Canada’s largest fertilizer maker, Potash Corp. of Saskatchewan Inc., and its hostile suitor BHP Billiton Ltd. are on a collision course headed straight toward the Saskatchewan Financial Services Commission.

That BHP’s nearly US$40-billion takeover proposal — the biggest anywhere in the world this year — could be decided by the tiny provincial securities regulator that oversees only two publicly traded companies, may be a call to arms for proponents of a national securities regulator.

Like most interested observers, the Saskatchewan securities regulator knows about the shareholder rights plan (better known as a poison pill) unveiled by Potash Corp. last week in the wake of BHP’s “grossly inadequate” offer.

However, unlike most of its provincial counterparts, the Prairie watchdog has never had to issue a decision on a shareholders rights plan. Ever.

“It will be something new for this commission,” explains Barbara Shourounis, director of securities at the Saskatchewan regulator. In fact, “we don’t have a view about shareholder rights plans,” she adds.

Instead, the commission clings to national policy instrument 62-202 dealing with takeover bids and other defensive tactics, outlined by the Canadian Securities Administrators, the umbrella group made up of 13 provincial and territorial securities regulators.

Basically, NP62-202 warns that regulators will take a dim view of companies that adopt defensive measures that will likely result in shareholders being deprived of the opportunity to respond to a takeover bid.

Although the broadly worded policy came into effect before the first poison pill was adopted in Canada in 1991, its application has been consistent across the country. That is, provincial securities commissions have tended to be more bidder-friendly in their approach to regulating shareholder rights plans and have almost always struck them down.

In the case of Saskatchewan, Ms. Shourounis says that the national policy has been adopted and is law in the province.

“If our commission is required to look at the shareholders rights plan later on, they will be deciding the issue in the context of the decisions that have already been made,” she explains.

Taking guidance from precedence may be a tricky proposition.

Since 2007, conflicting views of shareholder rights plans have emerged among the country’s largest securities regulators, effectively ending previous assumptions about how the watchdogs will view poison pills in the future.

In three cases, securities commissions in Ontario and Alberta appear to be adopting a more target-friendly approach. At the same time, the B.C. Securities Commission has resisted the apparent shift in attitude.

In those three cases, the Alberta Securities Commission (ASC) and the Ontario Securities Commission (OSC) broke new regulatory ground by allowing poison pills to remain in place indefinitely to defeat hostile takeover bids. In each case, shareholders who understood that the poison pill could defeat the takeover bid still overwhelmingly voted in favour of the plans while the takeover offers were still on the table.

The ASC ruled in favour of a shareholder rights plan by Pulse Data Inc., followed by a similar decision in 2009 involving Canadian Hydro Developers Inc. Last year, the OSC, Canada’s largest securities watchdog, ruled similarly in the case involving Neo Material Technologies.