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PROXY BATTLES "THERE'S A WILLINGNESS TO ENGAGE IN BATTLES AND TO CHALLENGE CONVENTIONAL WISDOM, AND TO PURSUE MATTERS THROUGH PROXY BATTLES AND THROUGH THE COURTS IF NECESSARY TO TRY AND EFFECT CHANGE." Kent Thomson > Davies Ward Phillips & Vineberg LLP Under Canada's Alternative Monthly Reporting System, once institutional investors report that they have hit the 10 percent threshold, they only have to refresh their reporting at months' end — and if they change their position by at least 2.5 percent. From court records, it appears in some months that Mason held its position at the beginning of the month, sold it off in the middle of the month, then built it back at the end of the month. The fund was not required to report any of the trades because its position hadn't changed materially at month's end. High amounts of trading can also make it extremely difficult to trace who actually has the right to vote shares that are bought and sold between the record date and the meeting date. Normally, the borrowed shares are entitled to the vote but shareholders may not even realize their stock has been loaned to third parties and, as a result, the shares can be voted more than once. THE TELUS PROXY battle flamed back to life in the summer of 2012 when CDS Clearing and Depository Services Inc. and CDS & Co., the holder of Mason's Telus shares, requisitioned a shareholders' meeting. If the share consolidation was going to be done, Mason wanted better terms. It was proposing four new resolutions including one that would prevent the company from exchanging non-voting shares at a ratio of less than 1.08 non-voting shares per common share. Another – which was only to be considered if the first one didn't pass – was identical but with a less favorable exchange ratio. Telus formally declined the meeting request, claiming it was defective, the same day it had obtained an order from the Supreme Court of British Columbia granting it leave to hold its own shareholders meeting. The company was proposing a new arrangement to collapse the dual-share structure. The shares would be exchanged on a one-for-one basis but, unlike the first proposal, it would not require an amendment of the company's articles or a change in its capital structure, which meant it needed just a simple majority, not a two-thirds vote. In granting Telus the order, the court declared the CDS meeting request was not in compliance with the Business Corporations Act or Telus's articles of incorporation and that, as a third party, CDS was not entitled to requisition a shareholder meeting. As an aside, BC's Supreme Court sharply criticized the hedge fund for the "empty voting" tactic, calling the practice "a challenge to shareholder democracy." CDS and Mason turned to the BC Court of Appeal and won. In a finding that is bound to please shareholder activists fighting to force a company to put their vision to a vote, the appeals court found that a requisition for a shareholders' meeting need not identify the beneficial owner of the shares used to call the meeting in order to be valid. "What the court said is it doesn't matter whether a shareholder has sold off a beneficial interest to somebody else and they've got no interest in the company any longer; they have the right to exercise the vote and requisition a meeting," says Craig Ferris, a litigator at Lawson Lundell LLP in Vancouver. The appeals court also addressed the issue of empty voting, touching on Crown EMAK Partners, LLC v. Kurz from the Delaware Supreme Court. Noting while the problem of empty voting had been identified in cases as well as legal literature, the justices said, "Telus has not pointed to any authority that suggests that courts have inherent jurisdiction to control abuses. Courts are entitled to www.lexpert.ca | LEXPERT • December 2013 | 29

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