Legal Feeds Blog
|A study by Fasken Martineau DuMoulin LLP found that the number of proxy contests has increased drastically in recent years.|
These are some of the findings of Fasken Martineau DuMoulin LLP’s “Canadian Proxy Contest Study” released today.
Proxy contests have come into the spotlight in recent years, especially with last year’s high-profile Canadian Pacific Railway dispute. Telus Inc., Agrium Inc., and Rona Inc. were also involved in proxy fights in 2012.
Aaron Atkinson, a partner at Faskens and one of the authors of the study, says it was conducted to gather empirical data on proxy contests — something you don’t see very often in Canada.
“There has been a lot written about proxy contests in recent years . . . and so I think there was a lot of speculation about how shareholders were doing in the fights and so forth, but from what we could tell there was limited actual empirical data on what were the actual outcomes, what were the tactics people were employing, and what kind of success might they be having in employing those tactics,” Atkinson tells Legal Feeds.
The study lists five main findings:
1. It’s true: proxy contests are on the rise.
A total of 101 contests were completed during the 2008-12 study period, representing an 84-per-cent increase over the preceding five-year period. The last five years also witnessed a 98-per-cent increase in the number of contests focused on change in the boardroom.
2. Dissidents achieved success well over half of the time.
In 54 per cent of all board-related contests, dissidents were successful in their public campaign for board change.
3. No one is immune.
Issuers of all sizes and in all industries were the targets of board-related contests. Indeed, the composition of companies targeted in board-related contests almost mirrored the composition of Canadian-listed issuers by size and industry sector.
4. Dissidents often benefit from a high-stakes game.
A high-stakes approach appeared to benefit the dissident in board-related contests. Higher success rates were associated with:
• having more "skin in the game" with a significant equity stake;
• employing "winner takes all" tactics, including by seeking a clean sweep of the boardroom;
• waging a lengthier public campaign despite the added costs.
5. True settlement is elusive.
Once a board-related contest was publicly initiated, it almost always went the distance. Fewer than one in five board-related contests during the study period ended with an announced settlement. Moreover, a quarter of these settlements may have been less motivated by compromise than by a desire to ensure an orderly outcome to a foregone conclusion.
The fact that shareholders seeking change were successful more than half the time, “you wonder whether there’s in part a snowball effect because obviously if there’s some success in the market you might have others thinking this is a useful tool,” says Atkinson.
The big question is whether proxy contests are going to be a permanent trend in the Canadian economy, he says.
“If you look at the market returns in the preceding year, a higher number of proxy contests tend to happen in years following poor market returns. So you’ve got disgruntled shareholders who are looking for change because the stock price is falling,” says Atkinson.
“So the question is if the economy does improve — as people seem to be hinting at — and therefore stock market returns improve, do shareholders maybe have a less compelling case for change because happy shareholders are less likely to vote out the board? So if the markets turn around maybe you’ll see fewer [proxy contests], but at the same time, if in fact proxy contests are more motivated by this larger shareholder democracy trend then maybe they will be here to stay.”
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|Magistrate Judge Andrew Peck and Senior Judge Michael Baylson at Legal Tech. (Photo: Gail J. Cohen)|
While large chunks of the discussion centred on U.S. rules and practices, they did share opinions of value to anyone involved in litigation and looking to manage costs and data. Here are a few of their tips.
- When fighting a request from plaintiffs to provide more discovery, especially in the pre-certification stages of a class action, defendants should provide judges with very specific, fact-based affidavits as to what the costs of providing the requested documents would be. Don’t throw out numbers that aren’t supported by facts or simply argue that the requests are overbroad or burdensome.
- When there are disputes over discovery costs, judges may not really appreciate or understand what the case is worth. Defendants need to make clear the reality of their exposure. Sometimes there are obvious dollar amounts but where there are societal values (such as in labor discrimination cases), counsel need to present appropriate information to the court.
- “Bring your geek to court day” is sometimes necessary because it’s the e-discovery experts who both understand the technology and get to the heart of how and what it will cost to “right-size” e-discovery. Those experts will be of enormous assistance to the judge.
- Follow Sedona guidelines on proportionality. Peck says some of the most costly disputes arise from Mickey Mouse problems like lawyers not returning each other’s calls. Co-operation, be it called that or the “strategic release of documents” if your clients aren’t keen on “co-operating,” can keep costs down dramatically. And every client wants that.
- Discovery doesn’t have to be perfect. It just needs to be fair. That requires quite a lot of education for both lawyers and judges in issues surrounding e-discovery.
- The best way for companies to save money on e-discovery costs is to have a records management program in place — “get rid of all the ‘let’s go to lunch e-mails.’” If your information house is in order at all times, it will end up being a lot cheaper when and if you ever end up in e-discovery.
- Judges tend to focus only on the case right in front of them. It’s up to lawyers to educate judges on the number of cases their clients are facing each year, which will help them understand the overall impact of the costs of discoveries and other litigation-related matters.
Ontario Court Justice Gregory Pockele sentenced Nhu Van Nguyen to 15 months in jail, less two months credit for pre-trial custody, back in March 2011.
According to the Ontario Court of Appeal decision, Nguyen was the “gardener” in a $1.2-million grow-op scheme involving more than 1,200 marijuana plants at a large residential home in London, Ont. He had pleaded guilty to theft of hydro, possession of marijuana for the purpose of trafficking, and production of marijuana.
In a decision dated Jan. 28, the Court of Appeal for Ontario chopped five months from the sentence to 10 months less two months for pretrial custody.
Nguyen’s lawyers wanted a conditional sentence, arguing Pockele’s decision demonstrated a reasonable apprehension of bias by referring to his personal experience with grow-ops near his home and for discussing general deterrence in the context of a specific ethnic group.
The three-judge appeal court panel was fine with Pockele’s incorporation of his personal observations on grow-ops but it was less comfortable with his comments on ethnicity.“We agree that, against the backdrop of no evidence in the record, the trial judge should not have said that ‘[t]o a certain extent, there is an ethnic element in that certain groups of new Canadians, or Canadian citizens sharing cultural and ethnic heritage, appear before the court in unusual numbers charged with marijuana production.’ There is no place in the Canadian criminal justice system for this type of negative and stereotypical comment,” the appeal court stated.
However, the appeal court said a conditional sentence would be inappropriate since “only in rare cases involving large-scale commercial marijuana grow operations” should a non-custodial sentence result.
According to the decision, Pockele also made a mathematical error when calculating Nguyen’s sentence. After concluding that 18 months was an appropriate sentence, Pockele said anyone entering an early guilty plea should get a 20- to 30-per-cent discount. But even using the smaller 20-per-cent discount, the sentence should have fallen below the 15 months he ultimately imposed.
“The midpoint of the trial judge’s reduction for a guilty plea, 25 per cent, would generate a starting point of 13.5 months. In these circumstances, we regard an appropriate sentence as 10 months imprisonment,” the appeal court stated.
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The events of the case in SAIA v. Carleton University took place in February 2009 when the Students Against Israeli Apartheid, a club at the school, tried to publicize Israeli Apartheid Week with about 100 posters around campus. The posters depicted an image of an Israeli helicopter gunship aiming a missile at a Palestinian child holding a teddy bear.
The school’s equity services department received several complaints including one brought forward by Hillel, a Jewish student group, regarding Jewish students who were feeling threatened by the posters.
At the same time Carleton’s administration was aware of recent events at York University where there had been large, heated demonstrations, including confrontations between the SAIA and Hillel groups, and situations requiring security and police to intervene.
The incident occurred at the same time similar activity was occurring at other Canadian universities related to the Palestinian-Israel conflict, in particular when Israel was engaged in a military offensive in Gaza with casualties and an attack on the Islamic University of Gaza.
University staff removed the posters and made a decision not to permit such postings on campus.
SAIA alleged the actions of the school were unjustified and discriminatory. It argued the poster was lawful and protected speech under s. 13(2) of the Human Rights Code and that by banning the poster, the university infringed its rights. The group argued the school was motivated by a preference for concerns expressed by Jewish students over the rights of Palestinian students.
SAIA also alleged that an e-mail from Carleton’s provost circulated to the entire university community unfairly targeted the group.
For its part Carleton argued its actions were a justified response to safety concerns and the actions were not related to the grounds of discrimination under the code.
“While the ability to engage in lawful political activity and free expression of political opinion are fundamental rights in Canadian society, and may be the subject of other laws or policies, they are not proscribed grounds of discrimination under the code. To the extent the applicant argues that, as a human rights advocacy organization, it was denied a right of free political expression, as legitimate as that claim may be, it is outside the scope of the tribunal’s jurisdiction,” tribunal adjudicator Michael Gottheil said in his decision.
He found the school had not violated the student group’s rights under the code and that the school’s president did not demonstrate an anti-Palestinian, pro-Israel bias.
In his decision Gottheil said: “SAIA called no evidence with respect to these allegations. Accordingly, I have not considered these allegations, except to note that there is no direct evidence before me of the respondent having an anti-Palestinian bias.”
“I am satisfied that the respondent had a good faith concern about student safety, and the possibility that the situation on campus might further deteriorate,” said Gottheil, noting that reported incidents to the equity services department warranted a response to the posters.
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In Drover v. BCE Inc., Justice Gordon Weatherill took issue with the fact Merchant’s firm, the Merchant Law Group LLP, attempted in 2004 to serve the writ of summons and statement of claim by fax. In the meantime, the firm continued to move ahead with a similar class action over system-access fees in Saskatchewan while letting the B.C. matter remain idle until Nov. 9, 2012. The Saskatchewan courts allowed the matter to go ahead on the basis of unjust enrichment only and any B.C. resident can join that case in an opt-in basis. None of the allegations have been proven in court.
The latest B.C. ruling dealt with the plaintiffs’ bid for a declaration that the defendants had been validly served with the writ of summons and statement of claim back in 2004. Alternatively, they sought permission to be able to now serve the statement of claim.
According to Weatherill’s Jan. 14 ruling, plaintiffs’ counsel maintained that service by fax was fine even as at least one of the defendants challenged the firm on that point. As a result, he rejected the application for a declaration of valid service.
“Neither the former nor the current Rules permit service by way of facsimile,” he wrote.
Weatherill went on to deny the plaintiffs’ application for an order permitting them to serve the statement of claim.
“The plaintiffs have provided no evidence to explain the delay or any evidence indicating that the plaintiffs indeed intend to prosecute this action,” he wrote. “It is reasonable to infer that plaintiffs’ counsel abandoned the British Columbia action many years ago.”
In the end, Weatherill found the case to be one of “exceptional circumstances” allowing him to order costs — in this case against Merchant himself — in a class action.
“In my view, this is an exceptional case. The conduct of counsel for the plaintiffs has caused costs to be wasted through delay and neglect. Plaintiffs’ counsel neglected this action for over eight years. When he got around to dealing with it by bringing this application, he failed to set out the proper relief. Furthermore, the application was not supported by any evidence explaining either the delay or the failure to comply with the rules regarding the need for an endorsement and proper service. Moreover, the application was brought against defendants against whom there was no basis for the order(s) sought. To say that this was and has from the outset been a shoddy piece of counsel work would be an understatement.”
For his part, Merchant tells Legal Feeds he’s appealing both the ruling preventing the B.C. class action from going forward and the costs award against him.
“If lawyers are worried about costs being awarded against them, they won’t be as candid with their clients, they may put their own interests ahead of their clients’ interests,” he says, adding that requiring lawyers to defend their conduct in such scenarios “jeopardizes solicitor-client privilege.”
Merchant also notes he wasn’t the lawyer who pressed forward with the arguments about service by fax.
“What’s wrong in the thinking is there’s nothing to indicate that I had anything to do with the delays,” he says, adding it was another lawyer who had argued the court would accept service by fax as far back as 2004. “Obviously, we weren’t correct. I wasn’t doing that in 2004 and that was nine years ago.”
Apart from the costs issue, Merchant is concerned with Weatherill’s finding that it would be an abuse of process to allow the parties to relitigate the same issues in British Columbia after the Saskatchewan matter goes ahead.
“It’s just not right societally,” he says, noting Weatherill’s approach would put a damper on class actions in opt-in jurisdictions since prospective plaintiffs would have to both know about and choose to participate in a matter elsewhere in order to have a chance at redressing an alleged wrong since the court may not allow the case to go ahead in their home province.
As a result, Merchant says he’ll be pressing ahead with the class action both in British Columbia and across Canada. It’s an issue, he adds, that affects millions of people given the widespread use of system-access fees by cellphone companies.
“There are a lot of important principles in play in this class action,” he says.
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On Saturday, Jan. 26, the County of Carleton Law Association celebrated its 125th anniversary with a splashy celebration at the National Gallery of Canada in Ottawa.
Photos: Robin Grant
Ashley Deathe and Raymond Murray from Nelligan O’Brien Payne, Alexandra Murray of Health Canada, and Megan Murphy also from Nelligan O’Brien.
Douglas and Ulle Baum from Addelman Baum and Gilbert LLP.
Eugene Meehan of Supreme Advocacy and Superior Court Justice Giovanna Roccamo. Meehan sported traditional Scottish dress with a sporran that is over 100 years old. Roccamo wore a Fred Perlberg 1952 vintage dress.
Ted Mann from Mann & Partners at the podium sang a little jingle about the CCLA at the beginning of the dinner.
The Ottawa bar celebrates 125 years of the Carleton County Law Association.
President-elect Alan McBride and CCLA president Jaye Hooper hosted the evening. They spoke about topics such as CCLA's history and the importance of women in law.
David Thompson, Cheryl Hess, and Jim McIninch from Bell Baker, and Paul McEnery and his wife Nancy from Williams McEnery.
Sarah Saad of Rasmussen Starr Ruddy with her boyfriend Harry Baas, and Angela McLaughlin also from Rasmussen enjoy cocktails early in the evening.
Shahana Khan, a sole practitioner, and Susan Richer from Richer & Richer.
CCLA president Jaye Hooper, Nicol Girard, and CCLA president-elect Alan McBride
Justice Robert Maranger and Thomas Windle from the Windle Law Firm enjoy a laugh prior to the CCLA 125th Anniversary dinner.
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Gail J. Cohen