Genesis Land Development Corp. v Smoothwater Capital Corporation, 2013 ABQB 509

Court of Queen ’ s Bench of Alberta Citation: Genesis Land Development Corp. v Smoothwater Capital Corporation, 2013 ABQB 509 Date: 20130910 Docket: 1301 09274 Registry: Calgary Between: Genesis Land Development Corp. Applicant - and - Smoothwater Capital Corporation, Liberty Street Capital Corp., Garfield Mitchell, Mark Mitchell Edwin Nordholm Respondents _ ________________________________________ ______________ Memorandum of Decision of the Honourable Madam Justice B.E.

Romaine _________________________________________ ______________ Introduction [ 1 ] Genesis Land Development Corp. applied for an order disentitling the Respondents from voting their shares at the Genesis Annual General Meeting on the basis that they had failed to disclose to the market their common intentions to gain control of the Genesis board of directors. [ 2 ] Following an oral hearing on August 15, 2013, I found that the Respondents were acting jointly and in concert with the objective of replacing the existing Board of Genesis with a slate of directors of their own choosing, and that they had failed to properly disclose that fact to the market, as they were required to do under securities law and regulation.

I postponed Genesis’ Annual General

Meeting for one month in order that proper disclosure could be made and proxy solicitation could take place in the context of full disclosure. [ 3 ] I indicated to counsel that a written judgment would follow with reasons for my decision. These are my reasons. Issues [ 4 ] In this judgment, I consider the following issues: 1. If the Respondents were acting “jointly or in concert” within the meaning of that phrase under securities law and regulation, did they have a duty to disclose that fact? 2. Were the Respondents, or any of them, acting jointly or in concert? 3.

If so, have the Respondents adequately disclosed their status as joint actors? 4. If not, what is an appropriate remedy for this failure of disclosure? Analysis 1. If the Respondents were acting “jointly or in concert” within the meaning of that phrase under securities law and regulation, did they have a duty to disclose that fact? [ 5 ] The Respondents submitted that the term “jointly or in concert” is a term of art under securities law and regulation that is only relevant in the context of take-over bids.

Since no one has made a take-over bid for Genesis, they argued, the question of whether any of the Respondents were acting jointly or in concert does not arise as a matter of fact or law. The Respondents submitted that Genesis, in its arguments, deliberately conflated the take-over bid and proxy solicitation regimes. They further argued that relief under

section 180 of the Alberta Securities Act , RSA 2000, c S-4 is only available where the Court is satisfied that requirements relating to take-over bids have not been complied with. [ 6 ] It is correct that the Multilateral Instrument, Take-Over Bids and Issuer Bids , ASC MI 62-104 (1 February 2008) (“MI 62- 104”) largely deals with take-over and issuer bids. However,

Part 5 of MI 62-104, entitled Reports and Announcements of Acquisitions , specifically applies to persons who acquire shares other than by way of a take-over bid or an issuer bid, and mandates early warning disclosure if an acquiror, as defined in

section 5.1(

a) of MI 62-104, acquires beneficial ownership of, or control or direction over, securities of a reporting issuer that would constitute 10% or more of the outstanding securities of a class. [ 7 ] Pursuant to

section 5.2(1) of MI 62-104, such an acquiror must issue and file a news release promptly and, within two business days, file a report containing the information required by

section 3.1 of The Early Warning System and Related Take-Over Bid and Insider Reporting Issues , ASC NI 62-103 (30 April 2010) (“NI 62-103”). [ 8 ] Thereafter,

section 5.2(2) of MI 62-104 stipulates that an acquiror must issue a news release and file a report within two business days if it acquires an additional 2% or more of the outstanding securities of the issuer, or when there is a change in a material fact contained in the report required under

section 5.2(1). [ 9 ] The rationale for the early warning system was first described in 1998 in the Notice of National Instrument 62-103 (4 September 1998) that accompanied then-proposed NI 62-103 (the “1998 Notice”): The early warning system contained in the securities legislation of most jurisdictions requires disclosure of holdings of securities that exceed certain prescribed thresholds in order to ensure that the market is advised of accumulations of significant blocks of securities that may influence control of a reporting issuer.

Dissemination of this information is important because the securities acquired can be voted or sold, and the accumulation of the securities may signal that a take-over bid for the issuer is imminent. In addition, accumulations may be material information to the market even when not made to change or influence control of the issuer. Significant accumulations of securities may affect investment decisions as they may effectively reduce the public float, which limits liquidity and may increase price volatility of the stock.

Market participants also may be concerned about who has the ability to vote significant blocks as these can affect the outcome of control transactions, the constitution of the issuer’s board of directors and the approval of significant proposals or transactions.

The mere identity and presence of an institutional shareholder may be material to some investors. (emphasis added) [ 10 ] In CSA Notice - Notice and Request for Comment on Proposed Amendments to Multilateral Instrument 62-104 and National Instrument 62-103 and Proposed Changes to National Policy 62-203 , ASC CSA Notice (13 March 2013) (the “2013 Notice”), the Canadian Securities Administrators confirmed that this rationale is still valid today, and noted that the objective of early warning disclosure is not only to predict possible take-over bids, but also to anticipate proxy-related matters.

In requesting comments on their proposals to amend the early warning reporting requirements, the CSA noted: The objective of early warning disclosure is not only to predict possible take-over bids but also to anticipate proxy-related matters ...

The purpose of early warning reporting is to compel the release of information with respect to changes in the ownership of, or control ordirection over, a reporting issuer’s voting or equity securities to allow the market to review and assess the potential market impact of thechange. Investors must be given sufficient information to be able to effectively evaluate the impact. In our view, disclosure to investorsof a change that may influence or affect control is essential for market transparency and investor confidence.

Persons subject to the early warning requirements disclose the purpose of the change as part of their early warning news release andreport. Concerns have been expressed about the adequacy of the disclosure included in the early warning reports filed in Canada,particularly with respect to disclosure about the transaction. We have found that the disclosure is often inadequate and does not sufficiently inform investors.

In our view, more detailed disclosureof, for example, the intentions of the person acquiring securities and the purpose of the acquisition would enhance the substance andquality of early warning reporting. ... While persons subject to the early warning requirements are required to disclose the purpose of the acquisition as part of their earlywarning news release and report, we have found that this disclosure often consists of boilerplate language that provides little usefulinformation for the market. ...

We believe that more detailed disclosure of the intentions of the person acquiring securities and thepurpose of the acquisition is required for the market to properly evaluate the particulars of the acquisition: 2013 Notice at 4-5. [11] The comments in the 2013 Notice make it clear that the early warning regime was not put in place merely to warn ofimpending take-over bids, but to provide disclosure to the market of accumulations of significant blocks of securities for several reasons,including the possibility of a proxy fight over the constitution of a board of directors. [12] It is a breach of this early disclosure regime that is the core of Genesis’ complaints. [13] The Respondents’ submissions would require this Court to give no, or a very narrow, meaning to the presence of the phrase“jointly or in concert” in sections 5.1 and 5.2 of MI 62-104.

Section 5.2(1) requires disclosure if an “acquiror’s securities” constitute 10%or more of the shares of a class. “Acquiror’s securities” are defined to include securities owned or controlled by an acquiror or “anyperson acting jointly or in concert with the acquiror,” such that shares held by a person acting jointly or in concert should be taken intoaccount in determining when early warning disclosure is required. [14] The Respondents submitted that because

section 1.9 of MI 62-104, which purports to define circumstances where a personmay be acting jointly or in concert, refers to a person acting jointly or in concert “with an offeror”,

Part 5 does not require disclosure ofpersons acting jointly or in concert with an acquiror. [15] It is clear that the proposed amendments set out in the 2013 Notice would clarify any ambiguity with respect to the use of theterm “offeror” in existing provisions of these instruments. Specifically, they clarify that the term “offeror” in

section 1.9 of MI 62-104relating to “acting in concert” would mean “acquiror” for the purposes of early warning disclosure, and would clarify reportingrequirements for persons acting jointly and in concert. [16] These proposed amendments, of course, are not yet in force, and it is necessary that I analyze the Respondents’ obligations inaccordance with existing legal requirements and regulations. [17] The Respondents’ limited

interpretation of existing regulation makes no sense. Since there is no “offeror” until a personadvances a take-over bid, and

Part 5 clearly applies in a situation where there is no take-over bid, there would be no reason to include the“jointly or in concert” language in the definition of “acquiror’s securities” or in

section 5.2(2)(

a) if such information was only relevantwhere an actual bid was made. An

interpretation that would give these words no meaning should be avoided. Securities legislation isremedial legislation that must be construed broadly, and substance, not form, is the governing factor: Pacific Coast Coin Exchange ofCanada Ltd v Ontario (Securities Commission), (SCC), [1978] 2 SCR 112 at 127. It is surely not in keeping with thepurpose of the

Part 5 provisions to interpret them as narrowly as suggested by the Respondents, which would allow multipleshareholders who are acting together, each with less than a 10% interest, to avoid the requirements of early disclosure. [18] The Respondents submitted that the requirement to disclose only applies if the persons acting jointly or in concert are doing sopursuant to an agreement to acquire shares.

Section 1.9 does not limit the meaning of the phrase in that way, and, in fact,

section 1.9(1)(

b) of

Part 5 refers to “a person that, as a result of any agreement, commitment or understanding ... intends to exercise jointly or inconcert with the offeror ... any voting rights attaching to any securities of the offeree issurer.” [19] Thus, despite some ambiguity arising from the use of the term “offeror” in

section 1.9, the early warning requirements underMI 62-104 must be interpreted to require disclosure of persons acting jointly or in concert with an acquiror if there is any “agreement,commitment or understanding” to exercise voting rights. [20] It is next necessary to review the requirements of NI 62-103. It is noteworthy that the definition of “acting jointly or inconcert” under this instrument refers to the meaning ascribed to that phrase “in securities legislation”, rather than specifically to section1.9, implying a more general use of the term.

The form for disclosure, Appendix E, makes a number of references to a “joint actor”,which is defined as “another entity acting jointly or in concert with the entity in connection with the ownership of, or control over, thesecurity”. [21] Appendix E sets out required disclosure, including “the general nature and material terms of any agreement ... with respect tosecurities of the reporting issurer entered into by ... any joint actor ... or any other entity ... including agreements with respect to ... votingof any of the securities”: para 1(g).

Also required are “the names of any joint actors in connection with the disclosure required by thisAppendix”: para 1(h). [22] The Respondents submitted that the decision of the Ontario Securities Commission in Re Sears Canada Inc (2006), 22 BLR (4th) 267 (OSC), aff’d (2006), (ON SCDC), 84 OR (3d) 61 (Div Ct) suggests that the joint actor concept is onlyrelevant in the take-over bid context. While the Commission commented that the purpose of

section 91 of the Ontario Securities Act,

RSO 1990 c S.5 (the equivalent to

section 1.9 of MI 62-104) is to ensure compliance with the rules that govern securities transactions, which would include disclosure of persons engaged in a common investment or purchase program, that comment was in the context of evidence of such a program, and does not preclude other purposes. Examples of other purposes were noted in the 1998 Notice that accompanied NI 62-103, and reiterated in the 2013 Notice. [ 23 ] In conclusion, I found that if the Respondents, or any of them, were acting jointly or in concert, they should have disclosed that fact in early warning press releases and reports. 2.

Were the Respondents, or any of them, acting jointly or in concert? [ 24 ] It is a question of fact as to whether the Respondents, or any of them, were acting jointly or in concert: Sterling Centrecorp Inc (Re) (2007), 30 OSCB 6683 (OSC) at para 97 . The joint acting can be as a result of an agreement, a commitment or an understanding, and need not be by way of a formal or written agreement.

The burden was on Genesis to establish that the Respondents were joint actors on the basis of “clear cogent evidence, not ambiguous or speculative evidence; however, reasonable inferences can always properly be drawn from evidence”: Sterling Centrecorp at para 116. [ 25 ] Circumstantial evidence, such as family relationships, communication between the parties and attendance at meetings together, can be taken into account in determining whether the parties were making a concerted effort to bring about a specified objective: Kusumoto (Re) , 2007 ABASC 40 (ASC) at para 67. [ 26 ] Genesis described events that commenced in 2012 with attempts by the Respondent, Liberty Street Capital Corp., to have its principals, Edwin Nordholm and Louden Owen, elected to the Genesis board of directors at the time of its 2012 Annual General Meeting.

Neither was elected. As of June 27, 2012, Liberty held, and continues to hold, 2.85% of the shares of Genesis. [ 27 ] During 2012, the Respondent, Garfield Mitchell, increased his shareholdings of Genesis from the 10.02% he held on January 12, 2012 to approximately 16.5%, making him Genesis’ largest shareholder. [ 28 ] Garfield Mitchell filed an Early Warning Report on May 8, 2012 with respect to his acquisition of shares in January and April, 2012, some four months late with respect to the January acquisition and one month late with respect to the April purchase.

The report states the purpose of the acquisitions to be investment, and does not disclose any joint actors. [ 29 ] In late 2012, Liberty remained of the view that the board of Genesis required significant change, and communicated this to Stephen Griggs, who at that time was a friend and business associate of Garfield Mitchell. In early 2013, Mr. Griggs became Mr. Mitchell’s representative with respect to communications with the Genesis board members. Mr.

Griggs later became the Chief Executive Officer of the Respondent, Smoothwater Capital Corporation. [ 30 ] Smoothwater is owned and controlled by Garfield Mitchell, its sole shareholder. On March 1, 2013, Mr. Mitchell transferred approximately 130,000 Genesis shares to Smoothwater. [ 31 ] On March 22, 2013, Mr. Owen was appointed to the Genesis board at the urging of Garfield Mitchell and Mr. Griggs. Mr. Mitchell also advocated for Mr. Griggs to be appointed to the board, but this did not happen. Mr. Griggs’ letter to the Genesis board of February 20, 2013, promoting himself and Mr.

Owen as board appointees, was shared with Mr. Nordholm of Liberty, who was invited to comment on it before it was sent. [ 32 ] Between March 25 and early May, 2013, Garfield Mitchell and his brother, Mark Mitchell, purchased large blocks of Genesis shares through a broker they both used. The Respondent, Mark Mitchell, is a director of Genesis and the Chair of its Governance Committee, which is responsible for making a recommendation to the board for a management slate of director nominees for the next annual meeting.

The Mitchells said that the purchases were made independently and for investment purposes. [ 33 ] Mark Mitchell currently holds 9.27% of the Genesis shares. [ 34 ] On April 30, 2013, Mark Mitchell met with Mr. Griggs to discuss Mr. Griggs’ desire to be nominated to the Genesis board and his general concerns with the board. Mark Mitchell said that no specifics were discussed at that meeting about the composition of the board. [ 35 ] On May 2, 2013, Garfield Mitchell filed a second Early Warning Report disclosing his recent acquisitions of Genesis shares, which brought his holdings to 22.07%.

The purpose of the acquisition was stated to be investment, and no joint actors were disclosed. [ 36 ] On May 21, 2013, Smoothwater issued a press release announcing the appointment of Mr. Griggs as its CEO. The press release, entitled “Launch of Activist Investor”, indicates that “Smoothwater will work collaboratively with other investors to effect change in targeted companies”. The press release includes the following paragraph: Smoothwater and Mitchell have made an initial investment by acquiring a 22.07% interest in Calgary based Genesis ...

Smoothwater has identified a number of initiatives that Genesis can take to significantly improve its share value over time and is communicating with the board of directors and like minded investors with the goal of having the company pursue some or all of these options. [ 37 ] On June 3, 2013, Garfield Mitchell transferred approximately 9.8 million Genesis shares to Smoothwater, which now holds 22.06% of the shares as a result.

With some additional shares held personally, Garfield Mitchell currently beneficially owns 22.09% of the Genesis shares. [ 38 ] The Genesis board had set a “soft” deadline of July 8, 2013 to approve the management slate of nominees. During

Governance Committee meetings through May and June of 2013, Mark Mitchell did not discuss with the other committee members any change to the Genesis board. On July 3, 2013, he proposed the nomination of Mr. Nordholm to Michael Brodsky, the CEO of Genesis. Mr. Brodsky indicated he was surprised by the proposal. Mark Mitchell said that he had approached Mr.

Brodsky in late May or early June to discuss a need for a change in the composition of the board. [ 39 ] On July 4, 2013, Mark Mitchell scheduled a meeting of the Governance Committee for the following day and contacted the other two board members, William Pringle and Sandy Poklar, to propose a new slate of directors, being himself, Mr. Nordholm, Mr. Owen, Mr. Griggs, Iain Stewart, Mr. Brodsky and Eric Gural. At the time, the other two board members had never heard of Mr. Griggs or Mr. Gural. The Governance Committee meeting was adjourned to July 6, 2013.

In the meantime, Mark Mitchell provided written information on his proposed nominees to the others. [ 40 ] Mr. Pringle stated that, in discussing his proposed nominees to the committee, Mark Mitchell said that was what “we” wanted, without specifying whom he meant as “we”, that there were shareholders who were aligned and had the votes to get their way, and that “we” had decided who ought to be on the board.

Mark Mitchell said he has no recollection of using the language “we”, and would have no reason to do so. [ 41 ] At the July 6, 2013 meeting, the Governance Committee rejected Mark Mitchell’s proposed slate and resolved to recommend that the board nominees remain as currently constituted. Mr.

Pringle said that Mark Mitchell advised the committee that a proxy battle would follow this decision, and that management would lose because the major shareholders would not support management’s proposed slate. [ 42 ] Mark Mitchell said that this was a mischaracterization of his statements, and that he merely said there “could” be a challenge to the decision. [ 43 ] Within two days of this meeting. Mark Mitchell, Garfield Mitchell, Mr. Griggs, Mr. Owen, Mr. Nordholm and one or more representatives of a proxy solicitation firm, Kingsdale Shareholder Services Inc., participated in a telephone conference call.

During the call, Mark Mitchell informed the group that the Governance Committee had resolved to recommend that the incumbent board be re- nominated. [ 44 ] Some of the call participants have been cross-examined extensively about this call. They said they were looking at options and discussing next steps that ought to be taken, including pressuring the board. Some of them conceded that the call could have included discussions of a proxy fight. Both Mr. Nordholm and Mark Mitchell confirmed that they were aware that Kingsdale was on the line.

This call was followed by several others that included some or all of the Respondents and Kingsdale. [ 45 ] Sometime prior to July 12, 2013, Liberty retained the Osler law firm to obtain a proxy solicitation exemption order from the Alberta Securities Commission. Mr. Nordholm suggested to Mr. Griggs that Smoothwater do the same, and on July 18, 2003, a joint amended application was filed by Osler on behalf of Liberty and Smoothwater. [ 46 ] On July 15, 2013, Smoothwater proposed its slate of directors to Mr. Brodsky.

The slate was the same as that proposed by Mark Mitchell on July 4, 2013, listed in the same order, except that it now included Mr. Pringle. [ 47 ] On July 17, 2013, Genesis released its Notice of Annual Meeting and Management Information Circular for its August 12, 2013 Annual Meeting, with a slate of eight management nominees, being Mr. Brodsky, Mark Mitchell, Mr. Owen, Mr. Pringle, Mr. Griggs, Yazdi Bharucha, Steven Glover and Mr. Stewart. [ 48 ] On July 17, 2013, Liberty provided to Smoothwater a draft of a dissident proxy circular it had been preparing.

This draft eventually became the Smoothwater Dissident Proxy Circular. [ 49 ] On July 26, 2013, Smoothwater and Liberty executed a voting agreement, pursuant to which Smoothwater, Liberty, Garfield Mitchell and Mr. Nordholm agreed to vote their shareholdings in accordance with Smoothwater’s recommendations. Mark Mitchell was requested by Liberty to sign the voting support agreement, but he declined to do so.

Mark Mitchell said that he has never entered into an agreement, arrangement or understanding with any of the other Respondents concerning the buying or selling of Genesis shares, how he would vote his shares, or the composition of the board he would support. [ 50 ] Also on July 26, 2013, Garfield Mitchell and Smoothwater filed separate Early Warning Reports about the June 3, 2013 transfer of shares to Smoothwater. The reports were almost two months late. Neither disclosed any joint actors or referenced the voting support agreement executed that day.

The Smoothwater report stated that the shares were acquired for investment purposes, but that: A representative of the Offeror [Smoothwater] has recently been engaged in discussions with the board of directors of Genesis regarding Genesis, its prospects and potential means for enhancing shareholder value including, without limitation, with respect to potential change in the composition of the board of directors of Genesis.

The Offeror intends, from time to time, to seek to initiate or participate in such actions as it deems necessary or advisable to enhance the value of its investment in Genesis including, without limitation, actions intended to cause changes to the board of directors of Genesis, and which may include seeking to add nominees designated by the Offeror to Genesis’ board of directors and/or removing individuals from Genesis’ board of directors, requisitioning a meeting of shareholders of Genesis and soliciting proxies in connection therewith and/or making one or more shareholder proposals in connection with Genesis.

The Offeror currently intends to file and send dissident proxy solicitation materials to shareholders of Genesis to identify proposed nominees for election to the board of directors and to describe the benefits to all Genesis shareholders of the initiative in electing new individuals to the board of directors. The Offeror believes that, at this point in time, a change of the composition of the board of directors of Genesis is necessary and will assist in fostering the future prospects of Genesis. [ 51 ] On July 29, 2013, Smoothwater released its Dissident Proxy Circular.

This is Smoothwater’s document and does not reference any joint actors. It refers to Smoothwater’s seven nominees to the board, being Mr. Griggs, Mark Mitchell, Mr. Owen, Mr. Stewart, Mr.

Nordholm, Paul Currie and Lawrence Herber. The Smoothwater Dissident Proxy Circular discloses the voting support agreement. [ 52 ] I found that the Respondents Liberty and Mr. Nordholm were acting jointly and in concert with Smoothwater and Garfield Mitchell to achieve the objective of replacing the existing board of directors with a slate of directors of their own choosing from July 8, 2013 forward.

While there are indications that these parties may have been joint actors earlier than that, perhaps as early as February, 2013, the evidence falls short of establishing on a balance of probabilities that the Respondents were acting jointly or in concert prior to the July 8, 2013 date. As was the case in Drilcorp Energy Ltd v Knutson (March 24, 2005), Calgary 0501-02360 (ABQB) (unreported), communications during this period were susceptible of a number of

interpretations and it is only speculative that an agreement or understanding to achieve a planned result had been reached during this earlier period. It is clear, however, that these Respondents were joint actors from July 8, 2013 forward from their participation in the conference call of that date and other calls, from Liberty providing a draft of the dissident proxy circular to Smoothwater, and, ultimately, from their participation in the formal voting support agreement of July 26, 2013. [ 53 ] Mark Mitchell’s position is less clear. His conduct prior to July 8, 2013 is certainly susceptible to a number of

interpretations, and he has given a plausible explanation for his share acquisitions in early 2013. However, despite his protestations, disclosing confidential committee proceedings to the other Respondents during the conference call of July 8, 2013 and participating in that conference call in the presence of proxy solicitation experts are not neutral acts.

I must conclude that, even if he entered into no formal agreements with the other Respondents, there was an understanding from that point on that he would support their proposed new slate of directors by exercising his votes in their favour, and that he was a joint actor with the other Respondents in acting to achieve the objective of replacing the existing board. [ 54 ] In

summary, I found that Genesis had satisfied its burden of establishing that the Respondents were joint actors in a plan to replace the existing board of directors with a slate of their own nominees from July 8, 2013. While the individuals proposed in the slate may have varied from time to time, the common plan to replace the existing board did not. 3. Have the Respondents adequately disclosed their status as joint actors? [ 55 ] As noted by Genesis, there is no issue but that the Respondents are entitled to attempt to oust the directors proposed by Genesis management and to exercise their voting rights to do so.

If they act jointly or in concert in attempting to achieve this goal, however, they are required to disclose this fact. [ 56 ] Genesis submitted that the Respondents were attempting to take over control of Genesis without paying a control premium through a take-over bid. In my view, this is not the issue. It is clear that shareholders can attempt to control the board of a company through the exercise of their voting rights and are not required to make a take-over bid in order to do so. Board representation does not need to be proportional to shareholdings.

The issue is whether there has been adequate disclosure. [ 57 ] The Respondents submitted that even if they were found to be joint actors, which would require disclosure, the existing public disclosure was sufficient to ensure that no shareholder would be misled. [ 58 ] It is true that the Smoothwater Dissident Proxy Circular discloses the voting support agreement. However, the existence of a voting support agreement alone does not necessarily establish that the parties to it are joint actors: Sterling Centrecorp at para 117.

The Smoothwater Dissident Proxy Circular provides no reference to Mark Mitchell’s status as a joint actor.

It may be that disclosure of joint actor status is not specifically required by the form for dissident proxy circulars mandated by securities regulations, but the early warning disclosure rules do require such disclosure, and Smoothwater’s late-filed July 26, 2013 form indicated “not applicable” to the question of whether there were joint actors and included neither the Liberty shares nor Mark Mitchell’s shares in its disclosure of the acquiror’s securities. [ 59 ] Genesis submits that both Liberty and Mark Mitchell should have filed early warning disclosure reports once they began to act jointly and in concert with the other Respondents.

Arguably, the early warning disclosure rules require that, but that is an issue of

interpretation in the face of some ambiguity. Had Smoothwater disclosed these Respondents’ actions in its early warning disclosure filing, that would have been adequate disclosure. [ 60 ] In addition to the deficiencies in disclosure, the timing of such disclosure is problematic. Disclosure of Garfield Mitchell’s transfer of shares to Smoothwater should have been made within two business days of June 3, 2013. If the Respondents were not acting in concert at that time, Smoothwater would have been required to file an additional report pursuant to

section 5.2(2)(

b) of MI 62-104 when the Respondents began acting jointly or in concert. Thus, the market would have had disclosure of these matters at least five weeks prior to Genesis’ Annual General Meeting. [ 61 ] The Respondents submitted that the market had adequate disclosure of their joint actor status by reason of press releases issued by Genesis that alleged that they were joint actors. The problem is that the Respondents denied that they were acting jointly or in concert.

Thus, the market only knew that there was a contested issue of inadequate disclosure between the Respondents and Genesis. [ 62 ] In the circumstances, the combination of disclosure in the July 26, 2013 Early Warning Reports filed by Garfield Mitchell and Smoothwater, and the Smoothwater Dissident Proxy Circular did not adequately disclose that the Respondents were acting jointly or in concert.

Looking at the whole of what had been disclosed and alleged publicly, Genesis shareholders were left without a clear resolution of the issue. [ 63 ] The Respondents submitted that better disclosure would make no difference to shareholders in deciding which slate of directors to accept. I could not decide that with any certainty. Shareholders may vote for directors on the basis of a number of factors, including credentials, experience and, I suggest, character.

[64] As the 2013 Notice suggests, market participants may be concerned about who has the ability to vote significant blocks ofsecurites, as this can affect the outcome of control transactions, the constitution of the issuer’s board of directors and the approval ofsignificant proposals or transactions. This Court cannot prejudge what difference proper disclosure would have made. 4. What is an appropriate remedy for this failure ofdisclosure? [65] As a preliminary issue with respect to remedy, the Respondents submitted that an order under

section 180 of the AlbertaSecurities Act is only available to restrain or remedy a breach of that Act and MI 62-104 relating to take-over bids. This submissionfollowed from its submission that MI 62-104 only had relevance in the context of take-over bids. [66] I found that MI 62-104 deals not only with take-over bids, but also early warning disclosure in the absence of a take-over bid.A breach or non-compliance with that instrument, falling as it does within the definition of “regulations” as referred to in

section 180, canthus be the subject of a remedial order under this section. [67] Genesis sought an order prohibiting the Respondents from exercising any or all of the voting rights attached to any Genesissecurities at the upcoming Annual General Meeting, and a further order disqualifying any proxies that had been provided to Smoothwaterpursuant to the Smoothwater Dissident Proxy Circular. [68] Alternatively, Genesis proposed that: (

a) the Respondents not be permitted to reduce the number of directors to be elected at the Annual General Meeting and not bepermitted to nominate any directors for election at the upcoming Annual General Meeting, and that any directors proposed by theRespondents in the Smoothwater Dissident Proxy Circular not be available for nomination or election unless they have been also beennominated by management; (

b) the Respondents be required to disclose to the market that they are, and have been, acting jointly or in concert by the filing ofappropriate early earning reports, and (

c) the Respondents not be permitted to requisition a shareholders’ meeting or file a further dissident proxy circular in respect ofGenesis for a period of 120 days. [69] As noted by Morawetz J. in Echo Energy Canada Inc v Challenge Gas Holding AB (2008), (ON SC), 94OR (3d) 254 (SCJ) at para 88, “[a] shareholder’s right to vote is both a necessary and fundamental right in corporate democracy.” Whilesection 180 affords this Court a wide discretion in fashioning an appropriate remedy where there has been non-compliance with securitiesregulation, “the surgery should be done with a scalpel, and not a battle axe”: 820099 Ontario Inc v Harold E Ballard Ltd (1992), 3 BLR(2d) 113 (Ont SCJ). [70] In the circumstances of this case, even the alternate remedy suggested by Genesis would result in at least a temporarydisenfranchisement of shareholders.

The remedy should be less drastic. It should serve to ensure that shareholders would be in the sameposition with respect to information as they would have been had proper and full disclosure been made, and that they be allowedsufficient time to adjust their decisions on proxies if necessary. [71] I directed that the Annual General Meeting should be postponed and the result of this hearing should be made public for thebenefit of shareholders.

While I agreed that the period of time that the meeting should be delayed should be roughly consistent with theperiod of time that would have been available to the market had proper disclosure been made, the timing issues relating to the earlywarning disclosure reports and the commencement of the Respondents acting jointly and in concert made that determination difficult. [72] Ultimately, I directed that the meeting be postponed for one month.

Details of how the disclosure record should be correctedand how the proxy solicitation rules should be amended were left to counsel, with leave to make further submissions if necessary. Heard on the 15th day of August 2013. Dated at the City of Calgary, Alberta this 10th day of September, 2013.

B.E. Romaine J.C.Q.B.A. Appearances: Randal Van de Mosselaer, Justin Doll and Sarah Burton of Norton Rose Fulbright Canada LLP for Genesis Land Development Corp. Mark Gelowitz and Alexander Cobb of Osler, Hoskin & Harcourt LLP for the Respondents Smoothwater Capital Corporation, Liberty Street Capital Corp., Garfield Mitchell and Edwin Nordholm Jennifer L. Smith of Burstall Winger LLP for the Respondent Mark Mitchell Eliot Kolers of Stikeman Elliott for the Special Committee of Genesis Land Development Corp. Appendix A MULTILATERAL INSTRUMENT 62 - 104 TAKE-OVER BIDS AND ISSUER BIDS

PART 5: REPORTS AND ANNOUNCEMENTS OF ACQUISITIONS

Definitions 5.1 In this Part, (a) “acquiror” means a person who acquires a security, other than by way of a take-over bid or an issuer bid made in compliance with

Part 2, and (b) “acquiror’s securities” means securities of an offeree issurer beneficially owned, or over which control or direction is exercised, on the date of an offer to acquire, by an acquiror or any person acting jointly or in concert with the acquiror.

Early Warning 5.2

(1) Every acquiror who acquires beneficial ownership of, or control or direction over, voting or equity securities of any class of a reporting issuer or securities convertible into voting or equity securities of any class of a reporting issuer that, together with the acquiror’s securities of that class, would constitute 10% or more of the outstanding securities of that class, must (

a) promptly issue and file a news release containing the information required by

section 3.1 of National Instrument 62-103 The Early Warning System and Related Take-Over Bid and Insider Reporting Issues, and (

b) within 2 business days from the day of the acquisition, file a report containing the information required by

section 3.1 of National Instrument 62-103 The Early Warning System and Related Take-Over and Insider Reporting Issues .

(2) An acquiror must issue an additional news release and file a report in accordance with subsection (1) each time any of the following events occur: (

a) the acquiror or any person acting jointly or in concert with the acquiror acquires beneficial ownership of, or control or direction over, (

I) an additional 2% or more of the outstanding securities of the class of securities that was the subject of the most recent report required to be filed by the acquiror under this section, or ... (

b) there is a change in a material fact contained in the report required under subsection (1) or paragraph (

a) of this subsection. Acting jointly or in concert 1.9(1) In this Instrument, it is a question of fact as to whether a person is acting jointly or in concert with an offeror and, without limiting the generality of the foregoing, (

a) the following are deemed to be action jointly or in concert with an offeror: (

I) a person that, as a result of any agreement, commitment or understanding with the offeror or with any other person acting jointly or in concert with the offeror, acquires or offers to acquire securities of the same class as those subject to the offer to acquire; (ii) an affiliate of the offeror; (

b) the following are presumed to be acting jointly or in concert wtih an offeror: (

I) a person that, as a result of any agreement, commitment or understanding with the offeror or with any other person acting jointly or in concert with the offeror, intends to exercise jointly or in concert with the offeror or with any person acting jointly or in concert wtih the offeror any voting rights attaching to any securities of the offeree issuer; (ii) an associate of the offeror.

NATIONAL INSTRUMENT 62-103 The Early Warning System and Related Take-Over Bid and Insider Reporting Issues

PART I

DEFINITIONS AND

INTERPRETATION 1.1

Definitions ... “acting jointly or in concert” has the meaning ascribed to that phrase in securities legislation, and, when used in connection with an entity, has the meaning ascribed in securities legislation as if the term “entity” replaced the term “person or company” or similar term; “applicable provisions” means (

a) the early warning requirements ... ... “early warning requirements” means the requirements set out in subsections 5.2(1) and 5.2(2) of MI 62-104 ... ... “joint actor” means, in relation to an entity and a security, another entity acting jointly or in concert with the entity in connection with the ownership of, or control over, the security; ...

PART 3 EARLY WARNING REQUIREMENTS 3.1 Contents of News Releases and Reports

(1) A news release required under the early warning requirements shall contain the information required by Appendix E. ...

Appendix E Required Disclosure Required Disclosure in News Release Filed Under Early Warning Requirements 1. For each class of securities involved in a transaction or occurrence giving rise to an obligation to file a news release under the early warning requirements ... the news release shall include ... (

d) the designation and number or principal amount of securities and the percentage of outstanding securities of the class of securities referred to in paragraph (

c) over which (

I) the offeror, either alone or together with any joint actors, has ownership and control, (ii) the offeror, either alone or together with any joint actors, has ownership but control is held by other persons or companies other than the offeror or any joint actor, and (iii) the offeror, either alone or together with any joint actors, has exclusive or shared control but does not have ownership; ... (

f) the purpose of the offeror and any joint actors in effecting the transaction or occurrence that gave rise to the news release, including any future intention to acquire ownership of, or control over, additional securities of the reporting issurer; (

g) the general nature and the material terms of any agreement, other than lending arrangements, with respect to securities of the reporting issurer entered into by the offeror, or any joint actor, and the issuer of the securities or any other entity in connection with the transaction or occurrence giving rise to the news release, including agreements with respect to the acquisition, holding, disposition or voting of any of the securities; (

h) the names of any joint actors in connection with the disclosure required by this Appendix; ALBERTA SECURITIES ACT Applications to the court 180(1) On application by an interested person, if the Court of Queen’s Bench is satisfied that a person or company has not complied with this Part or the regulations, the Court of Queen’s Bench may make an interim or final order as the court sees fit,, including, without limitation, an order

Definitions

... (bbb) “regulations” means the regulations made under this Act and, unless the context otherwise indicates, includes the rules; ... (ddd) “rules” means the rules made by the Commission under

section 224 or under

section 211.6(2); Commission rules 224(1) The Commission may, subject to this

section and the regulations referred to in

section 223(ii), make rules in respect of any of the matters in respect of which the Lieutenant Governor in Council may make regulations under

section 223. ...

(4) A rule made by the Commission under this

section has the same force and effect as a regulation made by the Lieutenant Governor in Council under

section 223.