Advance notice provisions: oppression and the public interest.
ABSTRACT I INTRODUCTION II SHAREHOLDERS, DIRECTORS, AND THE CORPORATION Shareholder Voting Power Legal Strategy to Replace Directors and the Element of Surprise III ADVANCE NOTICE PROVISIONS The Mechanisms to Implement Advance Notice Provisions The Advantages of Advance Notice The Disadvantages of Advance Notice IV ADVANCE NOTICE PROVISIONS IN PRACTICE Mundoro Maudore V PROBLEMATIC USE AND DRAFTING OF ADVANCE NOTICE PROVISIONS Timing and Manner of Adoption Preventing Nominations Before a Specific Date VI BCE AND ADVANCE NOTICE PROVISIONS Reasonable Expectations Oppression, Unfair Prejudice, or Unfair Disregard VII THE PUBLIC INTEREST POWER The Nature and Scope of Public Interest Power The Tension Between Corporate and Securities Law The Public Interest Power and Problematic Uses of Advance Notice Provisions VIII CONCLUSION
Advance notice provisions (1) require shareholders to give a company notice of director nominations and detailed information about nominees in advance of an annual or special meeting. (2) They can take the form of a policy adopted by the board of directors or an amendment to corporate by-laws or articles of incorporation. If a dissident shareholder (3) fails to comply with the advance notice provision, the directors can refuse the shareholder's nominations. (4)
Advance notice provisions can foster shareholder democracy by "allowing shareholders to fully participate in the director election process in an informed and effective manner",5 and can prevent a dissident from "[hiding] in the weeds" (6) to take advantage of a poorly attended meeting to elect the nominees of his or her choice. Arguably, however, directors can draft or implement an advance notice provision in a manner that is detrimental to the interests of shareholders. This article will argue that advance notice provisions have the potential to violate both corporate and securities law. (7)
Part II considers shareholders' statutory ability to vote on the corporation's directors and other important corporate matters. Further, Part II discusses the statutory mechanisms that shareholders can use to replace existing directors. Part III considers the mechanisms that directors can use to implement advance notice provisions, and discusses the advantages and disadvantages of the provisions to shareholders and directors.
Part IV discusses two recent court decisions that have upheld incumbent directors' use of advance notice provisions under corporate law: Northern Minerals Investment Corp v Mundoro Capital Inc (8) and Maudore Minerals Ltd v Harbour Foundation. (9) In particular, Part IV sets out the background of the disputes, the decision of each Court, and the events that followed each decision.
While advance notice provisions can be beneficial to shareholder democracy, directors may use advance notice provisions in a manner that harms the interests of shareholders. Part V suggests that advance notice provisions can have a deleterious effect on shareholders under several circumstances. For instance, directors may draft and implement advance notice provisions in a manner that effectively precludes shareholders from nominating directors at a meeting, or in a manner that reduces the chance that shareholders will elect a dissident shareholder's nominee.
Where an advance notice provision harms shareholders, the provision may be contrary to both corporate and securities law. Part VI argues that, although the Courts in Mundoro and Maudore did not strike down the advance notice provisions implemented by the directors, in the future, courts might invalidate such provisions when they are used by directors in a way that breaches the reasonable expectations of a dissident share-holder in a manner that is oppressive or unfairly prejudicial to his or her interests. In particular, when directors implement the provision after the last day on which the provision permits nominations ("cut-off date"), or when directors implement the provision close to the cut-off date and take steps to stall the announcement of the nomination, the directors' use of the advance notice provision may be oppressive and contrary to section 241 of the Canada Business Corporations Act (10) as interpreted by the Supreme Court of Canada in BCE Inc v 1976 Debentureholders. (11) Further, where a provision prohibits nominations prior to a specific date without reason, courts may apply the oppression remedy to eliminate the restriction.
In addition, the directors' use of an advance notice provision may be contrary to securities law. Securities legislation gives securities regulators the power to intervene when directors' actions are contrary to the public interest. (12) Part VII will argue that, in light of the increased use of advance notice provisions by Canadian corporations, (13) securities regulators should critically examine advance notice provisions, and do so on a case-by-case basis to determine whether an advance notice provision is contrary to the public interest. In particular, an advance notice provision may be abusive of shareholders and capital markets where the provision is used to either entrench management or constrain the fundamental rights of shareholders. Consequently, if left unchecked, the damage to shareholder democracy may lead to inefficient markets and a decline in investors' confidence in Canadian capital markets.
II SHAREHOLDERS, DIRECTORS, AND THE CORPORATION
Advance notice provisions have the potential to affect how shareholders exercise their right to vote and nominate directors. Therefore, before considering advance notice provisions, this article will examine some of the statutory mechanisms that give shareholders the ability to vote for directors and on other corporate matters, and to propose new corporate directors.
I. SHAREHOLDER VOTING POWER
Canadian corporate law provides shareholders with the right to change the board of directors and to amend the corporation's constating documents. This subsection of the article will consider shareholders' statutory right to determine the corporation's directors, and the effect of this right on directors' incentives to act in the best interests of the corporation. In addition, this subsection will consider shareholders' rights to control the terms of the "corporate contract" that governs the relationship between the directors, the shareholders, and the corporation.
(i) Changing the Board of Directors
Generally, a corporation has the capacity, rights, powers, and privileges of a natural person. (14) However, because a corporation is an artificial, juristic entity, (15) individuals must act on behalf of the corporation. By default, corporate law confers this responsibility on directors. Specifically, subject to a unanimous shareholder agreement, (16) the CBCA requires the directors to manage, or supervise the management of, the business and affairs of the corporation. (17) In addition, directors can appoint officers, and can delegate certain powers to the officers to allow them to manage the business and affairs of the corporation. (18)
Although the directors and officers manage the corporation, they are not the residual claimants of the corporation's assets. Section 24 of the CBCA provides that where a corporation has one class of shares, holders of those shares must have the right to vote at shareholder meetings, to receive dividends, and to receive the remaining property of the corporation on dissolution. (19) Further, section 106 of the CBCA explicitly bestows on shareholders the power to elect the directors. (20) From a corporate governance perspective, sections 24 and 106 of the CBCA can be thought of as providing shareholders with democratic rights and a financial interest in the corporation.
In short, the CBCA provides that directors manage the corporation and shareholders elect those directors. In giving directors and shareholders these distinct rights, the CBCA creates a separation of ownership and control. (21) As discussed by Adolf Berle & Gardiner Means in their seminal work, The Modern Corporation and Private Property, (22) directors and officers motivated by personal interests may not act in a manner that maximizes corporate value. (23) The divergent interests of management and shareholders can lead to agency costs, which consist of the costs that the principal and agent incur to ensure that the agent acts in the principal's best interests, as well as the costs of any residual divergence between the agent's decisions and the decisions that are in the best interests of the principal. (24) Thus, shareholders may incur costs where the actions of management do not align with the best interests of the corporation, and where the shareholders must take steps to minimize such misalignment.
However, corporate law and market mechanisms can control these divergent interests and agency costs. (25) Shareholders can minimize agency costs and maximize firm value by using their statutory right to replace directors--the ability of shareholders to replace directors should incentivize the directors to act in the best interests of the corporation. In other words, shareholders' right to replace directors is "intended to render the directors accountable to shareholders". (26)
Although the ability to change the board of directors can independently influence the directors to act in the best interests of the corporation, the ability of shareholders to replace directors bolsters other market mechanisms that control agency costs. For example, the "market for corporate control" (27) relies on the ability of shareholders to determine the board of directors. (28) The market for corporate control operates by incentivizing an investor to acquire control of a mismanaged corporation and replace existing management, (29) because the share price of a mismanaged corporation should increase when new directors replace inefficient directors. (30) This financial incentive is dependent on the shareholder's ability to replace existing management. Without the ability to replace inefficient management, the investor cannot expect the value of his or her investment to increase.
(ii) Changing the "Corporate Contract"
In addition to replacing directors, shareholders can use their voting power to change the corporation's constating documents. (31) A CBCA corporation's constating documents include the articles of incorporation and the corporate by-laws. (32) The constating documents establish the rights of directors, shareholders, or the corporation. The constating documents illustrate the contractarian conception of corporate law, which suggests that the corporation is a nexus of various contractual relationships between numerous parties, such as shareholders and managers. (33) From this perspective, corporate statutes should essentially set out a standardized contract that strives to give shareholders and management the terms that both parties would desire absent statutory involvement. (34) Shareholders benefit from standardized terms because standardized terms reduce the transaction costs of negotiating the "corporate contract". (35) In addition, corporate statutes should enable contracting by providing shareholders with the ability to alter, or contract around, standard terms. (36) For example, section 103 of the CBCA provides directors with the ability to make, amend, or repeal any by-laws that regulate the business or affairs of the corporation; however, the articles, by-laws, or a unanimous shareholder agreement can remove the directors' ability to change these by-laws. (37) The ability of directors and shareholders to make by-laws that govern the corporation illustrates the theory of the "corporate contract". Because the CBCA is silent on most governance issues, the CBCA permits shareholders and directors to determine many of the rules that govern each corporation. (38)
II. LEGAL STRATEGY TO REPLACE DIRECTORS AND THE ELEMENT OF SURPRISE
As discussed, the ability of shareholders to determine the corporation's directors is a basic right that allows shareholders to ensure that the directors are acting in the best interests of the corporation. In addition to their right to elect directors, shareholders can nominate directors. (39) The method by which shareholders nominate a director depends on whether the nomination takes place in the context of a shareholder-requisitioned meeting or a director-called meeting. Each type of meeting will be addressed separately below.
(i) Strategies to Replace Directors Under a Meeting Called by the Corporation
Director-called meetings provide shareholders with the opportunity to nominate their own directors through a shareholder proposal, shareholder ambush, or proxy fight.
(a) A Dissident May Submit a Shareholder Proposal Nominating New Directors
According to section 137 of the CBCA, a registered or beneficial shareholder can submit a proposal for all shareholders to consider at a meeting. (40) This power provides shareholders with the ability to nominate alternative directors for election, provided the dissident or group of dissidents hold at least five percent of the outstanding shares of a class of shares of the corporation. (41)
(b) A Dissident May Announce a Nomination at the Meeting
Where the dissident or a group of dissidents holds a sufficiently large proportion of shares, a shareholder ambush can be an effective strategy to replace existing directors. A shareholder ambush occurs when a dissident nominates directors at the meeting without any warning, relying on the tactical advantage of surprise. (42) A shareholder ambush is not an uncommon occurrence in Canada. (43)
(c) A Dissident May Solicit Proxies
A dissident may also engage the existing management in a proxy battle. A proxy is a form that permits a shareholder to give another person the power to vote his or her shares. (44) Shareholders may decide to send their proxy form to management to enable management to vote for their own nominees on the shareholder's behalf. However, where a dissident proposes nominees, the dissident may solicit shareholders' proxies in accordance with section 150 of the CBCA45 and Part 7 of the CBCA Regulations, (46) so that the dissident can vote the proxies in favour of his or her own nominees. (47) Proxy solicitation rules generally require dissidents to send a proxy circular in prescribed form stating the purposes of the solicitation "to the auditor of the corporation, to each shareholder whose proxy is solicited, to each director and...to the corporation". (48) Proxy solicitation is usually more costly than a shareholder proposal, because unlike a proposal, the dissident bears the cost of proxy solicitation. (49)
The CBCA provides two exemptions to shareholders from the obligation to comply with section 150(1). First, if the dissident solicits proxies from 15 or fewer shareholders, with two or more joint holders counting as one, then the dissident need not send a proxy circular as otherwise required by section 150(1) to the corporation and its directors. (50) A dissident shareholder planning an ambush can benefit from this exemption. According to the CBCA, directors have the right to set a record date for the purpose of determining which shareholders are entitled to vote at a shareholder meeting. (51) If shareholders acquire a voting share after the record date, they will be ineligible to vote at the forthcoming meeting. Effectively, the record date prevents shareholders from acquiring and voting a large number of shares immediately before the meeting. Thus, dissidents can use this exemption to overcome the effect of the record date by quietly soliciting proxies from 15 or fewer shareholders immediately before the meeting.
Second, if the dissident solicits by way of "public broadcast, speech or publication", in the prescribed circumstances, then the dissident need not send a proxy circular to the corporation and directors as otherwise required by section 150(1). (52)
(ii) Strategies to Replace Directors Under a Meeting Called by the Shareholder
The CBCA also provides shareholders with the ability to requisition a meeting. (53) The shareholder-requisitioned meeting can be used for the purpose of, inter alia, replacing the directors. In accordance with section 143(1), the shareholder requisitioning the meeting must hold no less than 5% of the shares. (54) The shareholder who calls such a meeting is required to comply with many of the same rules that apply to an annual meeting. (55) This might also be a more expensive option than a shareholder proposal, as section 143(6) states that "the corporation shall reimburse the shareholders the expenses reasonably incurred by them in requisitioning, calling and holding the meeting". (56) As a result, unlike the cost of the shareholder proposal, which is borne by the corporation, the directors have discretion to determine whether the expenses of a requisitioned meeting were reasonable.
III ADVANCE NOTICE PROVISIONS
As previously stated, an advance notice provision is a provision in a corporation's articles, by-laws, or corporate governance policy that requires dissident shareholders to provide notice in advance of a meeting of their intention to include a nominee at the forthcoming meeting. (57) Before considering the advantages and disadvantages of advance notice provisions, the legal mechanisms directors might use to implement an advance notice provision will be described.
I. THE MECHANISMS TO IMPLEMENT ADVANCE NOTICE PROVISIONS
Directors can implement an advance notice provision through the constating documents or through a board policy. For a CBCA corporation, the directors may adopt the provision through an article or by-law amendment. For a British Columbia Business Corporations Act (58) corporation, the directors may adopt the provision using an article amendment or board policy.
(i) Inclusion in, or Amendment of, the Constating Documents
A CBCA corporation can adopt an advance notice provision by amending, or adding to, the by-laws or the articles. Under the CBCA, directors can amend the by-laws with immediate effect. (59) The by-laws will cease to be effective if the by-law does not receive shareholder approval by ordinary resolution, which requires the support of a majority of shareholders. (60) As a result, if directors are concerned about a shareholder ambush, they can implement an advance notice provision immediately.
Directors can also make a proposal to amend the articles. (61) For such a proposal to be effective, shareholders must approve it by special resolution, which requires the support of two-thirds of shareholders. (62) As a result, a director's proposal to amend the articles will not have immediate effect.
(ii) Adoption of a Board Policy
Corporations established under the BCBCA do not have by-laws. Formally, the corporate articles restrict the powers of directors and the affairs of the corporation. (63) However, as under the CBCA, amendments to the articles are ineffective until shareholders approve the amendments by special resolution. (64) Practically, this can make managing the business difficult. As a result, directors of BCBCA corporations often use board policies to set out internal government rules for the affairs of the corporation. (65) As discussed below, the British Columbia Supreme Court in Mundoro held that directors could implement an advance notice provision using a board policy, provided the board policy is not contrary to the articles or the BCBCA. (66)
ii. the advantages of advance notice
Advance notice provisions can provide advantages to both directors and shareholders. Although corporate news releases often cite the benefits to shareholders as a reason for adopting these provisions, (67) they can also benefit directors.
(i) Directors' Perspective
Advance notice provisions provide the directors with a warning that a dissident is seeking to replace them. An advance notice provision destroys the element of surprise and the ability of dissidents to use a shareholder ambush to replace incumbent directors. Further, as illustrated below in Mundoro, having notice can provide sufficient time for the directors to mount an offensive campaign to promote their nominees (usually themselves) and discredit the nominees of the dissident shareholders.
Alternatively, advance notice provisions can allow directors to concentrate on managing the corporation rather than inefficiently concentrating on the possibility of dissident nominations. If advance notice provisions permit shareholders to nominate directors only during a brief period of the year, the incumbent directors can spend the rest of the year focused on maximizing firm value.
(ii) Shareholders' Perspective
Non-dissident shareholders may benefit from advance notice provisions by being provided with information that can help them make an informed decision with respect to electing directors. (68) Under Canadian corporate law, informed shareholders should enhance shareholder democracy for several reasons. First, in elections they believe are uncontested, shareholders may decide not to attend the shareholder meeting. (69) As a result, this could exclude a large number of shareholders from having the opportunity to vote in favour of the dissident's nominees or management's nominees.
Second, shareholders of a corporation without a majority voting policy could lack an incentive to vote. When only the incumbent management has proposed nominees, shareholders can only vote in favour of the proposed nominees or withhold their vote. In a corporation without a majority voting policy, one vote in favour of an uncontested nominee is sufficient for the nomination to succeed. Therefore, in such corporations, if shareholders are unaware of a contested battle, they could lack the incentive to vote, because they may assume that at least one shareholder will vote in favour of the uncontested nominees\. This will typically be a reasonable assumption because self-nominated directors typically hold voting shares of the corporation.
Third, because of the CBCA's definition of ordinary resolution, (70) significantly fewer than 50% plus one of the shareholders could determine the directorship of the corporation, as the nominees in a contested election must receive 50% plus one of the votes cast to become the directors. Because success turns on the votes cast, weak voter participation can result in a shareholder with fewer than 50% plus one of the corporation's voting rights independently electing the corporation's directors. For example, where voter participation is weak, a 10% voting interest may be sufficient to guarantee an ordinary resolution. (71)
III. THE DISADVANTAGES OF ADVANCE NOTICE
Although corporate news releases tout the benefits of advance notice provisions, they generally fail to set out the possible disadvantages of such provisions. While advance notice provisions are more likely to harm shareholders, these provisions can also create disadvantages for incumbent directors.
(i) Directors' Perspective
Although there are probably few disadvantages to directors from implementing advance notice provisions, such provisions may work against incumbent management. For example, in the absence of an advance notice provision, a shareholder ambush may ultimately be ineffective because the dissident misjudged the number of votes required to win the election; however, if the advance notice provision requires a dissident to launch a campaign and gather support, which the dissident would not otherwise have done, then the advance notice provision may work against the directors.
(ii) Shareholders' Perspective
Advance notice provisions can create specific disadvantages to dissident and non-dissident shareholders. From a dissident shareholder's perspective, the introduction of an advance notice provision will prevent them from using a shareholder ambush. As discussed earlier, the element of surprise can be an effective tool for replacing management, but surprise will be lost if dissidents are required to disclose their intention and nominees prior to the election date.
From a non-dissident shareholder's perspective, if the dissident's nominees would be more effective in upholding the interests of shareholders than the incumbent management, non-dissident shareholders may miss the opportunity for better management.
Further, advance notice provisions may adversely affect shareholders by increasing the risk of managers acting contrary to the best interests of the corporation, and increasing the related agency costs. As discussed previously, the ability of shareholders to replace directors can reduce the risk of managers acting opportunistically and can help to control agency costs. Where advance notice provisions negatively impact the ability of a shareholder to replace opportunistic directors, agency costs may increase. Moreover, this type of use of advance notice provisions may weaken the market for corporate control and increase opportunistic management behaviour and agency costs, because the "market for corporate control depends on the ability of an acquirer of shares to vote to oust directors". (72) Directors might entrench themselves by using the advance notice provisions to reduce the chance of shareholders nominating alternative directors.
Lastly, whether the "corporate contract" permits directors to use by-laws to adopt an advance notice provision is questionable. The CBCA is based on a report by Robert WV Dickerson called Proposals for a New Business Corporations Law for Canada. (73) The Dickerson Report included a draft corporate statute and accompanying commentary on every proposed statutory provision. Section 103 of the CBCA is substantially the same as section 9.02 of the Dickerson Report. Both the CBCA and the Dickerson Report give shareholders and directors the power to amend the corporation's by-laws. As Part II discussed, shareholders or directors can use the corporate by-laws to modify the "corporate contract". However, the Dickerson Report's interpretation of directors' ability to change the corporation's by-laws might not allow directors to implement an advance notice provision. According to the Dickerson Report, directors' ability to make a by-law does not grant directors "the power to control the internal government of the corporation to the exclusion of shareholders". (74) In considering the division of control, the Dickerson Report's draft corporate statute acknowledged "the realities of corporate management by placing residual control of internal government where it belongs--with the shareholders--but giving the directors power to administer the corporation from day to day". (75) As a result of the Dickerson Report's interpretation of directors' power to make by-laws, it is unclear whether directors can use a bylaw to change the "corporate contract" in a manner that prevents shareholders from nominating directors during a substantial part of the year.
In short, advance notice provisions provide shareholders and directors with advantages and disadvantages. While these provisions can encourage shareholder democracy, they can also harm it. Although corporate news releases do not generally discuss the effect of these provisions on directors, there is reason to believe that directors might be motivated to use advance notice provisions to their advantage. In addition, as will be discussed in Part V, whether the advantages to shareholders of an advance notice provision outweigh the disadvantages will likely depend on the mechanism that directors use to implement the provision.
IV ADVANCE NOTICE PROVISIONS IN PRACTICE
Canadian courts had the opportunity to consider advance notice provisions on two occasions in 2012. First, in Mundoro, (76) the British Columbia Supreme Court considered whether an advance notice provision offended the BCBCA. Second, in Maudore, (77) the Ontario Superior Court of Justice considered whether an advance notice provision was oppressive to the dissident under the Ontario Business Corporations Act. (78) As will be discussed in Part V, the board of directors of Mundoro Capital Inc ("Mundoro") and Maudore Minerals Ltd ("Maudore") adopted advance notice provisions that could harm the interests of shareholders. However, because both boards postponed the meetings in which director nominations were to be considered, the respective Courts did not address whether the advance notice provisions frustrated the right of shareholders to nominate directors. Further, neither Court addressed how the window of opportunity to nominate directors might affect shareholders as a whole. This section of the article discusses Mundoro and Maudore. The remainder of the article will consider the potentially problematic uses of advance notice provisions under Canadian corporate and securities law.
Mundoro is a corporation established under the BCBCA that operates in the mineral resource sector, with a focus on development, exploration, and investment. (79) It holds mineral interests in Mexico and Serbia, (80) and the majority of Mundoro's shareholders are retail investors. (81)
On April 20, 2012, Mundoro gave notice that it would hold its annual general meeting on June 26, 2012, and set the record date for May 22, 2012.82 On May 22, 2012, it issued a management proxy circular. The management proxy circular stated that the meeting would provide shareholders with an opportunity to receive the financial statements of the company, elect directors, and reappoint the auditors. (83) On June 9, 2012, Mundoro's board implemented an advance notice provision. (84) It announced the advance notice provision on June 11, 2012, (85) which was 15 days before the meeting. The provision required notice of director nominations between 30 and 65 days prior to the meeting. (86) In addition, the provision provided that "the chairman of the meeting had the power and duty to determine whether a nomination was made in accordance with the [provision] and that the board in its sole discretion could waive any requirement of the [provision]". (87) The provision also contained a carve-out that permitted shareholders to make proposals and requisitions outside of the permitted period. (88) In effect, the provision prohibited shareholders from making nominations without prior notice to the corporation, because the directors enacted the requirement 15 days before the meeting and the provision required shareholders to give notice at least 30 days before the meeting.
Northern Mineral Investments ("NMI") is a privately held BCBCA corporation. At the time of the Court's decision, NMI held approximately 8.4% of Mundoro's shares. (89) On June 13, 2012, NMI, a dissident shareholder, notified Mundoro that NMI believed Mundoro had no legal basis for instituting the advance notice provision. (90) The next day, June 14, 2012, Mundoro announced that it would seek shareholder approval of the provision and would postpone the annual meeting. (91) Also on June 14, 2012, NMI challenged the provision by bringing an application to the British Columbia Supreme Court. (92) Four days later, on June 18, 2012, NMI announced a slate of directors for nomination at the forthcoming meeting. (93) NMI's slate included John (Zong Hai) Han, who was the CEO of NMI. (94) NMI's slate announcement stated that it was seeking to replace the incumbent directors because the share price had fallen 75% since December 2009, and the corporate expenses had been unreasonably high over the past five years. (95)
NMI's application sought an order preventing Mundoro from postponing or adjourning the June 26, 2012 meeting, an order preventing Mundoro from changing the record date, and an order declaring that the advance notice provision was unenforceable. (96)
(a) Postponing the Meeting and Changing the Record Date
Justice Punnett dismissed NMI's argument that the directors could not postpone the meeting for two reasons. First, Punnett J held that the BCBCA permits directors to postpone an annual meeting. He concluded that the BCBCA grants directors residual powers to manage the business and affairs of the corporation, because an interpretation providing directors with only those powers that the BCBCA explicitly grants would be unduly restrictive and could lead to unreasonable results. (97) Further, Punnet J held that as a matter of contractual interpretation, the BCBCA and Mundoro's articles granted the directors residual powers to postpone a meeting. (98)
Second, Punnett J concluded that NMI's late nomination announcement gave rise to circumstances that justified the postponement of the meeting. (99) He reasoned that NMI's late nomination announcement did not leave enough time for the directors to ensure that all of the shareholders "were advised and given the opportunity to attend or submit their proxies". (100) Further, Punnett J held that "there was no evidence that the board was not acting in the best interests of the shareholders". (101)
He also dismissed NMI's request for an order preventing Mundoro from changing the record date. (102) He held that the authority to change the record date follows from the ability to postpone the annual general meeting. (103)
(b) Adopting the Advance Notice Provision
Justice Punnett dismissed NMI's request for a declaration that the advance notice provision was unenforceable. (104) However, he suggested that courts should consider each case based on the circumstances. (105) Here, he found that the circumstances did not warrant intervention.
Punnett J held that neither the BCBCA nor the articles prevented the directors from adopting an advance notice provision. (106) There were two reasons for this holding. First, as NMI admitted, the BCBCA is silent on the ability of directors to adopt an advance notice provision. (107) Second, Mundoro's articles provided that the directors must "manage or supervise the management of the business and affairs of [Mundoro] and have the authority to exercise all such powers of [Mundoro] as are not, by the [BCBCA] or by these Articles, required to be exercised by the shareholders of [Mundoro]". (108)
Further, Punnett J held that the evidence did not establish that the advance notice provision infringed shareholder rights. Rather, the provision in this case ensured an orderly nomination process and provided all shareholders with the opportunity to become informed about the director nominees. (109) The advance notice provision therefore "prevent[ed] 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". (110)
In addition, Punnett J held that the provision "evidence[d] good faith and reasonableness", because the directors retained discretion to waive any requirement of the provision, their decision to exercise discretion was subject to judicial review, and they planned to seek shareholder approval at the annual general meeting. (111)
Finally, Punnett J found that Mundoro's directors did not implement the advance notice provision "to 'influence or preclude' a proxy contest". (112) Instead, they implemented the provision to ensure that the shareholders were aware of the proxy contest. (113)
(iii) Subsequent Events
Mundoro held its annual general meeting on August 27, 2012. The advance notice provision did not receive the two-thirds approval and was thus not effective going forward, but the shareholders re-elected management's slate of directors.114 Despite the previously unsuccessful provision, Mundoro announced on November 9, 2012 that it had adopted a number of corporate governance policies, including an advance notice provision, which shareholders must approve at the next meeting. (115)
In summary, Mundoro's directors implemented an advance notice provision after the cut-off date. In the face of shareholder challenge, Mundoro's directors postponed the meeting and resolved to seek shareholder approval. Because the directors postponed the meeting, NMI was able to nominate directors without violating the provision. While the Court concluded that this particular advance notice provision was enforceable, it suggested that courts should consider provisions on a case-by-case basis.
Maudore is a Canadian mining corporation established under the OBCA. (106) Maudore's shares are listed on the TSX Venture, (117) and the company specializes in mining gold, (118) with its assets located in Quebec, Canada. (119) Collectively, The Harbour Foundation and City Securities Limited (together, "Harbour") is Maudore's largest shareholder. (120) Seager Rex Harbour ("Mr. Harbour") and his son Daniel Harbour ("Dr. Harbour") are trustees of The Harbour Foundation, and Mr. Harbour is the founder and principal of City Securities Limited. (121)
In 2011, Mr. Harbour became concerned about Maudore's management. To address his concerns, he sent Dr. Harbour and Howard Carr ("Dr. Carr"), an economic geologist and family friend, to visit Maudore's mine in Val D'Or, Quebec. (122) Before allowing Dr. Carr to visit the mine, Maudore's CEO, Ronald Shorr, required Dr. Carr to sign a confidentiality agreement. (123) During the visit, Dr. Carr concluded that Maudore's publicly-disclosed mining information was correct, but that Maudore's CEO possessed no technical knowledge and the existing management was mismanaging the geological consultants. (124)
Subsequently, on April 11, 2012, Maudore's board of directors gave notice that the annual meeting would occur on June 8, 2012, and that the record date would be May 4, 2012. (125) The board also struck a special committee of independent directors to respond to Mr. Harbour's concerns when it became clear that he might initiate a proxy context. (126) On April 23, 2012, Mr. Harbour contacted Maudore's CEO and proposed that Dr. Carr replace him, and that the board nominate a new Chairman. (127) Mr. Harbour also indicated that he did not wish to replace the entire board of directors. (128) Nevertheless, Maudore's CEO and board of directors refused to implement Mr. Harbour's proposal. (129) In response, Mr. Harbour decided to propose his own slate of directors for the board. (130)
On May 25, 2012, Maudore announced that it had amended its by-laws to include an advance notice provision. (131) The provision, like that in Mundoro, required shareholders to inform the directors of any proposed nominations at least 30 days, and not more than 65 days, before the annual meeting. In contrast to Mundoro, Maudore instituted the provision before the cut-off date. However, the directors implemented the provision only five days before the cut-off date, and Maudore refused to respond (to the dissident's satisfaction) to the dissident's request for clarification on how the provision should be interpreted. (132) In light of the contentious relationship between the parties, Maudore may have resisted the dissident's request for clarification as a stalling tactic to prevent the dissident from complying with the by-law. (133)
On June 4, 2012, Harbour attempted to comply with the advance notice requirement. (134) The following day, Maudore announced that it was postponing the shareholder meeting date and the record date to July 29, 2012 and June 8, 2012, respectively. (135) Notably, Habour's nomination announcement was fewer than 30 days from the date of the shareholder meeting, but any issue of compliance with the advance notice provision was moot after the directors postponed the meeting.
Maudore brought a motion seeking injunctive relief against Harbour's use of Dr. Carr's confidential information. Harbour brought a counter-motion seeking declaratory and injunctive relief from Maudore's allegedly oppressive conduct.
Justice Perell applied the injunction test from RJR-Macdonald v Canada (AG) to reject each party's request. (136) He held that neither party could establish a strong prima facie case, nor could they establish that the balance of convenience favoured an injunction, as the test requires. (137)
(a) Maudore's Request for an Injunction
Justice Perell denied Maudore's request for an injunction prohibiting Harbour from voting its securities. (138) Although he found that Harbour likely obtained confidential information, he held that Maudore had failed to establish a strong prima facie case that Harbour misused confidential information. (13) 9 Further, Perell J held that the balance of convenience did not favour Maudore. (140) He reasoned that even if Harbour misused the confidential information, it did so for the purpose of exercising its right to engage in a proxy contest. (141) He also found that an injunction preventing Harbour from exercising its normal electoral rights would be "draconian", because Maudore's CEO testified that Harbour gained little from the confidential information. (142) Justice Perell noted that "there [was] something to be said for [Harbour's] suggestion made during argument that the discomfort or inconvenience [was] not genuine but rather a cover for a tactical device in the proxy fight". (143)
(b) Harbour's Request for Relief and an Injunction
Justice Perell also refused to grant Harbour a declaration or interlocutory relief under the oppression remedy. (144) On the facts, he concluded that there was no reason or basis to interfere with the contractual and corporate autonomy of Maudore's board. (145) Moreover, Maudore's decision to postpone the shareholder meeting was understandable and reasonable, especially since the board postponed the meeting in an attempt "to appease Mr. Harbour". (146)
Regarding the advance notice provision, Perell J held that the provision was not oppressive. Without giving any specific reasons or considering the particular provision implemented, Perell J stated that "there was nothing unfair or inappropriate in introducing the [provision] to ensure that all shareholders would have sufficient notice of a contested election of directors". (147)
Justice Perell concluded that the Court should not grant Harbour an injunction on the ground of oppression. He held that Harbour did not show "a strong prima facie case for a mandatory injunction",148 and that Harbour would not suffer irreparable harm if Maudore's chairman improperly conducted the shareholder meeting. (149) Additionally, as the injunction would have essentially determined the matter, the balance of convenience did not favour an "interference with the contractual and corporate autonomy of Maudore and its shareholders". (150)
(iii) Subsequent Events
The Court released the Maudore decision on July 18, 2012--the day before the meeting. On the day of the meeting, Maudore announced that it had entered into a settlement with Harbour that gave the dissident five of the seven board seats, and transitioned to Harbour's preferred CEO. (151)
In summary, Maudore's directors implemented an advance notice provision five days before the cut-off date and did not immediately respond to Harbour's request for clarification about the provision. When Harbour announced its nominations after the cut-off date, Maudore's directors postponed the meeting. Because the directors postponed the meeting, any issue of Harbour violating the provision was moot, and the Court denied the dissident's oppression complaint. In contrast to Mundoro, the dissident in Maudore had enough voting power to convince the incumbent board to cede control of the company's board.
V PROBLEMATIC USE AND DRAFTING OF ADVANCE NOTICE PROVISIONS
In Mundoro, (152) the directors used a board policy to adopt an advance notice provision 15 days before the scheduled meeting. (153) The provision precluded a dissident from nominating directors, because the provision permitted a dissident to nominate directors only between 30 to 65 days before the meeting. (154) In response to NMI's legal challenge, Mundoro postponed the meeting and stated that it would seek shareholder approval of the policy. (155)
In Maudore, (156) the directors used a board policy to adopt an advance notice provision several days before the provision prohibited a shareholder from announcing nominees. (157) One day before the cut-off date, counsel to Harbour requested that Maudore clarify aspects of the provision; however, Maudore refused to respond to the request for clarification about the provision before the cut-off date. (158) If Harbour's need for clarification was preventing it from complying with the provision, the provision and Maudore's actions would have effectively precluded Harbour from nominating directors.
All of these actions work against the premise that the directors adopted the advance notice provision to further the ability of shareholders to make an informed decision about the management of the corporation. Specifically, when and how directors implement an advance notice provision can determine whether the provision is contrary to shareholders' interests, because, in certain situations, directors can use a provision to preclude dissidents from nominating directors. Additionally, a provision's window of opportunity can decrease the chance that shareholders will elect a dissident's nominees.
I. TIMING AND MANNER OF ADOPTION
Directors claim that corporations should implement advance notice provisions to ensure that shareholders receive sufficient information regarding director nominees and to ensure they are able to register an informed vote. (159) However, where a provision is instituted after the cut-off date (for example, fewer than 30 days before the meeting), shareholders are effectively prevented from nominating directors despite the expectation that they would be able to do so. If the directors are not attempting to entrench themselves, they could either announce the provision before the cut-off date or draft the provision so that there is an exemption for nominations for the first meeting after the adoption of the provision--for example, if there are 20 days until the meeting, then directors could draft the provision so that nominations must be made 15 days prior to the first meeting. Further, because corporate law makes directors' amendments to the by-laws effective immediately, directors can amend the by-laws to include an advance notice provision even where shareholders are likely to reject the provision. In Mundoro, the advance notice provision did not expire until after the shareholders would vote for directors. (160) As a result, even if shareholders voted against the provision, they would not be able to nominate directors from the floor of the meeting because the vote for directors would have already occurred.
Even when directors implement an advance notice provision before the cut-off date, the directors might use other tactics to prevent a dissident from being able to comply with the provision. As demonstrated in Maudore, Maudore announced the advance notice provision several days before the cut-off date, but then failed to respond in a timely manner to the dissident's request for clarification about the provision. (161) When the directors stall by failing to respond to such requests, the directors might be using the provision to entrench themselves rather than provide shareholders with the opportunity to consider all possible nominees.
While advance notice provisions might include a carve-out for proposals and requisitions, the carve-out can be useless under certain situations. For example, according to section 137(5)(a) of the CBCA and section 49 of the Regulations, (162) proposals must be submitted to the corporation at least 90 days before the anniversary date of the notice for the previous year's annual meeting. In addition, directors are not required to call a shareholder-requisitioned meeting when "a record date has been fixed under paragraph 134(1)(c) and notice of it has been given under subsection 134(3)", (163) or when "the directors have called a meeting of shareholders and have given notice thereof under section 135". (164) As a result, corporate law may preclude a shareholder from submitting a proposal or requisitioning a meeting even prior to the window of opportunity being available. Thus, directors might use carve-outs as window dressing to disguise their intentions of defeating a dissident's nominees.
II. PREVENTING NOMINATIONS BEFORE A SPECIFIC DATE
Advance notice provisions may also be questionable when they arbitrarily prevent nominations before a specific date. Again, the common justification for advance notice provisions is that they allow shareholders to be informed of other candidates for directorship. If this is the justification, then it is unclear why advance notice provisions should prevent shareholders from either nominating or informing other shareholders of alternative nominations before a specific date. The advance notice provisions in Maudore and Mundoro both prohibited nominations made more than 65 days before the date of the annual meeting. (165) In Maudore and Mundoro, neither the directors nor the Courts explained or analyzed why the directors set a 65-day cut-off. While directors may argue that long drawn out proxy battles are a waste of corporate resources, the events between CP Rail ("CP") and Pershing Square ("Pershing") in 2011-12 illustrate the power of a long public campaign.
On October 29, 2011, Pershing announced that it was going to attempt to change the management team of CP. (166) Pershing proposed that CP appoint several individuals as directors and replace the CEO. (167) The incumbent board of CP refused Pershing's request. (168) On January 23, 2012, CP announced that the annual meeting would occur on May 17, 2012. (169) The following day, January 24, 2012, Pershing informed the board that it intended to nominate its own board members and to solicit proxies. (170) Pershing announced its intentions almost four months before CP's annual meeting. The advanced action allowed Pershing to run a campaign that included communication with shareholders over a four-month period. In addition, several proxy advisor firms and a large institutional investor recommended voting in favour of Pershing in early May 2012. (171) Presumably, a longer period allows proxy advisory firms and shareholders to better evaluate the dissident's nominations. For example, the slide deck used by Pershing at its February 6, 2012 town hall meeting was 112 slides long. (172) The proxy circular released by Pershing on April 4, 2012 was 54 pages long. (173) Had this information been given to the shareholders 30 to 60 days prior to the meeting, it is questionable whether the proxy advisory firms and shareholders would have been able to evaluate Pershing's nominees as thoroughly. Further, Pershing likely benefited from first mover advantages. If directors have an advance notice provision in place, then they can begin to take actions that emphasize their record of accomplishment prior to the window of opportunity. A head start for management can be disadvantageous to a dissident shareholder, because the dissident must attempt to overcome shareholders' predetermined beliefs that management's initial communications can establish.
The 30- to 65-day window of opportunity that the advance notice provisions in Mundoro and Maudore provided shareholders is also empirically questionable. A study by Fasken Martineau DuMoulin LLP analyzed 101 Canadian proxy contests that occurred between January 1, 2008 and December 31, 2012. (174) The study considered the dissident success rate based on when the dissident initiated the proxy contest. Specifically, the authors divided the initiation date into three categories: 60 or more days before the originally scheduled meeting, 30 to 59 days before the originally scheduled meeting, and fewer than 30 days before the originally scheduled meeting. The study found that when the dissident initiated the proxy contest 60 days or more before the originally scheduled meeting, the dissident success rate was 67%. (175) When the dissident initiated the proxy contest between 30 and 59 days before the originally scheduled meeting, the success rate was 41%. (176) Lastly, when the dissident initiated the proxy contest fewer than 30 days before the originally scheduled meeting, the dissident success rate was 49%. (177) Thus, it was found that dissidents were least likely to win a proxy contest when they initiated the proxy contest 30 to 59 days before the originally scheduled meeting. While the study considered only proxy contests that dissidents initiated without relying on either of the proxy exemptions, the results of the study suggest that dissidents can greatly benefit from running a long public campaign or a well-prepared short campaign. In addition, the results of the study suggest that an advance notice provision that provides shareholders with a 30- to 65-day window of opportunity, as in Mundoro and Maudore, might reduce the chance of shareholders electing a dissident's nominees.
Further, as demonstrated in the CP Rail saga, a dissident may approach the board privately and have the incumbent directors appoint several of the dissident's representatives to the board. (178) The advantage to the corporation of appointing several of the dissident's representatives is that the incumbent management can continue to operate the corporation according to their plan and avoid a proxy battle. (179) However, where a provision restricts notice prior to 65 days, dissidents will likely be cautious about alerting the board too early of their desire to have several representatives on the board. As a result, restricting nominations before a specified date may discourage dissidents from entering into a longer, more drawn out process of negotiation and compromise, which ultimately might lead to less waste of time, energy, and resources from dissidents and management conducting a full-blown campaign. For example, on November 4, 2011, over six months prior to the annual meeting, Pershing requested that the incumbent directors place two of Pershing's representatives on the board of directors. (180) The existing management refused. If an advance notice provision prohibited Pershing from making nominations earlier than 65 days before a meeting, Pershing may not have approached the board as early, because the incumbent board would have several months to emphasize its track record to shareholders before Pershing could nominate its candidates for election. A 65-day limit would have forced Pershing, CP's directors, and CP's shareholders to act on a more compressed timeline, and it is unclear whether shareholders would consequently benefit.
VI BCE AND ADVANCE NOTICE PROVISIONS (181)
In Mundoro, (182) the board of directors originally adopted an advance notice provision by way of board policy 15 days before the scheduled meeting, (183) but provided a nomination window of between 30 to 65 days before the meeting. (184) In Maudore, (185) although the advance notice provision was adopted within the provision's nomination window, (186) Maudore failed to clarify the provision until the nomination window had closed. (187) In both cases, the advance notice provision effectively precluded the dissident from nominating directors. In addition, both cases involved an advance notice provision that prevented nominations prior to 65 days before the meeting. As set out below, directors' use and drafting of such provisions has the potential to oppress, unfairly prejudice, or unfairly disregard shareholders' rights and interests. In Canadian corporate law, where directors' actions raise issues of fairness or equity, courts may review the directors' actions using the oppression remedy, which is an equitable remedy found in section 241(2) of the CBCA that relies heavily on the particular facts of each case. (188) This section will consider whether the oppression remedy should be available to a dissident shareholder when an advance notice provision adversely affects the dissident.
According to section 241(2) of the CBCA,
If, on an application under subsection (1), the court is satisfied that in respect of a corporation...
(a) any act or omission of the corporation...effects a result,
(b) the business or affairs of the corporation...are or have been carried on or conducted in a manner, or
(c) the powers of the directors of the corporation.are or have been exercised in a manner
that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder...the court may make an order to rectify the matters complained of. (189)
It is clear that section 241(2) of the CBCA is subject to significant judicial interpretation. (190) BCE sets out that when applying section 241(2), courts must determine (i) whether the conduct breached the complainant's reasonable expectations and, if so, (ii) whether the conduct complained of amounts to "oppression", "unfair prejudice", or "unfair disregard". (191)
I. REASONABLE EXPECTATIONS
A breach of reasonable expectations does not require proof of an unlawful act or of a violation of a shareholder's legal right. (192) According to BCE, the shareholder "must identify the expectations that he or she claims have been violated by the conduct at issue and establish that the expectations were reasonably held". (193) Courts should determine whether the shareholder has established a reasonable expectation on an objective basis; a reasonable expectation is a matter of fact. (194) In Ford Motor Co of Canada v Ontario Municipal Employees Retirement Board, (195) the Ontario Court of Appeal stated that reasonable expectations "can be proved by direct evidence or by drawing reasonable inferences from circumstantial evidence". (196) In International Energy and Mineral Resources Investment (Hong Kong) Co v Mosquito Consolidated Gold Mines Ltd, (197) the British Columbia Supreme Court relied on Ford and stated that a court could draw reasonable inferences from circumstantial evidence to determine shareholders' reasonable expectations of corporate voting procedures. (198)
According to BCE, where a stakeholder's interests and the best interests of the corporation do not coincide, the reasonable expectation of the stakeholder "is simply that the directors act in the best interests of the corporation". (199) The use of the word "simply" implies that where the interests coincide, the shareholder may have other reasonable expectations, but will still reasonably expect that directors will act in the best interests of the corporation. As a result, if a dissident can demonstrate that implementing an advance notice provision was not in the best interests of the corporation, then a dissident will have shown a breach of its reasonable expectations.
In addition, BCE suggests that courts may consider a number of general factors in determining whether directors breached the complainant's reasonable expectations. (200) In determining whether the complainants had a reasonable expectation, a court may consider
general commercial practice; the nature of the corporation; the relationship between the parties; past practice; steps the claimant could have taken to protect itself; representations and agreements; and the fair resolution of conflicting interests between corporate stakeholders. (201)
(i) General Commercial Practice
Commercial practice plays a significant role in shaping a dissident shareholder's expectations. (202) According to BCE,
A departure from normal business practices that has the effect of undermining or frustrating the complainant's exercise of his or her legal rights will generally (although not inevitably) give rise to a remedy. (203)
Because Canadian corporations have only recently started to adopt advance notice provisions, (204) allowing shareholders to nominate directors at a forthcoming meeting without notice can be viewed as a normal business practice. In addition, deviation from this normal business practice can undermine the ability of shareholders to determine the corporation's board of directors, which is one of their fundamental rights. For example, in Paulson & Co Inc v Algoma Steel Inc, (205) Cumming J considered the extent to which directors may significantly delay a meeting requisitioned by the dissident for the purpose of nominating alternative directors. In applying section 105 of the OBCA (206)--which deals with the right of shareholders to requisition a shareholder meeting and is the Ontario equivalent of section 143 of the CBCA (207)--Cumming J stated that the
fundamental right in respect of corporate governance afforded by s. 105 [of the OBCA] provides an important and valuable remedy for minority shareholders...[that] is only meaningful if it can be exercised in a timely and expeditious manner. (208)
While Paulson dealt with directors significantly delaying a shareholder-requisitioned meeting, the same motivations arise where an advance notice provision effectively prevents a shareholder from nominating a director at the forthcoming meeting, or prevents a shareholder from nominating directors prior to a set date, because a shareholder's ability to nominate directors plays a similar role as a corporate governance mechanism.
As discussed earlier, a dissident campaign can benefit from public support and awareness. Because corporate law allows 15 months to pass between annual meetings, (209) a 35-day window that ends one month before the annual meeting seems to arbitrarily restrict a dissident's ability to launch a full public campaign and may undermine or frustrate the shareholder's fundamental rights.
(ii) Past Practice
Courts may consider the directors' or corporation's past practice in determining whether the shareholder had a reasonable expectation of being able to nomin ate a director at any point in time. According to BCE, past practice is especially important "among shareholders of a closely held corporation on matters relating to participation of shareholders in the corporation's profits and governance". (210) Where shareholders previously had the option to nominate a director at any point prior to a meeting, the shareholders may have a reasonable expectation that they would be able to do so again. Further, where the shareholders have the ability under corporate law to nominate a director, the shareholders would likely have the expectation that, prior to the meeting, the directors would not implement a provision that barred them from making a nomination or that made it more difficult to have their nominees elected.
BCE cautioned against an inflexible approach to past practice. The Court stated that "[w]here valid commercial reasons exist for the change and the change does not undermine the complainant's rights, there can be no reasonable expectation that directors will resist a departure from past practice". (211) In the abstract, advance notice provisions do not undermine the rights of dissident shareholders. However, when directors adopt a provision in a manner that effectively precludes shareholders from nominating a director at the next meeting, or in a manner that reduces the chance of a nominee being elected, courts should require the directors to explain how a less questionable provision would not have validly served the corporation's commercial objectives. Further, unless directors indicate a concrete commercial reason for prohibiting nominations prior to 65 days before the meeting, courts should not take a flexible approach to past practice. In general, courts should require the directors to explain the reasons behind selecting the start date, end date, and length of the window of opportunity.
(iii) Preventative Steps
Courts may assess whether a dissident's expectations were reasonable in light of steps the dissident could have taken to protect himself or herself. (212) Of the factors proposed in BCE, this factor is likely the most detrimental to a dissident's position. A board is likely to argue that the dissident could have nominated a director prior to the adoption of the provision.
However, this argument overlooks the fact that the directors could have drafted the provision to permit an exception to the 30-day requirement for the first meeting. For example, the advance notice provision could have allowed shareholders to give notice two days after the adoption of the provision. This would force a shareholder contemplating a director nomination to announce the nominee prior to the meeting and therefore give shareholders time to consider alternatives.
In addition, even when directors implement a provision before the cut-off date, as in Maudore, courts should consider the actions of the directors, such as how Maudore stalled in answering the dissident's questions about the provision. When the directors use stalling or drafting tactics to prevent the dissident from nominating a director, courts should not conclude that the dissident could have taken preventative steps. However, when directors adopt a provision far in advance of the window of opportunity and in advance of statutory limits on the rights of shareholders to requisition a meeting or submit a proposal, courts should find that the shareholders could have taken preventative steps to ensure that they were able to nominate directors.
(iv) Fair Resolution
Courts may consider the fair resolution of conflicting interests. As stated in BCE, "[T]he duty of directors to act in the best interests of the corporation comprehends a duty to treat individual stakeholders affected by corporate actions equitably and fairly." (213) Courts will defer to the business judgment of directors where the directors make a decision in good faith, (214) and where the decision falls within a range of reasonable choices that the directors could have made by weighing conflicting interests. (215) The corporation is entitled to consider the advantages of an advance notice provision for non-dissident shareholders, but not by treating dissidents unfairly. (216) Courts should assess an advance notice provision as a whole, and should also assess the manner in which the directors adopted the provision before determining that the business judgment rule justifies the directors' actions.
As discussed previously, an advance notice provision can benefit a corporation's shareholders by allowing them to fully consider any alternative nominations in deciding which directors will best serve the interests of the corporation. However, it is inequitable and unfair to dissidents when directors decide to implement an advance notice provision in a manner that effectively precludes shareholders from nominating other candidates. Unfairness may also result where directors draft an advance notice provision in a manner that prevents a dissident from nominating another shareholder before a certain date because of the role that time can play, as evidenced in the saga between CP and Pershing. As set out earlier, in cases where alternative nominees would better serve the interests of the corporation, such advance notice provisions could harm all of the shareholders.
Regardless of when the directors adopt an advance notice provision or the length of the provision's window of opportunity, courts should consider a number of factors to determine whether the drafting and adoption of the provision falls within a range of reasonable alternatives.
One factor that courts should consider is the number of shareholders affected by the provision. A corporation with more shareholders will require a dissident to exert more effort and take more time to disseminate dissident information and proxy circulars to all of the shareholders. And as evidenced in the CP Rail saga, large public battles may require shareholders and other interested parties to spend a significant amount of time digesting any provided information. Accordingly, if a corporation has many shareholders, it may be necessary to permit nominations prior to 65 days before a meeting. It may also be necessary that directors adopt an advance notice provision before the first day of the window of opportunity and significantly in advance of the cut-off date to provide unprepared dissidents with enough time to determine whether to nominate alternative directors.
Another factor that should be considered is whether the corporation uses a slate voting system. If a slate voting system is used, shareholders will require more time to consider the full slate of nominations as opposed to several nominees under an individual voting system. Courts should therefore require directors to adopt advance notice provisions further in advance under the slate voting system to give shareholders more time to weigh their options.
Balancing the BCE factors, it is arguable that a board's decision to adopt an advance notice provision by way of board policy or by-law after the cut-off date would breach the reasonable expectations of dissidents. Further, even where directors implement the provision in advance of the cut-off date, the circumstances might nonetheless indicate that the provision breaches reasonable expectations of dissidents.
II. OPPRESSION, UNFAIR PREJUDICE, OR UNFAIR DISREGARD
The second step set out in BCE requires the dissident to show that the conduct amounts to oppression, unfair prejudice, or unfair disregard of its interests as a security holder. As stated in BCE, "Even if reasonable, not every unmet expectation gives rise to claim under s. 241." (217) Further, courts must consider the effect of the directors' conduct on the shareholder rather than the subjective intentions behind the directors' conduct. (218)
BCE lists examples of the types of conduct that courts may characterize as oppression, unfair prejudice, or unfair disregard of a shareholder's interests. (219) Oppression includes "an 'abuse of power' going to the probity of how the corporation's affairs are being conducted". (220) Where the directors implement a provision using a by-law amendment or board policy in a manner that effectively precludes shareholders from nominating directors at the forthcoming meeting or makes it less likely that shareholders will elect a dissident's nominees, courts should find that the directors' conduct was an abuse of power affecting the integrity of how the corporation conducts its affairs. It is less clear whether courts would find oppression where the directors implement a provision in advance of the cut-off date but restrict the ability of shareholders to nominate directors before a specific date--for example, prior to 65 days before the meeting; courts should consider this issue on a case-by-case basis.
Although oppression and unfair prejudice may overlap, (221) unfair prejudice involves conduct that is less offensive than oppression. (222) In BCE, the Court noted that unfair prejudice might include
squeezing out a minority shareholder, failing to disclose related party transactions, changing corporate structure to drastically alter debt ratios, adopting a 'poison pill' to prevent a takeover bid, paying dividends without a formal declaration, preferring some shareholders with management fees and paying directors' fees higher than the industry norm. (223)
All of these examples can have a negative impact on the legal and economic interests of the complainant. For example, a minority shareholder squeeze-out involves forcing shareholders to sell their shares, regardless of whether they want to sell. (224) The failure to disclose a related party transaction can be disadvantageous to shareholders because other transactions may have been available but the related-party transaction provided additional benefits to directors. In other words, directors are acting in their own interest rather than the best interests of the corporation. Similar to the BCE examples, where the board decides to adopt an advance notice provision by way of board policy or by-law after the window of opportunity has passed, the decision will be unfairly prejudicial to the dissidents, because the provision will effectively preclude a dissident from nominating a director. Additionally, adopting a provision that restricts nominations before a specified date may prevent a dissident from having a realistic possibility of having his or her nominee placed on the board.
As with the fair resolution of conflicting interests, courts should consider the number of shareholders and the use of slate voting. Both of these considerations may demonstrate that the effect of the provision is oppressive or unfairly prejudicial to the interests of dissident or non-dissident shareholders. Again, because dissidents require extra time to communicate information when dealing with a widely held corporation, courts should consider whether the date on which the directors adopted the advance notice provision and the dates pertaining to the window of opportunity are oppressive, unfairly prejudicial, or unfairly disregard the interests of shareholders. In addition, because slate voting can be indicative of director entrenchment, (225) slate voting may support an oppression claim. In considering the manner of adoption or the window of opportunity, courts should consider whether the effect of the provision precludes a nomination or reduces the chance of shareholders electing the dissident's nominees.
In addition to these factors, courts should also consider whether the corporation uses cumulative voting. Section 107 of the CBCA permits cumulative voting, which works as follows:
[E]ach shareholder entitled to vote at an election of directors has the right to cast a number of votes equal to the number of votes attached to the shares held by the shareholder multiplied by the number of directors to be elected, and may cast all of those votes in favour of one candidate or distribute them among the candidates in any manner. (226)
Cumulative voting allows a minority shareholder to use his or her multiplied vote on one candidate, which can increase the chance of that candidate being elected. According to the US Securities and Exchange Commission, cumulative voting "helps strengthen the ability of minority shareholders to elect a director". (227) As a result, if a corporation uses cumulative voting, a court may view this as a factor suggesting a lack of unfairly prejudicial conduct or oppression.
Courts may consider other factors that suggest shareholders require additional time to process information. For example, shareholders will require more time to consider information if a corporation has a large number of directors. Further, if there are several dissidents proposing nominations or slates, shareholders will require additional time to consider their options and make an informed decision.
In short, courts should closely scrutinize when and how directors implement an advance notice provision. Where a board of directors adopts an advance notice provision after the cut-off date, the board's action breaches the reasonable expectations of shareholders and is oppressive. Similarly, where the directors adopt a provision before the cut-off date but take steps to stall a shareholder from nominating directors before the cut-off date, such an action should also be viewed as an oppressive action that breaches the shareholder's reasonable expectations. Additionally, as the 2013 Canadian Proxy Contest Study by Fasken Martineau DuMoulin LLP evidences, (228) the start and end date of the window of opportunity can unfairly prejudice dissident shareholders, because directors can implement a window of opportunity that makes shareholders less likely to elect a dissident's nominees.
VII THE PUBLIC INTEREST POWER
Regardless of whether a court refuses to prevent questionable uses of advance notice provisions, securities regulators should consider whether such questionable uses are contrary to the public interest. Securities regulators should intervene to protect the public interest when directors use an advance notice provision to entrench themselves, or when the provision harms the fundamental rights of shareholders. In such cases, advance notice provisions are abusive of both shareholders and capital markets in general. This section will set out the nature and scope of the public interest power, consider the tension between corporate and securities law, and apply the existing public interest jurisprudence to advance notice provisions.
i. the nature and scope of public interest power
Under the Ontario Securities Act, (229) the Ontario Securities Commission ("OSC") has the power to make multiple orders if it is of the opinion that the order is in the public interest. (230) The OSA provides for a host of potential orders, of which the most relevant to advance notice provisions is the order available under paragraph 4 of section 127(1). Paragraph 4 permits the OSC to make "[a]n order that a market participant submit to a review of his, her or its practices and procedures and institute such changes as may be ordered by the Commission". (231) The OSA defines market participant to include "a reporting issuer or a director, officer or promoter of a reporting issuer". (232) Reading these provisions together, section 127 provides the OSC with the power to make an order that a reporting issuer or its directors institute such change as the OSC orders.
Although the OSC's public interest power is very broad, (233) the power is not unlimited. The OSC and the courts have periodically set the boundaries and defined the public interest power. (234)
There are four key principles governing the application of the OSC's public interest power. First, in Committee for Equal Treatment of Asbestos Minority Shareholders v Ontario (Securities Commission), (235) the Supreme Court of Canada held that both purposes of the OSA animate the public interest power. (236) According to section 1.1, the two purposes of the OSA are "(a) to provide protection to investors from unfair, improper or fraudulent practices; and (b) to foster fair and efficient capital markets and confidence in capital markets". (237) The Supreme Court also cautioned that "in considering an order in the public interest, it is an error to focus only on the fair treatment of investors". (238)
Second, the public interest power is remedial rather than punitive. In Re Mithras Management Ltd, (259) the OSC stated that its role is not to punish past conduct, as such a role is for the courts. (240) Instead, a primary role of the OSC is "to restrain, as best [it] can, future conduct that is likely to be prejudicial to the public interest in having capital markets that are both fair and efficient". (241)
Third, the OSC may consider general deterrence when imposing sanctions on a market participant. In Re Cartaway Resources Corp, (242) the Supreme Court of Canada defined a sanction motivated by general deterrence as "a penalty that is designed to keep an occurrence from happening; it discourages similar wrongdoing in others".243 However, the Court cautioned that general deterrence should not be the only factor motivating the sanction: "The respective importance of general deterrence as a factor will vary according to the breach of the [BCSA] and the circumstances of the person charged with breaching the [BCSA]." (244)
Fourth, the OSC may use the public interest power in the absence of an actual violation of securities law. In Re Canadian Tire Corp, (245) the OSC stated that
[t]o invoke the public interest test of section , particularly in the absence of a demonstrated breach of the [OSA], the regulations or a policy statement, the conduct or transaction must clearly be demonstrated to be abusive of shareholders in particular, and of the capital markets in general. (246)
The protection of capital markets may require expedient action. Market participants may act in a manner that can immediately result in serious harm to capital markets. The OSC, in recognizing the regulatory nature of its powers, stated that "[a] regulatory agency charged with oversight of the capital markets must have the capacity to move quickly to stop transactions which it considers to be injurious to the capital markets". (247)
ii. the tension between corporate and securities law
The regulation of corporate governance by securities regulators is not without criticism. (248) Historically, the regulation of the nomination and approval of corporate directors was the domain of corporate law. (249) However, Canadian securities law has increasingly focused on issues related to corporate governance and shareholder rights. (250) Canadian securities regulators' attempt to mirror US securities law may partly explain the increased regulation of corporate governance issues by Canadian regulators. (251) Two notable areas of overlap are the director nomination process and the oversight of shareholder approval.
(i) Securities Law and the Director Nomination Process
Various parts of the CBCA regulate the director nomination process. The CBCA regulates both the procedural and substantive rights of the corporation and the shareholders. The purpose of the CBCA sections on proxy solicitation is shareholder protection. (252) In addition, securities law also regulates the information circular and proxy process. (253) According to Mary Condon, Anita Anand, and Janis Sarra, the information circular and proxy process allows "investors to exercise their rights to participate through voting and shareholder proposal mechanisms, granted to them by both corporate and securities law statutes". (254) Fairness and efficiency of capital markets is dependent on the ability of shareholders to have confidence that the corporation that they partly own is being managed in its best interests. As a result, shareholders utilize proxy and proposal provisions to oversee the governance of the corporation. (255) In addition, where a dissident shareholder is able to exercise his or her participation rights, the signal from the dissident's actions can benefit other shareholders.
Given that securities law is already involved in the oversight of the proxy mechanism, the consideration of corporate actions that affect shareholder voting would be a logical step to maintaining public confidence in the market as well as ensuring that markets are operating fairly and efficiently.
(ii) Securities Law and Poison Pills
A shareholder rights plan, often known as a "poison pill", is a defensive measure that directors can use to prevent a takeover of the corporation. (256) Like the advance notice provision, the use of poison pills is not uncommon. (257) When a party triggers a poison pill, the pill permits non-triggering shareholders to acquire additional shares at below market value. (258) Usually, a triggering event occurs when a shareholder obtains a set percentage of the corporation's shares. (259) The pill creates a disincentive for a shareholder to trigger the pill because the pill will dilute the triggering shareholder's interest in the corporation. Similar to an advance notice provision, in the right circumstances, the pill can serve the best interests of the corporation. (260) Nevertheless, securities regulators have been sceptical of poison pills because of the risk that directors might use poison pills to entrench themselves. (261) Canadian regulators will issue a cease trade order against securities subject to a poison pill where the pill is contrary to the public interest. (262)
In evaluating the actions of directors, securities regulators have emphasized the importance of preserving the ability of shareholders to exercise the fundamental rights of share ownership. In the poison pill context, the OSC has stated that
the public interest lies in allowing shareholders of a target company to exercise one of the fundamental rights of share ownership--the ability to dispose of shares as one wishes--without undue hindrance from...defensive tactics ... adopted by the target board. (263)
Further, securities regulators have used their public interest power to remove a poison pill when the directors' only possible justification was to entrench themselves. In Re 1153298 Alberta, (264) the Alberta Securities Commission (ASC) dealt with whether the commission should cease trade shares subject to a poison pill. A bidder had made an offer for the shares of the target corporation that would remain open until July 29, 2005. (265) On July 28, 2005, the target corporation's board adopted a poison pill that would be triggered by a bidder if the bidder acquired a threshold number of shares otherwise than in a transaction approved by the target's board of directors. (266) The directors did not give shareholders the opportunity to approve the poison pill and the bidder subsequently applied to the ASC for an order terminating the operation of the pill. (267) In defending its actions, the target company submitted to the ASC that the poison pill was in the interest of shareholders because it would allow shareholders to benefit from bids anticipated to be received on August 1, 2005. (268) The ASC considered that the original bid was to close only three days before the date on which the target board anticipated it would receive competing offers, and suggested that having an additional weekend to obtain competing bids was a very weak basis for upholding the pill. (269) The ASC concluded that failing to prevent the adoption of the pill in the circumstances
could have undermined the predictability of the take-over bid process generally[, which]...would operate to the detriment of other market participants who in [the] future might find themselves pondering, or engaged in some capacity in, a [take-over] bid of their own and wondering how they ought to proceed or not proceed. (270)
The ASC suggested that only management seeking to entrench itself "would benefit from such uncertainty and unpredictability", (271) and went on to hold that it was in the public interest to make an order that prevented the poison pill from operating. (272) The ASC intervened because of concerns over the ability of directors to entrench themselves and to abuse their powers by stripping shareholders of fundamental shareholder rights.
III. THE PUBLIC INTEREST POWER AND PROBLEMATIC USES OF ADVANCE NOTICE PROVISIONS
As stated above, Canadian Tire provides that in the absence of a specific breach of securities law, securities regulators should only use the public interest power when directors' actions are abusive to shareholders and of capital markets in general. (273) An action is not abusive simply because it is unfair. (274) According to Re Sears Canada Inc, (275) the definition of "abusive" generally means to mistreat. (276) Further, Sears suggests that the OSC prefers a malleable definition of "abusive" that it can apply when the circumstances indicate a remedy is necessary. (277) As argued above in Part VI, a board's adoption of an advance notice provision after the cut-off date using a board policy or by-laws is an abuse of power affecting the integrity of how the corporation's affairs are being conducted. Moreover, depending on the circumstances, courts may find oppression or unfair prejudice where the provision restricts shareholders from making a nomination before a specific date.
While Canadian Tire suggests that a commission cannot resort to the public interest power where the conduct is merely unfair, (278) a commission should not conflate "unfair" and "unfair prejudice". "Unfair prejudice" contains an extra element that is beyond mere unfairness. This is evident in BCE, where the Court indicates that "unfair disregard" is less serious than "unfair prejudice". (279) Further, National Policy 62-202, (280) which addresses defensive tactics such as poison pills, states that securities regulators "are prepared to examine target company tactics in specific cases to determine whether they are abusive of shareholder rights". (281) In BCE, the Court stated that the adoption of a poison pill is an example of "unfair prejudice". (282) Surely, the Court was not implying that securities regulators should consider the adoption of a poison pill to be merely "unfair" for securities law purposes when the Court characterized the adoption of a poison pill as conduct that was "unfair prejudice".
As in the poison pill context, securities regulators should constrain the use of an advance notice provision where "it is unlikely to achieve any further benefits for shareholders". (283) Securities regulators should not question every advance notice provision. In particular, where a board amends corporate articles to implement a provision sufficiently in advance of the cut-off date, and the provision does not contain a restriction on notice prior to a certain date, the provision is prima facie consistent with the public interest, because the provision will not be effective until it is approved by two-thirds of shareholders and it will not prevent appropriately long campaigns.
Alternatively, where the circumstances suggest that directors are being abusive to shareholders and capital markets in general, regulators should consider whether the directors' actions and the advance notice provision are in the public interest. In particular, advance notice provisions that are implemented in an attempt to entrench management or to constrain the fundamental rights of shareholders are abusive of shareholders and the capital markets in general because of the important role that shareholder voting has in ensuring directors act in the best interests of the corporation. Further, whether shareholders are able to vote on an advance notice provision, or whether the directors have complied with their corporate law duties, should not independently determine whether the provision is contrary to the public interest.
(i) Management Entrenchment
One common feature of poison pills and advance notice provisions is that a board can implement them to entrench itself. (284) In assessing the public interest, regulators will be particularly concerned where there are indications that the shareholders "are being unduly or unfairly deprived of the ability to respond to opportunities relating to their investment" (285)--for example, where "steps [are] taken by target company management to ward off a potential acquirer in an attempt to entrench management's own position". (286) Similarly, as stated by the OSC, "Board process will be compromised where ... decisions by the target board or special committee suggest entrenchment." (287) As in the poison pill context, (288) securities regulators should consider using the public interest power where the only justification for the advance notice provision appears to be the entrenchment of management.
If a board uses a by-law or board policy to adopt an advance notice provision, securities regulators should consider management entrenchment. The ability of directors to make a by-law or board policy immediately effective can be abusive to shareholder rights and the capital markets for two reasons. First, because an advance notice provision implemented through a by-law or board policy is effective immediately, directors can use an advance notice provision regardless of whether the directors believe a majority of shareholders would support them over alternative nominees. Consequently, where directors suspect that they will not be re-elected, they may adopt an advance notice provision in an attempt to prolong their tenure. Second, a vote to approve an advance notice provision can take place after the vote to elect directors, as occurred in Mundoro. In such a case, even if shareholders were to reject the provision, a dissident would have been unable to nominate a director from the floor--the vote to elect directors would have already taken place. (289)
While Mundoro implies that holding a shareholder vote makes an advance notice provision more likely to be enforceable, (290) it does not state that the provision in question would have been ineffective if the directors had not put it to a shareholder vote. Nevertheless, if directors implement an advance notice provision by using a board policy without a shareholder vote, securities regulators should find that the provision was adopted to entrench the directors.
In addition to how the board implemented an advance notice provision, regulators should also consider when the board implemented the provision, and the board's behaviour around this time. As in Mundoro, where a board uses either a board policy or by-law to implement an advance notice provision after the cut-off date, the directors' actions prima facie suggest management entrenchment. Further, where the circumstances evince possible stalling tactics, such as those in Maudore, a regulator should be alert to other indicia of entrenchment.
Where a board implements an advance notice provision through an amendment to the articles, securities regulators should be less concerned about management entrenchment. This is because amendments to the articles are not effective until approved by shareholders through special resolution. (291) However, securities regulators may still consider whether the window of opportunity to nominate directors operates to entrench existing directors. A commission should consider the presence of entrenchment where the provision permits a short window of opportunity for nomination. As illustrated by the CP Rail saga, dissident shareholders can benefit substantially from running a long public campaign. Regulators should consider whether the directors have any justification other than entrenchment for restricting nominations before some specified date.
In considering whether the board is attempting to entrench itself, securities regulators should consider similar factors as in the oppression context. First, if the corporation uses slate voting, the advance notice provision may have an entrenching effect. Second, non-cumulative voting may suggest entrenchment if it makes it less likely that the minority shareholders can influence the determination of directors. Third, if the corporation has a large number of shareholders, securities regulators should consider whether the window of opportunity has an entrenching effect by making the election of a dissident's nominee unlikely.
(ii) Harm to Shareholders' Fundamental Rights
Re Canadian Jorex Ltd suggests that securities regulators should be alert to any actions of directors that override fundamental rights of shareholders. (292) In particular, Jorex suggests that the public interest lies in prohibiting directors from unduly hindering the fundamental rights of share ownership. (293) In Re HudBay Minerals Inc, (294) the OSC stated that "[t]he right of shareholders to vote on and determine the make-up of the board is a fundamental governance right". (295) Further, because "[c]apital markets depend on the rules that corporate law establishes for determining how investors realize returns", (296) the value of shares may diminish if directors override the rights of shareholders, as investors may begin to question the certainty of the basic assumptions on which they make investment decisions. As stated in Part VI, under corporate law, a fundamental right of shareholders is to select the directors of a company. (297) Because corporate law makes directors responsible for managing the corporation, (298) shareholders that are dissatisfied with management can do little more than sell their shares, or attempt to replace the directors to express their dissatisfaction. When a shareholder no longer has the ability to attempt to replace the directors, the shareholder's only option is to sell its shares. From a public interest perspective, this is particularly troublesome because shareholders generally only consider replacing directors when the shares have been performing poorly. Directors' use of a board policy or by-law to implement an advance notice provision after the cut-off date, as in Mundoro, or their use of stalling tactics, as in Maudore, should be seen as stripping shareholders of their fundamental right to nominate and elect directors. The commission should consider making orders in the public interest to prevent actions that effectively destroy the ability of a shareholder to nominate a director.
Further, to the extent that slate voting and the start and end date of the window of opportunity decrease the chance that shareholders will vote for the dissident's slate, the slate voting system may be detrimental to the dissident's fundamental rights. In addition, if the corporation has a large number of shareholders, securities regulators should consider whether the start and end date of the window of opportunity defeats the fundamental rights of shareholders by making it difficult for the dissident to communicate with the shareholders. Moreover, because information is important to shareholders' ability to knowledgeably elect directors,299 if more than one dissident is proposing nominations or a slate, then the window of opportunity should provide shareholders with enough time to digest the information and make an informed decision.
(iii) Shareholder Vote Should not be Determinative
Court approval of advance notice provisions, such as in Maudore and Mundoro, should not solely determine whether these provisions, or directors' actions with respect to these provisions, are in the public interest. In Re Banks, (300) the OSC stated the following:
[I]n exercising our public interest jurisdiction concerning corporate governance, we must go beyond considering whether the respondent complied with the duty of care, diligence and skill set out in the OBCA (301)
The OSC emphasized that it is obligated to "determine whether the conduct of the respondent was contrary to the public interest". (302) Further, in considering the OSC's decision in Re Magna International Inc, (303) Professor Anita Anand suggests that "securities regulation places a layer of regulatory considerations over and above the contract that shareholders have entered into with the corporation". (304) She suggests that "[t]hese considerations include the concept of public interest, which has traditionally meant more than the reasonable expectations of shareholders". (305) As a result, the fact that a court upholds an advance notice provision under corporate law should not preclude a securities regulator from considering whether the provision is contrary to the public interest.
Given the ability of directors to adopt advance notice provisions with or without prior shareholder approval, securities regulators should look to the law on shareholder approval in the poison pill context to inform their consideration of whether advance notice provisions are contrary to the public interest. For example, in Re Cara Operations Ltd, (306) the OSC stated the following with respect to directors' use of poison pills, with the statement being equally applicable to advance notice provisions:
If a [notice provision] does not have shareholder approval, it generally will be suspect as not being in the best interest of the shareholders; however, shareholder approval of itself will not establish that a [notice provision] is in the best interest of the shareholders. (307)
In addition, securities regulators should be cautious about conflating shareholder approval with the public interest. Because by-law amendments and board policies are effective immediately, the ability of shareholders to vote on the provision does not negate the damage done to shareholders or capital markets prior to the shareholder vote to approve the provision. As a result, since the public interest is remedial and preventative, (308) securities regulators should not wait to act until shareholders vote on the provision when the circumstances suggest abuse of shareholders and capital markets based on indicia such as entrenchment or harm to shareholders' fundamental rights.
Advance notice provisions can benefit shareholders by properly informing them of alternative director nominations. However, where directors implement an advance notice provision through a by-law or board policy with immediate effect after the cut-off date, or implement a provision several days before the cut-off date and stall the dissident in complying with the provision, shareholders will be effectively precluded from nominating directors at the forthcoming meeting. In addition, where the provision prevents nominations prior to a specified date, dissidents may be disadvantaged relative to incumbent directors because of the benefit of long public campaigns and first mover advantages. Provisions that restrict nomination prior to a specified date may also indirectly encourage full-blown battles for control by creating a disincentive for dissidents to negotiate in advance of the window of opportunity.
Consequently, directors' use of advance notice provisions could give rise to a court order under the oppression remedy. Depending on the circumstances, the actions of directors and the terms of the provisions may breach the reasonable expectations of dissident shareholders. Further, where directors use the provisions in a manner that precludes shareholders from making nominations outright or reduces the chance of shareholders successfully replacing incumbent management, their actions are at least unfairly prejudicial, and potentially oppressive, to shareholders.
Regardless of whether corporate law applies, securities regulators should consider whether advance notice provisions and their manner of adoption are contrary to the public interest. Where the terms of an advance notice provision or its manner of adoption suggests entrenchment or a violation of the fundamental rights of shareholders, the provision will be abusive of the dissidents and capital markets in general. Because of the important role of shareholders' ability to select management, investors may lose confidence in the capital markets if securities regulators leave shareholders' fundamental rights unprotected. To prevent possible abuse, securities regulators should not blindly rely on the fact that advance notice provisions may eventually be approved by shareholder votes. These provisions may be immediately effective, so by the time shareholders have the opportunity to vote, the provision will have already harmed shareholders and capital markets.
* The author is grateful to Christopher Bamford for his invaluable review and criticism and Charles McDonald for introducing him to Northern Mineral Investment Corp v Mundoro Capital Inc. The author also acknowledges the valuable assistance of the editors of the University of Toronto Faculty of Law Review. Most importantly, the author thanks Lauren for her unending patience and support. All opinions, errors, and omissions are the author's own.
(1) To avoid confusion between the terms "advance notice provision" and "board policy", the author has used the term "board policy" to refer to any policy adopted by the board, including an advance notice policy, and "advance notice provision" to refer to any advance notice policy adopted by way of board policy or by-law or article amendment.
(2) Dennis H Peterson & Matthew J Cumming, Shareholder Remedies in Canada, loose-leaf (consulted on 15 January 2013), 2d ed (Markham: LexisNexis Canada, 2009), ch 13 at 16.
(3) For the purpose of this article, "dissident shareholder" refers to a shareholder who proposes nominees to replace the existing directors.
(4) See Mundoro Capital Inc, "Advance Notice Policy" (9 June 2012), online: System for Electronic Document Analysis and Retrieval (SEDAR) <www.sedar.com>, filed as "Material document - English", Mundoro Capital Inc (11 June 2012) [Mundoro ANP]; Maudore Minerals Ltd, "By-Law No 1" (24 May 2012), online: System for Electronic Document Analysis and Retrieval (SEDAR) <www. sedar.com>, filed as "Security holders documents - English", Maudore Minerals Ltd (25 May 2012) [Maudore ANP].
(5) Institutional Shareholder Services Inc, "2013 Canadian Proxy Voting Guidelines (TSX-Listed Companies)" (19 December 2012) at 15, online: Institutional Shareholder Services (ISS) <http://www. issgovernance.com>.
(6) Northern Minerals Investment Corp v Mundoro Capital Inc, 2012 BCSC 1090 at para 54, 36 BCLR (5th) 408 [Mundoro].
(7) Because US corporate and securities law does not have an equivalent to the oppression remedy or the public interest power, this article does not consider US jurisprudence. For US jurisprudence, see Openwave Systems Inc v Harbinger Capital Partners Master Fund I Ltd, 924 A 2d 228 (Del Ch 2007); JANA Master Fund Ltd v CNET Networks Inc, 954 A 2d 335 (Del Ch 2008), aff'd 947 A 2d 1120 (Del 2008) (the issues in this case would not arise in Canada as US securities law requires management to send their proxy in advance of the window of opportunity commonly being used in Canadian corporations); Levitt Corp v Office Depot Inc, CA No 3622-VCN (Del Ch 2008) (the issue in this case would not arise under the advance notice provisions commonly used in Canada because the Canadian advance notice provisions restrict the nomination of directors but not the business conducted at the meeting).
(8) Supra note 6.
(9) 2012 ONSC 4255, 111 OR (3d) 660 [Maudore].
(10) RSC 1985, c C-44, s 241 [CBCA]. This article focuses mainly on the CBCA because many large corporations are established under this statute, and it shares many common features with other provincial statutes such as the Ontario Business Corporations Act, RSO 1990, c B.16 [OBCA] and the Alberta Business Corporations Act, RSA 2000, c B-9 [ABCA]. This article also discusses the British Columbia Business Corporations Act, SBC 2002, c 57 [BCBCA] because of its unique feature of lacking director implemented by-laws but allowing director implemented board policies.
(11) 2008 SCC 69,  3 SCR 560 [BCE].
(12) See e.g., Securities Act, RSO 1990, c S.5, s 127 [OSA]; Securities Act, RSBC 1996, c 418, s 161 [BCSA]; Securities Act, RSA 2000, c S-4, ss 197-98.
(13) See e.g., Peterson & Cumming, supra note 2.
(14) CBCA, supra note 10, s 15(1).
(15) See e.g., Kevin McGuinness, Halsbury's Laws of Canada: Business Corporations (2013 Reissue), 1st ed (Markham: LexisNexis Canada, 2013), HBC-1.
(16) CBCA, supra note 10, s 146(1).
(17) Ibid, s 102(1).
(18) Ibid, s 121(a).
(19) Ibid, s 24(3).
(20) Ibid, s 106(3).
(21) See generally Adolf A Berle, Jr & Gardiner C Means, The Modern Corporation and Private Property (New York: MacMillan, 1933).
(23) Ibid at 122.
(24) Michael C Jensen & William H Meckling, "Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure" (1976) 3:4 Journal of Financial Economics 305 at 308.
(25) Poonam Puri et al, Cases, Materials and Notes on Partnerships and Canadian Business Corporations, 5th ed (Toronto: Carswell, 2011) at 189.
(26) J Anthony VanDuzer, The Law of Partnerships & Corporations, 3d ed (Toronto: Irwin Law, 2009) at 254.
(27) Henry G Manne, "Mergers and the Market for Corporate Control" (1965) 73:2 Journal of Political Economy 110 at 112-13.
(28) Puri, supra note 25 at 195.
(30) Manne, supra note 27 at 113.
(31) See e.g., CBCA, supra note 10, ss 103(4), 175.
(32) Duha Printers (Western) Ltd v Canada,  1 SCR 795 at para 58, 159 DLR (4th) 457.
(33) Puri, supra note 25 at 187.
(34) Ibid at 197.
(35) Ibid at 196.
(36) Ibid at 197.
(37) CBCA, supra note 10, s 103(1).
(38) Directors can generally impose by-laws with immediate effect. Shareholders can propose by-laws and reject by-laws adopted by the directors.
(39) See e.g., CBCA, supra note 10, s 137(4).
(40) Ibid, s 137.
(41) Ibid, s 137(4).
(42) See e.g., Peterson & Cumming, supra note 2.
(44) See e.g., CBCA, supra note 10, ss 24, 147 "form of proxy", "proxy" (section 24 of the CBCA enables shareholders to vote at any shareholder meeting, and section 147 specifies that a proxyholder can attend and act on the shareholder's behalf at a shareholder meeting).
(45) CBCA, supra note 10, s 150.
(46) Canada Business Corporations Regulations, 2001, SOR/2001-512 [Regulations].
(47) Regardless of whether there are other nominations, management must send a form of proxy to shareholders in accordance with section 149(1) of the CBCA, supra note 10, subject to section 149(2).
(48) Ibid, s 150(1).
(49) See e.g., Peterson & Cummings, supra note 2.
(50) CBCA, supra note 10, s 150(1.1). On its face, this exemption would appear to be a logical fit with a shareholder ambush; however, securities law will require disclosure where the shareholders' aggregate voting power is 10% or more: see e.g., OSA, supra note 12, s 102.1(1).
(51) CBCA, supra note 10, s 134(1)(d).
(52) Ibid, s 150(1.2).
(53) Ibid, s 143.
(54) Ibid, s 143(1).
(55) Ibid, s 143(5) (section 143(5) is contained in Part XII of the CBCA and states that a meeting "shall be called as nearly as possible in the manner in which meetings are to be called pursuant to the bylaws, this Part and Part XIII" of the CBCA. Part XII also contains rules that govern annual meetings:
see e.g., ibid, s 133).
(56) Ibid, s 143(6) (section 143(6) states that the shareholders will be reimbursed unless they otherwise resolve at a meeting called under section 143(4)).
(57) See generally Peterson & Cumming, supra note 2.
(58) BCBCA, supra note 10.
(59) CBCA, supra note 10, s 103(3).
(60) Ibid, s 103(2) (an "ordinary resolution" is defined in section 2(1) as "a resolution passed by a majority of the votes cast by the shareholders who voted in respect of that resolution").
(61) Ibid, s 175(1).
(62) See ibid, ss 173(1), 176(6) (a "special resolution" is defined in section 2(1) as "a resolution passed by a majority of not less than two-thirds of the votes cast by the shareholders who voted in respect of that resolution or signed by all the shareholders entitled to vote on that resolution").
(63) See e.g., BCBCA, supra note 10, s 12.
(64) Ibid, s 259(1) (a special resolution is required unless the articles specify that a different type of resolution is required to amend the articles).
(65) See generally Bob Pakrul, "The Power of Board Policies" (11 September 2012), online: Alexander Holburn Beaudin + Lang LLP Business Law Blog <http://businesslawblog.ahbl.ca/2012/09/11/ the-power-of-board-policies/>.
(66) See Mundoro, supra note 6 at paras 45-46.
(67) See e.g., Duncastle Gold Corp, News Release, "Duncastle Adopts Advance Notice Policy for Director Nominations" (8 March 2013), online: Duncastle <http://www.duncastlegoldcorp.com/ en/news/77/duncastle-adopts-advance-notice-policy-for-director-nominations.php> [Duncastle ANP release].
(68) Institutional Shareholder Services Inc, "Canadian Corporate Governance Policy: 2013 Updates" (16 November 2012) at 13, online: Institutional Shareholder Services (ISS) <http://www.issgovernance.com>.
(69) See e.g., Mundoro, supra note 6 at paras 32, 35.
(70) CBCA, supra note 10, s 2(1) (an "ordinary resolution" is defined as "a resolution passed by a majority of the votes cast by the shareholders who voted in respect of that resolution").
(71) See e.g., Puri, supra note 25 at 495.
(72) Ibid at 196.
(73) Ed Waitzer & Johnny Jaswal, "Peoples, BCE, and the Good Corporate 'Citizen'" (2009) 47:3 Osgoode Hall LJ 439 at 445, citing Robert WV Dickerson et al, Proposals for a New Business Corporations Law for Canada, vol 1 (Ottawa: Information Canada, 1971) [Dickerson Report].
(74) Ibid at para 194.
(75) Ibid at para 195.
(76) Supra note 6.
(77) Supra note 9.
(78) OBCA, supra note 10.
(79) See e.g., Mundoro Capital Inc, "Investor Factsheet" (April 2013), online: Mundoro <http://www. mundoro.com/factsheet>.
(81) Mundoro, supra note 6 at para 3.
(82) Ibid at para 4.
(83) Ibid at para 5.
(84) Mundoro Capital Inc, News Release, "Mundoro Capital Inc. Approves Advance Notice Policy" (11 June 2012), online: Mundoro <http://www.mundoro.com/news/2012> [Mundoro ANP release].
(85) Ibid; Mundoro, supra note 6 at para 6.
(86) Mundoro ANP release, supra note 84.
(87) Mundoro, supra note 6 at para 6.
(88) See Mundoro ANP, supra note 4.
(89) Mundoro, supra note 6 at para 3.
(90) Ibid at para 7.
(91) Ibid at para 8; Mundoro Capital Inc, News Release, "Mundoro Capital Inc. Postpones Annual General Meeting of Shareholders" (14 June 2012), online: Mundoro <http://www.mundoro.com/ news/2012> [Mundoro postponement release].
(92) Mundoro, supra note 6 at para 9.
(93) Ibid at para 33. See generally Mundoro Capital Inc, News Release, "Mundoro Capital Inc. Comments on Dissident Action" (19 June 2012), online: Mundoro <http://www.mundoro.com/ news/2012>. On the same day, Mundoro implemented a shareholder rights plan (known colloquially as a poison pill): see Mundoro Capital Inc, News Release, "Mundoro Capital Inc. Announces the Adoption of a Shareholder Rights Plan" (18 June 2012), online: Mundoro <http://www.mundoro. com/news/2012>.
(94) Northern Minerals Investment Corp, Press Release, "Northern Minerals Investment Corp Announces Nominees for Election to the Board of Directors of Mundoro Capital Inc" (18 June 2012), online: Marketwire http://www.marketwire.com/press-release/northern-minerals-investment -corpannounces-nominees-election-board-directors-mundoro-tsx-venture-mun-1670685.htm>.
(96) Mundoro, supra note 6 at para 9.
(97) Ibid at para 26.
(99) Ibid at para 36.
(100) Ibid at para 35.
(101) Ibid at para 36.
(102) Ibid at para 37.
(104) Ibid at para 55.
(105) Ibid at paras 47, 53.
(106) Ibid at paras 45-46.
(108) Ibid at para 45, citing Mundoro Capital Inc, "Certificate of Incorporation" (8 May 2008), s 15.1, online: System for Electronic Document Analysis and Retrieval (SEDAR) <www.sedar.com>, filed as "Security holders documents - English", Mundoro Capital Inc (8 May 2008).
(109) Mundoro, supra note 6 at para 47.
(111) Ibid at para 51.
(112) Ibid at para 53.
(114) Mundoro Capital Inc, News Release, "Mundoro Thanks Shareholders for Their Support" (28 August 2012), online: Mundoro <http://www.mundoro.com/news/2012>.
(115) Mundoro Capital Inc, News Release, "Mundoro Announces Q3 Financials and Comprehensive Governance Policies" (9 November 2012), online: Mundoro <http://www.mundoro.com/ news/2012>.
(116) See e.g., Maudore Minerals Ltd "Annual Audited Financial Statements" (31 December, 2011) at 8, online: Maudore <http://www.maudore.com/s7FinancialStatements.asp> [Maudore Annual Report].
(117) Maudore, supra note 9 at para 10.
(118) Maudore Annual Report, supra note 116.
(119) Ibid at 18-19.
(120) Maudore, supra note 9 at para 1.
(121) Ibid at para 14.
(122) Ibid at paras 15-19.
(123) Ibid at para 25.
(124) Ibid at para 38.
(125) Ibid at para 42.
(126) Ibid at para 44.
(127) Ibid at para 45.
(131) Ibid at para 54.
(132) Ibid at para 55.
(133) One might also speculate that Maudore hoped to later challenge the dissident's compliance with the ANP if the dissident was successful in the vote.
(134) Maudore, supra note 9 at para 58.
(135) Ibid at para 59.
(136) Maudore, supra note 9 at para 74, citing RJR-MacDonald Inc v Canada (AG),  1 SCR 311, 111 DLR (4th) 385.
(137) Maudore, supra note 9 at paras 91-92, 98, 119-20.
(138) Ibid at paras 89, 94.
(139) Ibid at paras 90, 91.
(140) Ibid at para 98.
(141) Ibid at para 95.
(142) Ibid at para 96.
(143) Ibid at para 97.
(144) See ibid at paras 4-5, 100, 120 (Justice Perell rejected Harbour's application for relief under section 248 of the OBCA, which is the equivalent to section 241 of the CBCA).
(145) Ibid at para 109.
(146) Ibid at para 113.
(147) Ibid at para 114.
(148) Ibid at para 119.
(151) Maudore Minerals Ltd, News Release, "Annual Meeting Update" (19 July 2012), online: Maudore <http://www.maudore.com/s7NewsReleases.asp>.
(152) Mundoro, supra note 6.
(153) See generally Mundoro ANP release, supra note 84; Mundoro, supra note 6 at paras 4, 6 (the meeting was to be held on June 26, 2012 and the advance notice provision was announced on June 11, 2012).
(154) Mundoro ANP, supra note 4 at 2.
(155) Mundoro postponement release, supra note 91.
(156) Maudore, supra note 9.
(157) See ibid at paras 50, 54 (the meeting was changed to June 29, 2012 and the advance notice provision was announced on May 25, 2012).
(158) Ibid at para 55.
(159) See e.g., Duncastle ANP release, supra note 67; Mundoro ANP, supra note 4 at 1.
(160) Kevin J Thomson & Melanie A Shishler, "Advance Notice Policy Becoming A Key Tool in Canadian Proxy Contests" (17 October 2012), online: Davies Ward Phillips & Vineberg LLP <http:// www.dwpv.com/en/Resources/Publications/2012/Advance-Notice-Policy-Becoming-A-Key-Tool-inCanadian-Proxy-Contests>.
(161) Maudore, supra note 9 at para 55.
(162) CBCA, supra note 10, s 137(5)(a); Regulations, supra note 46, s 49.
(163) CBCA, supra note 10, s 143(3)(a).
(164) Ibid, s 143(3)(b).
(165) Mundoro ANP, supra note 4 at 2; Maudore ANP, supra note 4 at 5.
(166) "Timeline of CP Rail's proxy battle" Toronto Star (17 May 2012), online: Toronto Star <http:// www.thestar.com/business/article/1179669-timeline-of-cp-rail-s-proxy-battle> [CP Rail Timeline].
(172) Pershing Square Capital Management LP, "The Nominees for Management Change" (6 February 2012), online: System for Electronic Document Analysis and Retrieval (SEDAR) <www.sedar. com>, filed as "Other", Canadian Pacific Railway Limited (6 February 2012).
(173) Pershing Square Capital Management LP, "CP Rising" (4 April 2012), online: System for Electronic Document Analysis and Retrieval (SEDAR) <www.sedar.com>, filed as "Information circular - English", Canadian Pacific Railway Limited (5 April 2012).
(174) Aaron J Atkinson, Daniel Batista & Bradley A Freelan, "2013 Canadian Proxy Contest Study" (2013) at 3, online: Fasken Martineau DuMoulin LLP <http://response.fasken.com/offers/faskenmartineau-canadian-proxy-contests-study-2013.pdf>.
(175) Ibid at 30 (the success rate is the aggregate of what the authors' categorized as partial and full dissident wins: see ibid at 5).
(178) Directors may appoint additional directors under section 106(8) of the CBCA, supra note 10. The ability of directors to appoint additional directors is distinct from the nomination and election process. As generally drafted, Canadian advance notice provisions do not prevent appointments.
(179) For example, at the time of Pershing's request, CP Rail had 15 board members: see Reuters "Ackman to make his pitch to CP shareholders Feb. 6" National Post (27 January 2012), online: Financial Post <http://business.financialpost.com/2012/01/27/ackman-to-make-case-for-new-ceo-atcp-meeting/>. It is unlikely that the addition or replacement of several directors would significantly affect voting outcomes.
(180) CP Rail Timeline, supra note 166.
(181) This Part applies BCE. The purpose of this article is not to question or critique the Supreme Court's reasoning. For criticism regarding BCE see Edward Iacobucci, "Indeterminacy and the Canadian Supreme Court's Approach to Corporate Fiduciary Duties" (2009) 48:2 Can Bus LJ 232. See also Jeffrey G Macintosh, "BCE and the Peoples' Corporate Law: Learning to Live on Quicksand" (2009) 48:2 Can Bus LJ 255.
(182) Mundoro, supra note 6.
(183) Mundoro ANP release, supra note 84; Mundoro, supra note 6 at paras 4, 6 (the meeting was to be held on June 26, 2012 and the advance notice provision was announced on June 11, 2012).
(184) Mundoro ANP, supra note 4 at 2.
(185) Maudore, supra note 9.
(186) See ibid at paras 50, 54 (the meeting was changed to June 29, 2012 and the advance notice provision was announced on May 25, 2012).
(187) Ibid at para 55.
(188) BCE, supra note 11 at paras 56-59.
(189) CBCA, supra note 10, s 241(2). For provincial equivalents to section 241 of the CBCA, see OBCA, supra note 10, s 248; BCBCA, supra note 10, s 227; ABCA, supra note 10, s 242.
(190) See generally Peterson & Cumming, supra note 2, ch 17 at 24.
(191) BCE, supra note 11 at para 56.
(192) Ibid at para 71.
(193) Ibid at para 70.
(194) See e.g., Pente Investment Management Ltd v Schneider Corp (1998), 42 OR (3d) 177 at 201-02, 113 OAC 253 (CA); Casurina Ltd Partnership v Rio Algom Ltd (2004), 40 BLR (3d) 112 at 124, 181 OAC 19 (CA).
(195) (2006), 79 OR (3d) 81, 263 DLR (4th) 450 (CA) [Ford cited to OR].
(196) Ibid at 107.
(197) 2012 BCSC 1191, 37 BCLR (5th) 342 [Mosquito].
(198) Ibid at para 65.
(199) BCE, supra note 11 at para 66.
(200) Ibid at para 72.
(202) Ibid at para 73.
(204) David Randell & Graeme Norwood, "Advance Notice By-Laws & Defending Against a Surprise Attack" McCarthy Tetrault LLP (15 January 2013), online: McCarthy Tetrault LLP <http://www. canadianmergersacquisitions.com/2013/01/15/advance-notice-by-laws-defending-against-a-surpriseattack/>. In contrast, advance notice provisions are popular in the United States, which is partly a result of amendments to US securities laws that Canada has not subsequently adopted: see e.g., Virginia K Rosenbaum, Corporate Takeover Defenses (Maryland, United States: Institutional Shareholder Services, 2006) at vii-viii.
(205) (2006), 79 OR (3d) 191, 14 BLR (4th) 104 (Sup Ct) [Paulson cited to OR].
(206) OBCA, supra note 10, s 105.
(207) CBCA, supra note 10, s 143.
(208) Paulson, supra note 205 at 201-02.
(209) CBCA, supra note 10, s 133(1).
(210) BCE, supra note 11 at para 76.
(211) Ibid at para 77.
(212) Ibid at para 78.
(213) Ibid at para 82.
(214) Ibid at paras 99-100.
(215) Ibid at para 40.
(216) Ibid at para 64.
(217) Ibid at para 67.
(218) See e.g., Icahn Partners LP v Lions Gate Entertainment Corp, 2011 BCCA 228 at para 71, 17 BCLR (5th) 391; Brant Investments Ltd v KeepRite Inc (1991), 3 OR (3d) 289, 80 DLR (4th) 161 (CA); Walker v Betts, 2006 BCSC 128, 15 BLR (4th) 114; Mosquito, supra note 197 at para 52.
(219) BCE, supra note 11 at paras 92-94.
(220) Ibid at para 92.
(221) Ibid at para 91.
(222) Ibid at para 93.
(224) While the squeezed-out shareholders receive fair value for their shares, they lose more than upside potential--the shareholders lose the ability to govern and have an input into corporate affairs.
(225) See e.g., David R Surat et al, "2013 Disclosure Update" (17 January 2013) at 2, online: Borden Ladner Gervais LLP <http://www.blg.com/fr/home/publications/Documents/Publication_3238. pdf>.
(226) CBCA, supra note 10, s 107(b).
(227) US Securities and Exchange Commission, "Cumulative Voting" (13 October 2004), online: US Securities and Exchange Commission <http://www.sec.gov/answers/cumulativevote.htm>.
(228) Atkinson, Batista & Freelan, supra note 174 at 30.
(229) OSA, supra note 12.
(230) Ibid, s 127.
(231) Ibid, s 127(1)4.
(232) Ibid, s 1(1) "market participant" para (c).
(233) Paul G Findlay, Securities Law & Practice, loose-leaf (consulted on 15 January 2013), 3d ed (Toronto: Carswell, 2003), ch 22 at 36-36.1.
(234) See e.g., Committee for Equal Treatment of Asbestos Minority Shareholders v Ontario (Securities Commission), 2001 SCC 37,  2 SCR 132 [Asbestos]; Re Cartaway Resources Corp, 2004 SCC 26,  1 SCR 672 [Cartaway]; Re Canadian Tire Corp (1987), 10 OSCB 857 [Canadian Tire]; Re Mithras Management Ltd (1990), 13 OSCB 1600 [Mithras].
(235) Asbestos, supra note 234.
(236) Ibid at para 41.
(237) OSA, supra note 12, s 1.1.
(238) Asbestos, supra note 234 at para 41.
(239) Mithras, supra note 234.
(240) Ibid at 1610.
(241) Ibid at 1610-11.
(242) Cartaway, supra note 234.
(243) Ibid at para 61.
(245) Canadian Tire, supra note 234.
(246) Ibid at 947.
(248) Mary G Condon, Anita I Anand & Janis P Sarra, Securities Law in Canada: Cases and Commentary, 2d ed (Toronto: Emond Montgomery, 2010) at 428.
(249) See ibid at 447.
(250) Ibid at 427.
(252) Re Pacifica Papers Inc, 2001 BCSC 1069 at para 93, 92 BCLR (3d) 158, citing CBCA, supra note 10, s 150(1).
(253) See e.g., National Instrument 51-102 - for financial years beginning on or after January 1, 2011 (unofficial consolidation), OSC NI 51-102 (31 October 2011), Part 9, online: Ontario Securities Commission <http://www.osc.gov.on.ca/en/13342.htm>; OSA, supra note 12, Part XIX.
(254) Condon, Anand & Sarra, supra note 248 at 429.
(255) Ibid at 431.
(256) Ibid at 559.
(257) See e.g., Re 1153298 Alberta Ltd, 2005 ABASC 725 at para 46 [1153298 Alberta].
(258) Condon, Anand & Sarra, supra note 248 at 559.
(259) Christopher C Nicholls, Mergers, Acquisitions, and Other Changes of Corporate Control, 2d ed (Toronto: Irwin Law, 2012) at 254-55.
(260) See e.g., 1153298 Alberta, supra note 257 at para 46.
(261) See e.g., ibid.
(262) See e.g., ibid at para 85.
(263) Re Canadian Jorex Ltd (1992), 15 OSCB 257 at 266 [Jorex].
(264) 1153298 Alberta, supra note 257.
(265) Ibid at para 2.
(266) Ibid at paras 3, 40.
(267) Ibid at paras 4, 38.
(268) Ibid at para 58.
(269) Ibid at paras 59-60.
(270) Ibid at para 83.
(272) Ibid at para 85.
(273) Canadian Tire, supra note 234 at 947.
(275) (2006), 35 OSCB 8781.
(276) Ibid at 8814.
(278) Canadian Tire, supra note 234 at 947.
(279) BCE, supra note 11 at paras 93-94.
(280) Notice and Rescission and Final National Policy (effective 4 August 1997): NP - 62-202 - Takeover Bids - Defensive Tactics, OSC NP 62-202 (4 July 1997), online: Ontario Securities Commission <http://www.osc.gov.on.ca/en/13274.htm> [NP 62-202].
(281) Ibid, s 1.1(3) [emphasis added].
(282) BCE, supra note 11 at para 94.
(283) C.f. Re Baffinland Iron Mines Corp (2010), 33 OSCB 11385 at 11389, 77 BLR (4th) 143.
(284) Pakrul, supra note 65.
(285) Re 1478860 Alberta Ltd, 2009 ABASC 448 at para 36.
(287) Re Neo Material Technologies Inc (2009), 32 OSCB 6941 at 6958, 63 BLR (4th) 123.
(288) 1153298 Alberta, supra note 257 at paras 83-85.
(289) See e.g., Thomson & Shishler, supra note 160.
(290) Mundoro, supra note 6 at para 51.
(291) CBCA, supra note 10, s 173(1)(c) (a special resolution is defined in section 2(1) to mean a resolution passed by a majority of not less than two-thirds of voting shareholders).
(292) See Jorex, supra note 263.
(294) (2009), 32 OSCB 3733, 58 BLR (4th) 249 [cited to OSCB].
(295) Ibid at 3762 [emphasis added].
(296) Puri et al, supra note 25 at 196.
(297) See e.g., Paulson, supra note 205 at 201-02.
(298) CBCA, supra note 10, s 102.
(299) Puri et al, supra note 25 at 190-91.
(300) (2003), 26 OSCB 3377, 34 BLR (3d) 292 [Banks cited to OSCB], var'd on other grounds, Banks v Ontario (Securities Commission) (2005), 204 OAC 290, 143 ACWS (3d) 1022 (Sup Ct J (Div Ct)).
(301) Banks, supra note 300 at 3384.
(303) (2011), 34 OSCB 1290, 78 BLR (4th) 94.
(304) Anita Anand, "Was Magna in the Public Interest?" (2011) 49:2 Osgoode Hall LJ 311 at 324.
(306) (2002), 25 OSCB 7997.
(307) Ibid at 8003 (to illustrate the applicability of the quoted passage to advance notice provisions, the term "plan"--which the OSC used to discuss the poison pill--has been replaced with "notice provision").
(308) See e.g., Mithras, supra note 234 at 1610-11.
GORDON T HOUSEMAN **
** B.A. (Hons.) (Queen's), J.D. (Toronto), Associate (Shearman & Sterling LLP)
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|Author:||Houseman, Gordon T.|
|Publication:||University of Toronto Faculty of Law Review|
|Date:||Mar 22, 2013|
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