IN THE SUPREME COURT OF BRITISH COLUMBIA

Transcription

1 IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Northern Minerals Investment Corp. v. Mundoro Capital Inc., 2012 BCSC 1090 Date: Docket: S Registry: Vancouver Between: Northern Minerals Investment Corp. Petitioner And: Mundoro Capital Inc. Respondent Before: The Honourable Mr. Justice R. Punnett Reasons for Judgment In Chambers Counsel for the Petitioner: Counsel for the Respondent: Place and Date of Hearing: Place and Date of Judgment: T.M. Tomchak S.R. Schachter, Q.C. G.B. Gomery, Q.C. Vancouver, B.C. June 15, 2012 Vancouver, B.C. July 20, 2012 [1] The petitioner, a shareholder of the respondent, disputes certain actions taken by the directors of the respondent. The matter came before me on June 15, 2012 on short leave due to a pending deadline for director nominations to be filed by 5:00 pm on that day. [2] The deadline was extended by me until 24 hours after I issued my decision on the issue of the directors right to postpone the Annual General Meeting ( AGM ) and the record date for that meeting. That was done on June 19, 2012 with reasons to follow both with respect to that relief and the relief sought generally. These are those reasons. Background

2 [3] Both the petitioner and the respondent are British Columbia corporations incorporated pursuant to the Business Corporations Act, S.B.C. 2002, c. 57 (the Act ). The petitioner holds 3,183,500 of the 37,911,776 shares of the respondent. It does not appear to be disputed that the company is widely held with over 1000 shareholders, the majority of whom are retail as opposed to institutional shareholders. [4] On April 20, 2012 the respondent gave notice of its AGM scheduled for June 26, 2012 with the record date fixed as of May 22, [5] On May 22, 2012 the respondent issued a management information circular stating that the items of business to be considered at the AGM were to receive financial statements, elect directors and reappoint the auditors. The circular also advised that the respondent had retained Laurel Hill Advisory group to solicit proxies. [6] On or about June 11, 2012 the respondent issued a press release announcing that the board of directors had approved an Advance Notice Policy (the Policy ) in order to fix a deadline by which time shareholders were required to submit nominations for directors. The Policy provided, inter alia, that only such nominated persons would be eligible for election as directors, that the chairman of the meeting had the power and duty to determine whether a nomination was made in accordance with the Policy and that the board in its sole discretion could waive any requirement of the Policy. [7] The petitioner s counsel gave notice on June 13, 2012 to counsel for the respondent that they were of the view that there was no legal basis for such a Policy and failing acknowledgement of that being the case the petitioner would seek short leave to have the matter resolved by the court prior to the close of business on June 15, Short leave was granted on June 14, The application was heard June 15, [8] On June 14, 2012 the respondent issued a press release postponing the AGM from June 26, 2012 to August 27, 2012 indicating as well that the shareholders would be asked to approve the Policy. A letter attached to the press release purported to change the record date from May 22, 2012 to July 27, Issues [9] The petitioner seeks the following relief: a) a declaration that the Policy is unenforceable; b) an order that the respondent not disallow any nominations of a person for election on the basis of the Policy; c) an order that the respondent be prevented from postponing or adjourning the June 26, 2012 AGM; and d) an order preventing the respondent from changing the record date. [10] The respondent seeks dismissal of the petition.

3 Law [11] A corporation incorporated in British Columbia is governed by the Act and the corporation s articles. Section 19 of the Act states: Effect of notice of articles and articles 19 (1) Subject to subsection (2), a company and its shareholders are bound by the company's articles and notice of articles in the manner contemplated by subsection (3) from the time at which the company is recognized. (2) A pre-existing company and its shareholders are bound, in the manner contemplated by subsection (3), (a) (b) (c) by the company's notice of articles, if any, by the company's articles, and subject to section 373 (3) or 439 (3), as the case may be, by the company's memorandum. (3) A company and its shareholders are bound by the company's articles and notice of articles or by its memorandum and articles, as the case may be, and by any alterations made to those records under this Act or a former Companies Act, to the same extent as if those records (a) (b) had been signed and sealed by the company and by each shareholder, and contained covenants on the part of each shareholder and the shareholder's successors and personal or other legal representatives to observe the articles and notice of articles or memorandum and articles, as the case may be. [12] For the purposes of the issues to be resolved the relevant company articles are: 14.1 Election at Annual General Meeting. At every annual general meeting (a) (b) the shareholders entitled to vote at the annual general meeting for the election of directors must elect,...a board of directors consisting of the number of directors for the time being set under these Articles; all the directors cease to hold office immediately before the election or appointment of directors under paragraph (a), but are eligible for re-election or re-appointment Powers of Management. The directors must, subject to the Business Corporations Act and these Articles, manage or supervise the management of the business and affairs of the Company and have the authority to exercise all such powers of the Company as are not, by the Business Corporations Act or by these Articles, required to be exercised by the shareholders of the Company. [13] The articles do not restrict the nomination process. Therefore under the articles currently in place nominee directors can be named at any time up to and including at the AGM where they can be nominated from the floor and voted on. [14] The relevant sections of the Act respecting directors are:

4 136 (1) The directors of a company must, subject to this Act, the regulations and the memorandum and articles of the company, manage or supervise the management of the business and affairs of the company. 142 (1) A director or officer of a company, when exercising the powers and performing the functions of a director or officer of the company, as the case may be, must (a) act honestly and in good faith with a view to the best interests of the company, (b) exercise the care, diligence and skill that a reasonably prudent individual would exercise in comparable circumstances, (c) act in accordance with this Act and the regulations, and (d) subject to paragraphs (a) to (c), act in accordance with the memorandum and articles of the company. (2) This section is in addition to, and not in derogation of, any enactment or rule of law or equity relating to the duties or liabilities of directors and officers of a company. (3) No provision in a contract, the memorandum or the articles relieves a director or officer from (a) (b) the duty to act in accordance with this Act and the regulations, or liability that by virtue of any enactment or rule of law or equity would otherwise attach to that director or officer in respect of any negligence, default, breach of duty or breach of trust of which the director or officer may be guilty in relation to the company. Discussion [15] I will address the issues of the postponement of the meeting and the postponement of the day of record first and the validity of the Policy second. [16] The petitioner asserts that [u]nder contractarian corporate law such as that embodied in the BCA, directors have only those powers granted to them by the articles. That is, that directors powers must be expressly conferred and that they do not have any residual powers. [17] The petitioner refers to Part 5 Division 6 of the Act dealing with the meetings of shareholders. In particular they note that s. 182 sets out specific requirements such as when the meetings must be held (within 18 months of incorporation and not more than 15 months after any prior meeting). They submit that nothing in s. 182 or Part 5 generally gives the directors the power to postpone a scheduled meeting. In support they note that under the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 and the Canada Business Corporations Act, R.S.C. 1985, c. C-44, that may not be the case but that the Act operates as a form of contractarian corporate law under which directors have only those powers contracted to them by the articles. Lacking that explicit power the petitioner submits that the directors lack the authority to cancel a meeting once it has been called. [18] The respondent states this is fundamentally wrong. They note that s of the articles specifically and expressly reserves to the directors all residual powers. Those powers are those that are not required to

5 be exercised by the shareholders either by the Act or the articles. [19] The respondent also relies on s. 136(1) of the Act. They note that the British Columbia Company Law Practice Manual, 2nd ed. (Vancouver: Continuing Legal Education Society of BC, loose-leaf) states at Part 6-4: Although it is possible for the shareholders of a company (or any other person) to be granted, in the articles, extensive authority for the management of the business of the company, the actual practices (derived from s. 136(1) is to entrust a board of directors with the exclusive power to manage the company and to grant that power free from interference from the shareholders. The shareholders are usually left only with the power to change the directors at the annual general meeting or to remove them by special resolution (s. 128(3)(a)) or some other method or resolution specified in the articles (s. 128(3)(b)). [20] The petitioner in support of their interpretation of directors powers refers to Smith v. Paringa Mines Ltd., [1906] 2 Ch. 193 for the proposition that the directors power to set the time and place of a shareholders meeting and the power of the chair to adjourn it does not imply the power to postpone the meeting before it occurs. [21] Paringa was followed in the Australian cases of Bell Resources Ltd. v. Turnbridge Pty. Ltd. & Ors, [1988] 6 A.C.L.C. 842 (S.C. of Western Australia) and McPherson & Ors v. Mansell & Ors, [1995] 13 A.C.L.C. 767 (Federal Court of Australia, New South Wales, Gen. Div.). However, that is not the case in Canada. [22] The submission of the petitioner is that the Act is not a statute based on the model of the Canada Business Corporations Act or other provincial statutes. Therefore it is submitted that the authorities based on the Canada Business Corporations Act or other provincial acts are of limited assistance. [23] In Professor Welling s Corporate Law in Canada, The Governing Principles, 1st ed., (Toronto: Butterworths, 1984) at pp. 32 and 33 the following is stated: Prior to the 1970s there were two distinct types of corporate statutes in Canada: letters patent statutes, similar in many ways to the corporate common law in England prior to 1720, and Englishmodel registration statutes, similar in form and effect to the first modern English Companies Act of Now there are three types of corporate statutes in Canada, the third being based on the New York statute, which was used as a model for the major Ontario reform of 1970 and further refined in the Canadian Business Corporations Act (C.B.C.A.) of British Columbia is anomalous, in that it has retained the general English format, but has built into it statutory remedies similar to the American based model; it is probably most accurately described as a hybrid statute. [24] With that distinction in mind should Paringa apply such that the directors powers must be explicitly granted? Paringa was considered by the Alberta Court of Appeal in Canadian Jorex Ltd. v Alberta 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 board of directors purporting to cancel a special meeting. The act in question was the Canada Business Corporations Act. The court said this at paras. 8-11:

6 [8] This then brings us to the central question. Do the directors of a federal corporation have the power to cancel a special meeting called by them? We have concluded that the answer is yes. Under the corporate model adopted by the CBCA, the residual power to manage the corporation s affairs rests with the directors. This power is given by statute and is not derived from the delegation of powers by the shareholders. This must be contrasted with the British model of corporate law under which the directors enjoy only those powers delegated to them by the shareholders. The distinction is important in assessing the rationale for the court s decision in the main authority relied upon by the Respondents, Smith v Paringa Mines Ltd. [1906] 2 Ch In that case, Kekewich, J. concluded that, in the absence of express authority in the articles of association, the directors of a company have no power to postpone a general meeting. Considerable significance was placed on the fact that the articles in that case provided for the adjournment of a general meeting in certain circumstances but contained no provision for postponement. On this basis, Kekewich, J. concluded, without any real analysis of the issue, that the directors did not have the right to postpone the general meeting. [9] The Respondents contend that the same reasoning should be applied here. Why? Because neither the CBCA nor the Jorex bylaws provide for cancellation of a meeting but only for adjournment of the meeting once convened. Therefore, on the authority of Paringa, cited with approval by numerous authorities of corporate law texts, the directors lack the authority to cancel a meeting once called. [10] Several reasons exist for rejecting this unduly restrictive approach to directors powers. First, as noted earlier, s. 102 of the CBCA statutorily confers on the directors of a corporation all residual powers to manage a corporation s affairs. To suggest that the directors enjoy no specific power unless it has been expressly granted to them by the CBCA would effectively render the s. 102 basket clause redundant. This result would run counter to the philosophy underlying the basket clause. The effect of this clause is that the directors powers to manage a corporation s affairs are unlimited except to the extent these powers may have been circumscribed by the corporation s bylaws or a USA. Of course, in keeping with the fundamental principles of corporate law, the directors powers must be exercised for proper purposes. [11] Second, a rigid, no-exceptions approach to cancellation can lead to unreasonable results. If, for example, a special meeting were convened to discuss a takeover bid and that bid were withdrawn before the date of the scheduled meeting, why should the directors be required to proceed with the holding of a pointless meeting? Other equally valid examples spring to mind. An interpretation of the directors powers giving rise to any absurd or unintended results must be rejected. [CanLII] [25] Jorex was followed in Oppenheimer & Co. v. United Grain Growers Ltd. (1997), 120 Man. R (2d) 281, 2 W.W.R. 9 (Q.B.). Steel J. noted: 20 Not only did they indicate that the Smith case was no longer applicable to the CBCA but also indicated that the decision was an unduly restrictive approach to directors powers, a restrictive approach which could lead to unreasonable results. 21 Now it is perfectly true that this case dealt with a directors' meeting and not a shareholders' meeting. However, the comments with respect to the Smith case dealing with a different model and leading to unreasonable and restrictive results are still applicable. They should still be considered by this court when it turns to analyze the situation with respect to a meeting called by shareholders. Moreover, the Court of Appeal did make some comments albeit in obiter with respect to the present situation. "However, the decision we make does not go this far. Nor need it. The directors' residual powers under s. 102 must be interpreted in conjunction with any other statutory provisions limiting those powers. The shareholders' right to call a special meeting may well be adversely affected if the directors were entitled under s. 102 to

7 cancel a special meeting called on requisition of the shareholders. This cannot have been intended by Parliament. Reading s. 102 of the C.B.C.A. in conjunction with s. 143 arguably means that the directors' residual powers under s. 102 would not extend to the unilateral cancellation of any meeting properly convened on the shareholders' request. At the very least, any exercise of the powers of the directors in these circumstances would be subject to close scrutiny by the courts." (pp. 178, 179) 22 The above quote poses two possibilities available to a court in the circumstances of this case. I believe that the latter possibility is the preferable one. It conforms most closely with the general philosophy underlying the CBCA and does not unduly restrict the directors' ability to conduct the corporation's business in its best interests. It allows the directors to postpone a shareholders' meeting as part of their power to manage the business of the corporation and to act in the best interests of all their shareholders. However, it also protects the shareholders' right to call a special meeting since it subjects the directors' action to the close scrutiny of a court and will provide relief where the action was taken for an improper purpose or in bad faith. 23 It is also the most reasonable approach. As the Alberta Court of Appeal stated in Jorex at p. 178, "An interpretation of the directors' powers giving rise to any absurd or unintended results must be rejected." To adopt the interpretation urged by the applicant would mean that even if the purpose of the meeting became irrelevant, e.g. the applicant sold all its shares before June 26th, or a flood prevented the vast majority of the shareholders from attending the meeting, that meeting would still have to be held, opened and then adjourned to another date. Surely this does not accord with common sense. If two statutory interpretations are possible, the court should adopt the interpretation that would not lead to absurd results. [QL] [26] While the Jorex and Oppenheimer cases dealt with the Canada Business Corporations Act I am satisfied that the more modern approach reflected is also applicable to the British Columbia Act. I agree that the Paringa approach is, as noted by Steel J. in Oppenheimer, an unduly restrictive approach to director s powers, a restrictive approach which could lead to unreasonable results (para. 20). The provisions of the articles and the Act and the residual basket clause in the articles and the Act are to be read as was done in Jorex and Oppenheimer. As a matter of contractual interpretation the directors powers flow from the Act and articles in which the directors are in fact granted residual powers. [27] The petitioner next asserts there was no proper purpose in postponing the meeting and that such a purpose must not be prejudicial to shareholders. (Oppenheimer). [28] They rely on Ewart v. Higson-Smith (2009), 61 B.L.R. (4th) 228 (Ont. S.C.J.), where Cumming J. described postponing a shareholders meeting as an unusual step which was only warranted in special circumstances. [29] In the petitioner s view the primary purpose of the postponement was to permit Mundoro to attempt to make the Advance Notice Policy enforceable. As the petitioner notes the notice of the AGM did not include a reference to a resolution to approve such a policy. As a result such approval could not be sought at the AGM. They also allege that the purpose of the postponement is to allow the directors time to solicit more proxies, this latter assertion based on Mundoro having retained a proxy agent for a proxy fight at the AGM. [30] The petitioner submits that concerns of management that their slate of directors might not be nominated are not special circumstances.

8 [31] The respondent notes that the company is widely held with a large public shareholding. As a result the retaining of a proxy agent does not suggest a proxy contest as proxies are part of an AGM in any event, nor on the evidence did the company anticipate a proxy fight. [32] The respondent submits that the petitioner as of the date of hearing had not stated whether it intended to conduct a proxy battle. They state however that the inference is that it intends to do so but without giving any of the other shareholders any warning or notice of the directors it intends to nominate. The respondent further submits the result is shareholders will be asked to vote on a surprise last minute slate which is an ambush on unsuspecting shareholders who may not bother to file their proxies or attend the meeting because they would not be aware that the company was in play. On the basis of the notice of the AGM there was nothing to indicate that anything out of the ordinary would occur at the AGM given the proposed order of business was to accept the financial statements, elect directors and reappoint auditors. [33] After the hearing of this matter on Friday June 15, 2012 but before I dismissed the petitioner s applications to prevent the postponement of the AGM and the changing of the date of record, the petitioner issued, on June 18, 2012 the names of five nominees for election as directors to replace Mundoro s current board of directors. This announcement confirmed for the first time the intentions of the petitioner. [34] After the Advance Notice Policy was announced the petitioner advised the respondent that it would seek to set aside the Policy and as a result brought this petition. The board of directors of Mundoro met to consider the timing of the AGM in light of the new information. Teo Dechev, the chief executive officer of the respondent said this in her affidavit filed in this proceeding: 8. The Board determined that it was appropriate to postpone the Meeting in light of the following: (a) (b) (c) the company is entitled to hold its annual general meeting at any time before August 28, 2012; the Company wanted to afford shareholders ample opportunity to put forward an alternate slate or alternate director nominees; and the fact that it was in the interests of shareholders generally to have additional time to consider the recent development, including specifically, the Policy. [35] The petitioner has not placed before this Court any evidence that the directors were acting other than in the best interests of the shareholders of the company. There is no evidence to support its allegations that the board was acting to protect their positions as board members, nor is there validity to the assertion that the board was not acting to protect shareholder rights and was targeting the petitioner. The petitioner adverts to the action being prejudicial to the shareholders however it is the petitioner who has acted in its own interest as a shareholder but not necessarily in the interests of all shareholders given the petitioner only holds a small percentage of the outstanding shares. The petitioner s action, if carried out as originally apparently planned, would have denied the majority of shareholders an opportunity to participate given the expectation that the meeting would be in effect pro forma. The late announcement by the petitioner of its intentions would not permit sufficient time to insure that all shareholders were advised and given the opportunity to attend or submit their proxies.

9 [36] As a result I find that there is no evidence that the board was not acting in the best interests of the shareholders. In my view the late indication by the petitioner of its intentions did give rise to special circumstances and the board was justified in responding. It is for the board to determine what is in the best interests of the corporation and its shareholders. If their decisions are challenged there are provisions in the Act for shareholders to seek redress. [37] With respect to the record date given the discretion in the board to postpone the AGM to such a date as they deem appropriate it follows that they also have the authority to change the record date. Advance Notice Policy [38] The final issue is whether the Policy is unenforceable. [39] The submission of the petitioner is founded on the notion that directors only have those powers that are granted to them by the articles. They also submit that the Act expressly provides that the election and removal of directors must occur in accordance with the articles. [40] They submit that Mundoro is using the Policy to attempt to prevent what is expressly permitted by securities laws applicable to proxy contests. They allege that the Policy seeks to avoid compliance with the legal requirements that must be followed (Part 9 of National Instrument Continuous Disclosure Obligations). They further allege the Policy affects shareholder democracy because the Policy deprives shareholders of their right to elect directors in accordance with the Act. The result they submit is that the board can entrench themselves and are therefore improperly seeking to protect and thereby benefit themselves. [41] The petitioner asserts that while shareholder rights do not typically extend to managing a corporation (as their rights are limited to voting rights), that their most significant right is to elect directors of the corporation. They submit that the Policy is an attempt to interfere with that fundamental right without authorization or justification. [42] Their argument is that s. 19 of the Act provides that a company and its shareholders are bound by a company s articles and notice of articles and that any alteration of those articles must be signed and sealed by the company and each shareholder. In addition they state that the Act requires that the election and removal of directors must occur in accordance with the articles. [43] They refer to Part 5 Division 1 of the Act respecting the election and removal of directors and s. 122 s requirement that the directors must be elected or appointed in accordance with the Act or the articles. They note that Part 14 of the articles governs the role of shareholders in the election and removal of directors and that directors must be qualified in accordance with Article 13.4 and the Act. They submit that there are no restrictions on the nomination process. They submit that the proposed Policy requires a change to the articles because the directors do not have the authority to change the articles. [44] In effect they submit that a special resolution of the shareholders is required (s. 259 of Act and 9.4 of

10 articles of the company) to alter the articles and therefore the Policy requires a special resolution to amend its articles. [45] This line of reasoning is premised on the argument that the directors do not have a power unless the articles specifically grant it. In fact the reverse is correct. As previously discussed the Act and the articles give the directors the power to exercise those powers not specifically reserved to the shareholders. As noted earlier and repeated here for convenience s of the Articles provides: 15.1 Powers of Management. The directors must, subject to the Business Corporations Act and these Articles, manage or supervise the management of the business and affairs of the Company and have the authority to exercise all such powers of the Company as are not, by the Business Corporations Act or by these Articles, required to be exercised by the shareholders of the Company. [46] Neither the Act nor the articles expressly preclude directors from creating such a Policy. Nor has the petitioner provided any authority for the proposition that only the shareholders can create an advance notice policy. [47] The petitioner s argument is not supported by the Act or the articles. Notwithstanding that, if the issue is one of shareholder rights being infringed, can it be inferred that in such circumstances there is a restriction on the directors power to create an advance notice policy? In this case it has not been established that the Policy is one that infringes shareholder rights. Rather, the Policy in fact ensures an orderly nomination process and that the shareholders are informed in advance of an AGM what is in issue. In doing so the Policy prevents a group of shareholders from taking advantage of a poorly attended shareholders meeting to impose their slate of directors on what could be a majority of shareholders unaware of such a possibility arising. The submission of the petitioner equates the rights of a small group of dissident shareholders with all shareholders of the company. The interests of the two groups do not necessarily coincide. [48] In Blair v. Consolidated Enfield Corp., [1995] 4 S.C.R. 5, the chair of a shareholders meeting relied on legal advice that turned out to be incorrect and rejected proxies tendered at the meeting. Iacoucci J. commented on the proxy system and advance notice of director nominations as follows: 63. If anything, I am sympathetic to the respondent s submission that he believed that the rejection of Osler s advice, which is what the appellant appears to suggest Blair should have done, could not be in Enfield s best interest: (a) (b) (c) (d) Blair was not qualified to interpret and apply the law to the ballots and proxies; Blair owed a duty to shareholders to see that the instructions contained in their proxies were followed; The shareholders who had not received notice of the surprise nomination of Price and who were not present at the shareholders' meeting and who held enough votes to change the result had they received notice might have a cause of action if Price were declared elected against the advice of Enfield's counsel; The shareholders who were represented by management proxies had no opportunity to assess Price or to vote in relation to his candidacy, and they relied on Enfield and its chairman to ensure that their rights at the meeting

11 (iv) were protected. The interests of the shareholders not present at the meeting 71 Many of the persons issuing proxies were not present at the meeting. Although they may very well have been informed of the tensions between Blair and Canadian Express, they would certainly not have expected there to be a contested election for the position of 11th director. At the time the proxies were given to Ravelston and Canadian Express, it was assumed that the 11 persons listed in the management circular would simply be elected. The evidentiary record does not reveal that anyone's mind was alerted to the possibility that the proxyholders would use the proxies to nominate Price over Blair. No notice whatsoever was given of Price's nomination. In this context, I find some merit to Blair's submission that his decision to follow Osler's advice must be viewed also in light of the interests of the shareholders not present at the meeting. 72 In the end, by following the instructions on the proxies and then requisitioning a new shareholders' meeting on July 24, 1989, Blair gave all shareholders an opportunity to make a fully informed decision regarding the election of the directors, thereby promoting the integrity of Enfield's voting procedures. Shareholders holding fully 16 percent of the shares of Enfield who were not aware that Canadian Express would attempt to take control of the Board were thus placed in a position of being able to make an informed choice as to how to vote (see judgment of the Court of Appeal, at p. 801). The corollary is that Canadian Express suffered no prejudice in respect of its voting rights in that it had the opportunity to nominate and support Price at the new meeting or pursue legal action against Enfield.. 73 In my mind, the fact that Blair promptly, and contrary to his personal interests, requisitioned a new meeting constitutes further evidence that his actions were taken with a view to the best interests of Enfield. If anything, Canadian Express's decision to pursue this matter through litigation drives against the wellbeing of Enfield's shareholders, especially those who have no personal interest in who acts as the 11th director, provided simply that individual discharge his or her duties to the corporation in a competent and trustworthy manner. [49] In Horton v. St. Thomas Elgin General Hospital (1982), 140 D.L.R. (3d) 274, 39 O.R. (2d) 247 (H.C.J.), an advance notice by-law was enacted by a non-profit corporation under the Ontario Corporations Act. That statute does not deal expressly with members voting rights nor with director nomination rights. The by-law was held invalid for technical reasons however Smith J. observed at para. 25: [25] The American reports are replete with pronouncements on the right to vote and nominate. The applicant has made reference to a large number of them. They all allow that by-laws can be passed to curtail as long as the wording is clear. I am of the same view. [50] The respondent notes that advance notice is supported by ISS (Institutional Shareholder Services Inc.) the leading independent advisory on good governance for shareholder meetings. ISS favours advance notice of nominations to ensure full disclosure in regard to a proponent s economic and voting position in the company so long as the informational requirements are reasonable and aimed at providing shareholders with the necessary information to review such proposal. [51] The Policy in this case leaves with the board the sole discretion to waive any requirement in the policy which discretion can be reviewed by a court. In addition the press release noted that the company intended to seek shareholder approval and confirmation of the Policy at the AGM. Both of these factors evidence

12 good faith and the reasonableness of the Policy. [52] The petitioner also submits that advance notice policies should not be used to interfere with a proxy contest. They rely on Accipiter Life Sciences Fund v. Helfer, 905 A. 2d., 2006 Del Ch., the Court of Chancery of Delaware, where the court stated that: In deciding whether an act is an inequitable restraint on the stockholder s franchise, this court has looked closely at the circumstances of each case. Obviously, our courts have been more likely to find an action impermissible if the board acted with the intent of influencing or precluding a proxy contest for control of the corporation. [53] As noted the circumstances of each case require scrutiny. The actions of the board in this instance in creating an advance notice policy have not been shown to having been done to influence or preclude a proxy contest but rather to insure that all shareholders are made aware that a proxy contest exists. No evidence has been put forward that the directors are not behaving reasonably. [54] On the other hand the actions of the petitioner in apparently originally planning to hide in the weeds until the AGM appear to be aimed at preventing all shareholders from having notice and the opportunity to vote in a proxy contest. [55] For these reasons the petition is dismissed with costs to the respondent. Punnett J.