplied the provide is bona fide.

That is the primary time an appellate court docket has thought-about what obligations are owed to ROFR holders because the Supreme Court docket of Canada’s landmark choices recognizing the organizing precept of fine religion efficiency and the obligation of sincere efficiency in contract legislation.^[2] Greta Power clarifies that asset gross sales stay a aggressive bidding course of during which bidders and sellers can and may act in their very own self-interest. It is a vital holding and brings extra readability to the legislation regarding ROFRs.

Abstract of Info

Veresen sought to promote its pursuits in three wind farms: GV1, GV2 and SCELP. Greta held ROFRs on the sale of Veresen’s pursuits in GV1 and GV2, however not in SCELP.

Bluearth in the end received the bidding course of for Veresen’s pursuits in GV1, GV2 and SCELP. It then labored with Veresen on a Buy and Sale Settlement (“PSA”) for all three property. A time period within the draft PSA required Bluearth to supply a bona fide allocation of the acquisition worth of GV1,  GV2 and SCELP in order that Veresen may present its ROFR notices to Greta in respect of GV1 and GV2. Whereas Bluearth initially valued GV2 at $151 million, it elevated its allocation of worth to $156 million after a corresponding discount within the worth allotted to SCLEP.^{[3]Veresen accepted the revised worth allocation.}

Greta exercised its ROFR on GV2, however not GV1. Greta then introduced a abstract judgment movement looking for damages in opposition to Veresen and Bluearth (the vendor and bidder, respectively). Greta alleged that Veresen breached its contractual duties of fine religion and sincere efficiency by permitting Bluearth to reallocate the pricing between GV2 and SCELP in a deliberate try to forestall Greta from exercising its ROFR (by artificially inflating the train worth in respect of GV2). Greta additionally argued that Bluearth was accountable for inducing breach of contract.

Movement determination

The movement decide dismissed Greta’s declare. Veresen was required to present Greta a bona fide alternative to train its ROFR in respect of GV1 and GV2. Veresen was not allowed to construction the asset sale in a manner that “eviscerated” the ROFR^{[4]— for instance, by allocating costs in a manner that pressured Greta to say no its ROFR, after which adjusting the sale worth downward as soon as the election to not train the ROFR had been made.[5] However, on the proof, Bluearth made a bona fide provide to buy GV2 for $156 million and Veresen was keen to simply accept this worth. There was no breach of contract in these circumstances.}

The movement decide additionally rejected Greta’s argument that Veresen needed to take numerous steps to guard its curiosity as an ROFR holder. Particularly, Veresen was not obliged to:

• Market and promote property individually: Veresen was allowed to market and promote its property en bloc. Within the absence of any categorical requirement within the language of the ROFR, Veresen was not required to solicit separate bids for every of the ROFR property.^[6]
• Problem Bluearth’s worth reallocation: Veresen was not obliged to problem the value reallocation of Bluearth. Veresen solely wanted to resolve if it might settle for the revised worth supplied by Bluearth.^[7] It was additionally not required to find out the reasonableness of the allocation between property.
• Decide the property’ honest market worth: The ROFR holder’s view of honest market worth of the property was not related. There “isn’t any appropriate worth for a ROFR, solely what the seller provides and the purchaser is keen to simply accept.”^[8]
• Disclose pricing discussions: Veresen was not obliged to reveal its discussions that led to the value reallocation.^[9]

The movement decide additionally dismissed Greta’s declare in opposition to the bidder, Bluearth. Bluearth didn’t owe an obligation to Greta within the bidding course of.^[10] It was in competitors with Greta. Whereas Bluearth’s bid construction discouraged Greta from exercising its ROFR, “there may be nothing nefarious about having a bid technique which may discourage the train of a ROFR as long as such a method was not unreasonable” (i.e., unhealthy religion worth manipulation).^[11]

Additionally, Bluearth had no obligation to justify its valuation^{[12]or disclose its worth discussions with Veresen.[13] Offered Bluearth was keen to shut at its provide worth, it may make any provide it wished to make.}

Enchantment determination

The Court docket of Enchantment upheld the movement decide’s determination. Considerably, the Court docket confirmed that Bluearth may construction its bid to discourage train of the ROFR, supplied the value allocation was a superb religion provide:

[29] …the dynamic between the ROFR holder and the third social gathering is a aggressive one: the respondents have been entitled to try to discourage the train of the ROFR and didn’t “eviscerate” the appellants’ rights. …^[14]