Maudore Minerals Ltd. v. Harbour Foundation

111 O.R. (3d) 660
2012 ONSC 4255

Ontario Superior Court of Justice
Perell J.
July 18, 2012

Corporations -- Meetings -- Plaintiffs nominating and planning to vote for new slate of directors at annual shareholders' meeting -- Plaintiffs bringing oppression application based on conduct of management of corporation which was allegedly designed to frustrate their ability to propose their alternate slate of directors -- Plaintiffs moving for declaration that shareholders who acquired their shares by transfer after certain date were not entitled to vote those shares at shareholders' meeting, for order that meeting be chaired by independent third party appointed by court and for order that particular procedure be adopted at meeting -- Motion dismissed -- Court reluctant to interfere in advance with exercise of shareholders' right to design their own corporate constitution and electoral process -- Plaintiffs not showing strong prima facie case for mandatory injunction and not suffering any irreparable harm if injunction was not granted.

Injunctions -- Strength of case -- Defendants nominating and planning to vote for new slate of directors at annual and special shareholders' meeting -- Plaintiff moving to enjoin defendants from voting their shares and from soliciting proxies on basis that defendants perpetrated breach of confidence by misusing confidential information -- Motion dismissed -- Plaintiff required to show strong prima facie case as granting or refusing injunction would be determinative of underlying dispute concerning election of competing slates of directors -- Plaintiff showing strong prima facie case that defendants received confidential information but showing only weak case that confidential information was misused -- Balance of convenience also favouring refusing injunction.

SH and DH were trustees of Harbour, which, along with City, was the largest shareholder of a mining company, Maudore. They had doubts about the management of Maudore, which was led by RS. DH decided to visit the site of a Maudore gold mining project, accompanied by a geologist, HC. The real purpose of the visit -- verifying the accuracy of public disclosures and assessing the competence of management -- was not communicated to Maudore when DH sought and received permission for the visit. Nevertheless, RS asked HC to sign a confidentiality agreement. HC complied. HC asked detailed questions and received a great deal of information during the visit. Harbour subsequently nominated a new slate of directors for Maudore and put forward HC as the new chief executive officer. Maudore provided Harbour with a list of its registered shareholders and Canadian beneficial shareholders, but initially resisted Harbour's efforts to obtain a list of its American beneficial shareholders. That list was ultimately provided to Harbour. HC prepared an outline of the steps he would take if he became CEO (the "action plan"), which was included as an appendix to Harbour's dissident proxy circular. Maudore submitted that DH prepared the action plan using confidential information acquired by his visit to the gold mine site. Maudore brought a motion to enjoin Harbour and City from voting their shares and soliciting proxies on the grounds that HC breached the confidentiality agreement. Alternatively, Maudore sought an injunction on the basis that the defendants perpetrated a breach of confidence by misusing confidential information. Harbour and City brought an application pursuant to s. 107 and/ or s. 248 of the Business Corporations Act, R.S.O. 1990, c. B.16 ("OBCA"). In that application, they brought a motion for a declaration that Maudore shareholders who acquired their shares by transfer after June 8, 2012 were not entitled to vote those shares at the shareholders' meeting, an order that the chair of the meeting be an independent third party appointed by the court, and an order that, at the shareholders' meeting, Maudore adopt a particular review of proxies procedure. They argued that Maudore's management had engaged in oppressive behaviour designed to frustrate their ability to propose their alternate slate of directors.

Held, both motions should be dismissed.

Maudore was required to show a strong prima facie case because granting or refusing the injunction would be determinative of the underlying dispute that concerned the election of competing slates of directors. Maudore had shown a strong prima facie case that the defendants received confidential information from Maudore. However, it had shown only a weak prima facie case that there was misuse of that confidential information. Under the confidentiality agreement, HC was permitted to use confidential information in reviewing and evaluating Maudore's properties and projects for Harbour. It was arguable that using the information for the purpose of deciding to exercise shareholders' rights was not a misuse of the confidential information. Moreover, the balance of convenience favoured refusing the injunction.

In the absence of demonstrated impropriety, a court ought not to interfere in advance with the operation of the exercise of the shareholders' right to design their own corporate constitution and electoral process. In seeking to have the court impose a voting protocol, Harbour and City were asking the court to rewrite Maudore's by-laws. In the circumstances of this case, there was no reason or basis for the court to interfere with the contractual and corporate autonomy of the board of directors. The appropriate course of action was for Harbour and City to await the results of the annual general meeting and, if there was some impropriety or illegality, then apply under the OBCA for declaratory or injunctive relief. Harbour and City had not shown a strong prima facie case for a mandatory injunction and would not suffer any irreparable harm if the injunction was not granted.

MOTIONS by the plaintiff and defendants for injunctive relief.

Cases referred to
RJR-Macdonald Inc. v. Canada (Attorney General), 1994 SCC , [1994] 1 S.C.R. 311, [1994] S.C.J. No. 17, 111 D.L.R. (4th) 385, 164 N.R. 1, J.E. 94-423, 60 Q.A.C. 241, 54 C.P.R. (3d) 114, 46 A.C.W.S. (3d) 40, apld

Other cases referred to
American Cyanamid Co. v. Ethicon Ltd., 1975 , [1975] A.C. 396, [1975] 1 All E.R. 504, [1975] 2 W.L.R. 316, [1975] R.P.C. 513, [1975] F.S.R. 101 (H.L.);
Blair v. Consolidated Enfield Corp., 1995 SCC , [1995] 4 S.C.R. 5;
Boehmer Box L.P. v. Ellis Packaging Ltd., [2007] O.J. No. 1694 (S.C.J.);
Cadbury Schweppes Inc. v. FBI Foods Ltd., 1999 SCC ;
Certicom Corp. v. Research in Motion Ltd. (2009), 94 O.R. (3d) 511;
[Coco v. A.N. Clark (Engineers) Ltd.] ;
Connaught Laboratories Ltd. v. Smithkline Beecham Pharma Inc.;
Dowell v. Mengen Institute;
Empire Stevedores (1973) Ltd. v. Sparringa;
Environmental Management Solutions Inc. v. D'Arrario;
Evans Marshall & Co. Ltd. v. Bertola S.A.;
Gold Reserve Inc. v. Rusoro Mining Ltd.;
Lac Minerals Ltd. v. International Corona Resources Ltd., 1989 SCC ;
MTC Electronic Technologies Co. (Re);
Omega Digital Data Inc. v. Airos Technology Inc.;
Ontario (Attorney General) v. Ontario Teachers' Federation;
Operation Dismantle Inc. v. Canada;
Paddington Press Ltd. v. Champ;
Quizno's Canada Restaurant Corp. v. 1450987 Ontario Corp.;
Synergism Arithmetically Compounded Inc. v. 1130163 Ontario Inc.;
Traynor v. Unum Life Insurance Co. of America;
Vanswan Properties Inc. v. Peckham.

Statutes referred to
Business Corporations Act, R.S.O. 1990, c. B.16, ss. 107 , 248.

Robert B. Cohen and Lara M.B. Jackson, for Maudore Minerals Ltd.
R. Seumas, M. Woods, Doug McLeod and Max Shapiro, for the Harbour Foundation, City Securities Ltd., Howard William Carr, Seager Rex Harbour and Daniel Harbour.
Orestes Pasparakis, Teresa Walsh and Nicholas Saint-Martin, for Maudore Special Committee of Independent Directors.

PERELL J.: -- A. Introduction

[1] The Harbour Foundation and City Securities Limited together own 18.4 per cent of the shares of Maudore Minerals Ltd., a Canadian mining corporation, and together are its single-largest shareholder. With the support of the second-largest shareholder, which holds an 8.8 per cent interest, Harbour Foundation and City Securities have nominated and plan to vote for a new slate of directors at the annual and special meeting of the shareholders scheduled for tomorrow, July 19, 2012.

[2] Maudore, however, brings a motion to enjoin Harbour Foundation and City Securities from voting their shares and from soliciting proxies on the grounds that Dr. Howard Carr, who is Harbour Foundation's and City Securities Limited's nominee as a director on the proposed board of directors, breached a confidentiality agreement signed by him while acting on behalf of Harbour Foundation and City Securities. Alternatively, Maudore seeks an injunction on the basis that the defendants perpetrated a breach of confidence by misusing confidential information.

[3] On either theory of liability, the alleged breach is that Harbour Foundation and City Securities are using confidential information to obtain proxies with the aim of replacing the current board of directors with a new board. Maudore submits that through the inquires of Dr. Carr, Harbour Foundation, City Securities, Dr. Carr, Seager Rex Harbour and Daniel Harbour received and then misused confidential information and, therefore, should be enjoined from voting at the shareholders' meeting.

[4] In addition to resisting Maudore's motion, two of the defendants, Harbour Foundation and City Securities, have brought an application pursuant to s. 107 and/or s. 248 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16. In that application, they bring a motion about the conduct of the upcoming shareholders' meeting.

[5] Harbour Foundation and City Securities submit that Maudore's current management has for months engaged in a pattern of self-interested behaviour designed to frustrate their ability to propose their alternate slate of directors. They submit that the corporation's conduct is oppressive, unfairly prejudicial to, and unfairly disregards their interests as shareholders, and breaches their reasonable expectation of fair and equal treatment.

[6] Their motion is resisted by Maudore's Special Committee of Independent Directors.

[7] Although their request for relief has narrowed considerably from the relief requested in their notice of application, Harbour Foundation and City Securities now seek: (a) a declaration that Maudore shareholders who acquired their shares by transfer after June 8, 2012 are not entitled to vote those shares at the shareholders' meeting; (b) an order that the Chair of the meeting be an independent third party appointed by the court; and (c) an order that at the shareholders' meeting, Maudore adopt the review of proxies procedure set out in paras. 20 to 24 of the Protocol attached as Schedule A to the notice of application.

[8] For the reasons that follow, I dismiss both motions.

B. Factual Background

[9] With a few editorial comments and some foreshadowing of the issues I must resolve later in these reasons, the factual background to both motions is as follows.

[10] Maudore is a Canadian mining public corporation with its shares listed on the TSX Venture Exchange. It has mining projects in the Abitibi region of Québec, near the town of Val-d'Or, including the Comtois gold project.

[11] Ronald Shorr is Maudore Mineral's chief executive officer and president. He has 40 years' experience in the mining industry and has a MBA in finance from Harvard Business School.

[12] Robert Pevenstein recently replaced Mr. Shorr as the company's chairman.

[13] The Harbour Foundation, which is an English charity, and City Securities together own approximately 18.4 per cent of the issued and outstanding common shares of Maudore, making them collectively the company's single-largest shareholder.

[14] Seager Rex Harbour ("Mr. Harbour") and his son Daniel Harbour, Ph.D. ("Dr. Harbour") are trustees of Harbour Foundation. The senior Harbour is the founder and principal of City Securities and has a reputation as an activist shareholder having, for instance, initiated and won a contest for control of Mintails Ltd., an Australian mining company. Dr. Harper is an academic and scientist at Queen Mary College University of London in the area of cognitive science.

[15] In 2011, Mr. Harbour began to have doubts about the competency of Maudore's management, which is led by the 75-year-old Mr. Shorr, who is not a geologist. Mr. Harbour asked Howard Carr, Ph.D. to investigate Maudore.

[16] Dr. Carr, who lives in Perth Australia, is an economic geologist, who has held executive positions with both private and public mining and resource companies. Dr. Carr is married to the son of Mr. Harbour's best friend and had previously worked with Mr. Harbour, who nominated him for a directorship at Mintails Ltd.

[17] Dr. Carr analyzed the publicly available documentation about Maudore, including its statutorily required "43-101" technical report on its operations, its annual reports, investor presentations and press releases since 2005. He also reviewed public documents on the geology of the Comtois gold project and about volcanogenic massive sulphide deposits in the area of the project. Dr. Carr reported to Mr. Harbour that there was a good prospect that Maudore Mineral's property did contain an economically feasible gold deposit as had been reported, but that the company's management seemed to be functioning at a very low level technically.

[18] Having received this information from Dr. Carr, Mr. Harbour contemplated asking Maudore to change its management to include Dr. Carr. Mr. Harbour decided to send his son Dr. Harbour along with Dr. Carr to visit the Comtois gold project site on behalf of the Harbour Foundation to verify the accuracy of the public disclosures and to assess the competence of the current management.

[19] Mr. Harbour contacted Mr. Shorr and asked about the possibility of Dr. Harbour, who had academic matters to attend to in Canada, visiting the project. Mr. Harbour did not mention that Dr. Carr would accompany Dr. Harbour. There was no advance notice of plans to replace or displace Mr. Shorr and his management team. There was no disclosure that Dr. Daniel Harbour's agenda would be to assess management, Maudore's business plan and general matters. None of these threatening prospects was ever communicated to Mr. Shorr or to Maudore. Apparently believing that curiosity was the only motivation for the visit, Mr. Shorr agreed that Dr. Harbour could visit the Comtois gold project site.

[20] Dr. Harbour subsequently followed up with Mr. Shorr and did disclose that Dr. Carr would also be attending the site visit. On March 8, 2012, Dr. Harbour sent an e-mail message to Mr. Shorr. In his e-mail, Dr. Harbour stated that "the family's holding with Maudore is substantial (from both our perspectives) and therefore my brothers and I are keen to have a more sound understanding of the investment". He then advised that he had been able to arrange for one of his family's financial advisors to join him on the site visit.

[...continues exactly as provided through paragraphs [21]–[121]...]

Motion dismissed.