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CanLII - 2006 CanLII 35985(ON SC)
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CanLII 35985 (ON SC)
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McEwen v. Goldcorp Inc., 2006 CanLII
35985 (ON SC)
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2006-10-24
06-CL-6669
21 BLR (4th) 262
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McEwen v. Goldcorp Inc., 2006
CanLII 35985 (ON SC),
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COURT FILE NO.: 06-CL-6669
DATE: 2006-]0-24
ONTARIO
SUP[+'~RIOR COURT OF JUSTICC
BETWEEN:
Joseph Groia, Gavin Smyth and Cullen
Price, for the Applicant
Robert McEwen
Applicant
- aid -
Goldcorp Inc. and Glamis Gold Inc.
William J. Burden, Lorne S. Silver and
Craig S. Logie for the Respondent,
Goldcorp Inc.
Respondent
Mark A. Gelowitz and. Laura K. Fric, for
the Respondent, Glamis Gold lnc.
Pepall, J.
REASONS FOR DECISION
Introduction
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[1]
On August 30, 2006, Goldcorp Inc. and Glamis Gold Ltd., the respondents, entered into an
agreement, the result of which may be the creation of one of the world's largest gold mining
companies. Glamis' common shareholders will exchange each Glamis share for 1.69 common
shares of Goldcorp plus nominal cash. After completion of the transaction, current Goldcorp
shareholders will own approximately 60% of Goldcorp and current Glamis shareholders will own
40%. Robert McEwen is the largest individual shareholder of Goldcorp Inc. and holds 1.5% of its
shares. He asks the Court to order that Goldcorp conduct a shareholder meeting to vote upon the
transaction. Goldcorp states that it has complied with all statutory and regulatory obligations,
Goldcorp's constating documents, and general commercial practice and that the completion of the
transaction is in the best interests of Goldcorp and does not require shareholder approval. Glamis,
who has intervened as a party respondent, supports the position of Goldcorp.
Relief Requested
[2]
The applicant, Mr. McEwen, brings an application pursuant to section 253 of the Ontario
Business Corporations Act("OBCA")[ 1 J requesting a variety of relief including a declaration that
Goldcorp has failed to comply with the requirements of the OBCA by failing to hold a
shareholders' meeting to approve and adopt the transaction that is the subject matter of the
agreement between Goldcorp and Glamis. He also requests, amongst other things, a declaration
pursuant to section 248 of the OBCA that the business or affairs of Goldcorp are, have been, or are
threatened to be carried on or conducted in a manner that is oppressive, unfairly prejudicial to, or
unfairly disregards the interests of Mr. McEwen as a shareholder of Goldcorp. In the further
alternative, he requests relief pursuant to section 106 of the OBCA and asks the court to, amongst
other things, require Goldcorp to hold a special meeting of shareholders.
Back rg ound
The Parties
[3]
Goldcorp is one of the world's lowest cost and fastest growing multi-ounce gold
producers. It has operations in Canada, the United States, Mexico, Argentina, Brazil, Chile, the
Dominican Republic and Australia. It is subject to the OBCA and its registered office is located in
Toronto, Ontario. Goldcorp is a reporting issuer (or equivalent) in each province and territory in
Canada. Goldcorp shares trade on the Toronto Stock Exchange (the "TSX") and the New York
Stock Exchange (the "NYSE"). The shares are widely held. Its strategy of growth through
acquisition has been frequently mentioned in press releases and public filings.
[4]
Mr. McEwen had for many years been the Chief Executive Officer of Goldcorp and was
the Chairman and CEO of its Board of Directors until October 29, 2005 when he resigned. He
owns approximately 1.5% of Goldcorp's outstanding shares. He is currently the Chairman and
CEO oftwo exploration companies known as U.S. Gold Corporation and Lexam Corporation.
[5]
Glamis is a premier intermediate gold producer and has operated and developed gold mines
for nearly 30 years. Its current operations are located in the United States, Mexico, Guatemala and
Honduras. It is a corporation subject to the British Columbia Business Corporations Act (the
`BCBCA").[2] It is a reporting issuer (or equivalent) in each province of Canada. Its shares trade
on the TSX and the NYSE.
Goldcorp's Constatin~ Documents
[6]
Goldcorp's by-law gives the Board of Directors the mandate to manage or supervise the
management of the business and affairs of the corporation. lts by-law provides discretion for the
Board to seek shareholder approval of a transaction but there is no requirement to do so.
Goldcorp's most recent articles are dated November 1, 2000. The articles expressly provide that
Goldcorp may issue an unlimited number of common shares. There is nothing in those articles
that suggests that shareholders have the right to vote on the issuance of shares by the corporation.
The Transaction
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[7]
On August 30, 2006, Goldcorp entered into an agreement with Glamis and 0756808 B.C.
Ltd.("Goldcorp Subco."), a wholly owned subsidiary of Goldcorp (the"Original Agreement').
On September 27, 2006, the parties agreed to amend the Original Agreement and subsequently
signed an amending agreement attaching an amended and restated agreement(the "Agreement').
[8]
A number of changes were made to the Original Agreement. The Original Agreement
contemplated the following:
(a)
Glamis and a wholly owned BC subsidiary of "Goldcorp Subco" would
amalgamate under Division 5, Part 9 of the BCBCA to form a new
company,"Amalco";
(b)
each outstanding Glamis share would be exchanged for 1.69 shares of
Goldcorp;
(c)
the Glamis shares would then be cancelled;
(d)
each outstanding share of Goldcorp Subco would be exchanged for one
common share of Amalco such that Amalco becomes a wholly owned
subsidiary of Goldcorp; and
(e)
the shares of Goldcorp Subco would then be cancelled.
[9]
This structure gave Glamis' shareholders an automatic "tax deferred rollover" for Canadian
federal income tax purposes with respect to the disposition of their Glamis shares. Put differently,
the Glamis shareholders could defer recognition of any capital gains or capital losses until they
sold the Goldcorp shares they received in exchange for the Glamis shares. Pursuant to sections
7.02(c) and 2.01 of the Original Agreement, provision was made for the parties to restructure the
mechanics of Goldcorp's acquisition of Glamis in order to facilitate the tax or other planning
objectives of Goldcorp and Glamis. This is what they did.
[10] During the week of September 11, 2006, Goldcorp, after further review of alternative tax
strategies, determined that it would be advantageous for Goldcorp to restructure the transaction
such that shareholders of Glamis would directly exchange their shares of Glamis with Goldcorp
for 1.69 shares of Goldcorp plus nominal cash consideration. On September 16, Goldcorp advised
Glamis that it wished to pursue the revised structure. This structure eliminated the need to involve
Goldcorp Subco in the transaction. Glamis shareholders now do not receive an automatic tax free
rollover but may elect to achieve such treatment and Goldcorp will facilitate those elections. Tax
free rollover treatment is unnecessary for many Goldcorp shareholders. The cost base of the
Glamis shares acquired by Goldcorp in respect of which no election is made is the fair market
value of the issued and exchanged Goldcorp shares. This higher value could be of considerable
benefit to Goldcorp in the future as it increases the range of tax planning opportunities open to
Goldcorp. According to the evidence of Mr. Mark Ruus, the Goldcorp Vice President of Tax,
which is uncontroverted, this increased flexibility was the sole reason for the change in structure.
With a direct share exchange between Goldcorp and Glamis shareholders, Goldcorp Subco's
participation in the transaction was unnecessary.
[11] The Agreement ultimately executed on September 29, 2006 had no reference to Goldcorp
Subco and also provided for Goldcorp's agreement to facilitate tax free rollover elections. To
ensure tax free rollover treatment for US shareholders of Glamis, it will be necessary for there to
be an amalgamation either between two wholly owned subsidiaries of Goldcorp or between
Goldcorp and Glamis (which by that time would be a wholly owned subsidiary of Goldcorp).
Goldcorp has agreed to effect the subsequent amalgamation within 30 days of completion of the
transaction. In the event it is the former (that is, an amalgamation of Glamis and a wholly owned
subsidiary of Goldcorp), it is likely that the two companies would amalgamate pursuant to the
BCBCA. If the latter, Goldcorp and Glamis would complete a "vertical short form" amalgamation
under section 177(1) ofthe OBCA.
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[12] In general terms, the purpose of the transaction is to effect the acquisition of Glamis by
Goldcorp. The transaction involves the following steps:
(a)
Glamis'plan of arrangement pursuant to the BCBCA is to be approved by
the Glamis shareholders by special resolution and by the court in British
Columbia;
(U)
the issuance by Goldcorp to Glamis shareholders of 1.69 Goldcorp shares
and payment of CD $.0001 for each Glamis share held; and
(c)
an amalgamation, the structure of which is yet to be finalized, but will be
either°
(i)
the amalgamation of Glamis and a subsidiary of Goldcorp pursuant
to the amalgamation provisions ofthe BCBCA;or
(ii)
the continuation of Glamis under the OBCA (pursuant to section
308 of the BCBCA and section 180 of the OBCA)followed by the
amalgamation of Goldcorp and Glamis under the "vertical shortform" amalgamation provision in section 177(1) of the OBCA.
From its perspective, Goldcorp states that it is acquiring Glamis through a shareholder• issuance,
followed by a shout-form amalgamation to ensure that Glamis' US shareholders receive a tax
deferred rollover when they exchange their Glamis shares for Goldcorp shares.
[13] If the resolution approving the arrangement is passed at the special meeting of Glamis
shareholders, all Glamis shareholders, including those shareholders, if any, who voted against the
arrangement, will be required through compulsory and automatic exchange, to exchange their
Glamis shares for shares of Goldcorp. As Glamis shareholders exchange their Glamis shares for
Goldcorp shares with the result that they become Goldcorp shareholders, the transaction must be
approved by a special resolution at a Glamis shareholder meeting.
[14] According to Goldcorp, the transaction may have been structured by way of a take-over
bid, an issuance of shares pursuant to a public offering wherein the proceeds would be used to
finance atake-over bid, or indebtedness could be increased to finance such atake-over bid.
Goldcorp did not choose any of these strategies. These alternate acquisition strategies would not
have required shareholder approval under the OBCA or under the applicable rules of the Toronto
Stock Exchange (the"TSX")and the New York Stock Exchange (the"NYSE").
[IS] On September 25, 2006, Glamis obtained an interim order from the Supreme Court of
British Columbia providing advice and directions on the calling, holding and conduct of the
meeting of the Glamis shareholders to consider and vote upon the transaction. That meeting is
scheduled to take place on October 26,2006.
[16] The Agreement expressly stated that the "execution and delivery of the Agreement by
Goldcorp and the completion by Goldcorp of the transactions contemplated by this Agreement
have been authorized by the directors of Goldcorp and no other corporate proceedings on the part
of Goldcorp are necessary to authorize this Agreement or to complete the transactions
contemplated hereby." This representation would suggest that there would be no requirement for
Goldcorp shareholder approval.
[17] According to Charles Jeannes, the Executive Vice-President of Administration, General
Counsel and Secretary of Glamis, this representation is central to the bargain that Glamis struck
with Goldcorp in that it provided certainty as to the level of risk. Furthermore, Glamis relied on
the fact that Goldcorp shareholders were not required to and would not vote on the transaction.
Imposing a shareholder vote on the transaction would materially increase the execution risk profile
and introduce a greater possibility that the deal will fail. According to Mr. Jeannes, this increased
risk would alter the fundamental economic bargain struck by Glamis and Goldcorp and Glamis
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and its shareholders would face irreparable harm. In this regard, he states that in reliance on the
representation, Glamis did not bargain for certain customary deal protection measures such as a
break fee or non-solicitation provisions. Furthermore, many current holders of Glamis shares have
purchased their shares or have decided to hold their shares based on their assessment of the risk of
whether the transaction will be completed. If Goldcorp held a meeting of its shareholders and the
requisite level of shareholder approval was not obtained, and the transaction then not completed,
there would be a loss of the bargain for premium for Glamis shareholders. Glamis also notes that
the breach of the Agreement by Goldcorp would mean that Glamis may have to take appropriate
steps to seek compensation for the significant losses suffered as a result of the breach. Mr.
Jeannes also states that in the absence of the representation, Glamis would likely have decided not
to proceed with the transaction. Furthermore, it did not pursue certain strategic initiatives in
anticipation of the implementation of this deal. Most significantly, Glamis would effectively put
itself in play once it entered this Agreement and publicly announced the transaction. He states that
Glamis' decision to enter the Agreement was based upon the execution of the transaction
negotiated with Goldcorp and in reliance upon the representation made by Goldcorp.
[18] Mr. Peter Dey filed an affidavit on behalf of Goldcorp in his capacity as a director of that
company. Until his retirement from the practice of law in November, 2005, he practiced in the
area of corporate law and at one time was the Chairman ofthe Ontario Securities Commission. In
describing the Goldcorp Board, he noted that it is comprised of members who have significant
expertise in the management of public companies and in respect of corporate governance issues
and obligations. In his cross-examination, he addressed the decision the Board was making.
"[1]n the context of this transaction, we felt that the decision the Board was making
was really addressing the long-term strategic needs of Goldcorp. And in my view,
that is one of the principal responsibilities of a Board of Directors, particularly of a
company with depleting assets. 1 think one of the principal responsibilities of the
Board is to address or to restore the reserves and resources of the company. This
responsibility, Ibelieve, addresses the long-term strategy of the company. And the
Board is the ideal body to make this decision.
One of the things we have realized in recent history is that in the context of an
M&A transaction, your shareholder body shifts. It changes. And the long-term
holders who are interested in the long-term viability and health of the company
realize upon their investment and they are replaced by short-term investors. And in
this context, in the context of an M&A transaction, I believe the Board is the ideal
body to make the decision as to the long-term health of the company."
[19] His affidavit sets out in some detail the process for considering the transaction. The
process included the exchange and review of public and non-public financial and business
information and due diligence by each of Goldcorp and Glamis. In this regard, Goldcorp's team
included its Executive Vice President and Chief Financial Officer, two of Goldcorp's Executive
Vice Presidents, both of whom have significant geological expertise, Goldcorp's Vice President of
Finance, its Director, Legal and Assistant Corporate Secretary and its Director, Project
Development who also has significant geological expertise. Goldcorp's Chairman and Glamis'
Chief Executive Officer also met to discuss synergies, strategies and personnel. The Original
Agreement contains specific protections to ensure that Goldcorp's due diligence investigations
could be continued after execution of the Original Agreement and that Goldcorp would have a
remedy if anything material was discovered.
[20] After meetings on August 25 and 28, 2006, on August 30, 2006, the Board voted to
approve the Original Agreement. The Board decided to structure the transaction as an
arrangement for Glamis under the BCBCA and both the Original Agreement and the Agreement
contemplated this. According to Mr. Dey, the Board of Directors was of the view that the
BCBCA arrangement provisions applicable to Glamis provided the most efficient method of
completing a transaction that was determined to be highly beneficial to Goldcorp. Prior to
approving the transaction, the Board had received much information including due diligence
reports, pro forma financial statements showing the benefits expected to be generated by Goldcorp
upon completion of the transaction, and information from Merrill Lynch Canada Inc. whom
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Goldcorp had retained as a financial advisor. The latter included a fairness opinion (stating that as
of August 30, 2006, from a financial point of view, the Exchange Ratio is fair to Goldcorp) and a
presentation on the merits of the transaction. The Board also received analyst reports on Glamis
prepared by BMO Capital Markets, Orion Securities Inc. and Salman Partners. CIBC World
Markets Inc. who was retained on August 29, 2006 as a financial advisor to the Board and whose
engagement was not dependent on the success of the transaction, also provided an analysis on the
merits of the transaction.
[2l] Goldcorp's Board of Directors did specifically consider whether to take the proposed
transaction to a vote of its shareholders. They considered this issue both from a legal perspective
and in accordance with the discretion set forth in Goldcorp's Bylaw 2. The transaction was as set
forth in the Original Agreement and not as in the Agreement signed on September 29, 2006. Mr.
Dey in his affidavit states that the decision not to put the transaction to a vote of Goldcorp
shareholders was based on a number of factors: the Board received legal advice that there was no
legal, regulatory or corporate requirement to conduct a vote; the Board is comprised of
experienced business people; the Board had access to an experienced management team and
financial and legal advisors; due diligence was ongoing, all with positive results; the transaction
did not change the direction or business of Goldcorp; there would be no change of control as a
result of the transaction; and to impose an additional condition seeking shareholder approval was
not required and would not allow Goldcorp to offer"deal certainty", a factor which the Goldcorp
Board of Directors understood to be of prime importance to Glamis. One director, Mr. Michael
Stein, was of the view that the transaction should be approved by the shareholders given the
magnitude of the dilution. In an e-mail dated September 27, 2006, Mr. Stein described this as his
personal business view and not a legal opinion. To achieve a 60/40 split, Goldcorp has to issue
approximately 67% of its current issued and outstanding share capital.
[22] Shortly after the announcement of the transaction, Mr. McEwen began to express his
opposition to it and in particular, his desire for a shareholders' meeting. He corresponded with the
Board of Directors of Goldcorp on September 25, 2006 expressing his views in this regard and
requesting compliance with the OBCA. He also invited Goldcorp shareholders who wanted a
shareholder vote to contact him. Mr. McEwen states that as of October 13, 2006 he has received
support forms representing 5.88% of the outstanding shares of Goldcorp. Goldcorp takes issue
with the quality of this support. The responses received have not been verified and cross-checked
with Goldcorp's shareholder register to ensure that each respondent is in fact a Goldcoip
shareholder.
[23] [n response, Goldcorp advised that the transaction had been structured as an arrangement
for Glamis under the BCBCA and that there was no requirement to obtain Goldcorp shareholder
approval for the Glamis transaction. Mr. Holtby, the Chairman of Goldcorp's Board of Directors,
also advised that Goldcorp had received conditional approval for the transaction from the Toronto
Stock Exchange which did not impose a requirement of shareholder approval.(3 ~ He also noted
that with the approval of the TSX, the NYSE home country policy would apply and no
shareholder approval would therefore be required under the NYSE rules.
[24] Mr. McEwen, through his counsel, Mr. Groia, then wrote to the TSX and requested that it
not provide its approval for the listing of the new Goldcorp shares or make approval conditional
on a Goldcorp shareholder vote. In his letter, Mr. Groia noted that the TSX has the discretion to
require approval of transactions that involve, amongst other things, changes in control, non-arm's
length elements or significant dilution. He also drew to the attention of the TSX the need for
Goldcorp to issue approximately 67% of its now issued and outstanding common shares. The
TSX responded to Mr. Groia by forwarding a copy of its letter dated September 15, 2006 in which
the TSX confirmed that it had accepted notice for filing of the proposed arrangement and had
conditionally accepted notice for the listing of additional Goldcorp shares subject to receipt of,
amongst other things, the opinion of counsel that the transaction had been validly effected in
accordance with applicable laws. The NYSE advised Goldcorp that no shareholder vote was
required as Goldcorp and Glamis were foreign private issuers.
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The Proceedings
[25] On October 2, 2006, Mr. McEwen issued the within notice of application as against
Goldcorp. The parties consented to an order adding Glamis as a party respondent. The consent
was given by Mr. McEwen without prejudice to him being able to argue that Glamis was not a
necessary panty and without prejudice to his position as to costs relating to Glamis' participation in
these proceedings. Although the completion date for the transaction is December 31, 2006,
Glamis' sharellolders'meeting pursuant to the BCBCA is scheduled to take place on October 26,
2006. For this reason, there is some urgency associated with releasing this decision.
[26] An issue arose between the parties on the confidentiality of certain documents referred to in
the affidavits of Goldcorp representatives but which documents were not attached as exhibits. A
motion was brought before another judge and was adjourned to me to be heard on the hearing date
scheduled for the application. Due to the exigencies relating to the matter, counsel agreed that
they would not argue the motion on confidentiality of documents on the day of the hearing. No
one would refer to the contents of the confidential documents although Mr. Groia indicated that he
would have preferred to have the documents and did not want the issue to be treated as moot. In
these circumstances and as no one was going to refer to them, I did not receive the confidential
documents(with one exception) and no one took the position that I should.
Positions ofthe Parties
[27] In brief, Mr. McEwen states that the proposed arrangement as described in the Agreement
is an "arrangement"within the meaning of section l82(1) of the OBCA and therefore a shareholder
vote is required pursuant to section 182(2). His counsel submits that this is borne out by
principles of statutory interpretation. Mr. McEwen states that I should exercise my discretion
under section 253 of the Act to enforce by compliance order the wording, context and legislative
intent of section 182 of the OBCA. Mr. McEwen also relies on the oppression remedy found in
section 248 of the OBCA. In this regard, he states that breach of a legal requirement constitutes
oppression. Furthermore, Goldcorp has acted contrary to the reasonable expectations of Mr.
McEwen and other Goldcorp shareholders. Lastly, Mr. McEwen asks that the court order
Goldcorp to call a shareholders' meeting pursuant to section 106 ofthe OBCA.
[28] Goldcorp states that the transaction does not require Goldcorp shareholder approval. The
transaction fully complies with the OBCA, Goldcorp's by-law and articles, the TSX rules and the
NYSE rules. It denies any oppressive conduct and states that the transaction falls within the range
of reasonable business judgment and is consistent with the reasonable expectations of Goldcorp
shareholders. Furthermore, Goldcorp submits that the transaction has not prejudiced Mr.
McEwen. It states that there are no grounds to make a section 253 compliance order and no
grounds to order a meeting pursuant to section 106 of the OBCA. Lastly, Goldcorp submits that
Mr. McEwen has not met any ofthe requisite tests relating to an interlocutory injunction.
[29] Glamis suppo~~ts the position advanced by Goldcorp and particularly emphasizes the
irreparable harm that would ensue if the relief requested were granted.
Issues
[30]
are:
Mr. McEwen has set forth the issues in his factum. Briefly the issues for me to consider
(a)
Is Goldcorp required to hold a shareholder vote under section 182 of the
OBCA and if so, should the Court order Goldcorp to comply with section
182 ofthe OBCA pursuant to section 253 of that Act?
(b)
By failing to allow the shareholders to consider and approve the
transaction, are or have the business or affairs of Goldcorp been or are they
threatened to be carried on or conducted in a manner that it oppressive,
unfairly prejudicial to, or unfairly disregards the interests of Mr. McEwen
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as a shareholder of Goldcorp and if so, should a shareholder vote be ordered
by the Court?
(c)
Should the Court order Goldcorp to conduct a meeting of its shareholders
pursuant to section 106 of the OBCA?
Discussion
Statutory Requirement for a Shareholder Vote
[31] Dealing firstly with the issue of statutory compliance, the term "arrangement" is not
defined and does not have a precise legal meaning. The definition of arrangement in section 182
is non-exhaustive, extremely broad and may include any possible reorganization of one or more
corporations.(] Section 182(1) provides that an arrangement includes:
(a)
a reorganization of the shares of any class or series of the
corporation or of the stated capital of any such class or series;
(b) the addition to or removal from the articles of the corporation of any
provision that is permitted by this Act to be, or that is, set out in the articles
or the change of any such provision;
(c) an amalgamation ofthe corporation with another corporation;
an amalgamation of a body corporate with a corporation that results
(d)
in an amalgamated corporation subject to this Act;
(e)
a transfer of all or substantially all the property of the corporation to
another body corporate in exchange for securities, money or other property
ofthe body corporate;
(fl
an exchange of securities of the corporation held by security holders
for other securities, money or other property of the corporation or securities,
money or other property of another body corporate that is not a takeover bid
as defined in Pa~~t XX of the Sc~c.~rrr~i~icrs ,~~c~;
(g) a liquidation or dissolution of the corporation;
(h)
any other reorganization or scheme involving the business or affairs
of the corporation or of any or all of the holders of its securities or of any
options or rights to acquire any of its securities that is, at law, an
arrangement; and
(i)
any combination ofthe foregoing.
The rest ofsection 182 provides as follows:
(2)
Scheme of arrangement — A corporation proposing an arrangement
shall prepare, for approval of the shareholders, a statement thereof setting
out in detail what is proposed to be done and the manner in which it is
proposed to be done.
(3)
Adoption of arrangement — Subject to any order of the court made
under subsection (5), where an arrangement has been approved by
shareholders of a corporation and by holders of shares of each class or
series entitled to vote separately thereon, in each case by special resolution,
the arrangement shall have been adopted by the shareholders of the
corporation and the corporation may apply to the court for an order
approving the arrangement.
(4)
Separate votes —The holders of shares of a class or series of shares
of a corporation are not entitled to vote separately as a class or series in
respect of an arrangement unless the statement of the arrangement referred
to in subsection (2) contains a provision that, if contained in a proposed
amendment to the articles, would entitle such holders to vote separately as
a class or series under section 170 and, if the statement of the arrangement
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contains such a provision, such holders are entitled to vote separately on
the arrangement whether or not such shares otherwise carry the right to
vote.
(5)
Application to court —The corporation may, at any time, apply to
the court for advice and directions in connection with an arrangement or
proposed arrangement and the court may make such order as it considers
appropriate, including, without limiting the generality ofthe foregoing,
(a)
an order determining the notice to be given to any interested person
or dispensing with any notice to any person;
(b)
an order requiring a corporation to call, hold and conduct an
additional meeting of, or to hold a separate vote of, all or any
particular group of holders of any securities or warrants of the
corporation in such manner as the court directs;
(c)
an order permitting a shareholder to dissent under section 185 if the
arrangement is adopted;
(d)
an order appointing counsel, at the expense of the
corporation, to represent the interests ofshareholders;
(e)
an order that the arrangement or proposed arrangement
shall be deemed not to have been adopted by the shareholders of the
corporation unless it has been approved by a specified majority that
is greater than two-thirds of the votes cast at a meeting of the
holders, or any particular group of holders, of securities or warrants
of the corporation; and
(fl
an order approving the arrangement as proposed by the
corporation or as amended in any manner the court may direct,
subject to compliance with such terms and conditions, if any, as the
court thinks fit,
and to the extent that any such order is inconsistent with this section such
order shall prevail.
(6)
Procedure— Where a reorganization or scheme is proposed as an
arrangement and involves an amendment of the articles of a corporation or
the taking of any other steps that could be made or taken under any other
provision of the Act, the procedure provided for in this section, and not the
procedure proved for in such other provision, applies to such reorganization
or scheme.
[32] A reading of this section causes me to conclude that an arrangement must be proposed.
This is clear from the language of section 182(2)"A corporation proposing an arrangement' and
section 182(6)"Where a reorganization or a scheme is proposed as an arrangement". It seems to
me that a corporation should not find itself within the ambit of these provisions by inadvertence.
To suggest otherwise would result in considerable uncertainty. Any disenchanted investor would
feel free to parse language regardless of context or business purpose in an attempt to try and
squeeze a transaction into the purview of section 182. This does not reflect the language of the
section nor can it reasonably be seen to be the statutory or legislative intent. Such an interpretation
is also consistent with the responsibility reposed in directors to manage the business and affairs of
a corporation as set forth in section 115 of the Act.
[33] In this case, Glamis is proposing an arrangement in British Columbia pursuant to the
provisions of its governing statute, the BCBCA. There is no OBCA arrangement and the clear
intent of both Glamis and Goldcorp is to effect an arrangement of Glamis, not Goldcorp and to
rely on the arrangement provisions of the BCBCA. For its part, Goldcorp's Board of Directors
selected a transaction structure, namely the acquisition of Glamis through the issuance of shares of
Goldcorp, that would achieve Goldcorp's objective of acquiring 100% of Glamis' shares in a cost
effective and tax efficient manner. As stated by Cumming J. in Stern v. Imasco Ltd.[S]
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"[N]umerous transactional structures are commonly employed to complete a like
transaction (for example, merger, arrangement, capital reorganization, statutory
amalgamation, or takeover bid combined with an arrangement) .... Parties to
commercial dealings or business arrangements have, of course, the freedom to
structure transactions as they please to achieve their purpose so long as they do so
in compliance with all requirements ofthe law."
[34] Glamis shareholders will end up holding Goldcorp shares whereas Goldcorp shareholders
will continue to hold Goldcorp shares to which are attached the same rights and privileges as
existed before the implementation of the transaction. Goldcorp's shares are widely held and there
is no change of control of Goldcorp.
[35] Goldcorp has complied with the law as it applies to Goldcorp. It did not propose an
arrangement of Goldcorp. Each of Goldcorp's corporate actions is specifically authorized by a
provision of the OBCA. Firstly, stage one of the transaction involves an issuance of shares by
Goldcorp. Section 23(1) of the OBCA authorizes the directors to issue shares at such times and to
such persons and for such consideration as the directors may determine, subject only to restrictions
that may be contained in the constating documents. There are no such restrictions on share
issuances in Goldcorp's constating documents.
[36] Stage two of the transaction consists of one of two alternatives. If Glamis amalgamates
with a subsidiary of Goldcorp, the amalgamation takes place pursuant to the BCBCA and
Goldcorp shareholder approval is not required. Alternatively, Glamis will continue as an OBCA
corporation and thereafter will amalgamate with Goldcorp. The continuance will be effected
pursuant to the "export" provision in section 308 of the BCBCA and the "import" provision in
section 180 of the OBCA. The continuance requires the approval of Glamis shareholders. As
Glamis at that point will be a wholly owned subsidiary of Goldcorp, the Board of Directors has the
authority to cause Goldcorp to approve the continuance. The subsequent amalgamation will be
effected pursuant to section 177(1) of the OBCA. It specifically provides that shareholder
approval of two amalgamating companies is not required when one of the companies is a wholly
owned subsidiary ofthe other.
[37] In my view, the transaction is not subject to section 182. To the extent that Goldcorp is
amalgamating with another corporation, this occurs when Glamis is a wholly owned subsidiary of
Goldcorp and, by virtue of section 177(1), such an amalgamation is exempt from shareholder
approval. Goldcorp is not issuing shares in connection with the short-form amalgamation. The
fact that some ofthe elements of a multi-stage transaction could have been structured by way of an
arrangement is insufficient for the transaction to be subject to section 182. Section 182(1)(c) is
inapplicable. The same is true with respect to section 182(1)(d) which addresses an amalgamation
of Goldcorp with a non OBCA corporation. The only amalgamation contemplated in this
transaction is between two OBCA corporations as part of the vertical short-form amalgamation.
As to section 182(1)(h), I am hard pressed to see how the issuance of shares of an existing
authorized class constitutes a reorganization or scheme affecting the holders of securities.
Goldcorp will continue to conduct its business as it was conducted prior to the completion of the
transaction and its shareholders will continue to hold shares with the same rights, privileges and
conditions as existed prior to the transaction. Furthermore a reorganization of Glamis does not
amount to a reorganization of Goldcorp. It follows that section 182(1)(1) is therefore also
inapplicable.
[38] In argument, Mr. Groia on behalf of Mr. McEwen did not submit that the transaction was a
fundamental change such as to otherwise trigger a shareholder approval requirement. The
transaction does not fall within any of the remaining types of transactions that require shareholder
approval under the OBCA (for example, sections 168, 181 and 184). In any event, there is no
change of control and Goldcorp's shares will continue to be widely held. The nature of
Goldcorp's business is not materially changed and the transaction is consistent with Goldcorp's
publicly pronounced strategy of growth through acquisition.
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[39] In my view, Goldcorp has complied with the provisions of the OBCA. The transaction
does not fall within any of the categories of transactions that require shareholder approval. I
conclude that Goldcorp is not required to hold a shareholder vote pursuant to section 182 and a
compliance order pursuant to section 253 should not be made.
Op ression
[40] As stated by D. Peterson in Shareholder Remedies in Canada,[G] and as referred to with
approval by the Court of Appeal in Budd v. Gentra Inc.[7]:
"... the legislative intent of the oppression remedy is to balance the interests of
those claiming rights from the corporation against the ability of management to
conduct business in an efficient manner. The remedy is appropriate only where as
a result of corporate activity, there is some discrimination or unfair dealing
amongst corporate stakeholders, a breach of a legal or equitable right, or
appropriation of corporate property."
[41] Mr. Groia's argument on behalf of Mr. McEwen with respect to oppression was essentially
two-fold. Firstly, a breach of a legal right or requirement constitutes oppression. I have already
dealt with this issue. Secondly, he argues that Goldcorp has acted contrary to Mr. McEwen's
reasonable expectations as a shareholder.
[42] The oppression remedy is equitable in nature and addresses conduct by a corporation or its
directors that is oppressive, unfairly prejudicial to or that unfairly disregards the interests of,
amongst others, a shareholder. [n determining whether conduct meets this description, courts have
looked to the reasonable expectations of shareholders. The list of factors that may be considered
is not exhaustive. The history and nature of the corporation, general commercial practice, the
relationship between the complainant and the alleged oppressor, public pronouncements, the
expectations of the complainant, and the detriment to the interests of the complainant may all be
considered. Shareholders may compel the corporation to meet a shareholder's legitimate and
objectively reasonable expectations but it is not an opportunity to impose individual wishes or
unilateral expectations on the corporation or other shareholders: Gazit (1997) Inc. v. Centrefund
Realty Corporation.j~]
[43] As noted in Mr. McEwen's factum under the heading "Conclusion on Oppression", the
thrust of his argument before me is that his reasonable expectations have been thwarted because
shareholders have not been provided with a vote to approve the transaction.
[44] In Foi°d Motor Co. of Canada v. Ontario Municipal Employees Retirement Board,(9 ~
Rosenberg J. wrote that despite the breadth of the oppression remedy, the broad notion of
oppression must somehow be reconciled with the business judgment rule and the reasonable
expectations of shareholders. In this case, the Board decided to proceed by issuance of shares and
arrangement of Glamis pursuant to the BCBCA. This choice of structure was open to the Board
and it achieves Goldcorp's objective of acquiring 100% of Glamis' shares in a cost effective and
tax efficient manner. The Board did consider whether shareholder approval should be sought but
determined not to do so. This decision was informed by, amongst other things, legal advice and
the knowledge of t11e importance to Glamis of deal certainty. There was nothing inappropriate or
illegitimate in choosing one transaction structure over another or in determining that the decision
to enter into the transaction was that of the Board and not the shareholders. In my view, the
decision was within the range of reasonableness. Provided the Board's decision is within a range
of reasonableness, that decision should prevail: Maple LeafFoods Inc. v. Schneider Corp(1()] and
Peoples Department Stores Inc. (Trustee o,~ v. Wise.[i I ] The basis for this rationale has been
frequently repeated in the case law: directors are in a far better position than the court to
understand the affairs of the corporation and to guide its operation; directors often have
knowledge and expertise that the court does not, particularly when the corporation operates in a
specialized market; directors are in the advantageous position of investigating and considering
first hand the circumstances that come before it; and directors must sometimes make decisions
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with high stakes, under considerable time pressure, and in circumstances where detailed
information is not available: Peoples Depa~°tment Stores Inc. (Trustee) v. Wise,[12 ~ Kerr° v. Danier
Leather Inca 13]and Brant Invc~stnaents Ltd. v. KeepRite Inc.(I 4]
[45J The uncontested expert evidence seems to suggest that it is not the conventional or
prevailing practice to submit a transaction of the nature in issue in this proceeding to shareholders
for approval. In his opinion dated October 11, 2006, Mr. Stephen Halperin, an acknowledged
merger and acquisitions expert, states that a public company acquiror wishing to acquire a target
public company using the acquiror's equity securities as total or partial consideration, will
consider various means of structuring the transaction. The choice will be influenced by a variety
of factors including income tax, jurisdiction of incorporation of the participants and efficiencies.
In his view, there is nothing inappropriate in the selection of one structure over another. In his
experience, in the absence of circumstances where a level of shareholder approval is required as a
matter of law (such as an amendment to articles of incorporation to increase authorized share
capital or a change of control), the only type of available transaction structure in the context of a
public acquisition of a single purpose target in a merger and acquisition transaction that is
typically submitted to the acquiror's shareholders, is the direct amalgamation, the use of which is
extremely unusual. Without commenting on whether Goldcorp has done or refrained from doing
anything in the context of the subject transaction to give rise to an expectation, Mr. Halperin
states,
"I do not believe that market participants in Canada can reasonably have developed
a general expectation that Acquiror shareholder approval will be required in the
context of a significant equity issuance by the Acquiror in connection with an
M&A transaction."
There is nothing in the facts of this case that would cause me to conclude that it would be
reasonable to expect that Goldcorp's conduct would depart from this practice.
[46] With respect to the transaction structure, Stern v. Imasco[15 ~ makes it clear that the manner
in which directors choose to structure a transaction is entitled to deference from the court.
Specifically, Justice Cumming stated:
"A Board of Directors is entitled to exercise its judgment as to what is in the best
interests of the corporation in choosing an appropriate, lawful transactional
structure to achieve business objectives. Any number of business, tax, financing
and other considerations will have to be taken into account. In making such
decisions, the directors must, of course, meet their legal duties to the corporation
and to shareholders. So long as the directors are meeting such obligations, the
court should not substitute its own business judgment. Nor is the court well
equipped to do so."
[47] The Board exercised its business judgment in declining to seek shareholder approval as an
exercise of its discretion found in Goldcorp's by-law and in approving the substance of the
transaction. The transaction is consistent with the nature of Goldcorp's business, its history of
growth through acquisition, and its public pronouncements. In my view, there has been no
oppression.
[48] I further note that Mr. McEwen's past practices have not been totally consistent with the
position he now advocates. In particular, in 2004 when he was the Chairman and CEO of
Goldcorp, the Board approved a transaction that involved the issuance of in excess of 70% (and
arguably 100% if one included all of the outstanding in-the-money Wheaton warrants) of
Goldcorp's then outstanding shares. The proposed transaction provided for the acquisition of all
of Wheaton River Minerals Ltd. shares by way of a take-over bid. Mr. McEwen's position at that
time is reflected in the answers given at his cross-examination conducted on October 18, 2006.
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On December 6,th [2004] the agreement in principle contemplated issuing 70% of
Q:
the equity of the company, a new CEO, a new CFO, a change in management, or a fully
integrated management, a new board, a reconstituted board with five Wheaton, five
Goldcorp, no due diligence prior to the announcement, a short...relatively short timing. I
don't want to debate what short is, but a couple of months at most, not even, and you were
contemplating doing that deal with no shareholder vote, right?
A:
Yes.
Q:
You were doing that because you had concluded as a Board that legally and
ethically it was proper to do so, right?
A:
Yes.(I6]
Although ultimately the shareholders in that transaction were given a vote, this was later and only
after involvement by another bidder.
[49] I am unable to conclude that Mr. McEwen is entitled to an order mandating a shareholders'
vote as a result ofthe application of section 248 ofthe OBCA.
[50] In reaching this determination, I do note that the NYSE requires shareholder approval for
US public issuers to effect a certain level of equity dilution. This is not currently a requirement of
Ontario law. As to the TSX,as Mr. Halperin states in his letter of October 11, 2006,
"The TSX has the discretion to —and generally will — require shareholder approval
for any share issuance (including in the context of an M&A transaction) that
"materially affects" the control of the Acquiror. In my experience, and to the best
of my knowledge, the size of the proposed treasury issuance, as a percentage of pre
-issuance outstanding shares, is not in and of itself a determining factor in the
TSX's analysis in this regard, provided the Acquiror's "control profile"is not
materially affected by the transaction."
To the extent that stakeholders wish to change the law in Ontario or the regulatory regime, it
seems to me that this objective must be addressed in a different forum.
Section 106 ofthe OBCA
[51] Mr. McEwen also seeks a shareholder vote pursuant to section 106 of the OBCA. Section
106 states,
If for any reason it is impracticable to call a meeting of shareholders of a
corporation in the manner in which meetings of those shareholders may be called or
to conduct the meeting in the manner prescribed by the by-laws, the articles and
this Act, or if for any other reason the court thinks fit, the court, upon the
application of a director or a shareholder entitled to vote at the meeting, may order
a meeting to be called, held and conducted in such manner as the court directs and
upon such terms as to security for the costs of holding the meeting or otherwise as
the court deems fit.
[52]
As noted by Blair J. in Airline Industry Revitalization Co. Inc. v. Air Canada,[l7J the
court's discretion in this regard is to be exercised cautiously. As the Court of Appeal stated in
Montreal and Canadian Diocese of the Russian Orthodox Church Outside of Russia Inc. v.
Protection of the Holy Virgin Russian Orthodox Church (Outside of Russia) in Ottawa,~. 18] the
courts have interpreted "impracticable" narrowly, ordering shareholder meetings only in
exceptional circumstances. Courts have declined to order a shareholders' meeting in the context
of a power struggle between two opposing factions and when the applicant shareholder has failed
to avail itself of available remedies: Airline Industry Revitalization, supra, Montreal and
Canadian Diocese of the Russian Orthodox Church Outside of Russia Inc, supra and Morris
Funeral Se~~vice Ltd. (Re).[I ~)~ I am not prepared to exercise my discretion pursuant to section
106. Mr. McEwen has not established that it is impracticable to call a meeting in the manner in
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which meetings are to be called nor has he availed himself of the procedure in section 105 of the
OBCA. Furthermore, having concluded that Goldcorp has acted in accordance with the OBCA, its
constating documents and regulatory authorities, I am not persuaded that my discretion should be
exercised as requested by Mr. McEwen.
Injunctive Relief
[53] As mentioned, Mr. McEwen sought a shareholder vote on one of three grounds, section
182, section 248 and section 106 of the OBCA. In that regard, he sought relief in the nature of
mandatory orders and an injunction compelling the holding of a shareholders'meeting and vote
and prohibiting Goldcorp from taking any steps to implement the transaction without first
obtaining the approval of its shareholders. Both Goldcorp and Glamis addressed the issue of
injunctive relief. Mr. Groia did not spend any time in argument on this issue although in the
factum filed on behalf of Mr. McEwen, he requested a final, interim or interlocutory order as may
be necessary. Given my decision, I do not propose to address the issue of injunctive relief in any
detail except to say that the requisite tests have not been met. In particular I note that Mr.
McEwen has not demonstrated irreparable harm. Any harm he may suffer is monetary in nature
and therefore compensable by damages.
Conclusion
[54] In conclusion, I am not granting Mr. McEwen the orders he has requested. I would like to
express my gratitude for the cooperation displayed by counsel in the hearing before me,
recognizing as I do their clients' differences. If they are unable to agree, the parties may make
written submissions on costs.
Pepall, J.
Released:
October' 24, 2006
COURT FILE NO.: 06-CL-6669
DATE: 2006-10-24
ONTARIO
SUPERIOR COURT OF JUSTICC
BETWEEN:
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Robert
McEwen
-
and
Goldcorp
[nc. and
Glamis Gold
Inc.
REASONS
FOR
DECISION
PEPALL J
Released:
October 24, 2006
(I.IR.S.(?. 1990. is t'3. 1G.
~z~ s.t~.~;. 2ooz. ~,s~.
[:3~ The TSX letter to this effect is dated September 15, 2006.
(4] S.N. Adams, Annotated Business Corporations Act, looseleaf(Aurora: Canada Law Book Inc., 1999) Vol. 2 at p.A
-470.4 and Re West Humber Apartments Ltd. [1969] 1 O.R. 229(H.C.).
(5~ [1999] O.J. No. 4235 at paras. 36-37.
(:6)(Markham: Butterworths, 2004)at p.18.1.
{7J[1998]lll0 A.C. 288.
~ 8~ [2000] O.J. No. 3070.
[9~ :Ot)G ('anl.:It IS ((.)N C'A ?,(2006), 79 O.R.(3d)81 (C.A.), at p. 116.
~ lU~ l99A Canl..,ll 5121 !Oi~ CA),(1998), 42 O.R.(3d) 177 at 192(C.A.).
{!i j ZOOd SC;C' 6R {('~~~~{,((),(2004), 244 D.L.R.(4`~') 564 at para 65 (S.C.C.).
(12}Supra, at Para 64.
(13 J ?OOS C'anLl l ~tG(i {} {t)N C:.~ ),(2005), 77 O.R.(3d)321 at para 158(C.A.).
[1~~ 1991 C:':in[,(f ?70S(ON C`Ai,(1991),3 O.R.(3d)289 at 320(C.A.).
[iSJ [1999] O.J. No. 4235 at para. 51 (S.C.J.).
~ 16~ Questions 205 and 206.
(17~ ~;~~ rctlea,(1999), 45 O.R.(3d) 370 at 388.
((8](2002) O.J. No. 4698 at p. 9-10(C.A.): application for leave to appeal to S.C.C. dismissed [2003] S.C.C. No.
285.
~ 19][1957] O.J. No. 80 at paras. 6-7(C.A.).
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