FNF Canada Company & Fidelity National Financial Inc. Applicant v. Attorney General of Canada Respondent LIBRARY HEADING Judge : The Honourable Justice C. Richard Coughlan Subject: Company Law - Rectification of Corporate Documents Summary: Applicants apply for an Order permitting the rectification of the share register of FNF to reflect issuance of common shares to Fidelity National retroactive to October 2003 v. the redemption of sufficient common shares to allow cer, 2012 NSSC 217

SUPREME COURT OF NOVA SCOTIA Citation : FNF Canada Company v. Canada (Attorney General), 2012 NSSC 217 Date: 20120611 Docket: SH 358290 Registry: Halifax Between: FNF Canada Company & Fidelity National Financial Inc. Applicant v. Attorney General of Canada Respondent LIBRARY HEADING Judge : The Honourable Justice C. Richard Coughlan Subject: Company Law - Rectification of Corporate Documents

Summary: Applicants apply for an Order permitting the rectification of the share register of FNF to reflect issuance of common shares to Fidelity National retroactive to October 2003 and the redemption of sufficient common shares to allow certain payments by FNF to Fidelity National as return of paid up Capital. Issue: Is it appropriate to order the rectification of the share register.

Issue: Is it appropriate to order the rectification of the share register. Result: The applicants have not demonstrated on convincing proof the intention that Fidelity National ’ s payment would constitute invested capital which could be repaid as a return of capital The application is dismissed. THIS INFORMATION SHEET DOES NOT FORM PART OF THE COURT'S DECISION. QUOTES MUST BE FROM THE DECISION, NOT THIS LIBRARY SHEET . SUPREME COURT OF NOVA SCOTIA Citation : FNF Canada Company v.

Canada (Attorney General), 2012 NSSC 217 Date: 20120613 Docket: SH 358290 Registry: Halifax Between: FNF Canada Company & Fidelity National Financial Inc. Applicant v. Attorney General of Canada Respondent Judge: The Honourable Justice C. Richard Coughlan Heard: February l, 2012 in Halifax, Nova Scotia

Last Written Submission: February 17, 2012 Written Decision: June 13, 2012 Counsel: Bruce S. Russell, Q.C., for the Applicant Gregory B.

King, for the Respondent Coughlan, J. [ 1 ] FNF Canada Company (FNF) and Fidelity National Financial Inc. (Fidelity National) apply for an Order permitting the rectification of the share register of FNF to reflect issuance of common shares to Fidelity National Financial Inc. retroactive to October, 2003 and the redemption of sufficient common shares to allow certain payments by FNF to Fidelity National Financial Inc. as return of paid up capital. [ 2 ] The Attorney General of Canada opposes the application. [ 3 ] FNF was incorporated pursuant to the Companies Act, R.S.N.S. 1989, c. 81 on July 15, 2003 as an unlimited liability company and has been operating in Canada since 2003. [ 4 ] On the day of incorporation, 100 common shares were issued to Chicago Title & Trust Company.

On December l, 2003, those shares were transferred to Chicago Title Insurance Company for approximately $17,782,277 (US). [ 5 ] By an Asset Purchase Agreement with an effective date of July 18, 2003, FNF purchased assets and liabilities of LandCanada Financial Services Limited for cash consideration of $23,659,000 (CDN). The monies for the purchase of LandCanada was provided to FNF from Fidelity National Financial. FNF is a member of the Fidelity National Financial family of companies, as is Chicago Title Insurance Company.

From December l, 2003 to September 24, 2010, Chicago Title Insurance Company was the holder of all issued and outstanding shares in FNF.

Fidelity National Financial Inc. is indirectly the holder of all issued and outstanding shares of Chicago Title Insurance Company. [ 6 ] When I asked counsel, as FNF was the agent for Chicago Title Insurance Company, why were the accounts receivable with Fidelity National Financial and not Chicago Title Insurance Company, he could not answer the question. [ 7 ] Chicago Title and Trust Company made an investment of approximately $10,684,047 (US) in FNF on September 30, 2003 and $6,924,883 (US) on November 30, 2003.

Chicago Title and Trust Company appears to be another related company. [ 8 ] The Trial Balance of Chicago Title Insurance Company for the period ending December 31, 2009, shows an investment in FNF of $24,372,385 (US).

FNF made the following payments to LandCanada Financial Services Limited on behalf of Fidelity National Financial Inc.; $3,9000,000 (CDN) on April 12, 2005 and $2,000,000 (CDN) on May 31, 2006. [ 9 ] On March 26, 2008, $9,166,500 was paid by FNF to Fidelity National Financial Inc. [ 10 ] FNF financial statements for 2006 and 2007 taxation years show at year end $5,9000,000 was receivable from Fidelity National Financial Inc. to FNF.

At the end of the 2008 taxation year, the amount outstanding had increased by $9,166,500. [ 11 ] On September 30, 2003, FNF entered into an Issuing Agency Contract with Chicago Title Insurance Company under which

FNF is appointed agent for Chicago Title Insurance Company to issue title insurance commitments and insurance in Canada. [ 12 ] In FNF ’ s Trial Balance Consolidated as of December 31, 2007, an amount of $9,831,557.60 is shown as a credit for title insurance commissions. In FNF ’ s Trial Balance Consolidated as of December 31, 2008, an amount of $8,310,425.54 is shown as a credit for title insurance commissions. [ 13 ] In the notes to FNF ’ s financial statement for the year ending December 31, 2009 is the following note: “9. Related party transactions: ....

The Company made payments on behalf of FNF to a previous employee of the Company pursuant to an earn-out clause contained in the purchase and sale agreement discussed in note 5. Further, an amount of $9,166 was advanced to FNF on March 26, 2008.

These amounts are recorded in due from affiliates in the balance sheet.” [ 14 ] In FNF ’ s Balance Sheet for the year ending December 31, 2009, Fidelity National Financial ’ s investment in FNF of $23,659,060 was shown as “ contributed surplus ” with the heading “ Stockholders ’ Equity ” . [ 15 ] The 2009 Balance Sheet for FNF was the first reference to a “ contributed surplus ” before the court. Balance Sheets for the years 2003-2006 were not produced. I gave the applicants an opportunity to file earlier balance sheets if they were available.

An affidavit of Katherine Boudreau, a legal assistant employed by the applicants ’ counsel, deposed to February 10, 2012, was filed. Exhibited to Ms. Boudreau ’ s affidavit are FNF ’ s financial statements for the years 2004, 2005 and 2006 and draft financial statements for the years 2003, 2007 and 2008. In the 2004, 2005 and 2006 financial statements, a contributed surplus of $23,659,358 was shown. In the 2004 financial statements the note dealing with the contributed surplus provides: 8.

Acquisition of assets and liabilities (continued): Under the purchase and sale agreement, the following assets and liabilities were acquired by the Company: ____________________________________________ Cash $ 500,050 Accounts receivable 938,813 Prepaid expenses 52,005 Capital assets 1,314,348 Accounts payable (1,986,633) Capital lease obligations (179,854) ____________________________________________________ Net tangible assets acquired $ 638,729 The purchase price of $23,659,358 was allocated as follows: _____________________________________________________ Net tangible assets acquired $ 638,729 Intangible assets: Non-competition agreement 700,000 Customer list 9,300,000

Developed technology 1,500,000 11,500,000 Goodwill 11,520,629 _____________________________________________________ $23,659,358 Included in goodwill is $6,000,000, which has been recorded pursuant to an earn-out clause in the purchase and sale agreement, whichprovides for an additional purchase consideration of $2,000,000 per year, based upon achieving profitability levels in each of the years,ended December 31, 2003, 2004 and 2005. As at December 31, 2004, $4,000,000 has been earned by LandCanada Financial ServicesLimited, of which $2,000,000 has been paid by the Company’s parent company, Fidelity.

The remaining $4,000,000 will also be paidby Fidelity and the total of $6,000,000 has been recorded in these financial statements as contributed surplus. Intangible assets are being amortized at periods ranging from two to seven years.

The amortization expense for the current year is$3,109,000 (2003 - $553,000). [16] Section 17(1) of the Income Tax Act (Canada) provides when a non-resident of Canada owes an amount to a corporationresident in Canada which has been outstanding for more than one year, the Canadian Corporation must include in income, the interest inrespect of the amount owed for the year. [17] In its 2006 T2 Corporate Return, FNF reported amounts to be included in income concerning accounts receivable from FidelityNational Financial Inc. in the amount of $241,847.

The imputed income was not reported in subsequent years. [18] FNF did not retain Nova Scotia counsel concerning the purchase of the assets of LandCanada and no advice was received aboutthe manner of capitalization of FNF in Nova Scotia. [19] Richard Cox, SeniorVice-President and Tax officer of FNF , Senior Vice- President of Fidelity National Financial and Vice-President of Chicago Title Insurance Company deposed: “The clear and definite intention of each of the Company and CTT was that this payment of $CDN 23,659,000 would constitute investedcapital that could subsequently be repaid by the Company to CTT as paid up capital, without attracting Canadian income tax.” . . . “Neither the Company nor FNF realized or understood that for purposes of the Act, shares should have been issued to FNF at the time ofthe Acquisition, to ensure that the $CDN 23,659,000 payment by FNF would constitute share capital that could be returned to FNF aspaid up capital, without incurring Canadian income tax.” “This is a procedure with which the Company and FNF are not familiar, from other jurisdictions in which they are engaged in business.” [20] In an appropriate case, the court may amend corporate documents. [21] The scope of the doctrine of rectification was described by Brooke, J.A., in giving the Ontario Court of Appeal’s judgement inH.F.

Clarke Ltd. v. Thermidaire Corp. Ltd., (ON CA), [1973] 2 O.R. 57-72 at paragraph 25 as follows:

“25 When may the Court exercise its jurisdiction to grant rectification? In order for a party to succeed on a plea of rectification, he mustsatisfy the Court that the parties, all of them, were in complete agreement as to the terms of their contract but wrote them downincorrectly. It is not a uqestion (sic) of the Court being asked to speculate about the parties’ intention, but rather to make an inquiry todetermine whether the written agreement properly records the intention of the parties as clearly revealed in their prior agreement.

TheCourt will not write a contract for business men or others but rather through the exercise of its jurisdiction to grant rectification inappropriate circumstances, it will reproduce their contract in harmony with the intention clearly manifested by them, and so defeat claimsor defences which would otherwise unfairly succeed to the end that business may be fairly and ethically done.” and in Wasauksing First Nation v. Wasausink Lands Inc. (ON CA), [2004] O.J. No. 810 the Ontario Court of Appealdescribed rectification at paragraphs 76 and 77: “76.

In Snell’s Equity, 30th ed. (London: Sweet & Maxwell Ltd., 2000) at 693, J. McGhee describes the equitable remedy ofrectification in these terms: If by mistake a written instrument does not accord with the true agreement between the parties, equity has power to reform, or rectify,that instrument so as to make it accord with the true agreement. What is rectified is not a mistake in the transaction itself, but a mistakein the way in which that transaction has been expressed in writing.

Courts of Equity do not rectify contract; they may and do rectifyinstruments purporting to have been made in pursuance of the terms of the contract [footnotes omitted]. 77. The pre-conditions to the granting of rectification were considered by the English Court of Appeal in Joscelyne v. Nissen, [1970] 2Q.B. 86 at 98.

The court held in that case that an applicant seeking rectification of a written agreement must demonstrate, on“convincing proof”, that the parties had a common intention, antecedent to the formal document in question and evidence by someoutward expression of accord, that continued unchanged until the time that the formal document was executed by the parties and that theformal document mistakenly did not conform to the prior common intention. ...” [22] What evidence is before the court as to the intention of the parties? Mr.

Cox says it was the clear intention the investment of$23,659,000 (CDN) would constitute invested capital which could be repaid without attracting Canadian income tax. [23] FNF and the companies in the Fidelity National Financial group of companies are sophisticated financial companies. [24] In FNF financial statements for 2004, 2005 and 2006, the balance sheet shows the value of the capital stock of the company as$100 and the note to that item sets out there are 100 shares issued.

In FNF’s 2009 financial statements, the balance sheet shows noamount for the value of the capital stock, however, the associated note states 100 common shares are outstanding. [25] In its 2006 T2 Corporate Return, FNF included in income $241,847concerning accounts receivable from Fidelity NationalFinancial Inc. [26] Note 9 to FNF’s 2009 financial statements which deals with “Related party transactions” shows the amount advanced on March26, 2008 as an account receivable. [27] What is contributed surplus?

In the CICA Handbook - Accounting, 2011 Edition, it is defined as follows: “Contributed surplus comprises amounts paid in by equityholders. Contributed surplus in the form of surplus paid in by equityholdersincludes premiums on shares issued, any portion of the proceeds of issue of shares without par value not allocated to share capital, gainon forfeited shares, proceeds arising from shares donated by equityholders, credits resulting from redemption or conversion of shares at

less than the amount set up as share capital, and any other contribution by equityholders in excess of amounts allocated to share capital.” [ 28 ] Paid up capital is defined in section 89(1) of the Income Tax Act (Canada). Paid up capital and contributed surplus are two different things. [ 29 ] The use of the term “ contributed surplus ” shows the funds came from an equity holder but not necessarily an intention that the funds be paid up capital.

Fidelity National was not a shareholder of FNF - on incorporation, Chicago Title & Trust Company was the shareholder and from December 1, 2003 to September 24, 2010 Chicago Title Insurance company was sole shareholder. There is nothing to show an intention that Fidelity National be a shareholder of FNF. [ 30 ] The amounts paid by FNF to or on behalf of Fidelity National, namely $3,900,000 on April 12, 2005, $2,000,000 on May 31, 20006, and $9,166,500 on March 26, 2008, where shown in FNF ’ s financial statements for the years in which they were made as accounts receivable from Fidelity National.

As previously set out, FNF paid income tax in 2006 concerning accounts receivable from Fidelity National. It cannot be said it was intended those amounts would constitute invested capital which could be repaid as paid up capital. [ 31 ] On the evidence, the applicants have not demonstrated on convincing proof the intention that Fidelity National ’ s payment would constitute invested capital which could be repaid as a return of paid up capital. [ 32 ] I dismiss the application. C. Richard Coughlan, J.