Subject: Re: Swap Question
From: [email-masked]
To: [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked], [email-masked]
Date: Thu, 25 Jan 2001 08:25:00 -0800 (PST)

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" <[email-masked]>
	01/25/2001 05:01 PM
		 
		 To: "[email-masked]'" <[email-masked]>
		 cc: "Ponder, Dale" <[email-masked]>
		 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: [email-masked]

Click to add my contact info to your organizer:
http://my.infotriever.com/wsellers
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