SUPERIOR COURT OF JUSTICE – ONTARIO

COMMERCIAL LIST

RE: IN THE MATTER OF Sprott Resource Lending Corp.

BEFORE: D. M. Brown J.

COUNSEL:
E. Snow, for the Applicant

HEARD: June 24, 2013

REASONS FOR DECISION

I. Ex parte application under CBCA s. 133(3) to extend the time for calling an annual meeting

[1] This morning I adjourned, until tomorrow morning, the application by Sprott Resource Lending Corp. (“SRL”) for an order under section 133(3) of the Canada Business Corporations Act, R.S.C. 1985, c. C-44, to extend the time for calling an annual meeting. I gave directions requiring that notice of the application be given; Schedule “A” to these Reasons reproduces that endorsement. I indicated in my endorsement that I would be releasing further reasons explaining my decision. These are they.

II. Background

[2] Under the terms of section 133(1) of the CBCA, SRL must call an annual meeting of shareholders by June 30, 2013. The Chief Financial Officer of SRL, Mr. James Grosdanis, deposed that on May 9, 2013 the company announced an annual and special meeting date of June 25, 2013 and on May 29, 2013 mailed a management information circular (“MIC”) to shareholders.

[3] Mr. Grosdanis did not disclose in his supporting affidavit that pursuant to the May 24, 2013 initial order of Mesbur J., June 25, 2013 also had been set as the date upon which shareholders would vote on a proposed Plan of Arrangement under the CBCA.

[4] According to Mr. Grosdanis, the United States Securities and Exchange Commission requested a number of amendments be made to the MIC “to clarify and/or provide additional information with respect to certain items contained therein”. The details of the requested changes were not specified in the affidavit.

[5] SRL’s Board has decided to mail an amended MIC to shareholders so that they “receive notice of the additional information contained in the Amended Circular and can consider that information prior to the annual and special meeting”.

[6] SRL has sought from the TSX an extension of the date for the holding of its annual meeting until July 23, 2013, and therefore wishes to postpone the meeting scheduled for tomorrow. Section 133(3) of the CBCA provides that “the corporation may apply to the court for an order extending the time for calling an annual meeting”, so the company has applied for such an order permitting it to hold its annual meeting no later than July 23, 2013.

III. Analysis

[7] I accept counsel’s submission that in light of paragraph 11 of the order of Mesbur J., which contained the standard model order provisions for an initial order involving a Plan of Arrangement, the applicant may adjourn or postpone the meeting at which shareholders will consider and vote on the Plan without first obtaining an order of this Court. So, SRL has applied for an extension of time to call the meeting not to comply with the Initial Order, but to ensure the corporation is on-side with the requirements of CBCA s. 133 regarding the timing of shareholder meetings.

[8] CBCA s. 133(3) authorizes SRL to apply to this Court for an extension order in respect of its annual meeting. Section 248 of the CBCA provides:

Where this Act states that a person may apply to a court, the application may be made in a summary manner by petition, originating notice of motion, or otherwise as the rules of the court provide, and subject to any order respecting notice to interested parties or costs, or any other order the court thinks fit.

[9] In Ontario, as a result of Rule 14.05(2) of the Rules of Civil Procedure, proceedings under the CBCA are brought by way of application. The practical effect of the combined operation of Rules 38.06 and 38.11 is that the application materials should be served on any party “or other person” who is affected by the application. As the jurisprudence of this Court consistently has held, proceeding with an application (or a motion) on an ex parte basis is an extra-ordinary way of proceeding and only should occur (i) where there is good reason to believe that the responding party, if given notice, will act to frustrate the process of justice before the motion can be decided or (ii) where there is simply not the time and/or means to provide notice: Robert Half Canada Inc. v. Jeewan (2004), 2004 1532 (ON SC), 71 O.R. (3d) 650 (S.C.J.); Ignagni Estate (Re), 2009 54768 (ON SC).

[10] The shareholders of SRL certainly are persons who would be affected by the order sought on this application. In the only case dealing with CBCA s. 133(3) placed before me by the applicant, Re IMAX Corp. (2007), 41 B.L.R. (4th) 289 (Ont. S.C.J.), it was clear that notice of the application had been given to shareholders and the Director under the CBCA, and some shareholders appeared on the return of the application to oppose the request for an extension of the time in which to hold an annual meeting.

[11] In the present case, I was not prepared to deal with the application on an ex parte basis because the applicant had failed to disclose the existence of on-going Plan of Arrangement proceedings. While I accept counsel’s explanation that the failure to include such information was the result of an oversight, that oversight, in its effect, resulted in the failure to disclose material information. Judges learn from experience that most stories have two sides to them, thus the great reluctance of judges to deal with requests for orders on an ex parte basis. Parties and their counsel can never lose sight of the obligation to make the fullest and most frank disclosure on ex parte applications or motions. Such applications mark a radical departure from the adversarial approach to truth-finding upon which our common law system is built and an exception to the general transparency and openness of our courts when they make orders which affect other parties.

[12] Nor would this application otherwise qualify as an appropriate one in which to proceed on an ex parte basis. There was no risk of the dissipation or destruction of the subject-matter of the application, as in the case of a Mareva injunction. Nor was the time or means lacking to provide adequate notice. The combination of the issuance of a press release spelling out the time and place of the return of the application and the posting of the application materials on the applicant’s own website and/or on SEDAR afforded the opportunity to give practical notice in the circumstances. Although service of the Director under the CBCA is not required by statute, as a matter of practice such notice is given when plans of arrangement are placed before this court. Given that the adjournment of tomorrow’s meeting will result in a deferral of the consideration of the applicant’s plan of arrangement, practical sense dictated giving notice of this application to the Director.

[13] Accordingly, I gave the directions for service contained in Schedule “A” to these Reasons, and the application will come back on before me tomorrow.

D. M. Brown J.

Date: June 24, 2013

Schedule “A”: Transcription of handwritten endorsement made June 24, 2013

No notice has been given of this application, either to shareholders or the Director under the CBCA. It therefore is proceeding on an ex parte basis. I will release slightly longer reasons later today, but suffice it to say that Mr. Gosdanis failed to disclose a material fact in his affidavit – i.e. that the applicant has Plan of Arrangement proceedings before this Court and none item on the agenda for tomorrow’s SH meeting is a vote to consider that Plan. That fact should have been disclosed. In light of the non-disclosure, I will not proceed on an ex parte basis. Service of this application must be given as follows:

(1) Issuance of press release by 2 pm today advising that the application will be heard by me tomorrow, June 25/13, @ 9:30 am in Crtrm 8-6, 330 University;

(2) Posting of that press release on the applicant’s website by 2 pm today, and on SEDAR today, if possible;

(3) Sending notice by email to the Director of the CBCA by 2 pm today.

The press release must announce that any interested person may attend at tomorrow’s hearing and make submissions.

Application adj’d to June 25/13 @ 9:30 am on my list.