Birch Hill – Ontario Superior Court of Justice refuses to rectify stock option transactions on the basis that the s. 110(1)(d) deduction was peripheral to the larger sale transaction

Ten executives who were denied the ½ s. 110(1)(d) deduction for their $17 million stock option benefit on the basis inter alia that they had sold the shares acquired by them on exercise of their options to a specified person (who on-sold to the arm’s length purchaser of the corporation, namely, Rogers), rather than directly to Rogers, were denied a rectification of the sales agreement to add them as parties to it and to provide for the transfer by them of their optioned shares directly to Rogers. Dunphy J found that there was “insufficient evidence… of an initial mutual ‘mistake’ as to a dominant or even important issue to the [sale] transaction itself,” noting that “I cannot characterize as a mistake a matter which was simply too insignificant to the parties to make its way on to the radar screen when they were negotiating their $425 million transaction.”

Although CRA did not contest the rectification application, it also took the position that the shares were not prescribed shares because the Board on liquidation had the discretion to establish a fixed liquidation amount for the shares, and reserved the right to maintain its denial of the s. 110(1)(d) deduction on this alternative basis . This was a further ground for denying rectification, i.e., the proposed “fix” might not be effective.

Neal Armstrong. Summaries of Birch Hill Equity Partners Management Inc. v Rogers Communications Inc., 2015 ONSC 7189, under General Concepts - Rectification and Reg. 6204(1)(a).