The Lexpert Guides to the Leading US/Canada Cross-Border Corporate and Litigation Lawyers in Canada profiles leading business lawyers and features articles for attorneys and in-house counsel in the US about business law issues in Canada.
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PROXY BATTLES The two sides continued legal sniping after the appeal court decision, but once Telus shareholders voted for the one-to-one swap, both sides agreed to abandon the court challenges. CRAIG FERRIS SAYS Telus is also interesting because Mason "tried to pull American concepts across the border. But the court essentially threw it back into the legislative arena, to the politicians." That's not surprising, he adds, because Canada is a less-developed jurisdiction in terms of shareholder activism and its courts are more conservative. "Shareholder activism is a growing trend but the ground is pretty unplanted in certain respects so, right now, our judges are taking a more limited role than they do in the US. You can make arguments in the course of a proxy fight but there is little jurisprudence to support them." Mark Gelowitz, chair of the National Corporate Governance and Securities Litigation Group at Osler, Hoskin & Harcourt LLP, believes that is changing. He says a proposal being considered by Canadian securities regulators to allow boards to install poison pills and keep them in place up to a year – with shareholder approval – will likely lead to more proxy action. "What that's going to create is a shifting of the litigation tactics in relation to poison pills, because what bidders will need to do, essentially, is fight a proxy battle on the shareholder vote to accept or reject a poison pill. "It's actually pretty early days on proxy litigation issues so far. But what I see in the future is as we get more and more of this, we're going to have a ramping up of litigation in relation to those shareholder-meeting issues driven by an increase in activist investor activity." Pasparakis says another avenue he sees opening up is entrenchment suits based on actions a board takes before a proxy battle. "Say the activist represents 50 percent of shareholders and the company has 40 percent, the board might decide to issue 20 percent in new shares to a 'friend,' tilting the numbers so the company wins. "The dissident would say that's oppressive, and there's quite a bit of litigation around that kind of dilutive or entrenching transaction. People thought those kinds of transactions were dead but recently there's been success — which is only going to encourage them. "Proxy battles are a developing area in Canada, and we're seeing more and more litigation, so we can also expect to see more and more guidance from the courts on this difficult area." THE BC COURT OF APPEAL intervene only when they have specific authority to do so under statutory provisions." While Mason's limited financial stake raised "a strong concern" that its interests are not aligned with the economic well-being of the company, the court said there is no indication that the hedge fund was violating any laws, "nor is there any statutory provision that would allow the court to intervene on broad equitable grounds. "To the extent that cases of 'empty voting' are subverting the goals of shareholder democracy, the remedy must lie in legislative and regulatory change." There are fairly few recent decisions in proxy litigation in Canada and nothing at all, until now, on how to proceed when a shareholder's economic interest in the company has been decoupled from its voting rights, says Stephen Schachter, QC, of Nathanson, Schachter & Thompson LLP, who argued for Mason. "The [Telus] case is significant in a Canadian context as it was the first case in which the courts have commented on the concept of empty voting," he says from Vancouver, "so it's an interesting case even though no determinations have been made at the highest level; it didn't get to the Supreme Court of Canada." 30 | LEXPERT • December 2013 | www.lexpert.ca Sandra Rubin is a freelance legal affairs writer. PHOTO: REUTERS "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."