FSD Pharma v. Durkacz, 2021 ONSC 3362

Court File and Parties

COURT FILE NOS.: CV-21-00659952-00CL CV-21-00656315-00CL

DATE: 20210510

ONTARIO SUPERIOR COURT OF JUSTICE COMMERCIAL LIST

BETWEEN:

FSD PHARMA INC. and RAZA BOKHARI Applicants

– and –

ANTHONY DURKACZ, ZEESHAN SAEED, FIRST REPUBLIC CAPITAL CORP., ANDREW DURKACZ, GLORIA DURKACZ, FONTIS RESEARCH AND TRADING CORP., XORAX FAMILY TRUST AND ZACHARY DUTTON Respondents

AND BETWEEN:

Simon Bieber, Robert Stellick and Jocelyn Howell, for the Applicants/ Respondents

R. Seumas M. Woods, Doug McLeod and Theodore Milosevic for the Respondents/ Applicant/Moving Party

Peter J. Osbourne, David Salter and Alexis Vaughn, for the Intervenor Frank Lavelle

ANTHONY DURKACZ Applicant/Moving Party

– and –

FSD PHARMA INC. and RAZA BOKHARI, JAMES DATIN, STEVEN BUYER, GERALD GOLDBERG, LARRY KAISER and ROBERT D. CIARUFFOLI Respondents

HEARD: May 5, 2021

L. A. PATTILLO J.

Introduction

1These applications involve a shareholder proxy fight and arise out of the Judgment of McEwen J. dated March 5, 2021 (the “Judgment”) which ordered, in part, that the applicant, FSD Pharma Inc., hold a Special and General Meeting of its shareholders on May 14, 2021 (the “Meeting”).

2Anthony Durkacz brings a motion in application CV-21-00656315-00CL (the “Durkacz Application”) which gave rise to the Judgment. The Motion seeks advice and directions in respect of the Judgment and orders concerning the holding of the Meeting.

3In application CV-00659952-00CL (the “FSD Application”), the applicants FSD and its CEO, Raza Bokhari, seek an order requiring the respondents, Mr. Durkacz, Zeeshan Saeed, Zachary Dutton and their related family members/companies/trust, all of whom are shareholders of FDS (collectively the “Dissident Group”), to amend their proxy circular to correct what they submit is “materially misleading” information therein and to invalidate any proxies received prior to the amendments.

Background

4FSD is a publicly traded Ontario company which was founded in 2011 and went public in 2018. Its head office is in Toronto. Messrs. Durkacz and Saeed were founding shareholders. Dr. Bokhari joined the company as a director in 2018 and subsequently became the Chief Executive Officer and eventually the Executive Chair. He too is a shareholder of FSD.

5FSD’s board of directors (the “Board”) currently consists of Dr. Bokhari, the respondents in the Durkacz Application, James Datin, Steven Buyer, Gerald Goldberg, Larry Kaiser and Robert Ciarufolli and Mr. Durcaz. Mr. Saeed was a member of the Board until he was removed as a result of his termination as President by Dr. Bokhari in late 2020.

6FSD’s business was initially as a medical cannabis company. In the summer of 2020, the Board of Directors, under Dr. Bokhari’s direction, refocused the company’s business to the pharmaceutical and biotechnology areas. In the fall of 2020, Dr. Bokhari and Messrs. Durkacz and Saeed had a falling out in respect of the direction of FSD which culminated in the Dissident Group, on January 4, 2021, sending FSD a requisition seeking a shareholders meeting to be held no later than March 15, 2021 to vote on resolutions reducing the number of FSD’s directors from seven to five and electing new directors to replace the current directors except Mr. Durkacz.

7FSD’s Board countered by calling a meeting of shareholders for June 29, 2021. The Dissident Group called for the meeting to be held on March 31, 2021 and subsequently commenced the Durkacz Application for, among other things, an order confirming the validity their date or requiring the court to set the date.

8The Durkacz Application was heard by McEwen J. on March 4, 2021. As noted, the Judgment sets May 14, 2021 as the date of the Meeting. It also orders, among other things, that the Meeting is to be chaired by a person independent of either side, agreed upon by the parties or appointed by the court; that the Meeting is to address “all outstanding matters, including but not limited to: a) removal of the existing directors (not Durkacz); b) fixing the number of directors at five; electing directors; and all matters necessary to be dealt with at an annual meeting.”

9The Judgment further orders that the votes attached to any shares in FSD issued since January 4, 2021 and held by Dr. Bokhari and the incumbent Board shall not be counted or otherwise taken into account on any vote at the Meeting.

10On March 17, 2021, the Dissident Group sent an information circular to FSD’s shareholders. In bold in a box on the first page, they set out they were soliciting shareholder support and ultimately intended to solicit proxies for the election of Messrs. Durkacz and Saeed and three other individuals to the Board. The circular went on to set out the Dissident Group’s concerns with the current Board and Dr. Bokhari’s management of the company including failure to address a significant decline in share price since October 2018; failure to advance stated goals; no shareholder meeting since 2019; dilution of shareholder interests by issuing shares; excessive bonus share compensation and expenses incurred by Dr. Bokhari and lack of transparency. It set out a brief description of each of their proposed nominees for the Board.

11The circular stated, again in bold print, that the Dissident Group had no knowledge of the intentions of management with respect to the Meeting and that management would send a Management circular and a management form of proxy soliciting proxies for the Meeting.

12On April 20, 2021, FSD sent a Notice of the Meeting containing the agenda for the Meeting together with a Management Information Circular and proxy. The information circular set out management’s vision for FSD and took issue with the Dissident Group’s motives and plan for FSD. Management set out a proposed slate of seven directors, the five current directors and two additional directors, Donal Carroll, FSD’s Chief Financial Officer and Frank Lavelle, an independent business person with experience in the healthcare and life sciences sectors.

13On April 24, 2021, the Dissident Group sent out a further Information Circular containing their proxy and taking issue with what they characterized as “misleading statements” by FSD management, reiterated their concerns with FSD management and criticized recent actions of the Board including a proposed acquisition of a controlling interest in a dental care company and diluting shareholder interests through recent share issues.

14Finally, on May 3, 2021, FSD put out a lengthy press release which in turn set out a lengthy letter that FSD had sent to shareholders again taking issue with the Dissident Group’s allegations.

The Durkacz Motion

15While normally the task of resolving issues arising from the Judgment would fall to the judge issuing the judgment, as a result of FSD changing counsel after the Judgment, McEwen J. has recused himself due to a conflict.

16The Motion seeks orders that the Meeting be held virtually, and that Ms. Carol Hansell be appointed as the independent Chair of the meeting.

Virtual Meeting

17On March 14, 2021, the Board resolved that the Meeting would be held on May 14, 2021 at 9 am, in-person at the offices of Bennett Jones LLP (FSD’s corporate counsel) in Toronto. As a result of the COVID-19 situation, Mr. Durkacz objected to the in-person format of the Meeting and proposed a virtual/hybrid meeting. FSD initially resisted given the Board’s resolution.

18As the COVID situation started to get worse and the Ontario government imposed further restrictions, the Board again met on April 20, 2021 and the majority of the Board (all directors except Mr. Durkacz) approved a resolution to convert the Meeting to a hybrid in-person/virtual format, with the in-person component to be held at the Union League of Philadelphia in Philadelphia, Pennsylvania.

19The Dissident Group submits that in contested shareholders meetings, fairness demands identical meeting access to all shareholders. In contrast, the hybrid format for the meeting selected by the Board, creates unequal meeting access. While Dr. Bokhari and the current directors, the respondents in the Durkacz Application, are American residents and live in the Philadelphia area or within driving distance, the Dissident Group are Canadian residents along with the nominee directors and the majority of FSD’s shareholders. They submit that they would be largely precluded from attending an in-person meeting in Philadelphia given the COVID-19 restrictions and travel advisories.

20The Dissident Group further submits that holding the Meeting in-person in Philadelphia is no more than an attempt by Dr. Bokhari and his supporters to gain an unfair advantage over the Meeting’s procedure and outcome.

21The Board’s decision to hold an in-person portion of the Meeting in Philadelphia raises concerns not only with respect to the choice of venue but also in respect of the safety of shareholders given the current state of the COVID pandemic, even if held in the United States. Prior shareholder meetings have all been held in Ontario, which is where FSD’s registered office is. The fact that it is proposed to be held in Philadelphia at Dr. Bokhari’s club does cause some concern. At the same time, given the current restrictions in Canada, an in-person meeting can only take place in the US.

22Despite my concerns, I am not prepared to interfere with the Board’s decision to hold a hybrid meeting and to have the in-person portion in Philadelphia. Those who are prepared to gather in-person in Philadelphia can do so and all others who wish to attend can do so virtually. As the Meeting is also being held virtually, all shareholders will have access. In my view, the requirement for an independent chair addresses any of the Dissent Group’s concerns over procedure or outcome.

Independent Chair

23Both sides exchanged the names of individuals they proposed to be the independent chair of the Meeting. No agreement was reached. Accordingly, pursuant to the Judgment, the court must decide.

24As noted, the Dissident Group proposes Ms. Carol Hansell. Ms. Hansell is a lawyer, licensed in Ontario and has practiced corporate law for over 30 years. She is the head of her own firm dedicated to advising boards, management groups, institutional shareholders and regulators in connection with legal and governance challenges and has served as chair and as counsel to the chair at contested shareholder meetings. Ms. Hansell has no prior dealings with any of the parties involved.

25Contrary to the clear terms of the Judgment and notwithstanding the absence of agreement, FSD has already appointed Rick Santorum, a former U.S. Senator of Pennsylvania and U.S. Presidential candidate as the independent chair.

26On May 1, 2021, Dr. Bokhari, on behalf of FSD, entered into an agreement with Mr. Santorum “confirming the terms of your appointment as independent chair” of the Meeting (the “Agreement”). The Agreement provides for a one-time non-refundable retainer of US$75,000 (confirmed paid by counsel) and all out-of-pocket expenses including travel expenses (Mr. Santorum lives in Virginia) and the retention of such counsel as he requires. It further provides an indemnity provision and states that in the event the conduct of issues arising from the Meeting result in ongoing litigation and he is named as a party or called upon, FSD will continue to indemnify him in respect of reasonable out-of-pocket expenses and legal fees and re-imburse him at a per diem rate of US$10,000.

27In its May 3, 2021 press release entitled “FSD Pharma Issues Important Message to Shareholders and Response to Dissident Circular”, Dr. Bokhari, on behalf of FSD, sets out a letter he has written to “Fellow FSD Shareholders”. In that letter he states that the Company is pleased to announce that Rick Santorum, the former US Senator has agreed to be the independent chair of the Meeting.

28On his cross-examination, Dr. Bokhari was asked at question 62 whether he agreed that the person selected to be the independent chair had to be independent from both sides, he answered:

Sir, the company appointed, and the honorable senator has agreed. So the independent chair has been appointed. That is the prerogative of the company to appoint the independent chair, and the company has appointed an independent chair who is indeed – is independent and has cleared all or any conflicts that may exist.

29When asked about what background information FSD got about Mr. Santorum before retaining him, Dr. Bokhari replied that he was a US Senator from Pennsylvania, he represented the people of Pennsylvania in the US Senate with distinction and he has two bids to seek the Republican Party’s nomination for president, which he said “is sufficient qualifications for him to serve as an independent chair of FSD Pharma.”

30In my view and I so find, in appointing Mr. Santorum as the independent chair of the Meeting, Dr. Bokhari and FSD deliberately breached the Judgment which clearly requires agreement between the parties, failing which appointment by the court. FSD submits that the language in the letter to shareholders reproduced in the May 3, 2021 press release does not violate the Judgment. I disagree. But it’s not just that letter that I rely on. It is also the Agreement and Dr. Bokhari’s answers on cross-examination. When viewed together, they establish a deliberate breach.

31Dr. Bokhari’s actions are particularly galling given that he entered into the Agreement with Mr. Santorum after he and FSD were served with the Motion. In light of Dr. Bokhari’s conduct, I would not appoint Mr. Santorum as the independent chair.

32Quite apart from Dr. Bokhari and FSD’s conduct, I am not satisfied, with no disrespect to Mr. Santorum, that he has the qualifications to chair the meeting or, despite Dr. Bokhari’s assertions, is independent. While his political qualifications are impressive, I’m not satisfied that qualifies him to be the chair of what will be a hotly contested shareholders meeting.

33Nor does that fact that Mr. Santorum has retained highly qualified and experienced counsel in Ontario to assist him buttress his qualifications. In the end, as chair, he is the person who will make the decisions.

34I am also concerned about Mr. Santorum’s independence. The evidence indicates that Dr. Bokhari has had prior dealings with Mr. Santorum when he was a Senator and when he ran for president. There are pictures of Dr. Bokhari and the Senator together at functions, political or otherwise. And Dr. Bokhari was a member of the Senator’s presidential campaign’s National Finance Committee.

35Dr. Bokhari says that Mr. Santorum cleared conflicts. The Agreement provides that he agrees that he has fully disclosed any relationship with the Corporation and its directors, officers and principal shareholders and that he does not believe his relationship with Dr. Bokhari would interfere with the exercise of his independent judgment. What Mr. Santorum disclosed to FSD or what his relationship is with Dr. Bokhari from Mr. Santorum’s point of view is not in evidence. In the absence of full disclosure, I am not satisfied that Mr. Santorum is sufficiently independent to chair the Meeting.

36On the other hand, I have no reservations about Ms. Hansell. Her background and experience satisfy me she has the qualifications to chair the Meeting. Further, she is completely independent of both sides. Accordingly, Ms. Hansel is appointed as the independent chair of the Meeting.

The FSD Application

37FSD relies on s. 107 of the Business Corporations Act, R.S.O. 1990, c. B. 16 (“OBCA”) which provides that a corporation, shareholder or director may apply to the court to determine any controversy with respect to an election or appointment of a director or auditor of the corporation. Section 107(2) gives the court a broad discretion to “make any order it things fit”.

38The law regarding misleading statements or omissions in proxy circulars is not in dispute.

39For a proxy circular’s allegedly misleading statement or omission to constitute a misrepresentation that must be remedied, the statement or omission must be “material”. Materiality is a question of mixed fact and law, determined objectively. A statement or omission is material if there is a substantial likelihood that its disclosure would have been considered important by a reasonable investor in making his or her decision.” Sharbern Holdings Inc. v. Vancouver Airport Centre Ltd., 2011 SCC 23, [2011] 2 SCR 175 at para.61.

40In Larsen v. Royal Standard Minerals Inc., 2012 ONSC 276 (CL), at para. 21, Wilton-Siegel J. summarized the law regarding materiality in proxy circulars:

The onus of proving materiality rests on the applicant. Determination of the materiality of an omission is a fact-specific inquiry, to be determined on a case-by-case basis in light of all of the relevant considerations and from the surrounding circumstances forming the total mix of information made available to investors. Sharbern makes it clear that the materiality of a statement or omission must be proven through evidence, except in those cases in which common sense inferences are sufficient.

41FSD submits that the Dissident Group’s circulars are materially misleading in three respects: 1) failure to properly disclose information concerning a transaction with Lucid Psycheceuticals Ltd.; 2) failure to advise of their intentions concerning the sunset of the Class A shares; and 3) failure to explain the inclusion of the management nominees Messrs. Carroll and Lavelle on their slate of proposed directors.

The Lucid Transaction

42Lucid is a psychedelic-based biotechnology company. In November 2020, Mr. Durkacz made a presentation to Dr. Bokhari proposing that FSD purchase Lucid. At the time he disclosed that he had an interest in Lucid through the respondent First Republic Capital Inc. Dr. Bokhari investigated the company and decided not to proceed. Mr. Durkacz asked that the matter be considered by the Board but Dr. Bokhari refused to place it before the Board. When Mr. Saeed, who was the President and a director, agreed that it should be considered by the Board, Dr. Bokhari termed his action insubordination and subsequently terminated Mr. Saeed for cause. The Board never considered the Lucid proposal.

43The March 17, 2021 Dissident Group’s Information Circular made no mention of the Lucid proposal specifically but did refer to it under the heading “Further Failures by Dr. Bokhari and the Board”. It noted that Messrs. Durkacz and Saeed had identified what they considered to be a promising acquisition opportunity and were disappointed that Dr. Bokhari showed no interest in considering it. They then detailed their attempts to have the matter considered at the Board, without success.

44In FSD’s April 20, 2021 Information Circular, under the heading “Reasons To Withhold From Voting For Any Of The Dissident Director Nominees”, the first item raised was the Lucid acquisition proposed by Messrs. Durkacz and Saeed in November 2020. It was referred to it as the “Start-Up”. It stated that at the time Mr. Durkacz did not disclose that he and/or his affiliates have a material interest in the Start-Up and stood to substantially benefit from the acquisition. It then went on to say that the shareholders have a right to know if Messrs. Durkacz and Saeed stand to benefit “from the transaction they demand…”.

45In the Dissident Group’s April 24, 2021 Information Circular, they denied Management’s allegation that they are seeking to pursue the acquisition of “a particular early-stage company in the psychedelics sector” and stated they have no interest in pursuing a transaction with the proposed company. They also denied Management’s statement that they have undisclosed interests in Lucid. While Mr. Durkacz and his family held an indirect minority ownership interest in the company of approximately 6%, that interest had been disclosed to FSD from the outset.

46The applicants state that Mr. Durkacz also stood to earn a fee through First Republic Capital for assisting Lucid with Financing. They submit the Dissident Group’s failure to accurately describe Mr. Durkacz’s interest in Lucid is materially misleading. I disagree. In my view, it is neither misleading nor material. There is no Lucid transaction. It was a proposal that was never even considered by the Board. When the references to the Lucid proposal are read in the Dissident Group’s information circulars, it is clear the reference is to support their position that it was the manner in which Dr. Bokhari dealt with the proposal that raised their concerns about his management and ultimately lead them to take action.

47Nor has the Dissident Group stated that they intend to proceed with an acquisition of Lucid if they prevail. That allegation is being put forward by FSD and Dr. Bokhari as part of their defence to the proxy fight. In response, the Dissident Group has clearly denied it in their April 24, 2021 circular.

48FSD relies on Mr. Durkacz’s cross-examination where he said that he couldn’t say whether a future acquisition of Lucid might occur to infer a hidden agenda. There is no basis in the evidence for such an inference. Mr. Durkacz explained his answer by saying that the Board should consider whatever makes the most sense to preserve and protect shareholder value. He also stated both at the time of the circulars and in cross-examination that he had no interest in pursuing Lucid.

49In such circumstances, I fail to see how the failure to accurately describe Mr. Durkacz’s financial interest in Lucid is relevant, let alone material. Nor is there anything misleading about the information the Dissident Group provided about Lucid in responding to FSD’s allegations.

The Class A Sunset Resolution

50FSD has two classes of shares. Class A which carry 276,000 votes per share and Class B which carry one vote per share. The Class A shares are not publicly traded. There are currently 72 Class A shares outstanding, equally held by Dr. Bokhari, Mr. Durkacz and Mr. Saeed. The Class B shares are publicly traded and as of March 16, 2021, there were 35,114,998 Class B shares outstanding.

51When FSD sent out its Notice of Meeting, one of the items on the agenda was “to consider and, if thought advisable, to approve, with or without variation, a special resolution, to amend the Company’s articles of amalgamation, as amended (the “Articles”) to provide for a “sunset” provision with respect to the class A multiple voting shares of the Company.”

52The Dissident Group’s first information circular contained no information in respect of the proposed Class A sunset provision as FSD had not sent out the Notice of Meeting or given any prior indication that such a resolution would be proposed. In their second Circular dated April 24, 2021, in respect of the proposed amendment, they stated as follows in bold print:

The Concerned Shareholders make no recommendation with respect to the Share Reorganization Resolution and encourage all Shareholders to vote in accordance with their preference. Unless a Shareholder directs that his or her Shares are to be voted for or against the Share Reorganization Resolution, the individuals named in the enclosed GOLD proxy intend to “ABSTAIN” from voting for or against on the Share Reorganization Resolution.

53The applicants submit that the April 24, 2021 Circular is misleading as to the Dissident Group’s intentions concerning the sunset of the Class A shares. Specifically, they submit that it fails to set out their opinion on the issue or disclose how they intend to vote their own shares. In argument, it was submitted that the above language is not “crystal clear” concerning how they will vote their proxy.

54Once again, I disagree. The above paragraph, when read as a whole is clear. The Dissident Group makes no recommendation on how the shareholder should vote on the issue. They say simply vote your preference. If you do not vote for or against the resolution, the person voting the proxy will abstain on that resolution.

55Nor do I consider that how the Dissident Group intends to vote on the resolution is something that needs to be disclosed in the circular, let alone material. As the resolution was not proposed by the Dissident Group, in my view, a reasonable investor would not expect the Dissident Group to say how they intended to personally vote on Management’s resolution.

Management Nominees

56FSD and Mr. Lavelle object to the Dissident Group including Mr. Carroll and Mr. Lavelle on their slate for election as directors.

57The Dissident Group’s April 24, 2021 circular recommends that the shareholders vote for the election of the five Dissident Group nominees whose names and biographies were contained in the March 17, 2021 circular, and for “the election of the two (2) Management Nominees, Donal Carroll and Frank Lavelle, as directors of FSD.”

58As noted, Mr. Carroll is FSD’s CFO (although I was advised at the hearing that he is no longer with FSD). The only evidence concerning Mr. Carroll’s objection comes from FSD and Dr. Bokhari. There is no evidence from Mr. Carroll objecting to the Dissident Group’s recommendation to vote for him as a director. Further, in its May 3, 2021 press release, FSD has removed Mr. Carroll as a nominee for the Board and replaced him with another individual making its objections concerning Mr. Carroll somewhat moot.

59Although FSD served an affidavit from Mr. Lavelle in which he takes strong objection to his name being included in the Dissident Group’s circular and advanced submissions in its factum concerning why the Dissident Group’s inclusion of Mr. Carroll and Mr. Lavelle in their circular is misleading, Mr. Lavelle has retained counsel and was granted intervenor status by me to file a factum and make submissions at the hearing.

60Mr. Lavelle has been involved in the health care industry for 40 years and currently has his own consulting company which provides services to healthcare and life sciences manufacturers. He was approached by FSD and agreed to stand for election to the Board as a Management nominee. He supports the Management nominee directors. He has never spoken to the Dissident Group, does not agree with the content of their circular and does not consent to sitting on a board composed of their slate. If so elected, he would resign immediately.

61FSD submits that while it is not unheard of for dissident shareholders to solicit proxies for management nominees, shareholders are entitled to an explanation as to why the dissidents are voting for those nominees. In the absence of any explanation, it submits that the inference is that Messrs. Carroll and Lavelle share their concerns.

62FSD further submits that given Mr. Lavelle’s evidence, by not explaining why they were electing him and confirming that he agreed to serve with them, the Dissident Group has failed to provide shareholders with material information.

63In his factum and before me, Mr. Lavelle submitted that his reputation which he has built up over years has been impugned. He submits the damage to his reputation and business may be significant. He further submits that there is a “substantial likelihood” that the individuals who become aware of the Dissident Group’s circular will wrongly believe that he supports their concerns and is associated with them.

64The Dissident Group submits that the inclusion of Messrs. Carroll and Lavelle in their second circular arose because FSD’s Notice of Meeting, which came out after their first circular proposing five nominees, failed to place the issue of reducing the Board from seven to five on the agenda as required by the Judgment. The result was that the Dissident Group were asking shareholders to vote for their five nominated directors in circumstances where there was a board of seven. In order to remedy that they recommended that shareholders also vote for the two Management nominees, Messrs. Carroll and Lavelle. Neither individual had previously served on the Board. Further, as FSD’s by-laws provide for individual voting for directors, in the absence of filling the two additional spots with individuals from the Management slate satisfactory to them, if their slate is elected, based on individual voting, they would end up with two of incumbent directors on the Board, one of whom would likely be Dr. Bokhari, given the votes he controls.

65The April 24, 2021 Dissident Group circular makes it clear who their five nominees are. They repeatedly recommend throughout the circular that shareholders vote for the election of their five nominees and separately recommend that they vote for Messrs. Carroll and Lavelle. The circular sets out their five nominees listing their name, residence, age, present principal occupation, occupation over the previous five years and number of shares in FSD beneficially owned or controlled, as well as detailed biographies of each of the five.

66By contrast, apart from their occupations and that they are the Management nominees, there is no background information about either Mr. Carroll or Mr. Lavelle. Further, at the end of the section detailing the Dissident Group’s nominees, the circular states:

The Management Circular indicates that Donal Carroll is not “independent” and that Frank Lavelle is “independent” within the meaning of N1 58-101. If Donal Carroll and Frank Lavelle were to be elected as directors in addition to the Concerned Shareholders’ Nominees, we expect that the resulting Board will be composed of a majority of independent directors.

67In my view, when the circular is read as a whole, it is clear that neither Mr. Carroll nor Mr. Lavelle are part of the Dissident Group nor is there any representation they are. It is also clear that they are nominated by Management and not the Dissident Group who is simply recommending shareholders vote for them.

68Nor do I accept Mr. Lavelle’s submissions that his reputation has been impugned or that his business will likely suffer damage. There is no evidence of his reputation apart from his years in business. Nor can it be inferred, from reading the circular as a whole that he is aligned with the Dissident Group or supports their concerns.

69Mr. Lavelle has said that if elected along with the Dissident Group’s nominees, he will immediately resign. In its letter to shareholders set out in the May 3, 2021 press release, impugning the Dissident Group’s “misleading statements and baseless accusations”, FSD makes it clear that Messrs. Carroll and Lavelle were added to the Dissident Group’s nominees, “without their consent or prior knowledge”. The letter goes on to state:

Mr. Frank Lavelle, a veteran senior healthcare executive, in condemning this irresponsible action of the Dissidents, declared it to be deceitful. Mr. Lavelle has presented a sworn an Affidavit before the Supreme Court of Ontario that he has only agreed to serve as a Director, if elected by the shareholders, along with the Management Director Nominees. Mr. Lavelle is demanding that the Dissidents amend and re-circulate their circular with his name erased.

70In my view, when the April 24, 2021 Dissident Group circular is read as a whole together with their earlier circular, there is nothing misleading about the inclusion of either Mr. Carroll or Mr. Lavelle. They are clearly Management Nominees and the Dissident Group is recommending that shareholders vote not only for there five nominees but for them too. Having agreed to let their names stand, there is no reason in my view that the Dissident Group cannot recommend that shareholders vote for them.

71With respect to Mr. Lavelle’s subsequent position that if elected along with the Dissident Group’s nominees he will immediately resign, I agree that is something shareholders should know but FSD has communicated that information to the shareholders loud and clear requiring no further communication.

72In the result, I find that there was no material misrepresentation by the Dissident Group in the April 24, 2021 circular concerning either Mr. Carroll or Mr. Lavelle.

Conclusion

73The Meeting is set for May 14, 2021. Both sides have sent proxies and exchanged detailed information circulars setting out two separate visions for FSD and each alleging misleading statements and baseless accusations on the part of the other. The shareholders have ample information with which to vote. It is time to let the Meeting proceed.

74For the above reasons:

a) the FSD Application is dismissed in its entirety. The Dissident Group’s circulars are not materially misleading; and

b) the Motion is allowed in part. The request that the Meeting be held virtually is dismissed. The request to appoint Carol Hansell as the independent chair of the meeting is allowed and an order shall issue to that effect.

75The Dissident Group is entitled to its costs of both the FSD Application and the Motion on a partial indemnity basis. The parties have submitted Cost Outlines. The Dissident Group seeks a total of $74,396.60 in partial indemnity costs for the FSD Application and $24,676.71for the Motion. In contrast, FSD claims $45,482.11 for their Application and $14,553.27 for the Motion. The parties have agreed that costs will neither be awarded to or against Mr. Lavelle.

76While there is a significant difference between the costs claimed by the Dissident Group and FSD both on the FSD Application and the Motion, I am satisfied in the circumstances, that the Dissident Group’s costs are fair and reasonable.

77As the Dissident Group points out, while before me the FSD Application was based on s. 107 of the OBCA, it initially started out as a wide-ranging oppression application seeking, among other things, restrictions on the ability of the Dissident Group to vote its shares, a delay of the Meeting and additional disclosure obligations. It was only a week before the hearing that FSD significantly amended its Notice of Application. By not narrowing the issues earlier, the Dissident Group incurred significant additional costs.

78Accordingly, I fix the Dissident Group’s costs in respect of the FSD Application at $74,396.60 in total. As it was only partially successful in the Motion, I fix those costs at $15,000 in total. All costs payable forthwith.

L. A. Pattillo J.