Executive Summary: Key Legal and Evidentiary Issues

• Interpretation dispute over whether “HSR Approval” included the expiration of a timing agreement or only the statutory waiting periods under the HSR Act.

• Core issue was whether the Reverse Termination Fee was payable due to failure to obtain both the Competition Act Approval and HSR Approval by the Outside Date.

• Trial judge relied heavily on subjective intent and negotiation history, which was found to improperly influence the interpretation of contract terms.

• Appeal court concluded that the trial judge's reading of HSR Approval improperly incorporated elements of U.S. regulatory challenge procedures not stated in the definition.

• The agreement distinctly separated HSR Approval from broader “Regulatory Approvals” that encompass legal barriers such as injunctions.

• Alberta Court of Appeal found the trial judge committed a palpable and overriding error, reversed the $25 million award, and dismissed Canexus’s claim.

Background of the transaction

In October 2015, Superior Plus Corporation and Canexus Corporation entered into an agreement for Superior to acquire all of Canexus’s shares through a plan of arrangement. Both companies operated in the specialty chemicals market and recognized from the beginning that they would require antitrust and competition approvals in both Canada and the United States to complete the transaction. The deal ultimately failed, and Canexus was later acquired by Chemtrade Electrochem Inc. Litigation ensued over the obligation to pay a Reverse Termination Fee under the agreement.

Regulatory context and agreement terms

The agreement included a Reverse Termination Fee of $25 million, payable if the Competition Act Approval and the HSR Approval were not obtained on or prior to the Outside Date. Competition Act Approval referred to either an advance ruling certificate or the expiration of the statutory waiting period combined with a No Action Letter under Canadian law. HSR Approval was defined as “the expiration or early termination of any waiting period, and any extension thereof” under the U.S. Hart-Scott-Rodino Act.

The Outside Date was originally March 31, 2016, extended to June 29, 2016. The parties submitted filings on October 21, 2015. On November 20, 2015, the FTC issued a Second Request. A timing agreement was signed in January 2016 to delay certification of substantial compliance until at least February 5, 2016. Both parties certified substantial compliance by February 12, 2016. Despite continued negotiations and remedy proposals, the FTC obtained a temporary restraining order and preliminary injunction on June 28, 2016, barring the deal from closing.

Trial decision

The trial judge concluded that HSR Approval had not been obtained, interpreting the term in light of surrounding circumstances and concluding it encompassed a need for the absence of regulatory objection. This interpretation led to a decision that Superior owed Canexus the $25 million Reverse Termination Fee.

Appellate ruling and reasoning

The Alberta Court of Appeal reversed the trial decision. It found the trial judge’s interpretation unreasonable, noting that she allowed subjective evidence, including negotiation history and perceived intent, to override the plain language of the agreement. The appellate court emphasized that HSR Approval, as defined, related only to the expiration or early termination of waiting periods under the HSR Act—not to broader legal or regulatory outcomes such as FTC court actions.

The court concluded that HSR Approval occurred on June 28, 2016, when the timing agreement expired, and since Competition Act Approval was undisputedly obtained, the condition for the Reverse Termination Fee was not met. It rejected the trial judge’s expansion of HSR Approval to include lack of FTC challenge and clarified that such challenges fell under “Regulatory Approvals” and not HSR Approval.

Outcome

The Alberta Court of Appeal allowed the appeal, set aside the $25 million trial judgment in favor of Canexus, and dismissed its claim for the Reverse Termination Fee. The trial judgment dismissing Superior’s counterclaim was not disturbed.