Court File and Parties
COURT FILE NO.: CV-18-608531-00CL DATE: 20190904
APPLICATION UNDER section 253 of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: TAT LEE (MICHAEL) KOH, Applicant AND: ELLIPSIZ COMMUNICATIONS LTD., Respondent
BEFORE: Dietrich J.
COUNSEL: Jeffrey Levine, for the Applicant James Renihan, for the Respondent
HEARD: June 18, 2019
Endorsement
[1] This application is brought by Tat Lee (Michael) Koh, a shareholder of Ellipsiz Communications Ltd., a public corporation. He seeks reimbursement from the corporation for expenses he incurred in requisitioning, calling and holding a shareholders meeting.
[2] Mr. Koh was the largest single shareholder of the corporation, holding approximately 42% of the common shares, but he was not a controlling shareholder. At one time he was both a director and chair of the corporation, but he was removed from these positions in 2016.
[3] At an annual shareholders meeting on June 30, 2016, the shareholders elected the six directors proposed, three of whom were described as Canadian directors. Mr. Koh objected to the election but was late in submitting his proxy.
[4] In August 2016, he demanded that the Canadian directors resign and, when they did not, he formally requisitioned a shareholders meeting. Pursuant to s. 105(1) of the Ontario Business Corporations Act, R.S.O. 1990, c. B.16 (the “OBCA”), the “requisition date” was August 30, 2016.
[5] The corporation strongly resisted Mr. Koh’s requisition and refused to cooperate in any respect. Mr. Koh sought a shareholder list, which was initially denied. The corporation refused to recognize the legitimacy of the meeting that Mr. Koh sought to call relying on s. 99(5)(b) of the OBCA to assert that Mr. Koh was seeking the meeting to address “personal grievances” against the corporation for his own advantage.
[6] Undeterred, Mr. Koh called for a shareholders meeting to be held on November 28, 2016 and applied to this court for confirmation that his request for a shareholders meeting was legitimate. He sought an order compelling the corporation to hold the meeting. On November 25, 2016, this court denied Mr. Koh’s application on the basis that he was pursuing a personal grievance primarily pertaining to his personal interest. Mr. Koh proceeded to hold a shareholder meeting on November 28, 2016 despite the application judge’s decision. A vote was conducted, largely by proxy, at that meeting.
[7] Mr. Koh also appealed the decision of the application judge to the Ontario Divisional Court. On May 16, 2017, Justice Nordheimer, as he then was, writing for the Divisional Court, set aside the order nullifying the proposed shareholder meeting and ordered the corporation to call a shareholders meeting to consider the proposals Mr. Koh had put forward in his earlier requisition. The Divisional Court held that Mr. Koh’s complaints related to the affairs of the company and could not be said to be merely personal grievances.
[8] The shareholders meeting, ordered to be held, took place on July 7, 2017. Mr. Koh’s motion to remove the Canadian directors did not succeed.
[9] For the reasons that follow, I find that Mr. Koh is entitled to a portion of the expenses he incurred in requisitioning, calling and holding the shareholders meeting that was ordered by the Divisional Court to be held, and was ultimately held, on July 7, 2017.
The Positions of the Parties
[10] Mr. Koh asserts that, during the year-long period between the time he requisitioned the meeting and the date on which it was ultimately held, he incurred USD$181,213.28 in expenses. He submits that all these expenses were reasonably incurred in the requisitioning, calling and holding of the special meeting of shareholders on July 7, 2017.
[11] Mr. Koh submits that he incurred USD$78,643 in fees and USD$1,828.85 in disbursements (for a total of USD$80,471.85) in connection with the requisitioning and calling of the shareholders meeting between August 2, 2016 and September 27, 2016. These expenses included, among other things, preparing and delivering the requisition to call a meeting no later than December 16, 2016, along with a press release and early warning report subsequently filed with SEDAR (System for Electronic Document Analysis and Retrieval).
[12] He further submits that he incurred an additional USD$48,320 in legal fees and USD$3,333.99 in disbursements (for a total of USD$51,653.99) in connection with calling the shareholders meeting between September 29, 2016 and October 31, 2016. These expenses included, among others, retaining CST Trust Company to provide services in connection with calling and holding the November 28, 2016 meeting. The specific services included publishing a notice of the meeting on SEDAR and amending the notice. Following the corporation’s refusal to allow the shareholders meeting to proceed, Mr. Koh incurred expenses associated with his correspondence with Computershare Trust Company to request shareholder information to allow him to mail an information circular and related materials to the shareholders in advance of the November meeting, to complete the information circular and related material for the purposes of mailing the materials to the shareholders as required by law, and to issue a press release relating to the circular and confirming the date and place of the November 28, 2016 meeting.
[13] Finally, Mr. Koh submits that he incurred an additional USD$47,938 in legal fees and USD$2,604.54 in disbursements (for a total of USD$50,542.54) between November 1, 2016 and July 13, 2017 in connection with calling and holding the shareholders meeting. These expenses included appealing the application judge’s order denying his request for an order that the November 28, 2016 meeting be called. The appeal resulted in an order directing the corporation to call the shareholders meeting initially requisitioned by Mr. Koh.
[14] In summary, Mr. Koh submits that he incurred reasonable expenses of USD$174,901 attributable to legal fees and USD$6,312.30 attributable to disbursements. However, when the legal fees and disbursements referred to in paragraphs 11, 12 and 13 above are totalled, the grand total is USD$182,668.38 as opposed to USD$181,213.28. It appears that the arithmetical error is in the total amount of the disbursements, which ought to be USD$7,767.38 as opposed to USD$6,312.30. Accordingly, for the purposes of this endorsement, I will consider the total amount of expenses in respect of which the shareholder seeks reimbursement to be USD$174,901 attributable to legal fees and USD$7,767.38 attributable to disbursements (for a total of USD$182,668.38).
[15] Mr. Koh submits that, in accordance with s. 105(6) or 106(1) of the OBCA, the corporation ought to reimburse him for all the expenses he incurred in the total amount of USD$182,668.38.
[16] The respondent corporation asserts that Mr. Koh is not entitled to the reimbursement he seeks because he did not act in good faith and in the interests of the corporation generally, as found by the application judge.
[17] The respondent further asserts the OBCA only permits recovery of the reasonable expenses of “requisitioning, calling and holding the meeting”, but because Mr. Koh did not hold the meeting, he is not entitled to recover any of his expenses relating to the shareholders meeting.
[18] Alternatively, the respondent asserts that even if Mr. Koh were entitled to some reimbursement for his expenses, much of the USD$182,668.38 is not recoverable. The respondent asserts that the amounts claimed by Mr. Koh that are ineligible for reimbursement include: i) expenses incurred prior to the requisition date; ii) amounts that do not relate specifically to requisitioning, calling or holding the shareholders meeting (e.g., reviewing background material or proposing a strategy to convince shareholders to vote in a particular way); and iii) amounts incurred after the application judge rendered his decision denying Mr. Koh the right to requisition, call and hold a special shareholders meeting. The respondent also asserts that of the total amount of expenses incurred by Mr. Koh in this regard, USD$40,583.32 remains owing by Mr. Koh, and this amount is, therefore, not compensable.
The legal fees incurred by Mr. Koh
[19] The expenses that Mr. Koh seeks to recover are the legal fees and disbursements paid to McMillan LLP, the law firm he retained to achieve a reconstitution of the board of the corporation. One means by which to do so was to requisition, call and hold a shareholders meeting. Based on the record, Mr. Koh retained McMillan LLP for this work, but had also retained that firm to assist with two other mandates relating to the corporation and court proceedings, being the application and the appeal, and defensive tactics relating to the granting of options after the November 28, 2016 meeting that failed.
[20] The first mandate relating to requisitioning, calling and holding a shareholders meeting involved garnering shareholder support, weighing the benefits and risks of commencing litigation, gathering information about the Canadian directors, the other directors and Mr. Koh, reviewing the allegations against Mr. Koh by other directors, drafting press releases, developing strategies for removing the Canadian directors, and his counsel preparing for and attending the meeting that the corporation was eventually ordered to call. Mr. Koh seeks reimbursement for all three mandates but not for the entire amount of each invoice. The invoices are redacted accordingly.
[21] The earliest fees for which Mr. Koh seeks reimbursement were incurred around August 2, 2016, four weeks prior to his requisition to hold a meeting. The latest fees were incurred from June 12, 2018, being one year after the shareholders meeting was held.
Law and Analysis
[22] Section 105(6) of the OBCA permits shareholders in certain circumstances to be reimbursed for expenses reasonably incurred in requisitioning, calling and holding a shareholders meeting. It reads as follows:
Repayment of expenses
(6) The corporation shall reimburse the shareholders for the expenses reasonably incurred by them in requisitioning, calling and holding the meeting unless the shareholders have not acted in good faith and in the interest of the shareholders of the corporation generally.
[23] Section 106(1) of the OBCA provides as follows:
(1) If for any reason it is impracticable to call a meeting of shareholders of a corporation in the manner in which meetings of those shareholders may be called or to conduct a meeting in the manner prescribed by the by-laws, the articles and this Act, or if for any other reason the court thinks fit, the court, upon the application of a director or a shareholder entitled to vote at the meeting, may order a meeting to be called, held and conducted in such manner as the court directs and upon such terms as to security for the costs of holding the meeting or otherwise as the court deems fit.
[24] The entitlement of a shareholder to reimbursement for the expenses reasonably incurred in requisitioning, calling and holding a meeting is not absolute. A shareholder will not be so entitled if he failed to act in good faith and in the interests of the corporation generally.
Did Mr. Koh act in good faith and in the interests of the corporation generally?
[25] The respondent submits that s. 105(6) does not require the directors to reimburse a shareholder for requisitioning, calling and holding a shareholders meeting if the shareholder did not act in good faith and in the interests of the shareholders generally.
[26] I find that Mr. Koh did act in good faith and in the interests of the shareholders generally in his efforts to requisition, call and hold a shareholders meeting. His actions are evident in the findings of the Divisional Court, which overturned the findings of the application judge.
[27] In Koh v. Ellipsiz Communications Ltd., 2017 ONSC 3038, Justice Nordheimer of the Divisional Court, as he then was, specifically found, at para. 48, that: i) the corporation had failed to establish that it “clearly appeared” that the “primary purpose” of Mr. Koh’s meeting requisition was to enforce a personal claim or redress a personal grievance against the corporation; and ii) on a fair reading of the record, it appeared that Mr. Koh and the Canadian directors of the corporation had a significant difference of opinion as to the course that the corporation should take, and how it should be managed. Justice Nordheimer concluded that the shareholders ought to decide those issues. There was no appeal of the decision made by the Divisional Court. It is unnecessary and would be inappropriate for this court to revisit any of those findings. Justice Nordheimer finds that the difference of opinion with respect to the course the corporation should take and how it should be managed is a matter that the shareholders should decide. In other words, it is in their general interest, and not solely in the interest of Mr. Koh. Accordingly, Mr. Koh was acting in good faith in bringing an important matter to the attention of the shareholders for their decision.
[28] It is not disputed that Mr. Koh was self-interested in seeking a shareholders meeting. He is a significant shareholder in the corporation holding more than 42% of the common shares. Most any shareholder who requisitions a shareholders meeting would have some self-interest in the meeting. However, a shareholder who requests the meeting can, at the same time as advancing his or her own interests, advance matters of interest to the shareholders generally. The OBCA does not require the shareholder seeking the meeting to act “solely” or “primarily” in the interests of the shareholders generally.
[29] Section 105(6) provides that the directors of a corporation “shall” reimburse the shareholder for expenses reasonably incurred unless the shareholder has not acted in good faith and in the interests of the shareholders generally. The motivation of the shareholder requesting the meeting is not a factor.
Is Mr. Koh disentitled to reimbursement of expenses because he did not hold the shareholders meeting?
[30] The respondent asserts that Mr. Koh is not entitled to reimbursement for any expense because s. 105(6) of the OBCA provides that a shareholder is eligible for reimbursement of expenses for “requisitioning, calling and holding the meeting”, but Mr. Koh did not accomplish all three. He did not hold the meeting.
[31] Mr. Koh argues that he did in fact hold the meeting that he requisitioned, and the directors refused to hold, notwithstanding the application judge’s decision, which decision was ultimately overturned. Accordingly, he argues that he did in fact meet the criteria. I find that Mr. Koh incurred the expenses in requisitioning, calling and holding the meeting, in good faith, in the belief that he would succeed in obtaining an order permitting him to the hold the meeting. Mr. Koh did ultimately succeed in his aim to have the special shareholders meeting held, though instead of permitting Mr. Koh to hold the meeting he requisitioned, the Divisional Court ordered the directors of the corporation to call and hold the meeting. I find that, under these circumstances, Mr. Koh has met the criteria set out in s. 105(6) and should not be denied reimbursement based on the respondent’s technical argument.
[32] Having found that Mr. Koh was acting in good faith and in the interests of the shareholders generally, and that he has met the criteria of having requisitioned, called and held a special shareholders meeting, I must now determine the quantum of the reimbursement to which he is entitled.
To what amount is Mr. Koh entitled by way of reimbursement for expenses incurred?
[33] Of the USD$182,663.88 that Mr. Koh seeks, the respondent asserts that he is not entitled to: i) USD$50,558.28, which was incurred before the requisition date; ii) USD$46,430.05, which was incurred after the application decision, following which Mr. Koh did not take any steps to requisition, call or hold a meeting (USD$40,583.32 of which has not been paid by Mr. Koh); and iii) USD$33,356, which the respondent alleges, was incurred during an eligible period, but not incurred for requisitioning, calling or holding a meeting. If these three amounts are netted out of the total sought by Mr. Koh, according to the respondent, Mr. Koh’s recovery would be limited to USD$50,868.25 on account of reasonable expenses incurred by him.
[34] For the purposes of determining the amount to which Mr. Koh is entitled, it is helpful to distinguish between the legal fees and the disbursements. As noted, the total amount of the disbursements appears to be USD$7,767.38. Based on the record, it appears that all these disbursements were incurred in requisitioning, calling and holding a special shareholders meeting. The disbursements include amounts for preparation and dissemination of press releases, searches, government fees, conference calls and copies, among other related disbursements. I find the disbursements to be reasonable. The remaining amount sought by Mr. Koh relates to legal fees in the total amount of USD$174,901.
i) Reimbursement of expenses for the period prior to the requisition date
[35] The respondent argues that of the total reimbursement sought USD$50,558.28 was incurred before the requisition date of August 30, 2016 and is therefore ineligible for reimbursement. It relies on the decision in Goodwood v. Cathay Forest Products Corp, 2013 ONSC 4242 (“Goodwood”) in which Justice Brown, as he then was, refers to a substantially similar provision in the Canada Business Corporations Act, R.S.C. 1985, c. C-44 relating to recoverable costs to a shareholder relating to his efforts to call a shareholders meeting. At para. 19 of his decision, Justice Brown states:
I think the clock begins to run on recoverable costs at the point of making the requisition, in the event the directors do not respond and the shareholder must then arrange for the meeting. So, too, the work relating to post-meeting matters, even if done before the meeting, is not recoverable.
[36] I do not interpret Justice Brown’s use of the words “at the point of requisition” as being synonymous with the requisition date. It is reasonable to interpret “the point of requisition” more broadly to include the efforts made by the shareholder in the process of making the requisition, between the time he decides to requisition the meeting and the requisition date, provided those efforts are reasonable and related to the requisitioning of the meeting.
[37] During the period between August 2, 2016 and September 27, 2016, Mr. Koh submits that he incurred USD$78,643 in legal fees in connection with the requisition and calling of the shareholders meeting. The respondent asserts that USD$50,558.28 of this amount was incurred prior to the requisition date and is therefore ineligible. Having reviewed the invoices relating to this period, I am satisfied that at least USD$50,000 in fees incurred during this period was incurred in the process of making the requisition notwithstanding that some of those fees incurred were incurred prior to the requisition date. It would appear that some of the fees incurred during this period relate to Mr. Koh’s aim of advancing his own agenda at the shareholders meeting. I therefore find USD$50,000 of the USD$78,643 to be compensable.
[38] Following the requisition date, between September 29, 2016 and October 31, 2016, Mr. Koh continued in his efforts to call and hold a special shareholders meeting. During this time, he incurred USD$48,320 in legal fees. At this time, Mr. Koh was engaged in seeking the cooperation of the directors of the corporation in calling the shareholders meeting but faced considerable resistance. Having reviewed the invoices relating to this period, I am satisfied that approximately 90% of the fees incurred relate to the requisitioning and calling of the shareholders meeting. I therefore find USD$45,000 of the USD$48,320 to be compensable.
ii) Reimbursement for expenses after the application decision
[39] During the period between November 1, 2016 and July 13, 2017, Mr. Koh submits that he incurred USD$47,938 in legal fees. The respondent submits that of this amount, Mr. Koh incurred USD$46,430.05 after the decision made by the application judge, on November 25, 2016, denying him the right to proceed with the shareholders meeting. The respondent argues that the post-November 25, 2016 expenses are not recoverable because they did not relate to the requisitioning, calling and holding of a shareholders meeting. I disagree. After November 25, 2016, Mr. Koh continued to incur expenses relating to the calling and holding of a shareholders meeting that he continued to pursue, notwithstanding the application judge’s decision. He was successful in his appeal to the Divisional Court and the very shareholders meeting that he requisitioned, called and attempted to hold on November 28, 2016 was ultimately held, on July 7, 2017. This meeting was not held by Mr. Koh, despite his planning to hold the meeting, because the Divisional Court specifically ordered the directors of the corporation, as opposed to Mr. Koh to call and hold the meeting.
[40] Until the Divisional Court released its decision on May 16, 2017, Mr. Koh could not have known whether it would be he or the directors of the corporation who would call and hold the meeting, if ordered. It was therefore reasonable for him to continue to incur reasonable expenses relating to the calling and holding of the special shareholders meeting until the Divisional Court released its decision.
[41] Once the Divisional Court released its decision, it was the responsibility of the directors of the corporation to call and hold the shareholders meeting that Mr. Koh had requisitioned and attempted to call and hold. Following the release of that decision, Mr. Koh would no longer be entitled to reimbursement for any expenses relating to the requisitioning, calling and holding of the shareholders meeting. Accordingly, I would deny him any reimbursement for expenses he incurred after May 16, 2017.
[42] I agree that any costs incurred by Mr. Koh after the Divisional Court ordered the directors to hold the shareholders meeting are not recoverable. The clock that begins to run at the point of requisition would stop at the time of release of the Divisional Court ruling. Accordingly, reasonable expenses are recoverable from the point of requisition, which must include reasonable preparation for the requisition made on the August 30, 2016 requisition date and running continuously through to May 16, 2017.
[43] In reviewing the invoices reflecting the fees incurred by Mr. Koh during this period (November 1, 2016 to May 16, 2017), it appears that he incurred approximately USD$14,280 of the USD$47,938. Accordingly, only USD$14,280, being the fees incurred prior May 16, 2017, are compensable.
[44] I make no distinction between the expenses incurred by Mr. Koh and those paid by him. By incurring the expense, he has taken on the liability for the payment of that expense. There is no evidence before the court to suggest that Mr. Koh has been relieved of his responsibility to pay McMillan LLP for the fees he has been charged and has not yet paid. In any event, the amount of reimbursement to which Mr. Koh is entitled for the expenses incurred by him is less than the amount he seeks. The difference is greater than the USD$40,583.32 amount owing by him to McMillan LLP but not yet paid.
Disposition and Costs
[45] In the result, I find that Mr. Koh is entitled to reimbursement from the corporation for his reasonable expenses in the requisitioning, calling and holding of a special shareholders meeting in the amount of USD$109,280 for legal fees and USD$7,767.38 for disbursements for a total of USD$117,047.38.
[46] Having succeeded in his application for reimbursement, Mr. Koh is entitled to his costs of this application payable by the corporation. The parties are strongly encouraged to resolve the matter of costs between them. Should they be unable to do so, the applicant may serve and file written cost submissions not exceeding two pages in length (excluding a costs outline or bill of costs and offers to settle, if any) within two weeks hereof. The respondent may serve and file written submissions not exceeding two pages in length (excluding a costs outline or bill of costs and offers to settle, if any) within two weeks of having received the applicant’s submissions. Reply submissions may only be made by the applicant with leave.
Dietrich J.