Court rejects Sprott appeal

The Ontario Court of Appeal has upheld a lower court ruling finding that shareholder advisory firm, Kingsdale Partners LP, was entitled to its fees from Sprott Asset Management LP in connection with Sprott’s efforts to take over Central Fund of Canada Ltd. (CFC). The deal proceeded after Sprott shifted from a hostile approach that it pursued with Kingsdale’s help to a friendly bid.

Last May, the Superior Court of Justice ruled in favour of Kingsdale, which sued Sprott over unpaid fees from an advisory engagement that began in 2015 when the fund manager hired Kingsdale to provide strategic advice on a planned effort to gain control of CFC.

That contract included a “success fee” which defined success as Sprott taking over CFC, which happened in early 2018 — but not until Sprott abandoned the hostile takeover strategy that it initially used with Kingsdale’s help, and shifted to a friendly approach on its own.

The firms then disagreed about whether Sprott was required to pay the success fee stipulated in the original contract, and that dispute ultimately went to court, with Kingsdale emerging victorious.

Among other things, the lower court found that the contract was still in force when Sprott acquired CFC, that the contract wasn’t limited to one strategy to achieve Sprott’s goal of taking control of CFC, and that the deal Sprott reached triggered the success fee.

As a result, the court awarded Kingsdale its success fee of US$4.6 million, plus another $75,000 unpaid fee and $475,000 in costs.

Sprott then appealed the decision, arguing that the trial judge made several legal errors — including, failing to consider the contract as a whole, considering an earlier draft of the contract and interpreting the agreement in a “commercially unreasonable” manner.

However, the appeal court declined to overturn the lower court’s ruling, noting that it didn’t find any errors of law, or errors of mixed fact and law.

“The trial judge understood that the services Kingsdale actually rendered were limited to hostile takeover strategies but recognized, quite reasonably on the evidence, that there was a causal link between the work Kingsdale did in 2015 and the ultimate consensual purchase,” the court said in rejecting the appeal.

“The trial judge’s decision is … entitled to deference, even if we find the interpretation advanced by Sprott to be reasonable or even preferable,” it also noted.

The court dismissed the appeal, and also declined to interfere with the trial judge’s decision to award $475,000 in costs to Kingsdale. And, it awarded an additional $47,000 in costs to Kingsdale for the appeal.