2023 QCCA 846, 2023 QCCA 846

Fraser c. Canadian National Railway Company 2023 QCCA 846 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No.: 500-09-030048-227 (500-11-060810-229) DATE: June 22, 2023 CORAM: THE HONOURABLE MARK SCHRAGER, J.A. PATRICK HEALY, J.A. SUZANNE GAGNÉ, J.A. PAMELA FRASER APPELLANT – Plaintiff v.

CANADIAN NATIONAL RAILWAY COMPANY RESPONDENT – Defendant JUDGMENT [ 1 ] The appellant, Pamela Fraser, filed an application in the Superior Court (Commercial Division), District of Montreal, pursuant to s. 137 of the Canadian Business Corporations Act [1] for an order compelling the respondent, Canadian National Railway Company, to include two shareholder proposals in its management proxy circular for the 2022 annual shareholders’ meeting.

That application was dismissed by the Honourable Marie-Anne Paquette, J.S.C., as she then was, by judgment rendered on April 1, 2022. [2] [ 2 ] The appellant filed a notice of appeal and, after having obtained the Court’s authorization, [3] amended her application in first instance to ask for an order that the respondent include the 2022 proposals in the 2023 management proxy circular. At the hearing, given the passage of time, both parties agreed that the conclusions of the appellant’s brief may be read by referring to the annual meeting and the management proxy circular for the year 2024.

Therefore, it will not be necessary to deal with her Application to restrain the sending of a management proxy circular, include a shareholder proposal as an addendum or to hold a special shareholder meeting . I. Background [ 3 ] The trial judge summarized the background to this case as follows: [3] Mrs. Fraser is a shareholder of CN National Railway Company ( CN ). On February 4 th , 2019, her son died in a Canadian Pacific Railway (not CN) train derailment.

Following this tragedy and the ensuing investigations, she developed an increasing knowledge of, and a personal interest in, railway safety and corporate governance, particularly around the public accountability of railway police forces. [4] The issues on which Ms. Fraser requires a discussion at CN’s upcoming annual shareholder meeting, to be held on May 20, 2022 ( 2022 Meeting ), relate to the CN Police Service. [5] CN has a Police Service whose officers are appointed by judges of a superior court.

CN Police Service officers are entrusted with the responsibility to protect property owned, possessed or administered by CN, as well as the persons and property on that property ( CN Police Service ). They have all the powers of a peace officer, including those powers vested to peace officers under the Criminal Code of Canada . [6] Ms.

Fraser begs the Court to overturn CN’s refusal to include two proposals and supporting statements ( 2022 Proposals ) in CN’s 2022 Management Proxy Circular ( 2022 Circular ) for the upcoming 2022 Meeting. [7] The 2022 Proposals seek further discussion and action towards the independence of the CN Police Service from CN’s management and civilian personnel and towards the non-involvement and non-interference of the CN Police Service in investigations conducted by independent police forces. [8] CN refuses to include the 2022 Proposals in its 2022 Circular and to include them in the Agenda of the 2022 Meeting; claiming that they are captured by the three following exceptions set forth in

section 137 of the CBCA , namely: 1. the 2022 Proposals are substantially the same as the proposals that Ms. Fraser submitted to CN’s shareholders in 2021, which did not receive the prescribed minimum amount of support at the 2021 shareholder meeting ( 2021 Meeting ); 2. it clearly appears that the primary purpose of the 2022 Proposals is to redress a personal claim or grievance against CN, its directors

or officers; and 3. the 2022 Proposals constitute an abusive use of the rights conferred by

section 137 of the CBCA in order to secure publicity. [9] On March 2, 2022, Ms.

Fraser filed an application where she seeks orders to: 1. compel CN Railway to include the 2022 Proposals in its 2022 Circular for the upcoming 2022 Meeting; 2. prevent the release of the 2022 Circular and the holding of the 2022 Meeting until a judgement on the merits on the Application; and 3. directing CN to pay $20,000 for her professional fees, as legal costs. [4] [Bold in the original; references omitted] [ 4 ] For a better understanding, it is worth reproducing the text of the 2022 proposals: RESOLVED – That the Board shall investigate, make regulatory referrals, and mandate corrective regulatory filings regarding the extent to which the CNPS has exercised policing jurisdiction over deaths, serious injuries, and policing incidents arising from CN Railway’s operations. […] RESOLVED – that the Board shall disclose its CNPS independence policy plus a sworn affidavit from CNPS Chief of Police, Stephen Covey, confirming that the CNPS has never received instructions from, reported to, or shared any evidence regarding the CNPS’ investigations with CN Railway’s management and civilian personnel.

As for the supporting statements, they are reproduced in the appendix to this judgment. II. Judgment under appeal [ 5 ] The trial judge opined that a corporation does not need to obtain leave to refuse a shareholder’s request to include a proposal in its circular. Then, she found that the respondent had correctly determined that it was not required to include the appellant’s 2022 proposals in its 2022 management proxy circular since they fell within the following three exemptions set out in s. 137(5) CBCA : 137

(5) A corporation is not required to comply with subsections (2) and (3) if […] (

b) it clearly appears that the primary purpose of the proposal is to enforce a personal claim or redress a personal grievance against the corporation or its directors, officers or security holders; […] (

d) substantially the same proposal was submitted to shareholders in a management proxy circular or a dissident’s proxy circular relating to a meeting of shareholders held not more than the prescribed period before the receipt of the proposal and did not receive the prescribed minimum amount of support at the meeting; or (

e) the rights conferred by this

section are being abused to secure publicity. 137

(5) La société n’est pas tenue de se conformer aux paragraphes (2) et (3) dans l’un ou l’autre des cas suivants : […]

b) il apparaît nettement que la proposition a pour objet principal de faire valoir, contre la société ou ses administrateurs, ses dirigeants ou les détenteurs de ses valeurs mobilières, une réclamation personnelle ou d’obtenir d’eux la réparation d’un grief personnel; […]

d) une proposition à peu près identique figurant dans une circulaire de la direction ou d’un dissident sollicitant des procurations, a été présentée aux actionnaires à une assemblée tenue dans le délai réglementaire précédant la réception de la proposition et n’a pas reçu l’appui nécessaire prévu par les règlements;

e) dans un but de publicité, il y a abus des droits que confère le présent article. [5] [ 6 ] Therefore, the trial judge dismissed the application, with legal costs. III. Grounds of appeal [ 7 ] The appellant raises four issues: A. Did the Trial Judge err in law in finding that s. 137(9) CBCA does not require a corporation to apply for leave to exclude a shareholder proposal and statements from its circular? B. Did the Trial Judge err in law in finding that the Appellant’s 2022 Proposals are substantially the same as her 2021 Proposals (s. 137 (5) (

d) CBCA ), in which case the Respondent was not required to include them in the 2022 Circular?

C. Did the Trial Judge err in law in concluding that the Appellant’s 2022 Proposals sought to redress personal grievances (s. 137 (5) (

b) CBCA )? D. Did the Trial Judge err in fact and in law in concluding that the Appellant’s 2022 Proposals were an abuse of her shareholders’ rights in order to secure publicity (s. 137 (5) (

e) CBCA )? IV. Analysis [ 8 ] On the first issue – did the trial judge err in law in finding that s. 137(9) CBCA does not require a corporation to apply for leave to exclude a shareholder proposal and statements from its circular? – the Court agrees with the trial judge that the right of a corporation to refuse to include a proposal in its circular is not conditional upon it obtaining leave from the court.

Indeed, the respondent’s only obligation under the CBCA was to notify the appellant in writing, within the prescribed period, of its intention to omit the proposals from the management proxy circular and of the reasons for the refusal; that is what it did. Nevertheless, concerning the appellant’s application under s. 137(8) CBCA , the respondent shouldered the burden of proving that one of the exemptions set out in s. 137(5) CBCA applied. [ 9 ] This conclusion is consistent with the language of ss. 137(7) , (8) and

(9) CBCA , which read as follows: 137

(7) If a corporation refuses to include a proposal in a management proxy circular, the corporation shall, within the prescribed period after the day on which it receives the proposal or the day on which it receives the proof of ownership under subsection (1.4), as the case may be, notify in writing the person submitting the proposal of its intention to omit the proposal from the management proxy circular and of the reasons for the refusal.

(8) On the application of a person submitting a proposal who claims to be aggrieved by a corporation’s refusal under subsection (7), a court may restrain the holding of the meeting to which the proposal is sought to be presented and make any further order it thinks fit.

(9) The corporation or any person claiming to be aggrieved by a proposal may apply to a court for an order permitting the corporation to omit the proposal from the management proxy circular, and the court, if it is satisfied that subsection (5) applies, may make such order as it thinks fit. 137

(7) La société qui a l’intention de refuser de joindre une proposition à la circulaire de la direction sollicitant des procurations doit, dans le délai réglementaire suivant la réception par la société de la preuve exigée en vertu du paragraphe (1.4) ou de la réception de la proposition, selon le cas, en donner par écrit un avis motivé à la personne qui l’a soumise.

(8) Sur demande de l’auteur de la proposition qui prétend avoir subi un préjudice suite au refus de la société exprimé conformément au paragraphe (7), le tribunal peut, par ordonnance, prendre toute mesure qu’il estime indiquée et notamment empêcher la tenue de l’assemblée à laquelle la proposition devait être présentée.

(9) La société ou toute personne qui prétend qu’une proposition lui cause un préjudice peut demander au tribunal une ordonnance autorisant la société à ne pas joindre la proposition à la circulaire de la direction sollicitant des procurations; le tribunal, s’il est convaincu que le paragraphe (5) s’applique, peut rendre toute décision qu’il estime pertinente. [6] [ 10 ] That is also the opinion of Professor Crête, who wrote the following about the position of shareholders:

La société qui s'oppose à la diffusion de la proposition et de la déclaration de l'actionnaire pour l'un de ces motifs doit l'informer dans les 21 jours de la réception de ces documents. Le cas échéant, l'actionnaire qui prétend avoir subi un préjudice en raison de ce refus possède le droit de s'adresser à la Cour supérieure qui peut prendre toute mesure appropriée, notamment contraindre la société à transmettre la documentation ou empêcher la tenue de l'assemblée à laquelle la proposition devait être présentée.

Malgré ce recours, la position de l'actionnaire n'est guère avantageuse, car il doit, à ses frais, s'adresser au tribunal pour contester cette exclusion . De plus, l'interprétation donnée traditionnellement par les tribunaux en cette matière n'a guère facilité la tâche des actionnaires minoritaires. Dans les quelques rares décisions qui ont porté sur l'utilisation du mécanisme des propositions, les tribunaux ont tous refusé aux actionnaires minoritaires l'accès aux documents de la direction pour des motifs de procédure ou de fond. La décision de la Cour supérieure dans Michaud c.

Banque Nationale du Canada a cependant marqué un virage dans l'approche judiciaire à l'égard du mécanisme de la proposition. [7] [Bold added; references omitted] [ 11 ] In addition, as the trial judge noted, the

interpretation put forward by the appellant would render s. 137(8) CBCA superfluous. [8] If any refusal required prior court permission, Parliament would not have provided a remedy in the event of a refusal by the corporation under s. 137(7). [ 12 ] Finally, the Court agrees with the respondent that Parliament’s use of the word “may” in s. 137(9) CBCA must be contrasted with the word “shall” in s. 137(7).

The word “may” in s. 137(9) cannot have two different meanings depending on who is the applicant; it cannot mean “shall” when the applicant is a corporation, and “may” when the applicant is “any person claiming to be aggrieved by a proposal”. [ 13 ] In short, while either a corporation or any person claiming to be aggrieved by a proposal may apply to a court for an order permitting the corporation to omit the proposal ( s. 137(9) CBCA ), such an application is not mandatory.

In the present case, as the trial judge concluded, the respondent complied with its obligation under s. 137(7) and did not have the additional obligation to seek court permission.

*** [ 14 ] On the other issues, without endorsing all of the trial judge’s reasons, the Court is unanimously of the opinion that she made no reviewable error when deciding that the personal grievance exemption set out in s. 137(5) (

b) CBCA does indeed apply. [ 15 ] The appellant argues that the trial judge erred in law by interpreting “personal grievance” as requiring no more than a demonstration of a “personal interest”.

She points to the fact that the trial judge cited the first instance judgment in Koh , where the Superior Court of Ontario said that a personal grievance “involves an issue primarily pertaining to the personal interest of the complainant”. [9] In allowing the appeal, the Divisional Court considered the enunciation of this element to be problematic because the relevant provision refers to a “personal claim” or a “personal grievance”; it does not refer to a “personal interest”. [10] [ 16 ] The Court does not share the appellant’s reading of the trial judge’s reasons.

As the respondent noted in its brief, the trial judge cited the first instance judgment in Koh simply to confirm that the prior conduct, behaviour or written communications of the shareholder may be considered, even if the test is objective.

This is consistent with the jurisprudence, also cited, regarding the applicable objective test. [11] On this point, the trial judge correctly stated that the personal grievance exemption “does not turn on the subjective motivations of the proponent”, but “rests on the dominant purpose of the proposal itself, considered objectively”. [12] [ 17 ] As for the rest, the determination of whether a proposal has the primary purpose “to enforce a personal claim or redress a personal grievance” is eminently factual. As the Divisional Court stated in Koh v.

Ellipsiz Communications Ltd. , “[e]ach situation will turn on its own facts”, although “the threshold for such a finding is a high one”. [13] [ 18 ] In the present case, the trial judge decided that issue as follows: [59] As detailed below, the statements and documents prepared by the Ms. Fraser and her counsel, Mr. Runyowa, confirm that 2022 Proposals seek to redress personal grievances. [60] Ms. Fraser is “aggrieved”, within the meaning of s. 137(5) CCP. [61] She filed the May 2021 Complaint against the CN regarding the Mr. Holmes. She and her legal counsel, Mr.

Runyowa, are also involved in a number of parallel claims and recourses against CN and/or other railway companies. [62] The object of both the May 2021 Complaint and the 2022 Proposals is to advance Ms. Fraser’s personal grievances against CN and its directors and officers as a result of CN’s response to the 2021 Proposals. For instance, the 2022 Proposals seek to demonstrate that CN and its Board made misrepresentations when recommending that shareholders vote against the 2021 Proposals; with a view to advancing Ms.

Fraser’s personal grievances against CN and its directors and officers as a result of CN’s response to the 2021 Proposals. [63] In addition, Ms. Fraser and her lawyer are using the proposal process to seek evidence against the CN Police in pursuance of their personal grievances against the CN Police Service and railway policing generally. For instance, the 2022 Proposals request that Chief Covey provide near identical sworn affidavits than those requested in the context of the May 2021 Complaint. The overlap is quite telling. [64] Ms.

Fraser and her attorney also wish to use the shareholder proposal mechanism to obtain evidence that would help support ongoing litigation, for instance the Timmerman case. [65] CN’s 2022 Meeting is not the proper forum to redress or address Ms. Fraser’s grievances and claims against CN and the CN Police Service or, indirectly, against CP. [66] Furthermore, the First 2022 Proposal purports to force an investigation into past policing by the CN Police Service over a period of approximately 25 years, with a view to obtaining evidence supporting Ms.

Fraser’s accusations of misrepresentations on the part of CN, its directors and officers in response to the 2021 Proposals. [67] Such requests seek to gather evidence in support of personal grievances which Ms. Fraser pursues and to procure leverage with respect to underlying litigations and complaints. Shareholder proposals are not a discovery process, nor a means of obtaining evidence in support of allegations against a corporation. Such use of a shareholder proposal, to obtain information in connection with ongoing litigation, falls squarely within the exemption found at s. 137(1) (

b) of the CBCA . Allowing this kind proposals would go against the very interests of shareholders. [14] [ 19 ] Those findings are well substantiated by the evidence and by the 2022 proposals themselves, including their supporting statements. The appellant has failed to show a palpable and overriding error that would justify the Court’s intervention on the issue of the personal grievance exemption.

In addition, the fact that the respondent did not invoke this exemption in 2021 is not an obstacle to applying it to the 2022 proposals. [ 20 ] Since only one exemption is sufficient to justify the respondent’s refusal under s. 137(7) CBCA and to dismiss the appeal, the Court refrains from opining on the other two exceptions. FOR THESE REASONS, THE COURT: [ 21 ] DISMISSES the appeal, with legal costs; [ 22 ] DECLARES that the appellant’s Application to restrain the sending of a management proxy circular, include a shareholder proposal as an addendum or to hold a special shareholder meeting is moot.

MARK SCHRAGER, J.A. PATRICK HEALY, J.A. SUZANNE GAGNÉ, J.A. Mtre Giacomo Zucchi Mtre Etienne Gratton JURISTES POWER LAW For the Appellant Mtre Stéphanie Lapierre Mtre Nathalie Nouvet STIKEMAN ELLIOTT and Mtre Dominic Dupoy NORTON ROSE FULBRIGHT CANADA and Mtre Pierre Bienvenu, Ad.E. I.M.K. For the Respondent Date of hearing: March 8, 2023 APPENDIX Exhibit P-18: Letter from Ms. Pamela Fraser to CN Railway dated December 2, 2021 enclosing a letter from her counsel and two shareholder proposals.

RESOLVED — That the Board shall investigate, make regulatory referrals, and mandate corrective regulatory filings regarding the extent to which the CNPS has exercised policing jurisdiction over deaths, serious injuries, and policing incidents arising from CN Railway’s operations. Supporting statement. The 2021 management circular included Ms. Pamela Fraser’s shareholder proposal seeking the Board to require the CN Police Service (“CNPS”) to refer the criminal investigation of all workplace deaths and serious injuries to independent police forces. Ms.

Fraser further sought for the CNPS, a wholly-owned CN Railway department, to recuse itself from such investigations. In the 2021 circular, the Board recommended that shareholders vote against Ms. Fraser’s proposal because the “CNPS defers investigation of workplace accidents resulting in fatalities or serious injuries to the local police agency, the RCMP or the regulators.” Shareholders voted overwhelmingly against Ms. Fraser’s proposal, at least in part, because of the Board’s inaccurate and unverified reassurances that her proposal reflected the status quo.

However, the Board failed to disclose that the CNPS investigated the workplace death of Kevin Timmerman at the company’s Saskatoon railyard in 2015. Saskatoon Police Service (“SPS”) records confirm that the CNPS asserted jurisdiction over Mr. Timmerman’s death to the exclusion of the RCMP and SPS. The CNPS’ handling of Mr. Timmerman’s death represents the norm, not the exception at CN Railway. The Board has the duty to provide truthful and complete disclosures to regulators, shareholders, investors, and the public.

The Board breached that duty by misrepresenting CN Railway’s exercise of policing jurisdiction over workplace deaths and serious injuries under the company’s watch as exemplified by Kevin Timmerman case. Such a material misrepresentation paints a misleading picture of CN Railway’s safety, governance, and ESG profiles. It prejudices regulators’ ability to assess the lawfulness of the company’s conduct, the accuracy of its public and regulatory disclosures, and the sustainability of profits from a business model that allows CN Railway to exonerate itself of potential criminal culpability.

Management’s handling of CN Railway’s self-investigation practice casts doubts on the accuracy, truthfulness, and completeness of CN Railway’s historical regulatory filings in Canada and the USA, especially when these filings have touted the company’s commitment to safety and good governance. Hence, the Board shall direct its Governance, Sustainability, and Safety Committee to:

a) Review every death and serious injury at CN Railway’s Canada and USA operations since January 1,1997 to identify cases where the CNPS conducted any investigative tasks, exercised jurisdiction, or exonerated CN Railway in any such incidents. By September 30,

2021, the Board should report its findings to securities regulators in Canada and the USA, file corrective regulatory disclosures, and refer any potentially unlawful conduct to relevant authorities in both countries.

b) By March 31, 2022, the Board shall post a sworn affidavit from CNPS Chief Stephen Covey, confirming that under his tenure, and based on CNPS records, the CNPS has never asserted jurisdiction over workplace injuries, fatalities, or policing matters in which CN Railway had a private interest in Canada and the USA.

RESOLVED — That the Board shall disclose its CNPS independence policy plus a sworn affidavit from CNPS Chief of Police, Stephen Covey, confirming that the CNPS has never received instructions from, reported to, or shared any evidence regarding the CNPS’ investigations with CN Railway’s management and civilian personnel. Supporting statement. As law enforcement officers in Canada and the USA, CN Police Service (“CNPS”) officers have a legal duty to be operationally independent from CN Railway’s civilian leadership, especially when the company’s interests are implicated.

Speaking in support of her 2021 shareholder proposal on this issue at CN Railway’s April 27, 2021 annual shareholder meeting, Ms. Pamela Fraser raised the case of Mr. Scott Holmes, a former CN Railway employee. According to official Ontario court transcripts (2010), CNPS officers testified under oath that CN Railway’s management had compelled the CNPS to engage in a “joint venture” where the CNPS was to leverage its criminal investigation of Mr. Holmes to advance CN Railway’s private civil litigation against him.

These allegations constituted brazen violations of police powers and the legal principle of police independence. Presenting the Board’s rebuttal to Ms. Fraser’s presentation of her proposal, CN Railway’s Chief Legal Counsel recommended that shareholders vote against Ms. Fraser’s proposal. He asserted that in 2014, the CNPS had adopted a formal policy that “... safeguards the exercise of CNPS officers’ duties as public peace officers and ensures an appropriate level of discretion and independence”. Despite six requests from Ms.

Fraser before the meeting, the Board failed to disclose the policy, to explain why the CNPS only instituted it in 2014, or explain why CN Railway’s corporate leaders were speaking for the purportedly independent CNPS. The Board also failed to rebut, deny, or explain the CNPS officers’ sworn testimony alleging management’s imposition of a joint venture on the CNPS. Nor did the Board explain why it failed to fully disclose the implicated conduct in CN Railway’s regulatory filings in Canada and the USA, given that the sworn testimony described conduct that was unlawful in both countries.

The Board has the duty to provide truthful and complete disclosures to regulators, shareholders, and the public. Failing to release the CNPS’ independence policy that the Board informed shareholders existed, breached that duty. So did failing to address the serious, broader, and outstanding questions that the Scott Holmes case raised regarding CN Railway’s corporate control and potential abuses of the CNPS in Canada and the USA. Hence, within 10 business days of the 2022 annual shareholder meeting, the Board shall post on the Governance

section of CN Railway’s website: 1. The CNPS’ 2014 independence policy and all Board resolutions, minutes, and foundational documents that prompted the policy’s creation. 2. A sworn affidavit by CNPS Chief and CN Railway’s Chief Security Officer, Stephen Covey, confirming that he and the CNPS have never taken directions from, provided progress reports to, or shared evidence with, CN Railway’s civilian personnel and leaders on any CNPS investigation or operational matters in Canada or the USA. [Bold in the original]