The Rising Tide of Court Intervention in Shareholder Proxy Contests in British Columbia
2012 has seen a large increase in court applications relating to shareholder proxy contests in British Columbia. In the face of these increased number of applications, the Supreme Court of British Columbia has shown an increased willingness to intervene to ensure meetings and proxy contests are conducted fairly.
On September 20, 2012, the Court gave oral reasons in Western Wind Energy Corporation v. Savitr Capital, LLC. The Court granted an order for an independent chair and appointed the chair proposed by the dissident shareholder. In doing so, it found that the “concentration of events” which included commencing legal proceedings (and abandoning them), and unsuccessfully seeking the disqualification of proxy votes, gave rise to a reasonable apprehension concerning the conduct of meeting if a management executive was allowed to chair the meeting.. In addition, the Court dismissed an application by the target company to enjoin the dissident from using its trademark in its proxy materials.
Earlier in September, the Court dealt with an application by TELUS to block a shareholder, an American hedge fund, from requisitioning a meeting of voting shareholders in an attempt to block a merger of Telus’ dual share structure of voting and non-voting shares into one class of common shares. For the first time in Canada, the Court commented on an “empty voting” strategy which may mean that courts will be more willing to deny “empty” voters the ability to exercise normal shareholder rights. Empty voting encompasses a range of tactics that investors use to decouple the voting interest from the economic interest carried in a share – meaning that voting control is not aligned with the company’s economic well-being. The Court held that the practice of empty voting presented a challenge to shareholder democracy as the voter has no interest in enhancing the value of the investment. The Court further held that while the conversion ratios between the voting and non-voting shares were of interest to all shareholders, the interest here of the hedge fund was not aligned: it was indifferent to the value of Telus and was concerned only with maximizing the price differential between the two classes of shares. Ultimately, the Court rested its decision on non-compliance with the statutory provisions. The Court’s comments, however, indicate a more interventionist attitude.
Additionally, in August, the Court overturned the results of an AGM of a public company, including the election of its directors, and ordered the company hold a new meeting within sixty days of the decision. In International Energy and Mineral Resources Investment (Hong Kong) Company Limited v. Mosquito Consolidated Gold Mines Limited, the Court ruled that the conduct of the previous meeting of Mosquito Consolidated Gold Mines Limited had been oppressive to the company’s shareholders. In particular, it found that a voting system, in which votes were taken over the phone by a proxy solicitation firm, was oppressive. The impugned voting system was specifically marketed as a means to give an advantage in proxy solicitation contests by recording votes more readily and by not requiring the shareholder to submit a proxy (or vote on the internet or by phone).
In an approximately two months, the Supreme Court of British Columbia has issued three important decisions on contested meetings and proxy contests in Canada. In doing so, the Court has indicated a willingness to take a more interventionist role to ensure fairness in this process. Time will tell whether these cases signify a short term deviation or represent the start of a new trend in shareholder meeting practice in Canada.