Court File and Parties

Court File No.: CV-16-11562-00CL Date: 20160609 Ontario Superior Court of Justice (Commercial List)

Between: TAT LEE (MICHAEL) KOH Applicant

– and –

ELLIPSIZ COMMUNICATIONS LTD. Respondent

Before: F.L. Myers J.

Counsel: Geoff Moysa and Jeffrey Levine, counsel for the applicant Jay Naster, counsel for the respondent

Heard: June 7 and 8, 2017

Endorsement

[1] By order dated May 18, 2017, reported at 2017 ONSC 3083, the Divisional Court required the respondent to call a shareholders’ meeting at the earliest convenient date to consider two shareholder proposals put forward by the applicant.

[2] In para. 49 of his reasons for the Court, Nordheimer J. directed that the record date for the meeting shall be October 24, 2016. Counsel were directed to work out any “other details” concerning the meeting and, if difficulties arose, they were directed to address those issues before a judge of the Commercial List.

[3] The applicant moved for an order directing the respondent to comply with the Divisional Court’s order by calling a shareholders’ meeting on July 7, 2017 with a record date of June 7, 2017. According to counsel’s affidavit, the respondent’s transfer agent Computershare Trust Corporation advised the parties that it could not generate an omnibus proxy with the record date of October 24, 2016 as ordered by the Divisional Court. The parties were therefore in a debate as to whether the record date should be June 7, 2017 or one week later in order to give the respondent time to give notice of the setting of a new record date under s. 95(4) of the Business Corporations Act, R.S.O. 1990, c. B.16.

[4] In arguing whether the record date should be this week or next, the parties had not considered the preliminary issue as to this court’s jurisdiction. The Divisional Court already set the record date when it ordered the respondent to call its meeting. At para. 50 of his reasons, Nordheimer J. specifically noted that “it is integral to a decision to order a meeting to be held…that the meeting ought to be held with the shareholders as they existed at the time. To conclude otherwise would seem to defeat the rationale for ordering the meeting.” The record date was therefore a fundamental element of the Divisional Court’s order.

[5] The Divisional Court did not refer the question of the record date to this court. After setting the record date, it referred to this court “other issues,” if any, on which counsel are unable to agree. Counsel were not invited to agree on the record date as it had already been set. Accordingly, I advised counsel that this court did not have jurisdiction to amend the Divisional Court’s order. Moreover, I expressed a concern that three weeks had already passed without a meeting being called despite the Divisional Court’s order that the meeting be called “at the earliest convenient date.”

[6] Counsel took a day to discuss the matter among themselves and with Computershare.

[7] The respondent relies on National Instrument 54-101 which sets out the requirements established by the Canadian Securities’ Administrators for communication with beneficial owners of securities of a reporting issuer as adopted by the Ontario Securities Commission. NI 54-101 deals with, among other things, the process by which reporting issuers give notice of meetings to their beneficial shareholders. It details a process for the issuer and its transfer agent to communicate with brokers and through brokers and other intermediaries to the ultimate shareholders. The company needs to get its meeting materials and proxy forms down the chain of registered holders and intermediaries to the shareholders and the shareholders then need to be able to cast their votes and have that information transferred back up the chain to ensure that the corporations who actually hold the shares vote each beneficial shareholder’s shares in accordance with the shareholders’ wishes.

[8] The terms NI 54-101 set out a complicated communication process that is tried and true. But the parties need to bear in mind that the process to communicate with voters is not the issue. The justice of the case is not found in how the shareholders are reached and send in their proxies. The process is only a means to achieve the just result – the meeting and votes ordered by the Divisional Court. The process itself does not represent justice. It is not trivial. It is important. It is used every day in Canada to support shareholder democracy. But that does not make it inviolable nor allow it to trump the Divisional Court’s order.

[9] In light of the timing involved, there was insufficient time for Computershare to deliver sworn evidence. However, it was able to provide the parties with a Holders of Record Report as of October 24, 2016. That report lists the brokers and intermediaries in which the shares of the respondent are registered including the number of shares in each as at the record date. Computershare cautions that the list just lists brokers; it does not list the actual beneficial holders i.e. the brokers’ ultimate customers as at the record date. Corresponding with the brokers alone then may miss sales that occurred before the record date but had not yet been completed and sales that occurred after the record date.

[10] The respondent advises that of its total public float of approximately 61 million shares, only approximately 400,000 shares have traded since October 24, 2016. Of those, approximately 50% traded over the past two days while this issue has been before the court. Shareholders have transferred only a very small proportional of the outstanding shares after the record date. The Divisional Court recognized the risk that people may have traded their shares after October 24, 2016 and before its decision was released. It was content that there had been appropriate public disclosure of the controversy made by press release by the respondent. Therefore, anyone who purchased shares and now risks being unable to vote those shares as at the antecedent record date set by the Divisional Court bought into that position.

[11] In any event, I do not accept that over the past three weeks since the Divisional Court released its decision, the parties could not have spoken to the short list of brokers and obtained disclosure of all of the beneficial shareholders as at October 24, 2016. Had they spent less time worrying about the technicalities of omnibus proxies and standard CSA time limits and more time simply asking brokers to check their records, this tempest in a teapot could have been avoided. I take judicial notice that by law, brokers keep detailed records of their customers’ trades. Every March brokers provide T-Forms to their customers who sold their shares during the preceding year. The brokers are well able to tell the respondent or Computershare the identities of their customers, if any, who sold their shares since October 24, 2016. This may have required implementation of a customized approach to deal with the Divisional Court’s order. There have been many cases over the years in which customized court orders have been obtained to create processes to communicate with beneficial holders of securities to allow them to participate in one-off court-ordered votes that do not readily fit the default provisions of NI 54-101. The focus should have been on getting the meeting called and the votes held at the earliest convenient date rather than becoming fixated on compliance with a technical mechanism that does not fit with the Divisional Court’s order.

[12] The Divisional Court held expressly that s. 106 of the OBCA gives the court broad powers to set the rules governing shareholders’ meetings. Orders under s. 106 trump technical default processes such as s. 95(4) of the OBCA and NI 54-101. Goodwood Inc. v. Cathay Forest Products Corp., 2012 ONSC 3548 at para. 55. Once again, the point is to get the right shareholders voting as of October 24, 2016 to do justice. Whether NI 54-101 is complied with or needs to be varied in order to achieve the just outcome is of no substantive import in and of itself.

[13] Under Rule 60.12, s. 106 of the OBCA, and pursuant to the reference made by the Divisional Court, I ordered that the respondent’s agents are authorized to use the Canadian Depository for Securities Limited Entitlement Service Holders Record Report as of October 24, 2016 in substitution for omnibus proxy mechanism set out in NI 54-101. The respondent did not consent to or oppose this order.

[14] I direct further that registered holders listed in the Canadian Depository for Securities Limited Entitlement Service Holders Record Report as of October 24, 2016 and all subsidiary holders between the listed holders and the ultimate beneficial holders of the listed shares of the respondent are directed to transmit the respondents’ meeting materials and proxy forms to the beneficial holders of the shares as of October 24, 2016 and to communicate back to the respondent and its agents the voting preferences of those beneficial holders despite any transfers of the shares of the respondent by any of such beneficial holders on or after October 24, 2016.

[15] Finally, the respondent is directed to write letters to bring the provisions of para. 14 above expressly to the attention of all of the brokers and intermediaries listed in the Canadian Depository for Securities Limited Entitlement Service Holders Record Report as of October 24, 2016.

F.L. Myers J. Date: June 9, 2017