Paquette v Zaio Corporation, 2016 ABQB 529

Court of Queen’s Bench of Alberta Citation: Paquette v Zaio Corporation, 2016 ABQB 529 Date: 20160926 Docket: 1601 06775 Registry: Calgary Between: Richard Paquette, Steve Ruff, Beverly Howes, Karen Sproul, Video Game Trader Inc., Rob Hartwell, Nattolie Hartwell, Gurmail Dhanjal, Hans Huber, Brian Schmidt, Neil Lauzon, Desiree Bekkerus, Rick Bekkerus, Wade Hartwell, Steven Greene, Stephan Belanger, Steven Eisenberg, Terry Anton, Linda Sproul, Tyson Gallant and Kevin Zackowski Applicants - and - Zaio Corporation Respondent _______________________________________________________ Reasons for Decision of the Honourable Madam Justice B.E.

Romaine _______________________________________________________ I. Introduction [ 1 ] The Applicants are twenty-one holders of secured debentures issued by the Respondent, Zaio Corporation. They seek relief from oppression arising from the disqualification of their votes by proxy at a meeting held to consider a resolution amending the debenture trust indenture to allow a forced conversion of debentures into common shares. [ 2 ] After hearing the application, I found that:

a) Zaio’s conduct in disallowing the Applicants’ proxies tendered at the meeting, the refusal of the Chair of the meeting to

accept the votes of certain Applicants present at the meeting, Zaio’s failure to disclose a certain agreement between it and its control person relating to the conversion of debentures and the purported passage of the resolution are all acts and omissions of Zaio that have effected a result, and amount to carrying on the conduct of the affairs of Zaio, in a manner that is oppressive and unfairly prejudicial to and that unfairly disregards the interests of the Applicants and other debenture holders;

b) the resolution must be set aside; and

c) Zaio is restrained from taking any steps to implement the resolution or any of the amendments to, or replacement of, the trust indenture contemplated thereunder. [ 3 ] These are my reasons. II. Fa c ts [ 4 ] The Applicants hold 38.9% of the 10% secured convertible Debentures [the “Debentures”] issued by Zaio. The Debentures rank as first secured debt of Zaio. A total of $4,443,000 of debentures is outstanding and the Applicants hold $1,758,000 in value. [ 5 ] StableView Asset Management Inc, an investment firm run by Colin Fisher, is a “control person” of Zaio.

In December, 2015, StableView and Zaio had provided for the creation of an additional 15% of secured debt by way of subordinate debentures in the amount of $4,050,000. Under the same facility, Zaio agreed to issue over 12 million common share warrants, being 3 for each dollar of new debt. Jim Boyle, a Toronto lawyer connected with StableView, is the Chair of the Board of Directors of Zaio. [ 6 ] In 2016, the Board of Zaio embarked on a debt reduction strategy to improve its financial position. This strategy had three goals:

a) to convert warrants held by Zone Data Systems LLC (“ZDS”), a company that had previously been party to a licensing agreement with Zaio, to shares;

b) to attempt to convert the Debentures into common shares before they matured on May 9, 2012; and

c) to have certain warrants issued by Zaio in 2014 exercised for shares. [ 7 ] Clearly, if the Debentures were converted to shares, the StableView facility would move into first secured position. The debt reduction strategy was at least partially conceived by Mr. Fisher. [ 8 ] Phillip Wazonek, the Chief Operating Officer of Zaio, states that he “assumes” that StableView’s debentures would also be converted to shares and that its warrants would be converted or eliminated.

He says negotiations with respect to conversion of the warrants are underway, but there is no evidence of any agreement with StableView to convert warrants or debentures. [ 9 ] By an agreement made effective March 28, 2016, Zaio and StableView entered into an agreement pursuant to which StableView would contact Zaio’s current security holders and would receive compensation if any of Zaio’s outstanding convertible securities were converted or warrants were terminated (the “StableView Consulting Agreement”).

For each 10 shares underlying such converted or extinguished securities, StableView is entitled to receive one Zaio common share. If all outstanding warrants were be extinguished, StableView would receive more than 7.4 million shares. If the debenture holders could be persuaded or forced to convert their Debentures, StableView would receive over 3.7 million shares. [ 10 ] Zaio had never disclosed this agreement publicly or to its security holders until August, 2016, when it was disclosed to the Applicants’ counsel in connection with this litigation. [ 11 ] On April 25, 2016, Mr.

Fisher addressed security holders, including some of the Applicants, at Zaio’s Annual General Meeting. According to those present who have filed affidavits or been questioned, Mr. Fisher urged debenture holders to support a resolution for a forced conversion of the Debentures into shares.

He suggested that Zaio would shortly go bankrupt if such a resolution was not passed. [ 12 ] Shortly thereafter, a formal Notice of Meeting, Information Circular and Proxy were sent by Zaio to debenture holders, with respect to an extraordinary resolution to amend the Debentures and the Debenture Trust Indenture to automatically convert Debentures into common shares.

The resolution required the approval of debenture holders holding 66 2/3 of the principal amount of Debentures present in person or represented by proxy. [ 13 ] The Applicants can be divided into two groups: those who completed a proxy in favour of the Applicant, Steve Ruff, (members of his family, his friends and acquaintances) and those who completed a proxy in favour of Richard Paquette (his friends and acquaintances). Mr. Ruff and Mr. Paquette also completed proxies in their own favour. [ 14 ] The proxies naming Mr. Ruff totalled $783,000 of Debentures, and the proxies naming Mr.

Paquette totalled $945,000 of Debentures. All were duly registered with the proxy depositary for the meeting. All of the Applicants intended that Mr. Ruff or Mr. Paquette would vote on their behalf against the resolution. [ 15 ] Mr. Fisher and Mr. Boyle telephoned Mr. Wazonek during the evening of May 24, 2016, the day before the meeting to consider the resolution. They impressed upon him the importance of getting the resolution passed, and they told him that they believed that Mr. Ruff and Mr.

Paquette “were leading a group of debenture holders opposed to the .... resolution and that the group was working together”. Mr. Boyle and Mr. Fisher advised Mr. Wazonek that it was their position that the debenture holders had “colluded beyond the legal limit”.

[ 16 ] Mr. Wazonek suggested that efforts be made to see that counsel was given enough information to provide correct legal advice on the issue, and he asked for information that would substantiate the allegations. Mr. Wazonek said on questioning that he could not remember anything specific that was said in response. [ 17 ] Nothing was provided in writing to Mr. Wazonek to substantiate what Mr. Wazonek describes as the “position” of Mr. Fisher and Mr. Boyle that there had been an improper solicitation of proxies. Mr. Wazonek made no independent inquiries of his own. He suggested to Mr. Fisher and Mr.

Boyle that the matter be addressed by the Board, but it was not. [ 18 ] Mr. Wazonek did not contact either Mr. Ruff or Mr. Paquette, both of whom he knew well, to see if there was any truth to the allegations. [ 19 ] The following morning, as the meeting was about to start, Mr. Wazonek sought legal advice from three of Zaio’s lawyers who were in attendance. He told them what Mr. Fisher and Mr. Boyle had said the night before. He had no new information to add. They had a brief conversation, between 5 and 30 minutes. Mr.

Wazonek states that he was advised that there was a basis upon which to conclude that solicitation of proxies had occurred. [ 20 ] Present at the meeting were Mr. Wazonek, Mr. Ruff and Mr. Paquette, the proxy depositary scrutineers, three lawyers on behalf of Zaio and two other Applicants, Beverly Howes and Brian Schmidt. Ms. Howes and Mr. Schmidt had given their proxies to Mr. Ruff or Mr. Paquette but were then able to attend the meeting in person. Mr. Boyle attended by telephone. Mr.

Wazonek acted as Chair of the meeting. [ 21 ] Initially, no challenge was made to any of the Applicants’ proxies by anyone present. The resolution was moved and seconded, and then Mr. Wazonek announced that the proxies held by Mr. Ruff and Mr. Paquette would be disallowed. [ 22 ] The Applicants who were present challenged the disallowance of the proxies. One of the counsel present responded that there had been improper solicitation. In addition to Mr. Paquette’s objections, Ms. Howes protested that there had been no solicitation. Mr. Schmidt asked “what about my vote”.

He said that he was a sophisticated investor, that no one had solicited his vote and that he wanted to vote his Debentures. He received no response. Neither Ms. Howes nor Mr. Schmidt were allowed to vote, despite being present at the meeting. It appears, although it is not entirely clear, that Mr. Ruff and Mr. Paquette’s personal votes against the resolution were taken into account, although Mr.

Wazonek announced that all the Applicants’ proxies would be disallowed. [ 23 ] The announced result of the vote was as follows: For: 92,800 68.59% Against: 42,500 31.41% Total: 135,300 100% [ 24 ] These announced results were wrong. Each debenture holder was entitled to one vote in respect of each $1,000 principal amount of Debentures held, so there could be no more than 4,443 votes.

It appears that the count was incorrectly multiplied by 100. [ 25 ] There are some discrepancies in the evidence relating to the minutes of the meeting and the scrutineer’s reports that cast doubt on whether the vote as announced was correct, even taking into account the mathematical error, but it is clear that, had even Ms. Howes and Mr.

Schmidt been able to vote their Debentures, the resolution would have failed. [ 26 ] While Zaio issued a press release announcing that the resolution was passed by the requisite majority, the TSX Venture Exchange has advised that it would not process an application to implement the resolution pending the determination of this application. III. Issues [ 27 ] The facts give rise to the following issues:

a) Did the Applicants improperly solicit proxies?

b) If so, was the Chair’s decision to disallow the proxies oppressive?

c) If there was oppression, what is an appropriate remedy? IV. Analysis A. Did the Applicants improperly solicit proxies? 1. Exemption from circular requirements [ 28 ]

Section 9.1(2)(

b) of National Instrument 51-102, Continuous Disclosure Obligations , ASC N1 51-102 (“N1 51-102”), provides that a person who solicits proxies from registered holders of securities of a registered issuer must send an information circular to each registered security holder whose proxy is solicited. Zaio is a registered issuer.

Section 9.2(2) provides an exemption from this requirement, indicating that

Section 9.1(2)(

b) does not apply to a solicitation if the total number of security holders whose proxies are solicited is not more than 15. [ 29 ] Thus, whether or not Mr. Paquette or Mr. Ruff solicited proxies, they were not required to send an information circular (a

“dissident circular”) to debenture holders as long as the total number of debentures holders whose proxies they obtained did not exceed 15. [ 30 ] Mr. Ruff was designated proxy holder for eight of the Applicants, plus himself, and Mr. Paquette was designated as proxy holder for 11 of the Applicants, plus himself. On the face of it, neither had an obligation to prepare and send a dissident circular. However, Zaio submits that the Applicants were acting jointly and in concert, and that it is a fiction to consider the two groups of Applicants separately.

Zaio further alleges that the Applicants structured their proxy votes to give the appearance of propriety while circumventing security law requirements. Zaio submits, therefore, that the proxies were improperly solicited. [ 31 ] Zaio cites the following factors in support of its contention that the two proxies should be considered as one:

a) a group of investors purchased shares in Zaio in 2014. Mr. Paquette was the leader of the group and negotiated terms and conditions on behalf of the group as a pre-condition to investing in Zaio. Those investors do not include all the Applicants, although there is some overlap;

b) Mr. Paquette and Mr. Ruff are business colleagues who speak often and share the same views with respect to Zaio;

c) A number of the Applicants appear to value Mr. Paquette’s opinion with respect to Zaio’s business. Two of the Applicants who authorized Mr. Paquette to act as proxy stated that they rely on Mr. Paquette for Zaio advice. Five of the Applicants had regular conversations with Mr. Paquette about Zaio business, including the resolution. It is noteworthy that, of those five, two provided Mr. Ruff with their proxies;

d) Two of the Applicants did not review the meeting materials, but merely relied on Mr. Paquette’s advice;

e) Seventeen of the Applicants spoke to Mr. Paquette at one time or another prior to signing their proxies;

f) Mr. Paquette and Ms. Howes spoke to a lawyer about how to protect their right to remain debenture holders. Ms. Howes says she asked for advice about how to fill out a proxy properly when a number of people were giving Mr. Paquette their proxy;

g) Twelve of the Applicants were at the Annual General Meeting of Zaio when Mr. Fisher spoke to encourage debenture holders to vote in favour of the upcoming resolution and they spoke among themselves in small groups after the meeting;

h) Mr. Ruff and Mr. Paquette were invited to meet with the Board members at a dinner after the meeting, and both advised the Board that they would be voting against the resolution. [ 32 ] None of this is persuasive evidence of a scheme to circumvent securities legislation. Zaio’s allegations in that regard are merely speculation, unsupported by any of the facts. The Applicants were not asked in questioning about whether they were instructed on how to complete their form of proxy - whether to appoint Mr. Ruff or Mr. Paquette. Zaio’s theory of a joint plan was not put to them directly.

The tenure of the evidence of the Applicants on questioning establishes the opposite of such a scheme. [ 33 ] There is no evidence that Mr. Ruff and Mr. Paquette divided up the debenture holders between them or that either of them communicated with any of the debenture holders outside their own respective personal, pre-existing, longstanding circle of friends and acquaintances There is no evidence that they communicated with any debenture holders at large. [ 34 ] Mr. Paquette’s involvement with a different group of investors at least a year prior to the meeting; Mr. Paquette and Mr.

Ruff’s personal and business relationship and shared opinions about Zaio; the fact that seventeen of the Applicants “spoke” to Mr. Paquette at one time or another; none of these facts are sufficient to give rise to an inference of a joint plan. With respect to the Applicants who spoke to Mr. Paquette, Zaio referenced parts of their questioning in that regard. Only one of the Applicants, Mr. Eisenberg, gave evidence of anything that may be construed as Mr. Paquette requesting a proxy. Most of them merely indicated conversations with Mr. Paquette about Zaio and several stated that they asked Mr.

Paquette to be their proxy; [ 35 ] It is noteworthy that, as the Applicants point out, if Mr. Ruff, his life partner, Ms. Sproul, their jointly-owned corporation and Ms. Sproul’s mother were the only debenture holders who appointed Mr. Ruff as proxy, and the other five applicants who appointed Mr. Ruff were considered to be in the group appointing Mr. Paquette. Mr. Paquette’s group would consist of 15 debenture holders, and he would still fall within the exception set out in

Section 9.2(2) of NI 51-102. [ 36 ] Zaio has failed to establish that the construct of the two groups of proxies was a façade, or that they should be treated as one. Thus, the Chair of the meeting was wrong to disqualify the proxies on that basis of improper solicitation of more than 15 proxies. 2. Did Mr. Ruff and/or Mr. Paquette solicit proxies? [ 37 ] The Applicants submit that, at any rate, there was no solicitation of proxies by Mr. Ruff and/or Mr. Paquette. [ 38 ] Subsection 1.1(1) of NI 51-102 defines “solicit” as including, among other things: (

a) requesting a proxy whether or not the request is accompanied by or included in a form of proxy; (

b) requesting a security holder to execute or not to execute a form of proxy or to revoke a proxy; or (

c) sending a form of proxy or other communication to a security holder under circumstances that to a reasonable person will likely result in the giving, withholding or revocation of a proxy; [ 39 ] The definition of “solicit” does not include:

(

h) soliciting by a person or company in respect of securities of which the person or company is the beneficial owner; ... (

k) communicating ... to security holders in the following circumstances: (

i) by one or more security holders concerning the business and affairs of the reporting issuer, including its management or proposals contained in a management information circular, and no form of proxy is sent to those security holders by the security holder or security holders making the communication ... unless the communication is made by (categories of security holders who are not relevant in this case); (ii) by one or more security holders and concerns the organization of a dissident’s proxy solicitation, and no form of proxy is sent to those security holders by the security holder or security holders making the communication or by a person or company acting on their behalf ... [ 40 ] Almost every Applicant was questioned by Zaio.

None of them said that their proxy was solicited by Mr. Ruff or Mr. Paquette. Mr. Ruff and Mr. Paquette have expressly denied soliciting proxies, both in their affidavits and under questioning. Seven of the Applicants were asked if they had reviewed these affidavits and whether they believed them to be true, and they confirmed their belief in the truth of the affidavits. [ 41 ] It is uncontested that neither Mr. Ruff nor Mr. Paquette sent a form of proxy to any of the Applicants. The proxies appointing Mr. Ruff and Mr.

Paquette as proxy holders were the ones sent to debenture holders by Zaio. [ 42 ] Zaio submits that it must be inferred that Mr. Ruff and Mr. Paquette solicited proxies on the basis of the factors set out previously in this decision. As I noted, these factors do not provide persuasive evidence of a scheme to circumvent securities legislation: nor do they provide evidence of solicitation. [ 43 ] The fact that debenture holders had conversations about the resolution does not amount to solicitation, as is made clear by Subsection 1.1(1)(k)(

i) of NI 51-102. Merely seeking advice about a proposed resolution does not amount to solicitation. Asking another debenture holder to be your proxy is not solicitation.

Seeking legal advice is not solicitation. [ 44 ] Zaio relies on a comment made by the Court in JLL Patheon Holdings, LLC v Patheon Inc , (2009) 64 BLR (4 th ) 98 at para 30 , for the proposition that “communication among shareholders directed toward reaching a consensus on the voting of their respective shares personally at a meeting of shareholders constitute a proxy solicitation even if a proxy is not formally solicited during such conversations.” [ 45 ] The facts of Patheon are quite different from the facts in this case Patheon involved the

interpretation of “solicit” under the CBCA, not securities legislation (although the

definitions are quite similar). Wilton-Siegal, J. found no contravention of the CBCA with respect to the solicitation of proxies, primarily on the basis that, even had there been solicitation, the number of parties solicited would be fewer than 15.

While he did make the comment cited by Zaio, he also stated that, in the circumstances of the case, less than 15 parties were solicited and thus, it was neither necessary nor appropriate to decide this issue. para 30. [ 46 ] Zaio also submits that there would be no basis for the Applicants to have appointed anyone other than management to register their vote against approval of the resolution, absent solicitation by Mr. Paquette, Mr. Ruff or one of the other Applicants guiding the group on how to complete the proxy forms.

Zaio argues that, “ res ipsa loquitur,” solicitation must have occurred. [ 47 ] There is no prohibition in securities or corporate law to prevent a security holder from appointing someone other than the management nominee as proxy, and no negative inference can be drawn from such a choice. In fact, the management proxy sent to debenture holders expressly provided for such an alternate choice. There is no evidence that Mr. Paquette, Mr. Ruff or even Ms. Howes guided anyone else on how to complete the proxy forms. 3.

Early warning disclosure [ 48 ] Zaio submits that the Applicants should have given early warning disclosure to Zaio of the accumulation of the proxies, citing Multilateral Instrument, Take-Over Bids and Issuer Bids, ASC NI 62-104. Early warning disclosure is required when there has been acquisition of securities above a certain level. There was no acquisition of securities in this case, and NI 62-104 has no application. 4.

Conclusion on this issue [ 49 ] Since Zaio has failed to establish that the proxies were improperly solicited or that the Applicants failed to disseminate a dissident circular when required to do so, Mr. Wazonek was wrong to disallow the proxies at the meeting. B. Was the Chair’s decision to disallow the proxies oppressive? [ 50 ] In order to establish oppression, the Applicants must satisfy the Court that:

a) they possessed a reasonable expectation that could give rise to a claim for oppression, assessed on an objective basis; and

b) that reasonable expectation was violated by conduct falling within the terms “oppression”, “unfair prejudice” or “unfair disregard” of a relevant interest. Re: BCE Inc , 2008 SCC 60 at para 68

1. Reasonable expectation [51] The Applicants submit that they had a reasonable expectation that their votes would be counted, and that this reasonableexpectation was violated by their disenfranchisement on the basis of speculation and unfounded allegations. [52] Zaio submits that the Applicants could not plausibly have had a reasonable expectation that their proxies, once discovered,would be permitted to stand, given that they acted jointly or in concert to defeat the resolution. [53] I found that Zaio had not established that the Applicants contravened securities legislation.

Thus, they had no reason toassume that the proxies held by Mr. Ruff and Mr. Paquette on their behalf would be disallowed, and every reason to expect that theirvotes would be counted. [54] Zaio submits that the fact that Ms. Howes and Mr. Paquette consulted counsel before the meeting should give rise to theinference that the Applicants were aware that the proxies presented issues. That is not a reasonable inference from the mere fact ofconsulting counsel. Ms. Howes’ evidence is that she consulted counsel to ensure that the proxy was filled out correctly.

As noted in BCEat para 78, in determining whether a stakeholder expectation is reasonable, the Court may consider whether a claimant could have takensteps to protect herself against the prejudice she claims to have suffered. It is a reasonable inference that this is precisely what Ms. Howesdid in order to ensure that proxies would not be disallowed. [55] I find that the Applicants have established a reasonable expectation that could give rise to a claim for oppression. 2.

Conduct falling within the meaning of oppression [56] To complete their claim of oppression, the Applicants must show that the failure to meet their reasonable expectation involvedunfair conduct and prejudicial consequences. As noted in BCE at para 89, not every failure to meet a reasonable expectation will giverise to the equitable considerations that ground actions for oppression.

The Court must be satisfied that the conduct falls within theconcepts of “oppression”, “unfair prejudice” or “unfair disregard” of the claimant’s interest. [57] While there are no absolute rules, the duty of directors of a corporation to act in the best interest of the corporation includes aduty to treat security holders affected by corporate action equitably and fairly: BCE at para 82. [58] The Applicants submit that Zaio, by disenfranchising them without notice, and failing to allow even Ms.

Howes and Mr.Schmidt who were present at the meeting to vote their securities, on the basis of unfounded allegations made by a party with anundisclosed financial interest in the outcome of the vote, acted manifestly unfairly with respect to their interests, with prejudicialconsequences. [59] Zaio submits that the appropriate legal test to be applied to determine whether conduct is oppressive once a meeting is heldand a vote occurs is to examine the meeting chair’s conduct and determine if he acted in bad faith, citing Blair v Consolidated EnfieldCorp, (SCC), [1995] 4 SCR 5. [60] However, the issue in Blair was who should bear the costs of contesting a disputed directors’ election that were awardedjointly against the corporation and the Chair of the meeting – the corporation through its indemnity to directors or the Chair in hispersonal capacity.

The Court considered the meaning of “honestly and in good faith” as it occurs within

section 136 of the OBCA, theindemnification of directors’ provision. The case has nothing to do with oppression. [61] Zaio submits that Mr. Wazonek acted in good faith, in accordance with legal advice, and in the best interests of thecorporation. He may have done so, but I agree with the Applicants that the question is not whether Mr. Wazonek, at the urging of Mr.Fisher and Mr. Boyle, acted in good faith or bad, with legal advice or without it. The question is whether he acted correctly. I have foundthat he did not.

An honest but mistaken belief cannot disenfranchise security holders and oust the jurisdiction of the Court. [62] The Applicants cite Kluwak v Pasternak, (Ont SC) in support of their position. Kluwak, like Blair, is notan oppression case. However, Mesbur, J made a number of comments on the duty of a company and meeting chair in similarcircumstances that are helpful in this case. She noted at paras 31 and 36: When looking generally at the best interests of the company, it must be that it is in the company’s interests for shareholders to make afully informed decision regarding the election of directors.

To accomplish that here, management should have reviewed the dissidentproxy circular prior to the meeting, (as they obviously did.....), and then either requested that the circular be redrafted and recirculated, orapplied to the court for direction... In my view, the Chair’s actions here [in simply striking the proxies], while not made mala fides, andmade with the assistance of legal advice, did not promote the integrity of Griffin’s voting procedures. The Chair’s actions were incorrect. I am concerned that management raised no concerns with the dissident proxy circular prior to the AGM. ...

It was manifestly unfair to“wait in the weeds” until the meeting itself to raise the objections.

A better course would have been to request the dissidents to correcttheir circular and adjourn the AGM if necessary, or to apply to the court for a determination of whether the proxy was materiallymisleading, and, if it was, to give an opportunity to the dissident group to correct it (emphasis added). [63] The issue in Kluwak was not whether a dissident circular should have been prepared, since it had been in that case, butwhether the proxies of the dissident group should have been disallowed without notice at the meeting.

A similar issue arises in this case.Was it manifestly unfair to disallow the proxies without notice, on the basis of a lack of evidence and an incorrect

interpretation ofsecurities law, without giving the Applicants notice of the concern and an opportunity to defend against it or remedy the situation? In myview, it was, particularly given that the party raising the concern was, as Mr. Wazonek knew, a party who stood to benefit from thedisallowance of these proxies. [64] Zaio submits that Hastman v St Elias Mines Ltd, 2013 BCSC 1069 is a better authority on this issue, but Hastman does not aid

Zaio. In Hastman , the dissident group was clearly soliciting proxies, and there were clear deficiencies and material misrepresentations in their dissident circular. [ 65 ] It is important that in Hastman , company management warned the dissidents in advance of what they considered to be material misrepresentations in the dissident circular and offered them an opportunity to correct them. They were warned that the chair of the meeting would disallow their proxies if corrections were not made.

The chair of that meeting met with the dissidents and their counsel prior to the meeting and considered their submissions before making her ruling. [ 66 ] Many of the comments in Hastman were made in the context of whether or not the chair of that particular meeting had the authority to reject proxies, which is not an issue in this case. The dissidents in Hastman also submitted that they had a reasonable expectation that the chair of the meeting would act fairly in her dealings with them and her conduct of the AGM, and the Court agreed: para 106.

The Court noted, however, referring to BCE, that what is just and equitable is judged by the reasonable expectations of the stakeholders “in the context and in regard to the relationships at play”: para 94. In Hastman , the Court noted that it had difficulty understanding what else the company could have done in the situation. [ 67 ] In this case, the Applicants were not afforded the opportunity to prepare and file a dissident circular, if they had chosen to do so, or to defend their position that such a circular was not necessary.

They were not warned of Zaio’s position before the meeting and were not given an opportunity to address it, even at the meeting. The meeting was not adjourned to allow the issues to be investigated and clarified with informed legal advice. [ 68 ] Allegations on which the Chair acted were not supported by any evidence. Mr. Wazonek’s consultation with legal counsel was short and under pressure. Ms. Howe and Mr. Schmidt were not given the right to vote their shares when their proxies were disallowed, even though Mr. Schmidt asked for the opportunity. It is unreasonable to suggest that Ms. Howes and Mr.

Schmidt should have formally revoked their proxies before they were allowed to vote. When a security holder attends in person and votes on a ballot, the appointment of a proxy is revoked: Hartley R. Nathan, Q.C. ed, Nathan Company’s Meetings including RULES OF ORDER 7 th ed (Toronto: CCH Canadian, 2007) at page 270. [ 69 ] This conduct was manifestly unfair and prejudicial to the Applicants, and I am satisfied that they have established oppression. 3.

Failure to disclose StableView’s financial interest [ 70 ] The Applicants submit that the concealment of the StableView Consulting Agreement with Zaio may mean that the vote at the April 25, 2016 Annual General Meeting to ratify StableView as the control person of Zaio was also oppressive.

However, they concede that this is not a matter for the current application. [ 71 ] While I agree that whether the agreement should have been disclosed and whether that non-disclosure taints the Annual General Meeting is not an issue in this application, the non-disclosure adds to the oppressive conduct of Zaio in disallowing the proxies, as the allegations on which the Chair acted came from a party with an undisclosed financial interest in the proceedings, and therefore should have been subject to further scrutiny. C.

What is an appropriate remedy for the oppression in this case? [ 72 ] Although Zaio did not concede oppressive conduct, it has offered to exchange the existing debentures held by the Applicants for new debentures on the same terms as the previous ones. However, it would not do the same for those debenture holders who voted in favour of the resolution, or those who did not vote at all. For these other debenture holders, Zaio proposed that it would continue to implement the resolution and convert their debentures to shares.

Zaio submits that this is a reasonable, commercially-minded solution to address the Applicants’ concerns. [ 73 ] I cannot accept that this is an appropriate remedy in the circumstances. No debenture holder provided Zaio with the authority to do this. The resolution was simply to vote for or against the ability to convert the debentures to shares.

Most of the approximately 40% of debenture holders who are not among the Applicants did not vote at all. [ 74 ] I cannot assume that those who voted in favour, or not at all, would find a situation where only their debentures would be converted to be the equivalent of what they understood the resolution to be. [ 75 ] I must also take into account none of the debenture holders knew about StableView’s full financial interest in the resolution, even while Mr. Fisher was exhorting them to vote in favour of the resolution at the Annual General Meeting.

Zaio’s proposed solution would be a partial reward for oppressive conduct. [ 76 ] I also note that Zaio is able to extend an offer to each debenture holder to convert their debentures to shares voluntarily by way of issuer bid, if it believes that the 40% are in favour of such an outcome. [ 77 ] The resolution must be set aside. [ 78 ] The parties are given leave to address the issue of costs with written submissions to be provided within 30 days. Dated at the City of Calgary, Alberta this 23 rd day of September, 2016.

B.E. Romaine J.C.Q.B.A. Appearances: Blair C. Yorke-Slader, Q.C. Bennett Jones LLP for the Applicants Cynthia Amsterdam, Chelsea Wilson & Prateek Gupta (Student at Law) Dentons Canada LLP for the Respondent