Canada: Contested Elections And The Oppression Remedy

A recent decision of the Ontario Superior Court of Justice (the "Court"), Ebrahim v. Continental Precious Minerals Inc., considered the oppression remedy in the context of a contested director election.  It shows that securityholders may have to first pursue other potential avenues of redress before turning to the oppression remedy, or at least be prepared to justify why they have not done so.


Continental Precious Minerals Inc. ("Continental") is a junior mining company with shares listed on the Toronto Stock Exchange.  Continental's by-laws required that shareholders holding not less than 50% of Continental's shares be present or represented by proxy at a meeting in order to consider resolutions to remove, elect or appoint directors.  Since the quorum requirement was implemented in 1996, the 50% quorum had not been achieved at any of Continental's annual general meetings, and the election of directors had not been put to a shareholder vote.  The quorum requirement had been described in each of Continental's management information circulars since its implementation.

In the days prior to Continental's October 24, 2011 annual general meeting (the "AGM"), certain shareholders of Continental (the "dissidents") expressed to Continental their dissatisfaction with Continental's performance, and asked for certain changes to be made to the board.  Continental did not implement those changes, and the incumbent directors of Continental continued in office when the quorum requirement was not met at the AGM.

The dissidents alleged, in part, that Continental's reliance on the quorum requirement, and management's failure to actively solicit proxies to increase attendance at the AGM, was oppressive.  The dissidents asked the Court to call a meeting of shareholders to consider the election of directors, and to impose a lesser quorum requirement for that meeting.

Findings of the Court

The oppression remedy under section 248 of the Business Corporations Act (Ontario) (the "OBCA") provides the court with broad remedial powers in the event that:

  • any act or omission of a corporation or any of its affiliates effects or threatens to effect a result;
  • the business or affairs of a corporation or any of its affiliates are, have been or are threatened to be carried on or conducted in a manner; or
  • the powers of the directors of a corporation or any of its affiliates are, have been or are threatened to be exercised in a manner,

that is oppressive or unfairly prejudicial to, or that unfairly disregards, the interests of any securityholder, creditor, director or officer of the corporation. 

The Supreme Court of Canada set out the test to be applied in an oppression action in BCE Inc. v. 1976 Debentureholders, which was summarized by the Court as follows:

  • does the evidence support the reasonable expectation asserted by the claimants; and
  • does the evidence establish that the reasonable expectation was violated by conduct falling within the terms "oppression", "unfair prejudice" or "unfair disregard" of a relevant interest?

Failure to Solicit Proxies

The Court stated that a shareholder has a reasonable expectation that management will give proper notice of a shareholder meeting, solicit proxies as required by the OBCA and send out a management information circular.  The Court found that Continental's management had complied with its proxy solicitation and management information circular obligations under corporate and securities laws.  The Court noted that the dissidents could have made suggestions to management of Continental if they thought something more was required to secure a large turnout at the AGM, but they failed to do so.  The dissidents also could have solicited proxies and issued a dissident information circular, but did not do so.  The Court concluded that there was no basis for the dissidents' allegation that management's conduct regarding the solicitation of proxies for the AGM was oppressive.   

Reliance on the Quorum Requirement

The dissidents alleged that they had a reasonable expectation that the directors would be held accountable at annual meetings or that the directors would vary the quorum requirement if it was impractical and would instead recommend a practical quorum requirement.  The Court stated that, in forming their reasonable expectations, shareholders must take into account the public pronouncements and documents issued by a company.  At the time the dissidents bought their shares, a search of SEDAR would have disclosed the nature of the quorum requirement.  Therefore, the Court found that it was not reasonable for the dissidents to expect that Continental would use a quorum requirement for the election of directors other than that contained in its by-laws.

The Court went on to criticize the fact that the dissidents did not use other processes available to them under the OBCA to change the quorum requirement or to effect a change in the board of directors.  In particular, the dissidents failed to:

  • submit a proposal for inclusion in the management information circular;
  • requisition a meeting to consider a proposal; or
  • distribute a dissident information circular and solicit proxies.

In the Court's words:

"I cannot accept the applicants' submission that the [quorum requirement] in practice acted as an insurmountable barrier to effecting management change at Continental when the applicants really have not tried that hard to bring such change about.  It would be one thing for dissident shareholders to complain that management was acting to impede or frustrate their efforts to solicit dissident proxies; such conduct could be oppressive.  It is quite another thing for dissidents to complain about not meeting quorum when they have not resorted to the legal tools available to them to garner proxy support.  I see no oppressive or unfair conduct by Continental's management concerning the quorum for the election of directors.  Accordingly, I dismiss the shareholder applicants' claim for relief under s. 248 of the OBCA."

Lessons Learned

As with all oppression cases, the Continental case turns on its specific facts.  However, it does seem to illustrate that a court may be unsympathetic to an oppression claim asserted by a dissident shareholder who rushes to the oppression remedy without having first attempted to use other means to effect the desired result.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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