Québec Superior Court Authorizes National Bank of Canada to Exclude Shareholder Proposals Submitted Abusively
On December 8, 2009, the Superior Court of Québec per the Honourable Justice Joel A. Silcoff granted a motion by the National Bank of Canada (Bank), authorizing it to omit some 38 proposals submitted by a shareholder for inclusion in the Management Proxy Circular to be distributed in advance of its 2010 Annual General Meeting of Shareholders. In its reasons, the court stated clearly, for the first time, that proposals that are "neutral" or otherwise permissible on their face can nevertheless legitimately be excluded if the context in which they are submitted indicates abuse by the shareholder.
A shareholder of the Bank with a history of litigation and confrontation with the Bank submitted 38 proposals for inclusion in the Management Proxy Circular to be distributed in advance of the Bank’s 2010 Annual General Meeting of Shareholders. The Bank refused to include the shareholder’s proposals, relying on Sections 143(5)(b) and (e) of the Bank Act. Those sections authorize a bank to refuse to include proposals in a circular if it clearly appears that the primary purpose of the proposals is to enforce a personal claim or redress a personal grievance against the bank or its directors, officers or security holders; or if the rights to submit proposals are being abused by the shareholder to secure publicity.
The relevant provisions from the Bank Act are essentially identical to those found in Sections 137(5)(b) and (e) of the Canada Business Corporations Act (CBCA). However, as noted by the Honourable Justice Silcoff in his reasons, there is a relative paucity of jurisprudence under both the Bank Act and the CBCA on the question of the grounds justifying a refusal to include shareholder proposals.
It is now well-established that a proposal can be excluded under Section 143(5)(b) of the Bank Act where, on its face, the proposal is found to be clearly intended to enforce a personal claim or redress a personal grievance. However, until recently, there was to our knowledge no case law clearly acknowledging a bank’s or a CBCA corporation’s right to exclude "neutral" shareholder proposals submitted abusively by a shareholder, either under Section 143(5)(b) or (e).
In his December 8, 2009 decision, the Honourable Justice Silcoff held that the context in which the shareholder proposals were submitted, which included ongoing litigation with the Bank, recent judicial proceedings commenced by the shareholder against the Bank seeking the removal of certain directors, illegal proxy solicitation by the shareholder that had been confirmed by an order of the Supreme Court of Nova Scotia, a "barrage" of complaints contained in numerous letters and e-mails addressed by the shareholder to various officers and directors of the Bank, and abusive and disruptive behaviour while in attendance at the Bank’s last annual general meeting, clearly demonstrated that the primary purpose of the proposals was to advance the shareholder’s personal claims or grievances against the Bank and that they were submitted in an abusive manner to secure publicity for himself.
Significantly, the court found that, although some of the proposals may appear on their surface to be neutral, even these should be excluded in light of their timing, the circumstances in which they were submitted, and the "evident abusive exercise by [the shareholder] of what, in normal circumstances, might be considered his rights as shareholder." In other words, the court clearly established that the context in which proposals are submitted can be sufficient to justify the refusal to include them in a management proxy circular.