COURT FILE AND PARTIES
COURT FILE NO.: CV-12-9887-00CL
DATE: 20121219
SUPERIOR COURT OF JUSTICE – ONTARIO
COMMERCIAL LIST
RE: Continental Precious Minerals Inc., Applicant
AND:
Gurdass (Gary) Singh, Anthony G. Borg, Sajjad Ebrahim, Alli Ebrahim, Salman Ebrahim, The Par-Pak Companies Inc, and Grant V. Sawiak, Defendants
APPLICATION UNDER Section 105 of the Securities Act (Ontario), Section 99(9) of the Business Corporations Act , (Ontario), and Rule 14.05 of the Rules of Civil Procedure
BEFORE: L. A. Pattillo
COUNSEL:
Gary Sugar and Michael Watson , for the Applicant
Jay Naster , for the Respondents, Sajjad Ebrahim, Ali Ebrahim, Salman Ebrahim and Par-Pak Companies Inc.
Gary Caplan and Sarah Valair , for the Respondents Anthony Borg and Grant Sawiak
Christopher Wirth and Benjamin Kates , for the Respondent Gurdass (Gary) Singh
HEARD: December 12, 2012
ENDORSEMENT
1The 2012 Annual General Meeting (the “2012 AGM”) of the Applicant Continental Precious Metals’ (“Continental”) is scheduled for December 20, 2012. Mr. Sharad Mistry (“Mistry”), a Continental shareholder, has sent out a dissident proxy circular dated November 19, 2012 seeking to replace the incumbent board of directors.
2Continental alleges that the Respondents have engaged in two separate instances of illegal conduct which, if not remedied, threatens to prevent the proper transaction of business at the 2012 AGM.
3Specifically, Continental alleges:
a) The Respondents Sajjad Ebrahim (Sajjad), Ali Ebrahim (Ali) and Salman Ebrahim (Salman) (collectively the “Ebrahim Family”) and The Par-Pak Companies Inc. (“Par-Pak”), a company controlled by Sajjad, acquired shares in Continental in contravention of the early warning requirements in s. 102.1 of Part XX of the Securities Act R.S.O. 1990, C S5, as amended (the Act). At issue are the voting rights for approximately 1,500,000 shares of Continental; and
b) The Mistry proxy solicitation is illegal being contrary to Part 9 of the Proxy Solicitation and Information Circular, National Instrument 51-102 (“NI 51-102”) and ss. 32 and 33 of the Regulations pursuant to the Business Corporations Act (Ontario) , R.S.O. 1990, c. B.16, as amended (“ OBCA ”).
4Continental seeks the following on this Application:
a) An order prohibiting the Ebrahim Family from exercising voting rights in respect of the shares purchased in contravention of the Act ;
b) A declaration that a “flip-in event” has occurred under Continental’s shareholders rights plan dated September 3,2010 by reasons of the Ebrahim Family acquiring over 20% of the shares; and
c) An order disallowing the Mistry proxy solicitation or in the alternative disallowing the Ebrahim Family and the Respondent Gurdass (Gary) Singh (“Singh”) from voting their shares at the 2012 AGM or in the further alternative, vacating the AGM date, setting a new meeting date and requiring a proper proxy circular with proper disclosure.
Alleged Breach of the Early Warning Requirements
5Continental’s allegations that the Ebrahim Family and Par-Pak violated the early warning requirements of the Act are not new. Continental says it first became aware of their purchases while preparing for its 2011 Annual General Meeting in September 2011. After that meeting, and arising out of it, the Ebrahim Family and others launched an oppression application against Continental and its directors. On November 4, 2011, prior to the oppression application being commenced, counsel for the applicants wrote to the Ontario Securities Commission (“OSC”) to advise it of the pending application. On November 8, 2011, counsel for Continental wrote to the OSC in response. The letter raised the issue of the Ebrahim Family failing to file early warning reports and stated “it is incumbent on the OSC to look into whether Mr. Ebrahim and his sons have breached their insider reporting and early warning disclosure obligations.”
6In addition to Continental’s request of the OSC to investigate the Ebrahim Family’s share purchases prior to October 2011, on December 14, 2011, it commenced an application against the Ebrahim Family and Singh seeking, among other things, the exact same relief that noted in paragraph 4 (a) and (b) above (the “Counter-Application”). The oppression application and the Counter-Application came on for hearing before Brown J. on March 28, 2012. At the outset of the hearing, counsel for Continental advised the Court that in the event the oppression application was dismissed, it would withdraw the relief requested in the Counter-Application. On May 22, 2012, Justice Brown dismissed the oppression application and noted in his reasons that as a result of Continental’s undertaking to the Court, he treated the Counter-Application as withdrawn.
7At the hearing before me, counsel advised that the OSC investigation into whether the Ebrahim Family breached the early warning requirements of the Act is still ongoing. In the circumstances, I do not consider it appropriate to deal with the issue of whether the Ebrahim Family breached the early warning requirements of the Act. Having instituted the OSC complaint and subsequently withdrawn the Counter-Application, the matter is before the OSC. It is no answer for Continental to say that nothing has happened at the OSC. More than a year has elapsed since its complaint. Continental was aware that the Ebrahim Family could vote the impugned shares at some time. In my view, it was incumbent on Continental to pursue the OSC complaint to finalization.
8Even if I considered it appropriate for this Court to deal with the issue of whether the Ebrahim Family breached the early warning requirements of the Act and so concluded, having regard to the circumstances, I would not grant the relief requested of prohibiting the Ebrahim Family from voting their shares acquired after December 23, 2009.
9In my view, if Continental required an order of the court disallowing the Ebrahim Family from voting the shares in issue, it should have proceeded with its Counter-Application. The parties were prepared to argue the issues before Justice Brown. I do not accept that it was withdrawn because it was moot. The issues were completely separate from those raised in the oppression application. Continental elected to withdraw for tactical reasons. It was also obvious to all that the Ebrahim Family would want to vote their alleged impugned shares at sometime in the future. Continental cannot, in effect, park its claim on the sidelines and wait until the next time the shareholders vote to resurrect it.
10Further, and even accepting that the Ebrahim family was acting jointly or in concert when they purchased their Continental shares, which is not agreed by them, I do not consider their actions in retrospect to have violated the purpose of the early warning provisions.
11After the filing of the last early warning report by Sajjad in May, 2009, the Ebrahim Family could acquire up to 18.4% of Continental’s shares without having to file a further early warning report. In December of 2009, they exceeded that amount. While their collective shareholdings eventually exceeded 20%, in January 2012, the Ebrahim Family sold some of their shares in Continental to bring their collective shareholdings to 19.9% of the issued shares. Since then, Continental has issued additional shares from treasury diluting their shareholdings down to 18.2%. As a result, at the present, the Ebrahim Family shareholdings have reduced to the level where an early warning report is not required.
12The purpose of the early warning report is to ensure the market is advised of accumulations of significant blocks of securities that may influence control of a public company. Accumulation of shares may signal an imminent take-over bid. That has not occurred here. Further, and while the Ebrahim Family did not file an early warning report when their shares collectively exceeded 18.4%, Continental’s shareholders are aware of their current shareholdings in advance of the 2012 AGM. In its information circular for the 2012 AGM, Continental has set forth the shares and percentage of outstanding shares for each of Sajjad, Ali and Salman. In my view, while they may have been offside the Act in 2010 and 2011, they are not now and there is no evidence any harm has resulted from it.
13As a result, and even if I were to conclude that the Ebrahim Family breached the early warning requirements of the Act , in the above circumstances I would not exercise the broad discretion provided by s. 105 of the Act to prohibit them from voting their shares at the 2012 AGM. As Morawetz J. stated in Echo Energy Canada Inc. v. Challenge Gas Holding AB , 2008 63183 (ON SC) , [2008] O.J. No. 4843 (S.C.J.) at para. 88 in respect of the remedy prohibiting the voting of securities: “A shareholder’s right to vote is both a necessary and fundamental right in corporate democracy. While s. 105 of the Act permits such a remedy, it must be an order that the court “thinks fit.”
The “flip-in event”
14This issue also involves the question of the Ebrahim Family’s shareholdings prior to January 2012. The relief requested by Continental in this Application was also requested by it in the Counter-Application. For the above reasons, I would also not grant Continental’s request for the declaration concerning the “flip-in event” set out in paragraph 4(b) herein.
The Mistry Proxy Solicitation
15Continental alleges that Singh, who is a broker with Canaccord Wealth Management and the Respondent Grant V. Sawiak (“Sawiak”), a lawyer with Fogler Rubinoff, are the real promoters of the Mistry proxy solicitation. It alleges that Sawiak, together with Singh and his clients, especially the Ebrahim Family, have worked jointly or in concert to take control of Continental using Singh’s clients at Canaccord, including the Ebrahim Family. Failure to disclose their role in the Mistry proxy circular renders it illegal contrary to NI 51-102 and the regulations under the OBCA .
16NI 51-102 provides, among other things in item 3.2 that if the solicitation is made by someone other than by or on behalf of management (as the Mistry proxy solicitation is), it must be stated along with the name of the person or company on whose behalf it’s made. Item 5 (b) requires that the beneficial ownership of securities of “each person or company by whom, or on whose behalf, directly or indirectly, the solicitation is made” be listed in the circular.
17Section 32 of Regulation 62, R.R.O. 1990 under the OBCA defines “dissident” as a person … by or on behalf of whom a solicitation is made, and includes a committee or group that solicits proxies, any members of the committee or group, and any person whether or not named as a member, who acting alone or with one or more other persons, directly or indirectly, engages in organizing, directing or financing any such committee or group, except…”. It then goes on to list five categories of exceptions, including (b) a broker that does not otherwise participate in the solicitation and (e) a person employed in the capacity of lawyer and whose activities are limited to the performance of duties in the course of such employment.
18Sawiak’s evidence is that at all times acting as a lawyer. He owns no shares in Continental. Although he acts for some of the shareholders of Continental, including the Ebrahim Family, he does not act for Mistry. Another lawyer at Fogler Rubinoff does. He acted for the Respondent Anthony G. Borg (“Borg”), a shareholder of Continental, in respect of a proposal to liquidate the company which was started on August 1, 2012. Borg withdrew his proposal on November 5, 2012.
19Borg retained Sawiak to act in respect of the liquidation proposal only. He did not know the Ebrahim Family. He did not speak to Singh about it.
20Singh’s evidence is that he acts for a number of clients who own shares in Continental, including the Ebrahim Family. He and his family own shares. His business partner, Margaret Barron, acts for Borg. He had no involvement in the Borg proposal. He has acted as Mistry’s investment advisor for more than 10 years and has had no involvement in organizing the slate of directors put forward in the Mistry proxy solicitation.
21The Ebrahim Family acknowledges they have received legal advice from Sawiak and investment advice from Singh concerning their frustration with Continental. They do not know and have never spoken to either Borg or Mistry.
22Although Continental complains about the Mistry proxy solicitation and has known about it since early November 2012, Mistry has not been made a party to the Application. Nevertheless, Continental examined him. Mistry’s evidence is that neither Sawiak nor Singh had any involvement in the proxy circular. He does not know Sajjad and has not spoken to him about voting his shares.
23In support of its submission that Sawiak and Singh are acting jointly and in concert in respect of the Mistry proxy solicitation, Continental relies on two previous shareholder fights involving them and their clients which it submits constitutes “similar fact” evidence of similar conduct involving shareholder fights in Brainhunter Inc. (“Brainhunter”) and International Sovereign Energy Corp. (“ISR”).
24The Brainhunter events relied upon took place in 2009 and did not involve a proxy solicitation. Singh met with management on behalf of some disgruntled clients to initiate a change in the board of directors. He was acting in his role as investment advisor. Ultimately, some shareholders represented by Sawiak and his firm commenced an oppression application. There is no indication that Singh or Sawiak were acting other than in their professional capacities.
25ISR involved a proxy solicitation by Mistry in 2008. Mistry was ultimately successful in his proxy fight and became a director and CEO of ISR. Neither Sawiak nor his firm was involved in the proxy fight. Subsequently, they were retained to act for ISR. Singh owned shares in ISR but says he played no part in the proxy solicitation.
26In my view, the facts concerning both Brainhunter and ISR are of no assistance to Continental on this Application.
27Whether individuals are acting jointly or in concert is a question of fact: s. 91 (1) of the Act . In my view, the evidence simply does not support Continentals’ submissions that the Respondents were acting jointly or in concert in respect of the Mistry proxy solicitation.
28In Seel Mortgage Investment Corporation (1992), 15 OSCB 4287 , the OSC commented as follows in respect of the definition of jointly or in concert in s. 91 of the Act :
These provisions indicate that acting in an advisory or administrative role alone for customary remuneration should not be construed as acting jointly or in concert. However, the provisions also indicate that relationships that go beyond an advisory or administrative role may, nonetheless result in an advisor being construed as acting jointly or in concert.
29There is no evidence that Sawiak has done anything in respect of Continental other than as a lawyer advising clients. Nor is there any evidence that Singh was acting other than an investment advisor or in his personal capacity as a shareholder. I am not prepared to find they were acting jointly or in concert in respect of the Mistry proxy solicitation.
30Nor am I prepared to find, on the evidence, that the Ebrahim Family was acting jointly or in concert with either Sawiak or Singh or any other shareholder of Continental in respect of the Mistry proxy solicitation. While the Ebrahim Family clearly has a like interest with Mistry in effecting change at Continental, that by itself is not enough to establish they are acting jointly or in concert.
31As a result, I find that the Mistry proxy circular was not misleading.
32For the above reasons, therefore, Continental’s Application is dismissed in its entirety. The Respondents are entitled to their costs. In the absence of agreement within 20 days, the respondents shall submit written cost submissions of no more than three pages plus a costs outline. Continental shall have 7 days to respond with submissions of similar length. If it disputes the quantum, it shall also submit a costs outline.
L. A. Pattillo J.
Released: December 19, 2012