2012 BCSC 1090 Northern Minerals Investment Corp. v. Mundoro ...
2012 BCSC 1090 Northern Minerals Investment Corp. v. Mundoro ...
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<strong>2012</strong> <strong>BCSC</strong> <strong>1090</strong> <strong>Northern</strong> <strong>Minerals</strong> <strong>Investment</strong> <strong>Corp</strong>. v. <strong>Mundoro</strong> Capital Inc.<br />
IN THE SUPREME COURT OF BRITISH COLUMBIA<br />
Citation: <strong>Northern</strong> <strong>Minerals</strong> <strong>Investment</strong> <strong>Corp</strong>. v.<br />
<strong>Mundoro</strong> Capital Inc.,<br />
<strong>2012</strong> <strong>BCSC</strong> <strong>1090</strong><br />
Date: <strong>2012</strong>0720<br />
Docket: S124256<br />
Registry: Vancouver<br />
Between:<br />
<strong>Northern</strong> <strong>Minerals</strong> <strong>Investment</strong> <strong>Corp</strong>.<br />
Petitioner<br />
And:<br />
<strong>Mundoro</strong> Capital Inc.<br />
Respondent<br />
Before: The Honourable Mr. Justice R. Punnett<br />
Reasons for Judgment<br />
In Chambers<br />
Counsel for the Petitioner:<br />
Counsel for the Respondent:<br />
Place and Date of Hearing:<br />
Place and Date of Judgment:<br />
T.M. Tomchak<br />
S.R. Schachter, Q.C.<br />
G.B. Gomery, Q.C.<br />
Vancouver, B.C.<br />
June 15, <strong>2012</strong><br />
Vancouver, B.C.<br />
July 20, <strong>2012</strong><br />
[1] The petitioner, a shareholder of the respondent, disputes certain actions taken by the directors of the<br />
respondent. The matter came before me on June 15, <strong>2012</strong> on short leave due to a pending deadline for<br />
director nominations to be filed by 5:00 pm on that day.<br />
[2] The deadline was extended by me until 24 hours after I issued my decision on the issue of the<br />
directors’ right to postpone the Annual General Meeting (“AGM”) and the record date for that meeting. That<br />
was done on June 19, <strong>2012</strong> with reasons to follow both with respect to that relief and the relief sought<br />
generally. These are those reasons.<br />
Background<br />
http://www.courts.gov.bc.ca/jdb-txt/SC/12/10/<strong>2012</strong><strong>BCSC</strong><strong>1090</strong>.htm[10/22/<strong>2012</strong> 1:37:45 PM]
<strong>2012</strong> <strong>BCSC</strong> <strong>1090</strong> <strong>Northern</strong> <strong>Minerals</strong> <strong>Investment</strong> <strong>Corp</strong>. v. <strong>Mundoro</strong> Capital Inc.<br />
[3] Both the petitioner and the respondent are British Columbia corporations incorporated pursuant to the<br />
Business <strong>Corp</strong>orations Act, S.B.C. 2002, c. 57 (the “Act”). The petitioner holds 3,183,500 of the 37,911,776<br />
shares of the respondent. It does not appear to be disputed that the company is widely held with over 1000<br />
shareholders, the majority of whom are retail as opposed to institutional shareholders.<br />
[4] On April 20, <strong>2012</strong> the respondent gave notice of its AGM scheduled for June 26, <strong>2012</strong> with the record<br />
date fixed as of May 22, <strong>2012</strong>.<br />
[5] On May 22, <strong>2012</strong> the respondent issued a management information circular stating that the items of<br />
business to be considered at the AGM were to receive financial statements, elect directors and reappoint the<br />
auditors. The circular also advised that the respondent had retained Laurel Hill Advisory group to solicit<br />
proxies.<br />
[6] On or about June 11, <strong>2012</strong> the respondent issued a press release announcing that the board of<br />
directors had approved an “Advance Notice Policy” (the “Policy”) in order to fix a deadline by which time<br />
shareholders were required to submit nominations for directors. The Policy provided, inter alia, that only<br />
such nominated persons would be eligible for election as directors, that the chairman of the meeting had the<br />
power and duty to determine whether a nomination was made in accordance with the Policy and that the<br />
board in its sole discretion could waive any requirement of the Policy.<br />
[7] The petitioner’s counsel gave notice on June 13, <strong>2012</strong> to counsel for the respondent that they were of<br />
the view that there was no legal basis for such a Policy and failing acknowledgement of that being the case<br />
the petitioner would seek short leave to have the matter resolved by the court prior to the close of business<br />
on June 15, <strong>2012</strong>. Short leave was granted on June 14, <strong>2012</strong>. The application was heard June 15, <strong>2012</strong>.<br />
[8] On June 14, <strong>2012</strong> the respondent issued a press release postponing the AGM from June 26, <strong>2012</strong> to<br />
August 27, <strong>2012</strong> indicating as well that the shareholders would be asked to approve the Policy. A letter<br />
attached to the press release purported to change the record date from May 22, <strong>2012</strong> to July 27, <strong>2012</strong>.<br />
Issues<br />
[9] The petitioner seeks the following relief:<br />
a) a declaration that the Policy is unenforceable;<br />
b) an order that the respondent not disallow any nominations of a person for election on the basis of<br />
the Policy;<br />
c) an order that the respondent be prevented from postponing or adjourning the June 26, <strong>2012</strong> AGM;<br />
and<br />
d) an order preventing the respondent from changing the record date.<br />
[10] The respondent seeks dismissal of the petition.<br />
http://www.courts.gov.bc.ca/jdb-txt/SC/12/10/<strong>2012</strong><strong>BCSC</strong><strong>1090</strong>.htm[10/22/<strong>2012</strong> 1:37:45 PM]
<strong>2012</strong> <strong>BCSC</strong> <strong>1090</strong> <strong>Northern</strong> <strong>Minerals</strong> <strong>Investment</strong> <strong>Corp</strong>. v. <strong>Mundoro</strong> Capital Inc.<br />
Law<br />
[11] A corporation incorporated in British Columbia is governed by the Act and the corporation’s articles.<br />
Section 19 of the Act states:<br />
Effect of notice of articles and articles<br />
19 (1) Subject to subsection (2), a company and its shareholders are bound by the company's<br />
articles and notice of articles in the manner contemplated by subsection (3) from the time at<br />
which the company is recognized.<br />
(2) A pre-existing company and its shareholders are bound, in the manner contemplated by<br />
subsection (3),<br />
(a)<br />
(b)<br />
(c)<br />
by the company's notice of articles, if any,<br />
by the company's articles, and<br />
subject to section 373 (3) or 439 (3), as the case may be, by the<br />
company's memorandum.<br />
(3) A company and its shareholders are bound by the company's articles and notice of<br />
articles or by its memorandum and articles, as the case may be, and by any alterations made<br />
to those records under this Act or a former Companies Act, to the same extent as if those<br />
records<br />
(a)<br />
(b)<br />
had been signed and sealed by the company and by each shareholder,<br />
and<br />
contained covenants on the part of each shareholder and the<br />
shareholder's successors and personal or other legal representatives to<br />
observe the articles and notice of articles or memorandum and articles,<br />
as the case may be.<br />
[12] For the purposes of the issues to be resolved the relevant company articles are:<br />
14.1 Election at Annual General Meeting. At every annual general meeting …<br />
(a)<br />
(b)<br />
the shareholders entitled to vote at the annual general meeting for the election<br />
of directors must elect, ...a board of directors consisting of the number of<br />
directors for the time being set under these Articles;<br />
all the directors cease to hold office immediately before the election or<br />
appointment of directors under paragraph (a), but are eligible for re-election or<br />
re-appointment.<br />
15.1 Powers of Management. The directors must, subject to the Business <strong>Corp</strong>orations Act<br />
and these Articles, manage or supervise the management of the business and affairs<br />
of the Company and have the authority to exercise all such powers of the Company as<br />
are not, by the Business <strong>Corp</strong>orations Act or by these Articles, required to be<br />
exercised by the shareholders of the Company.<br />
[13] The articles do not restrict the nomination process. Therefore under the articles currently in place<br />
nominee directors can be named at any time up to and including at the AGM where they can be nominated<br />
from the floor and voted on.<br />
[14] The relevant sections of the Act respecting directors are:<br />
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<strong>2012</strong> <strong>BCSC</strong> <strong>1090</strong> <strong>Northern</strong> <strong>Minerals</strong> <strong>Investment</strong> <strong>Corp</strong>. v. <strong>Mundoro</strong> Capital Inc.<br />
136 (1) The directors of a company must, subject to this Act, the regulations and the<br />
memorandum and articles of the company, manage or supervise the management of the<br />
business and affairs of the company.<br />
…<br />
142 (1) A director or officer of a company, when exercising the powers and performing the<br />
functions of a director or officer of the company, as the case may be, must<br />
(a) act honestly and in good faith with a view to the best interests of the<br />
company,<br />
(b) exercise the care, diligence and skill that a reasonably prudent<br />
individual would exercise in comparable circumstances,<br />
(c) act in accordance with this Act and the regulations, and<br />
(d) subject to paragraphs (a) to (c), act in accordance with the<br />
memorandum and articles of the company.<br />
(2) This section is in addition to, and not in derogation of, any enactment or rule of law or<br />
equity relating to the duties or liabilities of directors and officers of a company.<br />
(3) No provision in a contract, the memorandum or the articles relieves a director or officer<br />
from<br />
(a)<br />
(b)<br />
the duty to act in accordance with this Act and the regulations, or<br />
liability that by virtue of any enactment or rule of law or equity would<br />
otherwise attach to that director or officer in respect of any negligence,<br />
default, breach of duty or breach of trust of which the director or officer<br />
may be guilty in relation to the company.<br />
Discussion<br />
[15] I will address the issues of the postponement of the meeting and the postponement of the day of<br />
record first and the validity of the Policy second.<br />
[16] The petitioner asserts that “[u]nder contractarian corporate law such as that embodied in the BCA,<br />
directors have only those powers granted to them by the articles”. That is, that directors’ powers must be<br />
expressly conferred and that they do not have any residual powers.<br />
[17] The petitioner refers to Part 5 Division 6 of the Act dealing with the meetings of shareholders. In<br />
particular they note that s. 182 sets out specific requirements such as when the meetings must be held<br />
(within 18 months of incorporation and not more than 15 months after any prior meeting). They submit that<br />
nothing in s. 182 or Part 5 generally gives the directors the power to postpone a scheduled meeting. In<br />
support they note that under the Ontario Business <strong>Corp</strong>orations Act, R.S.O. 1990, c. B.16 and the Canada<br />
Business <strong>Corp</strong>orations Act, R.S.C. 1985, c. C-44, that may not be the case but that the Act operates as a<br />
form of contractarian corporate law under which directors have only those powers contracted to them by the<br />
articles. Lacking that explicit power the petitioner submits that the directors lack the authority to cancel a<br />
meeting once it has been called.<br />
[18] The respondent states this is “fundamentally wrong.” They note that s. 15.1 of the articles specifically<br />
and expressly reserves to the directors all residual powers. Those powers are those that are not required to<br />
http://www.courts.gov.bc.ca/jdb-txt/SC/12/10/<strong>2012</strong><strong>BCSC</strong><strong>1090</strong>.htm[10/22/<strong>2012</strong> 1:37:45 PM]
<strong>2012</strong> <strong>BCSC</strong> <strong>1090</strong> <strong>Northern</strong> <strong>Minerals</strong> <strong>Investment</strong> <strong>Corp</strong>. v. <strong>Mundoro</strong> Capital Inc.<br />
be exercised by the shareholders either by the Act or the articles.<br />
[19] The respondent also relies on s. 136(1) of the Act. They note that the British Columbia Company Law<br />
Practice Manual, 2nd ed. (Vancouver: Continuing Legal Education Society of BC, loose-leaf) states at Part<br />
6-4:<br />
Although it is possible for the shareholders of a company (or any other person) to be granted, in the<br />
articles, extensive authority for the management of the business of the company, the actual practices<br />
(derived from s. 136(1) is to entrust a board of directors with the exclusive power to manage the<br />
company and to grant that power free from interference from the shareholders. The shareholders are<br />
usually left only with the power to change the directors at the annual general meeting or to remove<br />
them by special resolution (s. 128(3)(a)) or some other method or resolution specified in the articles<br />
(s. 128(3)(b)).<br />
[20] The petitioner in support of their interpretation of directors powers refers to Smith v. Paringa Mines<br />
Ltd., [1906] 2 Ch. 193 for the proposition that the directors’ power to set the time and place of a<br />
shareholders’ meeting and the power of the chair to adjourn it does not imply the power to postpone the<br />
meeting before it occurs.<br />
[21] Paringa was followed in the Australian cases of Bell Resources Ltd. v. Turnbridge Pty. Ltd. & Ors,<br />
[1988] 6 A.C.L.C. 842 (S.C. of Western Australia) and McPherson & Ors v. Mansell & Ors, [1995] 13 A.C.L.C.<br />
767 (Federal Court of Australia, New South Wales, Gen. Div.). However, that is not the case in Canada.<br />
[22] The submission of the petitioner is that the Act is not a statute based on the model of the Canada<br />
Business <strong>Corp</strong>orations Act or other provincial statutes. Therefore it is submitted that the authorities based on<br />
the Canada Business <strong>Corp</strong>orations Act or other provincial acts are of limited assistance.<br />
[23] In Professor Welling’s <strong>Corp</strong>orate Law in Canada, The Governing Principles, 1st ed., (Toronto:<br />
Butterworths, 1984) at pp. 32 and 33 the following is stated:<br />
…<br />
Prior to the 1970s there were two distinct types of corporate statutes in Canada: letters patent<br />
statutes, similar in many ways to the corporate “common law” in England prior to 1720, and Englishmodel<br />
registration statutes, similar in form and effect to the first modern English Companies Act of<br />
1844. Now there are three types of corporate statutes in Canada, the third being based on the New<br />
York statute, which was used as a model for the major Ontario reform of 1970 and further refined in<br />
the Canadian Business <strong>Corp</strong>orations Act (C.B.C.A.) of 1975. … British Columbia is anomalous, in<br />
that it has retained the general English format, but has built into it statutory remedies similar to the<br />
American based model; it is probably most accurately described as a hybrid statute.<br />
…<br />
[24] With that distinction in mind should Paringa apply such that the directors’ powers must be explicitly<br />
granted Paringa was considered by the Alberta Court of Appeal in Canadian Jorex Ltd. v. 477749 Alberta<br />
Ltd. (1991), 85 Alta. L.R. (2d) 313, 30 A.C.W.S. (3d) 819 (C.A.), where the court addressed the issue of a<br />
board of directors purporting to cancel a special meeting. The act in question was the Canada Business<br />
<strong>Corp</strong>orations Act. The court said this at paras. 8-11:<br />
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<strong>2012</strong> <strong>BCSC</strong> <strong>1090</strong> <strong>Northern</strong> <strong>Minerals</strong> <strong>Investment</strong> <strong>Corp</strong>. v. <strong>Mundoro</strong> Capital Inc.<br />
[8] This then brings us to the central question. Do the directors of a federal corporation have the<br />
power to cancel a special meeting called by them We have concluded that the answer is yes.<br />
Under the corporate model adopted by the CBCA, the residual power to manage the corporation’s<br />
affairs rests with the directors. This power is given by statute and is not derived from the delegation<br />
of powers by the shareholders. This must be contrasted with the British model of corporate law<br />
under which the directors enjoy only those powers delegated to them by the shareholders. The<br />
distinction is important in assessing the rationale for the court’s decision in the main authority relied<br />
upon by the Respondents, Smith v Paringa Mines Ltd. [1906] 2 Ch. 193. In that case, Kekewich, J.<br />
concluded that, in the absence of express authority in the articles of association, the directors of a<br />
company have no power to postpone a general meeting. Considerable significance was placed on<br />
the fact that the articles in that case provided for the adjournment of a general meeting in certain<br />
circumstances but contained no provision for postponement. On this basis, Kekewich, J. concluded,<br />
without any real analysis of the issue, that the directors did not have the right to postpone the<br />
general meeting.<br />
[9] The Respondents contend that the same reasoning should be applied here. Why Because<br />
neither the CBCA nor the Jorex bylaws provide for cancellation of a meeting but only for adjournment<br />
of the meeting once convened. Therefore, on the authority of Paringa, cited with approval by<br />
numerous authorities of corporate law texts, the directors lack the authority to cancel a meeting once<br />
called.<br />
[10] Several reasons exist for rejecting this unduly restrictive approach to directors’ powers. First,<br />
as noted earlier, s. 102 of the CBCA statutorily confers on the directors of a corporation all residual<br />
powers to manage a corporation’s affairs. To suggest that the directors enjoy no specific power<br />
unless it has been expressly granted to them by the CBCA would effectively render the s. 102<br />
“basket clause” redundant. This result would run counter to the philosophy underlying the basket<br />
clause. The effect of this clause is that the directors’ powers to manage a corporation’s affairs are<br />
unlimited except to the extent these powers may have been circumscribed by the corporation’s<br />
bylaws or a USA. Of course, in keeping with the fundamental principles of corporate law, the<br />
directors’ powers must be exercised for proper purposes.<br />
[11] Second, a rigid, no-exceptions approach to cancellation can lead to unreasonable results. If,<br />
for example, a special meeting were convened to discuss a takeover bid and that bid were<br />
withdrawn before the date of the scheduled meeting, why should the directors be required to proceed<br />
with the holding of a pointless meeting Other equally valid examples spring to mind. An<br />
interpretation of the directors’ powers giving rise to any absurd or unintended results must be<br />
rejected. [CanLII]<br />
[25] Jorex was followed in Oppenheimer & Co. v. United Grain Growers Ltd. (1997), 120 Man. R (2d) 281,<br />
2 W.W.R. 9 (Q.B.). Steel J. noted:<br />
20 Not only did they indicate that the Smith case was no longer applicable to the CBCA but also<br />
indicated that the decision was an unduly restrictive approach to directors’ powers, a restrictive<br />
approach which could lead to unreasonable results.<br />
21 Now it is perfectly true that this case dealt with a directors' meeting and not a shareholders'<br />
meeting. However, the comments with respect to the Smith case dealing with a different model and<br />
leading to unreasonable and restrictive results are still applicable. They should still be considered by<br />
this court when it turns to analyze the situation with respect to a meeting called by shareholders.<br />
Moreover, the Court of Appeal did make some comments albeit in obiter with respect to the present<br />
situation.<br />
"However, the decision we make does not go this far. Nor need it. The directors'<br />
residual powers under s. 102 must be interpreted in conjunction with any other<br />
statutory provisions limiting those powers. The shareholders' right to call a special<br />
meeting may well be adversely affected if the directors were entitled under s. 102 to<br />
http://www.courts.gov.bc.ca/jdb-txt/SC/12/10/<strong>2012</strong><strong>BCSC</strong><strong>1090</strong>.htm[10/22/<strong>2012</strong> 1:37:45 PM]
<strong>2012</strong> <strong>BCSC</strong> <strong>1090</strong> <strong>Northern</strong> <strong>Minerals</strong> <strong>Investment</strong> <strong>Corp</strong>. v. <strong>Mundoro</strong> Capital Inc.<br />
cancel a special meeting called on requisition of the shareholders. This cannot have<br />
been intended by Parliament. Reading s. 102 of the C.B.C.A. in conjunction with s. 143<br />
arguably means that the directors' residual powers under s. 102 would not extend to<br />
the unilateral cancellation of any meeting properly convened on the shareholders'<br />
request. At the very least, any exercise of the powers of the directors in these<br />
circumstances would be subject to close scrutiny by the courts." (pp. 178, 179)<br />
22 The above quote poses two possibilities available to a court in the circumstances of this case.<br />
I believe that the latter possibility is the preferable one. It conforms most closely with the general<br />
philosophy underlying the CBCA and does not unduly restrict the directors' ability to conduct the<br />
corporation's business in its best interests. It allows the directors to postpone a shareholders' meeting<br />
as part of their power to manage the business of the corporation and to act in the best interests of all<br />
their shareholders. However, it also protects the shareholders' right to call a special meeting since it<br />
subjects the directors' action to the close scrutiny of a court and will provide relief where the action<br />
was taken for an improper purpose or in bad faith.<br />
23 It is also the most reasonable approach. As the Alberta Court of Appeal stated in Jorex at p.<br />
178, "An interpretation of the directors' powers giving rise to any absurd or unintended results must<br />
be rejected." To adopt the interpretation urged by the applicant would mean that even if the purpose<br />
of the meeting became irrelevant, e.g. the applicant sold all its shares before June 26th, or a flood<br />
prevented the vast majority of the shareholders from attending the meeting, that meeting would still<br />
have to be held, opened and then adjourned to another date. Surely this does not accord with<br />
common sense. If two statutory interpretations are possible, the court should adopt the interpretation<br />
that would not lead to absurd results. [QL]<br />
[26] While the Jorex and Oppenheimer cases dealt with the Canada Business <strong>Corp</strong>orations Act I am<br />
satisfied that the more modern approach reflected is also applicable to the British Columbia Act. I agree that<br />
the Paringa approach is, as noted by Steel J. in Oppenheimer, “an unduly restrictive approach to director’s<br />
powers, a restrictive approach which could lead to unreasonable results” (para. 20). The provisions of the<br />
articles and the Act and the residual “basket clause” in the articles and the Act are to be read as was done in<br />
Jorex and Oppenheimer. As a matter of contractual interpretation the directors’ powers flow from the Act and<br />
articles in which the directors are in fact granted residual powers.<br />
[27] The petitioner next asserts there was no proper purpose in postponing the meeting and that such a<br />
purpose must not be prejudicial to shareholders. (Oppenheimer).<br />
[28] They rely on Ewart v. Higson-Smith (2009), 61 B.L.R. (4th) 228 (Ont. S.C.J.), where Cumming J.<br />
described postponing a shareholders’ meeting as an “unusual step” which was only warranted in “special<br />
circumstances.”<br />
[29] In the petitioner’s view the primary purpose of the postponement was to permit <strong>Mundoro</strong> to “attempt to<br />
make the Advance Notice Policy enforceable.” As the petitioner notes the notice of the AGM did not include<br />
a reference to a resolution to approve such a policy. As a result such approval could not be sought at the<br />
AGM. They also allege that the purpose of the postponement is to allow the directors time to solicit more<br />
proxies, this latter assertion based on <strong>Mundoro</strong> having retained a proxy agent for a proxy fight at the AGM.<br />
[30] The petitioner submits that concerns of management that their slate of directors might not be<br />
nominated are not special circumstances.<br />
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<strong>2012</strong> <strong>BCSC</strong> <strong>1090</strong> <strong>Northern</strong> <strong>Minerals</strong> <strong>Investment</strong> <strong>Corp</strong>. v. <strong>Mundoro</strong> Capital Inc.<br />
[31] The respondent notes that the company is widely held with a large public shareholding. As a result the<br />
retaining of a proxy agent does not suggest a proxy contest as proxies are part of an AGM in any event, nor<br />
on the evidence did the company anticipate a proxy fight.<br />
[32] The respondent submits that the petitioner as of the date of hearing had not stated whether it intended<br />
to conduct a proxy battle. They state however that the inference is that “it intends to do so but without giving<br />
any of the other shareholders any warning or notice of the directors it intends to nominate.” The respondent<br />
further submits the result is shareholders will be asked to vote on a surprise last minute slate which is an<br />
ambush on unsuspecting shareholders who may not bother to file their proxies or attend the meeting<br />
because they would not be aware that the company was in play. On the basis of the notice of the AGM there<br />
was nothing to indicate that anything out of the ordinary would occur at the AGM given the proposed order of<br />
business was to accept the financial statements, elect directors and reappoint auditors.<br />
[33] After the hearing of this matter on Friday June 15, <strong>2012</strong> but before I dismissed the petitioner’s<br />
applications to prevent the postponement of the AGM and the changing of the date of record, the petitioner<br />
issued, on June 18, <strong>2012</strong> the names of five nominees for election as directors to replace <strong>Mundoro</strong>’s current<br />
board of directors. This announcement confirmed for the first time the intentions of the petitioner.<br />
[34] After the Advance Notice Policy was announced the petitioner advised the respondent that it would<br />
seek to set aside the Policy and as a result brought this petition. The board of directors of <strong>Mundoro</strong> met to<br />
consider the timing of the AGM in light of the new information. Teo Dechev, the chief executive officer of the<br />
respondent said this in her affidavit filed in this proceeding:<br />
8. The Board determined that it was appropriate to postpone the Meeting in light of the following:<br />
(a)<br />
(b)<br />
(c)<br />
the company is entitled to hold its annual general meeting at any time before<br />
August 28, <strong>2012</strong>;<br />
the Company wanted to afford shareholders ample opportunity to put<br />
forward an alternate slate or alternate director nominees; and<br />
the fact that it was in the interests of shareholders generally to have<br />
additional time to consider the recent development, including specifically, the<br />
Policy.<br />
[35] The petitioner has not placed before this Court any evidence that the directors were acting other than<br />
in the best interests of the shareholders of the company. There is no evidence to support its allegations that<br />
the board was acting to protect their positions as board members, nor is there validity to the assertion that<br />
the board was not acting to protect shareholder rights and was targeting the petitioner. The petitioner<br />
adverts to the action being prejudicial to the shareholders however it is the petitioner who has acted in its<br />
own interest as a shareholder but not necessarily in the interests of all shareholders given the petitioner only<br />
holds a small percentage of the outstanding shares. The petitioner’s action, if carried out as originally<br />
apparently planned, would have denied the majority of shareholders an opportunity to participate given the<br />
expectation that the meeting would be in effect pro forma. The late announcement by the petitioner of its<br />
intentions would not permit sufficient time to insure that all shareholders were advised and given the<br />
opportunity to attend or submit their proxies.<br />
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<strong>2012</strong> <strong>BCSC</strong> <strong>1090</strong> <strong>Northern</strong> <strong>Minerals</strong> <strong>Investment</strong> <strong>Corp</strong>. v. <strong>Mundoro</strong> Capital Inc.<br />
[36] As a result I find that there is no evidence that the board was not acting in the best interests of the<br />
shareholders. In my view the late indication by the petitioner of its intentions did give rise to special<br />
circumstances and the board was justified in responding. It is for the board to determine what is in the best<br />
interests of the corporation and its shareholders. If their decisions are challenged there are provisions in the<br />
Act for shareholders to seek redress.<br />
[37] With respect to the record date given the discretion in the board to postpone the AGM to such a date<br />
as they deem appropriate it follows that they also have the authority to change the record date.<br />
Advance Notice Policy<br />
[38] The final issue is whether the Policy is unenforceable.<br />
[39] The submission of the petitioner is founded on the notion that directors only have those powers that<br />
are granted to them by the articles. They also submit that the Act expressly provides that the election and<br />
removal of directors must occur in accordance with the articles.<br />
[40] They submit that <strong>Mundoro</strong> is using the Policy to attempt to prevent what is expressly permitted by<br />
securities laws applicable to proxy contests. They allege that the Policy seeks to avoid compliance with the<br />
legal requirements that must be followed (Part 9 of National Instrument 51-102 Continuous Disclosure<br />
Obligations). They further allege the Policy affects shareholder democracy because the Policy deprives<br />
shareholders of their right to elect directors in accordance with the Act. The result they submit is that the<br />
board can entrench themselves and are therefore improperly seeking to protect and thereby benefit<br />
themselves.<br />
[41] The petitioner asserts that while shareholder rights do not typically extend to managing a corporation<br />
(as their rights are limited to voting rights), that their most significant right is to elect directors of the<br />
corporation. They submit that the Policy is an attempt to interfere with that fundamental right without<br />
authorization or justification.<br />
[42] Their argument is that s. 19 of the Act provides that a company and its shareholders are bound by a<br />
company’s articles and notice of articles and that any alteration of those articles must be signed and sealed<br />
by the company and each shareholder. In addition they state that the Act requires that the election and<br />
removal of directors must occur in accordance with the articles.<br />
[43] They refer to Part 5 Division 1 of the Act respecting the election and removal of directors and s. 122’s<br />
requirement that the directors must be elected or appointed in accordance with the Act or the articles. They<br />
note that Part 14 of the articles governs the role of shareholders in the election and removal of directors and<br />
that directors must be qualified in accordance with Article 13.4 and the Act. They submit that there are no<br />
restrictions on the nomination process. They submit that the proposed Policy requires a change to the<br />
articles because the directors do not have the authority to change the articles.<br />
[44] In effect they submit that a special resolution of the shareholders is required (s. 259 of Act and 9.4 of<br />
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<strong>2012</strong> <strong>BCSC</strong> <strong>1090</strong> <strong>Northern</strong> <strong>Minerals</strong> <strong>Investment</strong> <strong>Corp</strong>. v. <strong>Mundoro</strong> Capital Inc.<br />
articles of the company) to alter the articles and therefore the Policy requires a special resolution to amend<br />
its articles.<br />
[45] This line of reasoning is premised on the argument that the directors do not have a power unless the<br />
articles specifically grant it. In fact the reverse is correct. As previously discussed the Act and the articles<br />
give the directors the power to exercise those powers not specifically reserved to the shareholders. As<br />
noted earlier and repeated here for convenience s. 15.1 of the Articles provides:<br />
15.1 Powers of Management. The directors must, subject to the Business <strong>Corp</strong>orations Act and<br />
these Articles, manage or supervise the management of the business and affairs of the Company<br />
and have the authority to exercise all such powers of the Company as are not, by the Business<br />
<strong>Corp</strong>orations Act or by these Articles, required to be exercised by the shareholders of the Company.<br />
[46] Neither the Act nor the articles expressly preclude directors from creating such a Policy. Nor has the<br />
petitioner provided any authority for the proposition that only the shareholders can create an advance notice<br />
policy.<br />
[47] The petitioner’s argument is not supported by the Act or the articles. Notwithstanding that, if the issue<br />
is one of shareholder rights being infringed, can it be inferred that in such circumstances there is a restriction<br />
on the directors’ power to create an advance notice policy In this case it has not been established that the<br />
Policy is one that infringes shareholder rights. Rather, the Policy in fact ensures an orderly nomination<br />
process and that the shareholders are informed in advance of an AGM what is in issue. In doing so the<br />
Policy prevents a group of shareholders from taking advantage of a poorly attended shareholders meeting to<br />
impose their slate of directors on what could be a majority of shareholders unaware of such a possibility<br />
arising. The submission of the petitioner equates the “rights” of a small group of dissident shareholders with<br />
all shareholders of the company. The interests of the two groups do not necessarily coincide.<br />
[48] In Blair v. Consolidated Enfield <strong>Corp</strong>., [1995] 4 S.C.R. 5, the chair of a shareholders’ meeting relied on<br />
legal advice that turned out to be incorrect and rejected proxies tendered at the meeting. Iacoucci J.<br />
commented on the proxy system and advance notice of director nominations as follows:<br />
63. If anything, I am sympathetic to the respondent’s submission that he believed that the<br />
rejection of Osler’s advice, which is what the appellant appears to suggest Blair should have done,<br />
could not be in Enfield’s best interest:<br />
(a)<br />
(b)<br />
(c)<br />
(d)<br />
Blair was not qualified to interpret and apply the law to the ballots and<br />
proxies;<br />
Blair owed a duty to shareholders to see that the instructions contained in<br />
their proxies were followed;<br />
The shareholders who had not received notice of the surprise nomination of<br />
Price and who were not present at the shareholders' meeting and who held<br />
enough votes to change the result had they received notice might have a<br />
cause of action if Price were declared elected against the advice of Enfield's<br />
counsel;<br />
The shareholders who were represented by management proxies had no<br />
opportunity to assess Price or to vote in relation to his candidacy, and they<br />
relied on Enfield and its chairman to ensure that their rights at the meeting<br />
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<strong>2012</strong> <strong>BCSC</strong> <strong>1090</strong> <strong>Northern</strong> <strong>Minerals</strong> <strong>Investment</strong> <strong>Corp</strong>. v. <strong>Mundoro</strong> Capital Inc.<br />
…<br />
(iv)<br />
were protected.<br />
The interests of the shareholders not present at the meeting<br />
…<br />
71 Many of the persons issuing proxies were not present at the meeting. Although they may very<br />
well have been informed of the tensions between Blair and Canadian Express, they would certainly<br />
not have expected there to be a contested election for the position of 11th director. At the time the<br />
proxies were given to Ravelston and Canadian Express, it was assumed that the 11 persons listed in<br />
the management circular would simply be elected. The evidentiary record does not reveal that<br />
anyone's mind was alerted to the possibility that the proxyholders would use the proxies to nominate<br />
Price over Blair. No notice whatsoever was given of Price's nomination. In this context, I find some<br />
merit to Blair's submission that his decision to follow Osler's advice must be viewed also in light of<br />
the interests of the shareholders not present at the meeting.<br />
72 In the end, by following the instructions on the proxies and then requisitioning a new shareholders'<br />
meeting on July 24, 1989, Blair gave all shareholders an opportunity to make a fully informed<br />
decision regarding the election of the directors, thereby promoting the integrity of Enfield's<br />
voting procedures. Shareholders holding fully 16 percent of the shares of Enfield who were not aware<br />
that Canadian Express would attempt to take control of the Board were thus placed in a position of<br />
being able to make an informed choice as to how to vote (see judgment of the Court of Appeal, at p.<br />
801). The corollary is that Canadian Express suffered no prejudice in respect of its voting rights in<br />
that it had the opportunity to nominate and support Price at the new meeting or pursue legal action<br />
against Enfield. ….<br />
73 In my mind, the fact that Blair promptly, and contrary to his personal interests, requisitioned a<br />
new meeting constitutes further evidence that his actions were taken with a view to the best interests<br />
of Enfield. If anything, Canadian Express's decision to pursue this matter through litigation drives<br />
against the wellbeing of Enfield's shareholders, especially those who have no personal interest in<br />
who acts as the 11th director, provided simply that individual discharge his or her duties to the<br />
corporation in a competent and trustworthy manner.<br />
[49] In Horton v. St. Thomas Elgin General Hospital (1982), 140 D.L.R. (3d) 274, 39 O.R. (2d) 247 (H.C.J.),<br />
an advance notice by-law was enacted by a non-profit corporation under the Ontario <strong>Corp</strong>orations Act. That<br />
statute does not deal expressly with members’ voting rights nor with director nomination rights. The by-law<br />
was held invalid for technical reasons however Smith J. observed at para. 25:<br />
[25] The American reports are replete with pronouncements on the right to vote and nominate.<br />
The applicant has made reference to a large number of them. They all allow that by-laws can be<br />
passed to curtail as long as the wording is clear. I am of the same view. …<br />
[50] The respondent notes that advance notice is supported by ISS (Institutional Shareholder Services Inc.)<br />
the leading independent advisory on good governance for shareholder meetings. ISS favours advance<br />
notice of nominations to “ensure full disclosure in regard to a proponent’s economic and voting position in the<br />
company so long as the informational requirements are reasonable and aimed at providing shareholders with<br />
the necessary information to review such proposal.”<br />
[51] The Policy in this case leaves with the board the sole discretion to waive any requirement in the policy<br />
which discretion can be reviewed by a court. In addition the press release noted that the company intended<br />
to seek shareholder approval and confirmation of the Policy at the AGM. Both of these factors evidence<br />
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<strong>2012</strong> <strong>BCSC</strong> <strong>1090</strong> <strong>Northern</strong> <strong>Minerals</strong> <strong>Investment</strong> <strong>Corp</strong>. v. <strong>Mundoro</strong> Capital Inc.<br />
good faith and the reasonableness of the Policy.<br />
[52] The petitioner also submits that advance notice policies should not be used to interfere with a proxy<br />
contest. They rely on Accipiter Life Sciences Fund v. Helfer, 905 A. 2d., 2006 Del Ch., the Court of<br />
Chancery of Delaware, where the court stated that:<br />
…<br />
In deciding whether an act is an inequitable restraint on the stockholder’s franchise, this court has<br />
looked closely at the circumstances of each case. Obviously, our courts have been more likely to<br />
find an action impermissible if the board acted with the intent of influencing or precluding a proxy<br />
contest for control of the corporation. …<br />
[53] As noted the circumstances of each case require scrutiny. The actions of the board in this instance in<br />
creating an advance notice policy have not been shown to having been done to “influence or preclude” a<br />
proxy contest but rather to insure that all shareholders are made aware that a proxy contest exists. No<br />
evidence has been put forward that the directors are not behaving reasonably.<br />
[54] On the other hand the actions of the petitioner in apparently originally planning to “hide in the weeds”<br />
until the AGM appear to be aimed at preventing all shareholders from having notice and the opportunity to<br />
vote in a proxy contest.<br />
[55] For these reasons the petition is dismissed with costs to the respondent.<br />
“Punnett J.”<br />
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