On August 13, 2020, the Supreme Court of Canada (the SCC) dismissed the application for leave to appeal in the case of Carlock v ExxonMobil Canada Holdings ULC (Carlock), indicating that the negotiated deal price in a transaction between well-informed, sophisticated, arms-length parties that is the result of a vigorous sale process provides strong objective evidence of fair value in appraisal proceedings before Canadian courts. This aligns with the recent U.S. decision in DFC Global Corp. v Muirfield Value Partners, LP, where the Delaware Supreme Court strongly endorsed deal price as often “the best evidence of fair value” under the Delaware appraisal remedy, particularly in situations involving an arm’s length public company merger resulting from a robust sale process.


InterOil Corporation (InterOil) was a Yukon corporation whose shares were widely held and publicly traded on the New York Stock Exchange. On July 21, 2016, InterOil entered into an arrangement agreement (the Initial Arrangement) to sell all of its issued and outstanding common shares to ExxonMobil Canada Holdings ULC (Exxon) for US$45 per share plus a contingent resource payment (CRP). The Initial Arrangement was approved at a special meeting of InterOil’s shareholders and subsequently approved by the Yukon Supreme Court (the Trial Court) under section 195 of the Yukon Business Corporations Act (the YBCA). The Yukon Court of Appeal (the Appeal Court) reversed this decision, pointing to several “red flags” which negated the Trial Court’s finding that the Initial Arrangement was “fair and reasonable”: the absence of a fairness opinion from an independent expert, the fact the CEO was in a position of conflict, the probability the “independent” special committee was not independent of management and the lack of “necessity” for the deal.

Following the Appeal Court’s judgment of the Initial Arrangement, InterOil and Exxon entered into a new arrangement agreement (the New Arrangement). The New Arrangement was based on fresh disclosure, but the deal terms only changed slightly from the Initial Arrangement, as the price per share payable by Exxon remained the same and the CRP increased marginally. At the new InterOil shareholder vote, over 90% of the shareholders approved the New Arrangement. However, a very small minority of shareholders holding less than 0.5% of the shares exercised their dissent rights, pursuant to section 193 of the YBCA, to receive the “fair value” of the shares being acquired by Exxon.

This dissent gave rise to Carlock, where the Trial Court held in favour of the dissenting shareholders and found that the New Arrangement did not reflect fair value.

Trial Court

In his decision, Chief Justice Veale asserted that although a revised corporate governance process was employed by InterOil in the New Arrangement in order to establish a fair and reasonable transaction, he could not give any weight to the transaction price, which had not changed from the Initial Arrangement: “the transaction price, borne of a flawed process, cannot be resurrected as the ‘fair value’ as defined by the experts.” In the alternative, Chief Justice Veale accepted the discounted cash flow (DCF) method presented by expert testimony and ordered that the dissenting shareholders were entitled to be paid a “fair value” of US$71.46 per share, markedly higher than the US$49.98 per share paid by Exxon in the New Arrangement.

Exxon appealed this decision to the Appeal Court.

Appeal Court

The Appeal Court allowed the appeal and re-set the price of the dissenting shareholders’ shares to US$49.98 per share.

The Appeal Court held that Chief Justice Veale erred in his determination that the Appeal Court’s previous judgment setting aside the First Arrangement precluded him from effectively giving any weight to the transaction price in assessing the fair value of the shares. The governance issues that had impacted the First Arrangement had been rectified, InterOil’s board of directors re-evaluated the fairness and reasonableness of the transaction and the shareholders were provided with fresh disclosure necessary to properly evaluate the proposed transaction. As such, the Chief Justice mistakenly accepted the DCF analysis presented by the expert witness: there was no evidence that a prospective purchaser was willing to pay such price and the theoretical DCF analysis conflicted with the substantive objective market evidence that supported a fair transaction price.

The Appeal Court highlighted a number of market factors which supported a “fair value” transaction price of US$49.98 per share:

  • The transaction price reflected a negotiated price in a competitive market consisting of well‑informed and sophisticated parties.
  • There was no indication that any other process could have led to a higher price.
  • All potential purchasers or partial investors were fully informed.
  • There was no impediment to other potential purchasers outbidding Exxon.
  • The deal price was at a substantial premium to the pre‑deal stock price.
  • The shares were widely traded and held by large and sophisticated investors, expert in assessing value, none of whom dissented.
  • Share value was driven by an asset in the early stages of development, the future prospects of which were highly uncertain.
  • Theoretical derivations of value were rife with uncertainty and speculation.

In addition to the objective market factors listed above, the Court noted the following with respect to assessing of “fair value”:

  • A purchaser’s subjective internal valuation is not evidence of market value, rather it is simply evidence of value to that unique buyer. The fact a purchaser might have been prepared to pay more is not important since the purchaser is required only to pay the market price.
  • The lack of an auction and/or a “no shop” provision does not mean the transaction price did not reflect fair value.

Interestingly, the Court further remarked that acquiring all of InterOil at US$71.46 per share would have cost Exxon over US$1 billion more than it paid, implying that Exxon underpaid by US$1 billion: “[i]t is simply unreasonable, given the number of parties interested in a whole company transaction, and the number and sophistication of InterOil’s shareholders, that $1 billion in value was left on the table.”


The SCC’s dismissal of the leave application in Carlock leaves undisturbed an appellate level judgment in Canada that aligns with current Delaware jurisprudence and delivers much needed guidance on the issue in Canada. This outcome should be very reassuring to dealmakers in Canada, particularly to those engaging in transactions where dissent rights are available, as such parties can expect a court hearing an appraisal proceeding to give substantial weight to objective market factors when determining the fair value of the dissenting shareholders’ shares: namely, that the deal price in a transaction negotiated between well-informed, sophisticated, arms-length parties that is the result of a vigorous sale process should provide strong objective evidence of fair value.

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