The Catalyst Capital Group Inc. ("Catalyst"), Canada's second-largest independent private equity firm, today welcomed the recent decision by the Court of Appeal for Ontario overturning a lower court’s decision and restoring a critical aspect of procedural justice in relation to its defamation claim against West Face Capital Inc. (“West Face”) and Veritas Investment Research Corporation (“Veritas”). The Court of Appeal’s decision allows Catalyst and Callidus Capital Corporation (TSX:CBL) (“Callidus”) to fully examine and explore the particulars of the pleaded scheme among West Face and Veritas as part of a short-selling strategy.

Catalyst has put its faith in the judiciary and appreciates that its claims and appeals are heard fairly and that various judgments will expose the truth of West Face’s actions, character and values. Catalyst also believes that West Face has made a concerted effort across each of the Catalyst claims to restrict Catalyst's ability to have full discovery of evidence relevant to the allegations made against West Face. Catalyst asks the simple question of West Face: what do you have to hide?

While Catalyst would have preferred to let the Court record speak for itself, the fact that West Face issued a press release calling the decision by the Court of Appeal for Ontario a “procedural matter” requires clarification.

Consider the following statements from the recent decision by the Court of Appeal for Ontario:

  • “First, this is not a case where the impugned pleading, read as a whole, is impermissibly vague, leaving West Face in the dark and unable to respond to the allegations of publication, albeit the third parties to whom publication is said to have been made remain unnamed.”
  • “West Face knows that it has to respond to an already properly pleaded case against it in defamation {including the allegation of publication to named persons). West Face knows that that properly pleaded case, and the allegation of additional publication by it to unnamed third parties, are made in the context of an alleged plan by it to work together with its co-defendant, Veritas, to publish separate reports to market participants in order to drive the price of Callidus' shares downwards thereby enhancing West Face's short selling scheme.”
  • “West Face knows how and to whom it published its own report (the West Face Report) - those actions being a necessary part of the scheme. And West Face knows the time-frame within which the allegedly defamatory statements are said to have been made.”
  • “I do not see how West Face could legitimately (emphasis added) expect to engage in a campaign designed to discredit the appellant's reputations in the eyes of market participants by circulating the aforementioned Reports (assuming that is proved at trial) and at the same time legitimately expect to escape liability simply because the appellants are unable to name all recipients of the allegedly defamatory material.”
  • “The appellants' claims based in civil conspiracy and intentional interference with economic relations remain in place. Both claims are rooted in the allegation that the appellants suffered damages as a result of West Face's and Veritas' scheme to publish defamatory statements about Callidus by "deceiving market participants into believing that a negative consensus was building regarding Callidus" and "by inducing market participants to sell their Callidus shares and/or lower their estimates of Callidus' future performance". Both claims will be subject to the discovery process. With respect to both it will be open to the plaintiff appellants to seek information about the nature of the publication of the West Face and Veritas reports and about the identity of the recipients.”
  • “The Statement of Claim, read generously and as a whole, alleges material facts disclosing publication to unnamed third persons. Viewed in this overall context, the pleading that West Face distributed the allegedly defamatory statements to third party market participants, the identities of which are known to West Face, should stand.”

On June 18, 2015, Catalyst and Callidus filed a Statement of Claim in the Ontario Superior Court of Justice against West Face and Veritas for conspiracy to publish defamatory statements about Callidus and for intentional interference with the economic relations of Callidus and Catalyst, as well as for defamation in relation to both Catalyst and Callidus.

The Ontario Superior Court of Justice decided that Catalyst and Callidus had in all respects pleaded a prima facie case against West Face and Veritas in the claim, including a prima facie case of defamation based on publication of the West Face and Veritas research reports concerning Callidus to named persons. The issue before the Court of Appeal for Ontario, in the appeal heard on September 20, 2016, was whether Catalyst and Callidus should be permitted, additionally, to plead defamation in relation to publication to persons unknown to them but known only to West Face in the circumstances.

The full Statement of Claim and related filings are available through the Ontario Superior Court of Justice in Court File No. CV-15-530726 and Court of Appeal File no. C61665. The decision can also be downloaded at http://catalystlitigation.com/wp-content/uploads/2017/02/Decision-of-Ontario-Court-of-Appeal-re-appeal-of-Akhtar-motion-decision-1-February-2017.pdf

About Catalyst:

The Catalyst Capital Group Inc., a private equity investment firm with more than $6 billion in assets under management founded in 2002, is a leader in operationally focused turnaround investing. The firm's mandate is to manufacture risk adjusted returns, in keeping with its philosophy of "we buy what we can build." Catalyst's Guiding Principles of investment excellence through operational involvement, superior analytics, attention to detail, intellectual curiosity, team and reputation are key to the firm's success. The Catalyst team collectively possesses more than 110 years of extensive experience in restructuring, credit markets and merchant and investment banking in Canada, the United States, Latin America and Europe.