Securities Law & Instruments

Headnote

Mutual Reliance Review System for Exemptive Relief Applications -- part-time non-executive chair of 'affiliated entity' of issuer deemed to have a 'material relationship' with issuer and therefore is precluded from being member of audit committee of issuer -- exemption granted to part-time non-executive chair of 'affiliated entity' in respect of provision of legislation that deems individual to have 'material relationship' with issuer by virtue of being an 'affiliated entity' of issuer -- subject to conditions including that individual only occupy positions on part-time basis.

Applicable Ontario Rules

Multilateral Instrument 52-110 Audit Committees, s. 1.5 and 8.1.

Mutual Reliance Review System for Exemptive Relief Applications.

September 28, 2005

IN THE MATTER OF

THE SECURITIES LEGISLATION OF

ALBERTA, SASKATCHEWAN, MANITOBA,

ONTARIO, QUÉBEC, NEW BRUNSWICK, NOVA SCOTIA,

NEWFOUNDLAND AND LABRADOR

AND NORTHWEST TERRITORIES

AND

IN THE MATTER OF

THE MUTUAL RELIANCE REVIEW SYSTEM

FOR EXEMPTIVE RELIEF APPLICATIONS

AND

IN THE MATTER OF

MORGUARD CORPORATION (the "Filer")

 

MRRS DECISION DOCUMENT

Background

The local securities regulatory authority or regulator (the "Decision Maker") in each of Alberta, Saskatchewan, Manitoba, Ontario, Québec, New Brunswick, Nova Scotia, Newfoundland and Labrador and Northwest Territories (the "Jurisdictions") has received an application from the Filer for a decision under the securities legislation of the Jurisdictions (the "Legislation") that an exemption from the independence requirements of Multilateral Instrument 52-110 -- Audit Committees ("MI 52-110") be granted in respect of Mr. David King ("King") to permit King to serve on the audit committee of the board of directors of the Filer (the "Requested Relief").

Under the Mutual Reliance Review System for Exemptive Relief Applications (the "MRRS"):

(a) the Ontario Securities Commission is the principal regulator for this application; and

(b) this MRRS decision document evidences the decision of each Decision Maker.

Interpretation

Unless otherwise defined herein, the terms herein have the meaning set out in National Instrument 14-101 Definitions.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer is a reporting issuer under the Securities Act (Ontario) (the "Act"). The Filer is also a reporting issuer or equivalent in each of British Columbia, Alberta, Saskatchewan, Québec, Manitoba, New Brunswick, Nova Scotia and Newfoundland and Labrador. The common shares of the Filer are listed and posted for trading on the Toronto Stock Exchange (the "TSX").

2. The Filer owns 49.65 percent of the units of Morguard Real Estate Investment Trust (the "REIT"). The REIT is a reporting issuer under the Act. The REIT is also a reporting issuer or equivalent in each of British Columbia, Alberta, Saskatchewan, Manitoba, Québec, New Brunswick, Nova Scotia and Newfoundland and Labrador. The units of the REIT are listed and posted for trading on the TSX.

3. King is a director of the Filer. The Filer believes, after due inquiry, that King is an independent director under the applicable tests in National Instrument 58-101 -- Disclosure of Corporate Governance Practices ("NI 58-101").

4. King is also a trustee and is the non-executive Chair of the trustees of the REIT. King occupies the position of non-executive Chair of the REIT on a part-time basis.

5. The REIT believes, after due inquiry, that King is an independent trustee under the applicable tests in NI 58-101.

6. Under the provisions of MI 52-110, Mr King is an "executive officer" of the REIT and the REIT is an "affiliated entity" of the Filer. Accordingly, King is an "executive officer" of an "affiliated entity" of the Filer. As such, King is an "affiliated entity" of the Filer.

7. Under subsection 1.5(1)(b) of MI 52-110, King is considered to have a material relationship with the Filer and therefore is not independent of the Filer for the purposes of MI 52-110. Accordingly, King is not eligible to be a member of the audit committee of the board of directors of the Filer.

8. Section 3.3 of MI 52-110 provides an exemption from the independence requirement for audit committee members in limited circumstances. As the REIT has its securities trading on a marketplace, this exemption from the independence requirement is unavailable in respect of King.

9. Section 1.4 of MI 52-110 contains tests for independence as well as certain exemptions from the independence requirements, particularly in respect of an individual who acts, or has previously acted, as a chair or vice-chair of the board of directors or of any board committee of the issuer on a part-time basis.

10. Section 1.5 contains further tests in respect of certain additional independence requirements; however, this section does not provide a comparable exemption in respect of subsection 1.5(1)(b) for individuals who are affiliated entities of the issuer or any of its subsidiary entities in virtue of acting, or previously acting, as a chair or vice-chair of the board of directors or of any board committee of the issuer or subsidiary of the issuer on a part-time basis.

11. The Filer does not believe that there are legitimate policy reasons for deeming an individual to have a material relationship with an issuer solely because the individual is an affiliated entity of the issuer or any of its subsidiary entities by virtue of the individual acting, or previously acting, as a chair or vice-chair of the board of directors or of any board committee of the issuer or a subsidiary of the issuer on a part-time basis.

Decision

Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met.

The decision of the Decision Makers under the Legislation is that the Requested Relief is granted provided that:

i) in respect of the REIT, King occupies, on a part-time basis, the position of non-executive chair or non-executive vice-chair of the board of trustees or of any board committee of the REIT; and

ii) for the purposes of MI 52-110, King is and remains otherwise independent of Morguard Corporation.

"Charlie MacCready"
Assistant Manager, Corporate Finance
Ontario Securities Commission