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Enron Mail |
Chris/Mary, I have a few comments:
1. To the extent that we are dealing with a BCA jurisduction, I am not sure the issue is so much the common law"indoor management rule" as the "natural person" powers of a BCA corporation. In other words, the doctrine of "ultra vires" does not apply to a BCA corpoartion, which can do anything that is not specifically restricted by the BCA, and generally speaking entering into physical or financial derivatives is not resticted. 2. The "indoor management rule" is also more relevant and generally incorporated in the applicable BCA (Section 18 of the ABCA, for example) and is subject to a qualification that we knew or, by virtue of our position or relationship, ought to have known that there was not proper corporate procedure followed by the counterparty. Our general practice has been, however, that for an ordinary course BCA, as we do not have such actual or imputed knowledge, we can reasonably rely on the "natural person" powers and assumed corporate authority. We also want to facilitate deal flow and avoid ourselves having to give numerous legal opinions. Accordingly, for a BCA we do not generally require legal opinions, and this would be a fundamental change to prctices and procedures. 3. If the entity is a non-BCA jurisdiction corporation, a statutory corporation (including a municipality or Crown corporation), a non-corporate entity, a regulated entity, etc., we have cause to be more concerned, not so much because of reasonableness defences to the common law "indoor management rule", but because of the the "ultra vires" doctrine (or similar-type defences). i.e. These types of entities generally do not have "natural person" person powers, and may only do that which is specifically authorized by the governing document, statute, agreement, etc. In other words, even if the transactions have been properly approved, or we are entitled to assume this is the case by the "indoor management rule", that does not save a transaction that is void for being "ultra vires". It is in these circumstances that we should be obtaining legal opinions. 4. As to enforceability, I think we are generally comfortable that, with proper corporate authority, the Masters and the Transactions are enforceable, and obtain reps. in the agreements to that effect. Accordingly, for similar reasons we avoid giving and do not ask for enforceability opinions for ordinary course trading transactions. I am copying Mark Taylor and Jeff Hodge to make sure that I am current on our polidy for legal opinions. From: Chris Gaffney on 01/25/2001 05:07 PM EST To: Mary Cook/HOU/ECT@ECT cc: Peter Keohane/CAL/ECT@ECT, Mark Powell/CAL/ECT@ECT Subject: Swap Question Mary - If you would like any further research on the matter, please let me know. Regards CJG ----- Forwarded by Chris Gaffney/TOR/ECT on 01/25/2001 05:14 PM ----- "Sellers, Ward" <wsellers@osler.com< 01/25/2001 05:01 PM To: "'Chris.Gaffney@enron.com'" <Chris.Gaffney@enron.com< cc: "Ponder, Dale" <dponder@osler.com< Subject: Swap Question Chris, I understand that Enron is contemplating entering into an ISDA agreement with a Canadian corporation that is wholly-owned by an Ontario pension plan. You have asked whether you need to get legal opinion as to authorization, execution, delivery and enforceability or can rely on the indoor management rule. While you have not asked for a formal legal opinion on this matter, I understand that you would like me to confirm the discussion you and I had on January 24, 2001 on this matter. The information set forth below is essentially what you and I discussed, however, since we talked I have received further input from on of my pensions partners, and which has led me to be slightly more conservative on the enforceability opinion point. In brief, Even when dealing with an ordinary Canadian corporation, it we generally recommend that our clients obtain a legal opinion from the counterparty as to capacity, authority, execution, delivery and enforceability as a matter of prudence and in order to minimize legal risk. Without the opinion you must rely on the indoor management rule, as enshrined in most of our corporate statutes, which is not 100% bullet-proof -- you would not be able to rely on the indoor management rule if you knew or ought to reasonably have known that the company or person did not have the purported authority to act. While it may be difficult for a counterparty to establish that the indoor management rule is not available in a given circumstance, it does reduce a company's legal risk to take this argument out of a plaintiff lawyer's hands by getting the opinion. You have informed me that on the basis of the foregoing, while a legal opinion may be desirable, you would not view it as strictly necessary, and while this is ultimately a decision based upon risk tolerance, as you are aware, it is not unusual for those entering into swaps with "ordinary" corporations to conclude that the risk in this area is more theoretical than practical and to not go to the extent of requiring a legal opinion to protect themselves. An additional issue, however, is whether the ownership of the corporation by a pension fund raises any additional reasons to obtain a legal opinion. I am not aware of any cases on this point, and our pension rules have recently been amended to regulate indirect and direct investments -- accordingly, this is a case which is to a great degree an issue of first instance. However, my views are: * as to capacity, authority, execution and delivery, the principles relating to the sanctity of the corporate veil should prevail and it would be an unusual result if the fact that the shares of the corporate entity are owned by a pension fund adversely affected the indoor management rule: accordingly, obtaining a legal opinion on these matters should not be more desirable when entering into a swap agreement with a company which is owned by a pension plan than when entering into such a contract with a company which is not; * the status of enforceability is less certain since there may be a number of additional factors which become relevant in assessing enforceability, and while it would be somewhat of a surprise if the rules governing the pension fund would taint the enforceability of a contract entered into by a wholly-owned subsidiary thereof, I can not tell you that enforceability would not be adversely affected: accordingly, an opinion as to enforceability may be more desirable when entering into a swap agreement with a company which is owned by a pension plan than when entering into such a contract with a company which is not. . Please do not hesitate to contact me if you have any questions on the foregoing or if you require any further information. E.A. (Ward) Sellers Osler, Hoskin & Harcourt LLP tel: (416) 862-4226 fax (416) 862-6666 e-mail: wsellers@osler.com Click to add my contact info to your organizer: http://my.infotriever.com/wsellers *********************************************************************** This e-mail message is privileged, confidential and subject to copyright. Any unauthorized use or disclosure is prohibited. ***********************************************************************
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