An integrated nickel-mining public company (“Falconbridge”), entered into merger agreements with a more junior public company (“Diamond Fields”) which, through a 75%-owned subsidiary, held a valuable deposit at Voisey’s Bay in Newfoundland. The merger agreements provided for the immediate payment by Diamond Fields of a “Commitment Fee” of $28.2 million, and for the payment of a break fee of $73.3 million (calculated to bring the total of the two fees (the “Fees”) to 2.5% of the transaction value) on the completion by Diamond Fields of any competing offer. This occurred – the offer of another public company (“Inco” – the 25% minority shareholder) was accepted by the Diamond Fields shareholders, thereby triggering the payment by Diamond Fields of the break fee.
Woods JA concluded that the fees (less a reduction for bid-related expenses pursuant to s. 12(1)(x)(vii)) were required by s. 12(1)(x) to be included in computing Falconbridge’s income from a business or property. Among other findings:
- “Diamond Fields paid the Fees in order to entice Falconbridge to make an offer pursuant to the merger arrangements” so that it was “reasonable to consider that the Fees were received by Falconbridge as an inducement for the purposes of s. 12(1)(x)” (para. 61 – and in this regard “the evidence as to Falconbridge’s motivation to negotiate a fee (i.e., to deter another bidder and to earn a profit if the bid failed) is not relevant to this issue” (para. 63); and
- “The Fees were linked to Falconbridge’s operations as a nickel mining company”, which “required access to ore deposits” so that they were received “in the course of” those activities (a phrase which was essentially equated with "in connection with") (para. 70); furthermore, “the Fees were linked to an acquisition of shares that had the capacity to produce property income” so that they were “also received in the course of earning income from property” (para. 71).