Jaguar Financial Corporation, Galway Metals Inc. and TSX Venture Exchange Inc. Securities Act, RSBC 1996, c Application

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1 Citation: 2014 BCSECCOM 440 Jaguar Financial Corporation, Galway Metals Inc. and TSX Venture Exchange Inc. Securities Act, RSBC 1996, c. 418 Application Panel Nigel P. Cave Vice Chair Christopher D. Farber Commissioner Audrey T. Ho Commissioner Date of hearing August 19 and 20, 2014 Date of ruling August 20, 2014 Date of reasons for ruling October 27, 2014 Appearing K. Michael Stephens K. Leung Mark L. Skwarok Melanie Harmer Carey Veinotte Leah Shepherd For Jaguar Financial Corporation For TSX Venture Exchange Inc. For Galway Metals Inc. Reasons for Ruling I. Introduction 1 This is a hearing and review under section 28 of the Securities Act, R.S.B.C. 1996, c.418, of a decision of the TSX Venture Exchange to approve a private placement of 6,600,000 units by Galway Metals Inc. at a price of $0.10 per unit for total proceeds of $660,000. Each unit comprised of one common share and one half of one common share purchase warrant exercisable for a period of three years at an exercise price of $0.15 per whole warrant share. 2 On August 19, 2014, we dismissed each of the following preliminary applications, with reasons to follow:

2 i) applications of the Exchange and Galway to deny the standing of Jaguar to make an application for a hearing and review of the decision; ii) an application of Jaguar to deny or limit the standing of the Exchange to respond to Jaguar s application for hearing and review of the decision; iii) an application of Jaguar to introduce evidence that was not part of the record associated with the decision. 3 On August 20, 2014 we issued an order confirming the decision of the Exchange with reasons to follow. 4 These are the reasons with respect to our decisions on the preliminary applications and the hearing and review. II. Background Facts 5 Galway s common shares are listed for trading on the Exchange. Prior to completion of the private placement, Jaguar was Galway s largest shareholder holding 7.7% of the outstanding common shares. Jaguar had been gradually acquiring its position in Galway through open market acquisitions since November, Following the private placement, Jaguar s interest in Galway was diluted to 6.8% of the outstanding common shares and the CEO of Galway increased his common share ownership from 5.8% to 15.5% (on a partially diluted basis). 6 Galway s March 31, 2014 press release announcing the private placement indicated that up to two-thirds of the offering would be made available to insiders of the company as an inducement for continued services. The press release further indicated that the proceeds of the offering were to be used for exploration expenditures, property acquisitions and for general working capital purposes. 7 Based on the most recent financial statements of Galway prior to the private placement, Galway had $11.3 million in cash with limited exploration and development and other related expenditure requirements. 8 Immediately following the issuance of the press release from Galway announcing the private placement, Jaguar contacted the Exchange to express its concerns about the offering. Broadly speaking, Jaguar advised the Exchange that they believed the offering to be an improper defensive tactic and that Galway s stated intent of offering its insiders a right to participate in the offering as an inducement for continued service was an inappropriate purpose for an offering. 9 In support of the later proposition, Jaguar pointed to Exchange Policy 4.1 section 1.16 which provides that the Exchange can reject a Private Placement if the notice does not provide adequate information on the allocation of funds or if the unallocated funds are excessive. 2

3 10 On April 4, 2014, the Exchange contacted Galway with respect to its notification to the Exchange of the offering. The Exchange asked questions of Galway relating to: the placement of securities with insiders; whether a new control person would be created by the offering; and whether Galway was aware of any current takeover bids. 11 Galway responded to this letter by confirming that: the offering to insiders was not part of any other management incentive program; the offering would not create a new control person; they were not aware of any current takeover bid; and that the offering was not a defensive takeover bid tactic. 12 On April 10, 2014, the Exchange responded to the communications from Jaguar and indicated that it was looking into its complaint. It also asked Jaguar a number of questions including: whether Jaguar was aware of the creation of a new control person as a result of the offering; if Jaguar was negotiating with Galway regarding a takeover bid; and if Jaguar was aware of any third parties that were intending to launch a takeover bid in respect of Galway common shares. 13 On April 10, 2014, the Exchange posed further questions of Galway concerning: the reasons for the offering and use of proceeds; Galway s knowledge (if any) of Jaguar s purchases of shares; and why the insiders did not purchase additional Galway shares in the open market. 14 Galway responded to those questions on the same day. Galway provided the Exchange with a more detailed use of proceeds and confirmed that Galway was not aware of Jaguar s acquisition of Galway common shares prior to announcing the private placement. 15 On April 11, 2014, Jaguar responded to the Exchange. It indicated that it was not aware of any change of control arising from the offering but suggested that the Exchange ask that question of Galway. It also indicated that it was not aware of any imminent takeover bids in respect of Galway common shares. However, it indicated that it believed the offering to be a defensive tactic as Jaguar had accumulated its share position in Galway during the previous six months through open market transactions; acquisitions that Jaguar says would have caught the attention of Galway s management and directors. The response further articulated Jaguar s view that the offering should be rejected under Exchange Policy 4.1 section The Exchange approved the private placement and it completed on April 16, As a result of the offering, the CEO of Galway increased his ownership in the company from 5.8% to 15.5% (on a partially diluted basis). 3

4 17 Following Jaguar s application to the Commission on May 8, 2014 for a hearing and review, the Exchange indicated that that application included financial information in respect of Galway that was not part of the record of the original decision of the Exchange in respect of the private placement. The Exchange then reviewed this further information and confirmed its original decision. III. Preliminary Applications A. Standing of Jaguar 18 The Exchange and Galway objected to Jaguar s application for a hearing and review, arguing that Jaguar did not have standing to make the application. We note that Galway s submissions essentially mirrored those of the Exchange on this preliminary application and hence we have not set those out separately below. 19 Jaguar applied for a hearing and review under both sections 27 and 28 of the Act. As noted below, we determined that Jaguar did have standing to bring the application under section 28 and therefore we did not consider the question of Jaguar s standing to bring an application under section Section 28(1) of the Act provides: 28.(1) The executive director or a person directly affected by a direction, decision, order or ruling made under a bylaw, rule or other regulatory instrument or policy of a self regulatory body, an exchange, a quotation and trade reporting system, or a clearing agency may apply by notice to the commission for a hearing and review of the matter under Part 19, and section 165(3) to (8) applies. As is evident from the wording of section 28, the issue on this preliminary application is whether Jaguar was directly affected by the Exchange s decision to approve the private placement. 21 The Exchange argues that directly affected must be interpreted narrowly and that a shareholder who is only incidentally affected by a decision does not qualify for standing under section 28(1). The Exchange cites this Commission s decision in Marvin Meier et al., [1999] 18 B.C.S.C.W.S. 62 at p.4 (WL) as support for this proposition. Further, the Exchange argued that dilution of share ownership in an issuer, at least in the magnitude experienced by Jaguar, is not sufficient to establish that a party was directly affected by a decision to approve a financing. Otherwise, it says, any shareholder of a listed issuer engaged in a financing could challenge a decision of the Exchange to approve that financing, as offerings are, by their nature, dilutive. 4

5 22 Jaguar did not significantly disagree with the Exchange s articulation of the legal test for determining when someone is directly affected. It says that a person is directly affected when it is either a party to the proceedings that led to the decision or is someone who is directly affected, rather than incidentally affected, by the decision or order. 23 Jaguar says that is was a party to the proceedings before the Exchange as it was the complainant and part of the review process conducted by the Exchange. Jaguar cites Global Securities Corp. V. British Columbia (Executive Director, Securities Commission), 2006 BCCA 404 (affirming 2005 BCSECCOM 573) as support for this position. In addition, it argues that it was directly affected by the Exchange decision due to its dilution and due to its replacement as the largest shareholder in Galway by an insider or insiders who had substantially increased their ownership position through the offering. 24 We do not agree with Jaguar that it was a party to the proceedings that led to the Exchange s decision. There is a significant difference between our facts and those in Global Securities. In that case, the Exchange was applying for standing under section 28 of the Act. The Exchange had been a party in a disciplinary hearing conducted by an independent hearing panel of the Exchange. In Global Securities there very clearly was a prior, contested proceeding. There is a material difference between a complainant who has their concerns reviewed and a party to a formal contested proceeding. The logical conclusion to Jaguar s argument is that anyone (whether a shareholder or not) who filed a complaint, and had that complaint considered by the Exchange, would have standing to apply for a hearing and review of an Exchange decision. This would interpret directly affected too broadly. 25 We do agree with the Exchange that relatively de minimus dilution of a share ownership position, in and of itself, would be insufficient to establish that a person was directly affected by an Exchange decision. However, in this case, there is more to Jaguar s situation than being a mere shareholder of Galway. There are a number of differentiating factors applicable to Jaguar and Galway that result in Jaguar being directly affected by the Exchange decision. Jaguar was the largest shareholder in Galway; a shareholder who went from being the largest shareholder in the issuer to one whose share position is now outstripped on a 2:1 basis by the issuer s CEO. The voting dynamics in Galway have been materially changed, to the detriment of Jaguar, as a result of the offering. The voting dynamics have been materially changed because there were no other large shareholders in Galway (Jaguar had been the largest shareholder pre-private placement) and the new largest shareholder is an insider (by virtue of being a director and the CEO of the company). 5

6 26 The facts in this case are most analogous to those found in In the Matter of Canada Malting Co. Limited (1986), 9 O.S.C.B That case involved an application by minority shareholders for a hearing and review of a decision by The Toronto Stock Exchange pursuant to By-Law to approve the offering of shares to a listed issuer s two largest shareholders. In granting standing to the applicants under the equivalent to our section 28, the Ontario Securities Commission had this to say: Those whose rights or economic interests have been affected by decisions of the TSE under By-Law are, in our view, persons who are directly affected by a decision of the TSE. If minority shareholders in a company that is asking for approval under By-Law are not affected when their company is making a large share issuance to major shareholders in which they are not invited to participate, then it is hard to think of a case in which shareholders would be directly affected. To accede to the position of counsel for Ogilvie would be, in effect, to write minority shareholders out of the appeal process of subsection 22(3). We do not believe that the subsection ought to be interpreted in so narrow a fashion. 27 Jaguar has been directly affected by the Exchange decision and therefore has standing under section 28 of the Act to apply for a hearing and review of that decision. This finding does not, as has been argued by the Exchange, open the door for hearings and reviews by every aggrieved shareholder for every transaction accepted by the Exchange. As we note in paragraph 25, there are differentiating factors here. B. Standing of the Exchange 28 Jaguar objected to the Exchange s participation in the hearing and review under what is known as the rule in Northwest Utilities (from the Supreme Court of Canada decision in Northwest Untilities Limited v. City of Edmonton, 1978 CanLII 17 (SCC), [ S.C.R. 684) namely that it would be unseemly for a tribunal to argue the merits of its own decision on appeal or review of that decision. 29 The law of decision-maker standing was summarized recently in British Columbia Lottery Corp. v. Skelton, 2013 BCSC 12 at para 44: Ordinarily, a tribunal s standing to participate in judicial review proceedings is limited to making submissions on or explaining the legislative scheme, the record of proceeding, the standard of review and questions of jurisdiction: Canadian Assn. of Industrial, Mechanical and Allied Workers, Local 14 v. Paccar of Canada Ltd., [1989] 2 S.C.R. 983, 62 D.L.R. (4 th ) 437. Allowing tribunals to defend the merits of their decision is generally considered unseemly and inappropriate: Henthorne v. British Columbia Ferry Services Inc., 2011 BCCA 476, 24 B.C.L.R. (5 th )

7 30 The Exchange argues that it is not a statutorily created administrative tribunal to whom the rule in Northwest Utilities applies. Further, they argue that the rules of this Commission allow for the Exchange s full participation. Lastly, the rule in Northwest Utilities must be applied contextually. Here, the decision to be reviewed was the application of an Exchange policy and not an adjudicative decision of the type to attract the application of the rule. 31 There can be no question of the Exchange s standing to participate in a hearing and review of an Exchange decision. Section 28(1) of the Act (set out above) provides that sections 165(3) to (8) apply to a hearing and review of this type. Section 165(8) states: (8) A self regulatory body or exchange is a party to a hearing and a review under this section of its decision. 32 Therefore the only question is whether the Exchange s role should somehow be limited in a hearing and review of its decision. 33 An independent tribunal, arbitrating a dispute between multiple parties and then subsequently taking sides in an appeal or review of that decision, is at the heart of the rule in Northwest Utilities. Here, the Exchange was not acting as a tribunal determining the rights and interests of contesting parties in the decision that is the subject of the review, rather, it was applying its own rules and policies to an application from Galway. That Jaguar complained to the Exchange and it considered that complaint does not turn the Exchange s role, in this case, into an arbitrator of rights and interests between Galway and Jaguar. 34 In addition, the vitality of the rule in Northwestern Utilities has been eroded to some extent over the passage of time, and is subject to some exceptions (see British Columbia (Securities Commission) v. Pacific International, 2002 BCCA 421; Henthorne v. British Columbia Ferry Services Inc., 2011 BCCA 476), including: a) where the question is whether the tribunal has made a patently unreasonable interpretation of the statutory right to be heard; b) where the tribunal is defending a long standing policy; and c) where there is no one else to argue the other side (see Skelton at paragraph 44 citing Timberwolf Log Trading Ltd. v. British Columbia (Commissioner Appointed Pursuant to s of the Forest Act), 2011 BCCA 70) 35 Exceptions a) and c) are applicable to this matter. 36 BC Policy Hearings establishes that the standard of review in a hearing and review of a decision by an SRO is one of reasonableness. 7

8 37 Where a decision from a specialized tribunal is reviewed based on a standard of reasonableness, the tribunal has been permitted to argue it has made a reasonable decision within its jurisdiction: The traditional basis for holding that a tribunal should not appear to defend the correctness of its decision has been the feeling that it is unseemly and inappropriate for it to put itself in that position. But when the issue becomes, as it does in relation to the patently unreasonable test, whether the decision was reasonable, there is a powerful policy reason in favour of permitting the tribunal to make submissions. That is, the tribunal is in the best position to draw the attention of the court to those considerations, rooted in the specialized jurisdiction or expertise of the tribunal, which may render reasonable what would otherwise appear unreasonable to someone not versed in the intricacies of the specialized area. In some cases, the parties to the dispute may not adequately place those considerations before the court, either because the parties do not perceive them or do not regard it as being in their interest to stress them. (Pacific International, citing BCGEU v. BC (1988) 26 BCLR (2d) 145 at 153 (CA)) This exception applies to the matter before us. 38 The applicability of this exception to the matter at hand makes imminent sense because if the Exchange was not permitted to speak to the reasonableness of its decision to allow the private placement, the Commission would be in the unfortunate situation of only having submissions from the issuer, and the disgruntled shareholder neither of which is in a position to argue how the Exchange should fulfill its mandate in the regulatory regime. As the Exchange points out in its submissions, had the private placement been denied, and Galway applied for a review, no one would appear on the other side if the Exchange did not have standing. 39 Finally, we agree with the submission by the Exchange that the rule in Northwestern Utilities must be considered contextually. The underlying decision in this case was not an adjudicative, or quasi-judicial one, as contemplated in Northwestern Utilities it was the exercise of the Exchange s discretion. The unseemliness guarded against by the rule in Northwest Utilities does not arise. 40 It is in the public interest to allow the involvement of the Exchange in a hearing and review of a decision made under a policy of the Exchange. The Exchange has been delegated authority by this Commission to oversee certain matters as reflected in its policies. It has been delegated that authority due to its expertise in these matters. We may take a different view of the public interest in the application of those policies but it would be inappropriate to limit participation in a hearing and review of a decision made under a policy by a body with expertise in the application of that policy. 8

9 41 The Exchange should have full standing on the hearing and review of its decision. C. Introduction of additional evidence 42 Jaguar applied to introduce evidence that was not part of the record into the hearing and review. This evidence was comprised of one piece of documentary evidence and the oral testimony of the CEO of Jaguar, as summarized by a detailed will say statement. 43 The documentary evidence comprised a table setting out the shareholdings of the insiders of Galway and a relative of the CEO. The purpose of the table was to show that, using a number of unsupported assumptions, the total shareholdings of these individuals could create a control person as defined under the Act. 44 The will say statement for the proposed testimony of the CEO of Jaguar included a review of the background to Jaguar s holdings in Galway, his opinion that the offering was really a defensive tactic, his opinion that there was sufficient liquidity in the Galway shares for insiders to acquire additional shares without the offering, his opinion that a new control person may have been formed through the offering and his communications with other Galway shareholders suggesting that they too were unhappy with the private placement. 45 Under Policy , in order for additional evidence to be introduced at a hearing and review it must be new and compelling. This Commission policy is reflective of the general administrative law jurisprudence on the test for introduction of additional evidence on a review or appeal of a decision. 46 However, Jaguar argued that in order to satisfy the Commission s public interest mandate in a review of an Exchange decision it needed to hear all material evidence. Further, it argued that one of the grounds of Jaguar s argument on the merits of its application was that the Exchange had failed to carry out a thorough investigation of all of the material facts. It says this additional evidence was necessary to show what could have been ascertained with a more thorough investigation. 47 We do not accept Jaguar s argument for a broad view of the admission of all material evidence (not in the record) on a hearing and review. The purpose of a hearing and review is not to carry out a trial de novo. The introduction of evidence that does not meet the new and compelling threshold would ultimately require, in almost all cases, a widespread rehearing of all of the evidence. This would not be in the public interest. There needs to be public confidence and certainty, subject to the narrow right of hearing and review, in the decisions of the Exchange under its delegated authority. 48 We also do not accept Jaguar s position that it was necessary to adduce additional evidence to establish that there were problems with the Exchange s investigation. That argument was advanced forcefully in Jaguar s submissions without the aid of additional evidence. 9

10 49 Counsel for Jaguar acknowledged that there was nothing new in the information in the documentary evidence. All of it was publicly available at the time of the decision or specifically part of the record. Further, the conclusion that the panel was asked to draw from the document, namely, the creation of a new control person, was based upon assumptions, without evidence to support them, and it was therefore not compelling. 50 A review of the detailed will say statement of the CEO of Jaguar suggested that much of the proposed testimony was opinion and supposition and not relevant facts. Secondly, of the proposed testimony that was factual, there was little that could be said to be new. Finally, of the testimony that was factual and new, none of it was material let alone compelling. 51 On the basis that the documentary evidence and the proposed testimony was not new and compelling, Jaguar s application to introduce new evidence was dismissed. IV. Arguments of the parties on the merits 52 In this case, Jaguar has argued that the Exchange made an error in law, overlooked material evidence and that we should take a different view of the public interest than the Exchange. 53 Jaguar argues that the Exchange erred in law or overlooked material evidence in that: a) Galway did not need the funds at the time of the offering and that the stated purpose for allowing insiders to participate as an inducement was inappropriate; b) the Exchange failed to reject the financing under Exchange Policy 4.1 section 1.16; and c) the true purpose of the offering was as an inappropriate defensive tactic to a perceived threat of a takeover bid. 54 Secondly, Jaguar argues that the Commission s public interest power in a hearing and review should include consideration of the quality of the investigation that led to the decision and, in this case, the Exchange s investigation was deficient, in that: a) the Exchange asked Galway questions that were too narrow about its knowledge of impending takeover bids; b) it failed to obtain documentation to support certain responses provided by Galway to questions asked by the Exchange; c) it failed to broadly enquire into shareholder support for the offering; and d) it failed to thoroughly investigate whether a new control person could have been created by the offering. 55 The Exchange argues that the standard of review is reasonableness and not a second opinion on the decision reached. In this case, they say that they conducted a thorough investigation 10

11 (both prior to the original decision and afterwards when Jaguar raised new financial information) into each of the concerns raised by Jaguar and did not determine that there were sufficient grounds to exercise their discretion to reject the private placement. They say their decision was reasonable and their investigation exemplary. 56 Galway similarly argues that Policy requires deference to the decisions of SROs by setting out limited, specific criteria for interfering with the decision of an SRO, including: error in law, overlooking of material evidence, new and compelling evidence is presented to the Commission or the Commission takes a different view of the public interest than the SRO. Galway says that Jaguar has not established that the decision was contrary to law, the evidence or the public interest. V. Analysis of the Merits 57 Policy sets the framework for this hearing and review. Galway s summary of its applicable provisions, as set out above, accurately reflects its contents. 58 This Commission recently reviewed those provisions in Re Mutual Fund Dealers Association, 2013 BCSECCOM 362 and stated at para 13: The role of the Commission in a hearing and review is not to provide a second opinion of an SRO decision. The onus is on the applicant on a hearing and review to both identify the criteria in s.5.9 of BCP that applies to the SRO s decision, and show that the decision is unreasonable as a result. If the Commission agrees that an SRO decision under review is unreasonable, it will consider whether to confirm or vary the decision, or make another decision is considers proper. On the other hand, if the Commission finds an SRO s decision reasonable, it will not interfere in it. 59 This standard of review suggests a deference to decisions of the Exchange. This deference is reflected in comments of this Commission in Re Nichols, 2007 BCSECCOM 319 at para 25: It is not enough for us to conclude that we disagree with the Exchange s decision or would have made a different decision ourselves. We should defer to the judgment of the Exchange unless its decision displays the type of error set out in the policy. 11

12 A. Error in Law 60 Jaguar argues that the Exchange made an error in law or applied the wrong principles in failing to exercise its discretion to reject the private placement. 61 Section 1.16 of Exchange Policy 4.1 says: The Exchange can reject a Private Placement if the Notice does not provide adequate information on the allocation of funds or if allocated funds are excessive. The amount that would be considered excessive will depend on the activities of the Issuer and is not subject to a stated standard. The following are examples of acceptable uses of proceeds: a) corporate overhead for a one year period; b) settlement of current debts (other than to the Placees); and c) a reserve for asset acquisition investigations. 62 During the oral argument, Jaguar initially argued that the error in law was in the Exchange s failing to even consider whether section 1.16 applied. However, Jaguar conceded that the Exchange had specifically considered the applicability of this provision. 63 In its written materials in support of its application Jaguar suggested that the errors in law were: a) Galway did not need the funds at the time of the offering and that the stated purpose for allowing insiders to participate as an inducement was inappropriate; b) the Exchange failed to reject the financing under Exchange Policy 4.1 section 1.16; and c) the true purpose of the offering was as an inappropriate defensive tactic to a perceived threat of a takeover bid. 64 No matter how the error in law argument is framed by Jaguar, we disagree that one has been made. Minutes of the Exchange s Listing Committee Meeting held on April 9, 2014, at which Galway s private placement was considered, clearly indicates that the Exchange considered the applicability of section It repeatedly asked both Galway and Jaguar for information and perspectives on the description of the offering as a management inducement, the use of proceeds and reasons for the offering. The Exchange asked both parties about their knowledge of current or imminent takeover bids. All of the suggested errors in law were issues that were fully considered by the Exchange. 12

13 65 There is no specific guidance in section 1.16 or in the Exchange rules and policies generally on the process to be followed in exercising a discretionary authority such as that found in section Frankly, we question whether a failure to exercise a discretionary power, after proper consideration, can constitute an error in law. No authority was cited with respect to this proposition. We do not conclude that the Exchange made an error in law. Jaguar also argued that we should take a different view of the public interest in how the Exchange s discretionary authority was exercised. We consider that issue below. B. Overlooked material evidence 66 Jaguar argues that the Exchange overlooked material evidence in reaching its decision. Here, Jaguar must point to the evidence that was part of the record that was overlooked. However, Jaguar does not set out any specific information that it says the Exchange failed to properly take into account. Rather, it points generally to the financial status of Galway at the time of the offering and says that the Exchange failed to take that information properly into account in determining that the funds raised in the offering were excessive under Policy 4.1 section Galway s financial situation was investigated by the Exchange prior to the offering and afterwards when Jaguar presented new information to the Exchange from Galway s subsequent filings of financial statements and related MD&A. The record clearly shows that the Exchange understood that Galway had significant cash at the time of the offering and that that cash was significantly in excess of Galway s annual overhead and committed legal obligations. The Exchange received a detailed summary of the proposed use of proceeds and existing Galway cash and would have seen that much of it was allocated to future unidentified asset acquisitions. 68 Nothing in the record suggests that the Exchange overlooked material information about Galway s financial information as it pertained to section In fact, it looks like it fully considered that information but that the Exchange and Jaguar have a difference of opinion about how that information should have been interpreted in the application of the discretionary authority of the Exchange to approve the offering. 69 We do not conclude that the Exchange overlooked any material information in the record. C. Review of the public interest 70 Jaguar advanced two grounds on which it says the Commission should take a different view of the public interest than that of the Exchange or should not confirm the decision of the Exchange in the public interest: 13

14 a) a private placement whose principal purpose is not to raise additional funds for the business purposes of the company but rather to allow insiders to acquire additional shares of the issuer, either as an inducement or as a defensive tactic, should not be approved as being contrary to the public interest; and b) a decision of the Exchange, based upon an incomplete investigation by the Exchange of various aspects or implications of the offering, should not be confirmed in the public interest. 71 Galway and the Exchange argue that all of the concerns raised by Jaguar about the following possible motivations for the financing: a) an improper management incentive; b) an improper defensive tactic; c) an improper use of proceeds; and d) a potential change of control of the issuer, were all properly considered by the Exchange. As for criticisms of its investigation of Jaguar s complaints, the Exchange says that, far from being deficient, it was exemplary. 72 Minutes of the Exchange s Listing Committee Meeting held on April 9, 2014, sets out the Exchange s view of the public interest, as it relates to the first issue raised by Jaguar: In general, the guidance provided in section 1.16 is considered by the Exchange at the time of the review of each private placement, however given the current market conditions and the profile of a mining exploration issuer, only extraordinary set of facts will result in the refusal of a private placement. It s very common to see a significant amount of unallocated funds for business opportunities (exploration program to be determined, possible acquisition) and since a mining exploration issuer does not have other source of funds than equity or debt financing (no revenue, no cash flow), a well-funded issuer with a large amount of unallocated funds is generally not deemed to be problematic. 73 The record also indicates that the Exchange then proceeded to question Galway about each of the concerns set out in paragraph 70 above and determined that none of those investigations raised extraordinary facts that should cause the Exchange to reject the financing. Galway specifically denied that the offering was done as a defensive tactic or would result in a change of control. Galway provided answers satisfactory to the Exchange regarding the management inducement concerns and the use of proceeds. 74 On a reasonableness test, not as a statement of whether we would or would not have reached the same determination, this assessment of the public interest by the Exchange is not unreasonable and should not be interfered with. 14

15 75 As noted above, Jaguar also says that we should, in the exercise of our public interest authority, interfere with the decision of the Exchange on the basis that the Exchange s investigation of Jaguar s concerns was not conducted thoroughly. Specifically, it says that the Exchange: a) only asked Galway if the intent of the financing was to dilute Jaguar, rather than asking if the intent was to dilute an unknown recent acquiror of Galway s shares (as the identity of Jaguar as the acquirer was unknown to the market at the time of the private placement); b) did not require Galway to produce supporting documentation to some of its answers to Exchange questions; c) failed to properly investigate Galway s assertion that major shareholders of the company were supportive of the transaction; and d) did not thoroughly investigate the question of whether a new control person could have been created via the offering. 76 Jaguar s first criticism is not accurate. On April 4, 2014, the Exchange asked Galway s counsel if the issuer was aware of any takeover bid or if the financing was a defensive takeover bid tactic. On the same day, Galway s counsel responded in writing, on behalf of their client, to confirm that Galway was not aware of any takeover bid and the offering was not a defensive takeover bid tactic. This question and answer was not specific to Jaguar. The Exchange, on April 7, 2014, did ask the same question with reference to Jaguar specifically (presumably in response to the letter from Jaguar asserting its belief that the offering was intended to dilute Jaguar) and received the same negative answer. There can be no complaint about this investigation. 77 Jaguar says that the Exchange should have asked for minutes of meetings of Galway s board of directors and other internal correspondence in support of answers provided by Galway in this investigation. 78 In effect, Jaguar says that the Exchange should have performed an audit of the responses given to it by Galway through counsel or directly. There may be circumstances where this would be appropriate. However, we see nothing unreasonable or deficient in the information gathering process that was followed by the Exchange in this case. It is clear from the record that the Exchange asked for more information from Galway in relation to certain aspects of its initial application. For example, the Exchange asked for additional information with respect to the management incentive programs of Galway and for a more detailed outline of the use of proceeds relative to Galway s cash on hand and the funds to be raised in the offering. The Exchange exercised its discretion with respect to what further information it required in order to make its decision and we do not see that as unreasonable or deficient. 15

16 79 Jaguar says that the Exchange should have consulted it with respect to whether major shareholders were supportive of Galway s offering. Firstly, there was no need to ask Jaguar this question; Jaguar s opposition was manifest from its complaint to the Exchange. Secondly, the question of major shareholder support or opposition to the offering was not and is not relevant to the decision or this hearing and review. Shareholder perspectives on the offering are only relevant if the matter requires shareholder approval. The Exchange determined that shareholder approval was not required for the transaction under its policies. We do not see this as unreasonable or deficient. 80 Finally, Jaguar says that the Exchange did not thoroughly investigate whether a new control person was created via the offering. One question on the Form 4B filed by Galway, notifying the Exchange of the offering, is whether a new control person will be created via the private placement. This form is certified by an officer of the issuer. The question was answered in the negative. The Exchange asked Galway for additional information on shareholdings described in the Form 4B. The Exchange clearly turned its mind to this issue. 81 In conclusion, we do not see that the Exchange s process in gathering information to reach its decision was unreasonable or conducted in a manner that should cause us to exercise our public interest jurisdiction to interfere with the decision. We dismissed the application. 82 October 27, For the Commission Nigel P. Cave Vice Chair Audrey T. Ho Commissioner Christopher D. Farber Commissioner 16