Superior Court of Justice – Ontario Commercial List
Court File No.: CV-16-11364-00CL
In the Matter of an Application Under Section 182 of the Business Corporations Act (Ontario), R.S.O. 1990, c.B.16, as amended
And in the Matter of a Proposed Plan of Arrangement of Partners Value Investments Inc.
Before: H.J. Wilton-Siegel J.
Counsel: Jason Squire, for the Applicant Amarna Associates Inc. Andrew Gray and Rebecca Wise, for the Respondent Partners Value Investments Inc.
Heard: October 5, 2016
Endorsement
[1] The applicant, Amarna Associates Inc. (“Amarna”), seeks an order declaring that it has validly exercised its right of dissent as a shareholder of Partners Value Investments Inc. (“PVI”) in respect of a plan of arrangement under which PVI restructured itself into a publicly-traded limited partnership (the “Plan”).
Background
Relevant Documentation
[2] On March 28, 2016, PVI issued a notice of meeting (the “Notice of Meeting”) advising, among other things, that the Annual and General Meeting of Shareholders of PVI would be held on May 26, 2016 (the “Meeting”). The Notice of Meeting also established the record date for notice of the Meeting and voting at the Meeting as April 15, 2016 (the “Record Date”). The Notice of Meeting did not indicate that the Plan would be submitted for approval of the shareholders at the Meeting.
[3] On April 28, 2016, PVI obtained an interim order from the Court (the “Interim Order”) which provided for the mailing of a Notice of Annual and Special Meeting and Management Information Circular dated April 28, 2016 (collectively, the “Circular”) in respect of the Meeting to consider, among other things, approval of the Plan.
[4] The Interim Order included the following provisions which are relevant for present purposes:
THIS COURT ORDERS that the record date (the “Record Date”) for determination of the Shareholders entitled to notice and to vote at the Meeting shall be April 15, 2016. …
THIS COURT ORDERS that each registered holder of Common Shares shall be entitled to exercise Dissent Rights in connection with the Arrangement Resolution in accordance with section 185 of the OBCA (except as the procedures of that section are varied by this Interim Order and the Plan of Arrangement) provided that, notwithstanding subsection 185(6) of the OBCA, any registered holder of Common Shares who wishes to dissent must, as a condition precedent thereto, provide written objection to the Arrangement Resolution to PVI in the form required by section 185 of the OBCA and the Arrangement Agreement, which written objection must be received by PVI not later than 5:00 p.m. (Eastern time) on the second last business day immediately preceding the Meeting (or any adjournment or postponement thereof), and must otherwise strictly comply with the requirements of the OBCA.
[5] I note that the Arrangement Agreement is not in the record before the Court. However, the description of the terms of the Arrangement Agreement in the Circular does not include any provisions that are relevant to the present application.
[6] The Plan included the following provisions with respect to dissent rights of the shareholders:
“Dissenting Shareholder” means a registered Shareholder who has duly exercised a Dissent Right and has not withdrawn or been deemed to have withdrawn such exercise of Dissent Rights, but only in respect of Shares in respect of which Dissent Rights are validly exercised by such Shareholder….
4.1 (a) Registered Shareholders may exercise rights of dissent with respect to their Shares pursuant to and in the manner set forth in section 185 of the OBCA as modified by the Interim Order and this Section 4.1 in connection with the Arrangement (the “Dissent Rights”), provided that, notwithstanding subsection 185(6) of the OBCA, written notice setting forth such a registered Shareholder’s objection to the Arrangement and exercise of Dissent Rights must be received by the Company not later than 5:00 p.m. (Toronto time) on the business day which is two business days preceding the date of the Meeting.
[7] The Circular contained the following provisions, among others, respecting voting of shares of PVI that were beneficially held:
If you are not registered as the holder of your Shares (a “Beneficial Shareholder”) but hold your Shares through a broker, investment dealer or other intermediary (each, an “Intermediary”), your Intermediary will send you a voting instruction form (“VIF”) or proxy form with the Circular. You must follow the instructions from your Intermediary to vote…
The information set out in this section is of significant importance to many Shareholders as a substantial number of Shareholders do not hold Shares in their own name. This Circular and the accompanying materials are being sent to PVI’s registered Shareholders and non-registered Shareholders (“Beneficial Shareholders”), that is, Shareholders who hold shares through a broker, investment dealer or other intermediary (each, an “Intermediary”).
If you are a Beneficial Shareholder, your Intermediary will send you a voting instruction form (“VIF”) or proxy form with this Circular. This form will instruct the Intermediary how to vote your Shares at the Meeting on your behalf. You must follow the instructions from your Intermediary to vote. The majority of Intermediaries now delegate responsibility for obtaining instructions from Beneficial Shareholders to Broadridge Financial Solutions Inc. (“Broadridge”). Broadridge typically mails a VIF to Beneficial Shareholders and asks Beneficial Shareholders to return the VIF to Broadridge. Broadridge then tabulates the results of all instructions received and provides the appropriate instructions respecting the voting of Shares to be represented at the Meeting.
For greater certainty, Beneficial Shareholders should note that they are not entitled to use a VIF or proxy form received from Broadridge or their Intermediary to vote Shares directly at the Meeting. Instead, the Beneficial Shareholder must complete the VIF or proxy form and return it as instructed on the form. The Beneficial Shareholder must complete these steps well in advance of the Meeting in order to ensure such Shares are voted. [Italics original]
[8] The Circular also contained the following statement in both the summary and the body of the Circular with respect to dissent rights of shareholders in respect of the Plan:
The Interim Order expressly provides registered holders of Common Shares with the right to dissent with respect to the Arrangement Resolution. Each Dissenting Shareholder who successfully exercises Dissent Rights is entitled to be paid the fair value (determined as of immediately before the passing of the Arrangement Resolution) of all, but not less than all, of the holder’s Common Shares, provided that the holder duly dissents to the Arrangement Resolution and the Proposed Reorganization becomes effective.
To exercise Dissent Rights, a holder of Common Shares must dissent with respect to all Common Shares of which it is the beneficial owner. A registered holder of Common Shares who wishes to dissent must deliver written notice of dissent to PVI no later than 5:00 p.m. (Toronto Time) on the Business Day which is two Business Days preceding the date of the Meeting and such notice of dissent must strictly comply with the requirements of section 185 of the OBCA as modified by Article 4 of the Plan of Arrangement, the Interim Order and the Final Order. Any failure by a holder of Common Shares to fully comply with the provisions of the OBCA, as modified by Article 4 of the Plan of Arrangement, the Interim Order and the Final Order, may result in the loss of that holder’s Dissent Rights. Beneficial Shareholders who wish to exercise Dissent Rights must cause each registered holder of their Common Shares to deliver the notice of dissent.
This statement was followed by a cross-reference which read: “See ‘Rights of Dissenting Shareholders’”.
[9] The Circular contained the following more extensive disclosure under the heading “Rights of Dissenting Shareholders”:
Registered holders of Common Shares may dissent from the Arrangement Resolution, thus requiring PVI to acquire the Common Shares held by such holder for the fair value thereof, determined as of the close of business on the day before the Arrangement Resolution is adopted. In order to do so, registered holders of Common Shares are required to follow the procedure set out in section 185 of the OBCA with modifications to the provisions of section 185 as provided in the Plan of Arrangement and the Interim Order (the “Dissent Rights”). The Court hearing the application for the Final Order has the discretion to alter the Dissent Rights described herein based on the evidence presented at such hearing.
Section 185 provides that a shareholder may only make a claim with respect to all the shares of a class held by him or her on behalf of any one beneficial owner and registered in that shareholder’s name. One consequence of this provision is that holders of Common Shares may only exercise the right to dissent under section 185 (as modified by the Plan of Arrangement and the Interim Order) in respect of Common Shares which are registered in their name. whose [sic] Common Shares are registered either: (i) in the name of an Intermediary that such holder deals with in respect of the Common Shares (such as banks, trust companies, securities dealers and brokers, trustees or administrators of self-administered RRSPs, RRIFs, registered education savings plans and similar plans, and their nominees); or (ii) in the name of a clearing agency (such as CDS Clearing and Depository Services Inc.) of which the Intermediary is a participant, are beneficial holders of Common Shares and are not entitled to exercise the right to dissent under section 185 directly (unless the Common Shares are re-registered in the beneficial holder’s name). Beneficial holders of Common Shares who wish to exercise their right to dissent should immediately contact their Intermediary and either: (i) instruct the Intermediary to exercise the right to dissent on their behalf (which, if the Common Shares are registered in the name of a clearing agency, would require that the Common Shares be re-registered in the name of the Intermediary); or (ii) instruct the Intermediary to re-register the Common Shares in the name of such beneficial holder, in which case that beneficial holder of Common Shares would acquire the right to dissent directly.
A registered holder of Common Shares who wishes to dissent must provide a written objection to the Arrangement Resolution (the “Notice of Dissent”) to PVI by registered mail at its head office at Suite 210, Brookfield Place, 181 Bay Street, Toronto, Ontario, M5J 2T3, Attention: David Clare, at or before 5:00 p.m. (Toronto time) on May 24, 2016 or, in the event that the Meeting is adjourned or postponed, no later than 48 hours (excluding Saturdays, Sundays and holidays) before the day the adjourned or postponed Meeting is reconvened or held, as the case may be. It is important that registered holders of Common Shares strictly comply with this requirement, which is different from the statutory dissent provision of the OBCA.
The sending of a Notice of Dissent does not deprive a registered holder of Common Shares of their right to vote on the Arrangement Resolution at the Meeting. A vote, either in person or by proxy, against the Arrangement Resolution does not constitute a Notice of Dissent and is not required in order to dissent. However, a vote in favour of the Arrangement Resolution will deprive registered holders of Common Shares of further rights under section 185 of the OBCA. [Italics original]
Amarna’s Exercise of its Right of Dissent
[10] As of the Record Date, Amarna held 8,500 PVI shares through an intermediary, BMO Nesbitt Burns (“BMO”). Amarna instructed BMO to re-register the shares in Amarna’s name. This was completed by May 19, 2016 with the result that Amarna was a registered shareholder of PVI when it delivered a notice of dissent in timely fashion on May 24, 2016.
[11] The Plan received court approval on June 16, 2016. The application for court approval was opposed by another shareholder, Mutende Equities Ltd. (“Mutende”), which was a shareholder of a shareholder of a shareholder of PVI. The motion for court approval of the Plan was originally scheduled to be heard on May 27, 2016, but was adjourned to June 16, 2016 for reasons unrelated to the present matter. In granting approval of the Plan, the court held that Mutende had no status as a shareholder to object to the Plan.
[12] In an affidavit of David Clare, the vice-president of PVI (“Clare”), which was sworn and filed on May 26, 2016 in connection with the approval motion (the “Clare Affidavit”), Clare stated that there were two dissenting shareholders. On June 16, 2016, in court, counsel for PVI advised that there was only one dissenting shareholder holding ten shares. This was the first statement by PVI that it was rejecting Amarna’s exercise of its dissent rights. The fact that Amarna was not a registered shareholder on the Record Date had come to the attention of PVI’s counsel late on May 26, 2016, after the Clare Affidavit had been filed with the court earlier that day in connection with the approval motion. I do not consider the facts pertaining to the context of the Clare Affidavit and the subsequent oral statement by its counsel in court to be material to the issues on this motion, nor do I consider Amarna’s failure to object at the time to be material.
[13] PVI says that it took the position in court on June 16, 2016 that there was only one dissenting shareholder because it was of the opinion that Amarna had not validly exercised its dissent rights. PVI says Amarna was required to have BMO exercise its dissent rights on its behalf because it was not a registered shareholder on the Record Date. PVI has maintained this position since that time.
Governing Legal Provisions
[14] As mentioned, the Interim Order, the Plan and the Circular refer to section 185 of the Business Corporations Act (Ontario), R.S.O. 1990, c. B.16 (the “OBCA”), which deals with the rights of dissenting shareholders. For clarity, however, by virtue of section 182(6) of the OBCA, among other provisions, it is the terms of the Initial Order that govern the dissent rights of shareholders rather than any statutory provision of the OBCA. The Initial Order incorporates the provisions of section 185 of the OBCA to the extent they are relevant. In other words, section 185 applies to the Plan as if the Plan were a transaction described in sections 185(1) or (2), rather than by virtue of the operation of either of those provisions. As a practical matter, it is the provisions of sections 185(4) to (30), which set out the procedure for the exercise and determination of dissent rights, that are relevant.
Analysis and Conclusions
[15] The parties agree that only registered shareholders can exercise dissent rights. It is PVI’s position, however, that the only registered shareholders entitled to exercise dissent rights were shareholders registered as of the Record Date. PVI says that, in order to dissent, a shareholder had to either (i) instruct its intermediary to exercise the dissent rights on its behalf, or (ii) instruct its intermediary to re-register its shares in the name of the beneficial shareholder prior to the Record Date.
[16] PVI bases this position on the fact that only those shareholders registered as of the Record Date were entitled to vote on the Plan. It says that it necessarily follows from that fact, and pursuant to section 185 of the OBCA and the Interim Order, that only shareholders entitled to vote on the Plan were entitled to exercise dissent rights.
[17] The determination of this issue requires an interpretation of the terms of the Interim Order insofar as it incorporates section 185 of the OBCA as modified by the Plan. The application is rejected for the following reasons.
[18] First, as mentioned, Amarna’s dissent rights are granted pursuant to paragraph 21 of the Initial Order, which incorporates section 185 of the OBCA, as varied by the terms of the Initial Order and the Plan. There is nothing in the language of the Interim Order or the Plan which supports the position of PVI. Paragraph 21 of the Interim Order merely provides that “each registered holder of Common Shares” is entitled to dissent. Similarly, the Plan provides that “a ‘Dissenting Shareholder’ means a registered Shareholder who has duly exercised a Dissent Right…” Moreover, both the Initial Order and the Plan expressly impose a requirement that a shareholder be a registered shareholder as of the Record Date in order to participate and vote at the Meeting, including voting on the Plan. Given these circumstances, and in the absence of provisions stating otherwise, the plain meaning of “registered holder” or “registered shareholder” in the provisions cited above would be understood to be a registered shareholder as of the date of exercise of dissent rights.
[19] Second, there is nothing in section 185 of the OBCA, as incorporated by the Interim Order, that supports the position of PVI. PVI relies on the language of section 185(1) of the OBCA, which grants dissent rights to “a holder of shares…entitled to vote on the resolution”. PVI says that, because only a shareholder who was a registered shareholder as of the Record Date was entitled to vote, section 185 requires that a shareholder voting on the Plan must also have been a shareholder who was registered to vote on the Record Date. I do not agree that section 185(1) is applicable for the following reasons.
[20] Section 185(1) sets out certain circumstances in which a shareholder is entitled to dissent rights. However, the present circumstances do not fall within the circumstances addressed by the provisions of section 185(1). As such, section 185(1) does not describe the category of persons entitled to dissent rights in respect of the Plan. Instead, as mentioned, shareholders of PVI were entitled to dissent rights by virtue of the provisions of paragraph 21 of the Initial Order, which was granted pursuant to the provisions of section 182(5) of the OBCA.
[21] Third, while the terms of the Circular are not explicitly incorporated into the Interim Order or the Plan, I think they can be referred to as evidence of PVI’s own expectation regarding who qualified as registered holders for the purposes of the exercise of dissent rights. In this regard, it is significant that the disclosure in the Circular contemplated the exercise of dissent rights by shareholders who became registered shareholders after the Record Date. The Circular did not, as PVI argues, impose a requirement that a shareholder be a registered shareholder as of the Record Date in order to exercise dissent rights.
[22] It is acknowledged that, in two places in the Circular, the statement is made that “[b]eneficial Shareholders who wish to exercise Dissent Rights must cause each registered holder of their Common Shares to deliver the notice of dissent” without any reference to the option of re-registration of shares in the name of the beneficial shareholder. However, in each case, the statement is accompanied by an explicit reference to the more expansive disclosure under the heading “Rights of Dissenting Shareholders”.
[23] That disclosure, which has been set out above, provides both options to a shareholder. The relevant language reads as follows:
Beneficial holders of Common Shares who wish to exercise their right to dissent should immediately contact their Intermediary and either: (i) instruct the Intermediary to exercise the right to dissent on their behalf (which, if the Common Shares are registered in the name of a clearing agency, would require that the Common Shares be re-registered in the name of the Intermediary); or (ii) instruct the Intermediary to re-register the Common Shares in the name of such beneficial holder, in which case that beneficial holder of Common Shares would acquire the right to dissent directly. [Italics added.]
[24] The Notice of Meeting setting the Record Date was published on March 20, 2016. The Circular was not mailed until May 4, 2016. It was therefore physically impossible for a shareholder to proceed by way of alternative (ii) other than on a prospective basis. As a matter of interpretation, therefore, the narrower disclosure described above is qualified by the more expansive disclosure under the heading “Rights of Dissenting Shareholders”, which expressly contemplated the exercise of dissent rights by shareholders who became registered shareholders after the Record Date. If PVI intended to convey that alternative (ii) was not available to shareholders who were not already registered shareholders as of April 15, 2016, it would have had to state so expressly.
[25] Fourth, I agree with PVI’s statement in its factum that first principles of corporate law require that only registered shareholders have the right to exercise dissent rights in respect of a plan of arrangement. However, there is no principle of corporate law of which I am aware that requires that such registration occur prior to the record date for voting on the plan of arrangement. For clarity, this is not a situation in which a beneficial shareholder seeks an exemption from the requirement of registration in order to exercise shareholder rights. The decisions in that area address a very different issue and therefore do not assist PVI in the present circumstances.
[26] Lastly, while there is a good policy reason for providing that only registered shareholders as of a published record date can vote at an upcoming meeting, there is no policy reason why the same requirement should extend to the exercise of dissent rights. In particular, there is no obvious prejudice to PVI in permitting dissent rights to be exercised by shareholders who register their shares, rather than cause an intermediary to exercise their dissent rights on their behalf, and therefore no reason for a court to interpret the Interim Order and Plan to prevent such action. Insofar as a corporation may be concerned with ensuring that dissenting shareholders also vote against the proposed corporate action, the experience in this case does not suggest that it is necessary to impose a registration requirement as of the Record Date to police such activity.
[27] Counsel for PVI has suggested, however, that it may also be in the interest of a corporation to prevent third parties from buying into dissent rights after the announcement of a proposed transaction. Whether it is also in the interest of shareholders of a corporation to prevent such activities is less clear. The policy implications of this issue were not addressed in any meaningful way on this motion. However, insofar as a corporation wishes to prevent such activity, it can do so by including appropriate language in the interim order or the plan of arrangement if it so chooses. Based on the record before the Court, however, I am not persuaded that any such concern gives rise to a policy concern that should, in some manner, override the plain meaning of the provisions the Interim Order and the Plan pertaining to dissent rights.
[28] Based on the foregoing, Amarna is entitled to a declaration that it has validly exercised its dissent rights in respect of the Plan.
Costs
[29] As the successful party, Amarna is entitled to its costs. Amarna seeks its costs on a substantial indemnity scale based on its view that PVI acted in bad faith in denying the validity of its exercise of its dissent rights. Amarna describes the position of PVI as “technical, forced and implausible”. Amarna says that the only explanation for PVI maintaining this position was an alleged animus that PVI or Brian Lawson bears for Ian Cockwell, and by extension Amarna, as a result of Mutende’s action in opposing the court approval of the Plan. Mr. Lawson was an officer, director and shareholder of the largest shareholder of PVI. Mr. Cockwell is the principal shareholder of Mutende.
[30] The onus for proving bad faith rests with Amarna. The only evidence provided in support of its position is an allegation of Andrew Cockwell in an affidavit sworn July 27, 2016 in support of Amarna’s position in this proceeding. In his affidavit, Andrew Cockwell states that Mr. Lawson is “well aware that Mutende and Amarna are corporations related to Mr. Cockwell and his family”.
[31] I am not persuaded that Amarna has satisfied the onus on it of proving, on a balance of probabilities, that PVI acted in bad faith in opposing Amarna’s exercise of its dissent rights on the ground that it was not a registered shareholder on the Record Date. There are a number of reasons for this conclusion.
[32] First, the issue was a novel one and, notwithstanding the result, PVI’s position was not unreasonable given the requirements for voting at the Meeting. More importantly, there is no evidence that it did not honestly believe in the legal position that it has asserted in this proceeding.
[33] Second, Amarna acknowledges that its principal argument is that the Court should infer bad faith on the part of PVI from PVI’s failure to deny Amarna’s allegation in the affidavit of Andrew Cockwell and PVI’s failure to cross-examine Andrew Cockwell on such allegation. However, PVI has no obligation to respond to Amarna’s allegation or to cross-examine Andrew Cockwell. It could disregard the allegation, as it did in this case, and leave it to Amarna to prove its case on a balance of probabilities. These circumstances by themselves do not support the inference that Amarna urges on the Court.
[34] Third, even if it is assumed (1) that Amarna and Mutende are corporations related to Mr. Cockwell and his family, and (2) that Mr. Lawson knew of such relationship, that is not enough to prove that PVI’s motive in opposing Amarna’s exercise of its dissent rights was to exact retribution against Mr. Cockwell for Mutende’s opposition to the Plan.
[35] In this regard, I note that there is no evidence that Mr. Lawson was involved in the decision to oppose Amarna. The only communications in the record between PVI and its legal counsel, and between PVI and Amarna, involved Clare on behalf of PVI. There is no evidence in those communications of any consideration other than the legal issue and, in particular, no evidence of any animus toward Mr. Cockwell. In particular, there is no evidence that either Clare or his legal counsel was aware of Mr. Cockwell’s association with Amarna until after PVI asserted the position that Amarna was disqualified for lack of registered shareholder status as of the Record Date. In particular, if Clare had been so aware, it would not have been necessary to conduct a corporate search regarding Amarna on June 17, 2016 to establish an address for communication with it regarding its notice of dissent.
[36] Fourth, the premise of Amarna’s allegation is that Mr. Cockwell will be materially adversely affected by PVI’s opposition to Amarna’s claim. This has also not been established. The only specific information in the record regarding Mr. Cockwell’s connection to Amarna is that he is a director of the corporation. While Andrew Cockwell says that Amarna is “related” to Mr. Cockwell and his family, that is insufficient to establish an interest that would explain the allegation.
[37] Lastly, there is also a good reason, independent of any personal animus, for any corporation undergoing a plan of arrangement to seek to avoid litigation regarding the exercise of dissent rights. As both parties to such litigation are generally aware, a corporation usually tries to avoid the expense and time required for such a determination, particularly where dissent rights have been exercised in respect of a small number of shares, as in the present case.
[38] Accordingly, I conclude that there is no basis for an award of costs on a substantial indemnity basis. Amarna seeks costs on a partial indemnity basis of $7,444 plus HST. PVI does not object to such quantum, which seems eminently reasonable given the nature of the motion. Accordingly, costs in that amount are awarded in favour of Amarna.
[39] PVI submits that such costs should be payable in the cause. By this, PVI means that such costs should be payable only if the result in the proceeding to establish the fair market value of Amarna’s shares is more favourable to Amarna than the offer that PVI has made to Amarna in those proceedings pursuant to the procedure contemplated by section 185 of the OBCA. I see no basis for such an award, given that the present motion pertains to Amarna’s right to exercise its dissent right rather than to any settlement offer. Accordingly, such costs are payable forthwith.
Released: October 27, 2016 H.J. Wilton-Siegel J.