In its recent decision in NorthWest Copper Corp., 2023 BCSECCOM 602, the British Columbia Securities Commission (“BCSC”) provided new guidance on the interpretation of “acting jointly or in concert” in the context of a proxy contest. Notably, the BCSC declined to find that certain shareholders of NorthWest Copper Corp. (“NWST”) acted jointly or in concert with respect to the solicitation of proxies in favour of a dissident slate of directors, despite the fact that a shareholder contributed to the costs of the dissident’s proxy contest and selected a nominee for the slate.

Background

In August 2023, NWST applied to the BCSC for various orders related to the alleged failure of certain shareholders to comply with the early warning disclosure requirements in National Instrument 62-103 The Early Warning System and Related Take-Over Bid and Insider Reporting Issues and National Instrument 62-104 Take-Over Bids and Issuer Bids (“NI 62-104”). The early warning rules require a shareholder to publicly report when it, whether alone or with its joint actors, acquires beneficial ownership of, or control or direction over, voting or equity securities of any class, or securities convertible into voting or equity securities of any class, that together with existing holdings constitute 10% or more of the outstanding securities of that class of a reporting issuer.

The proceedings related to a proxy contest in which a shareholder who held approximately 0.4% of the shares of NWST (“GS”) proposed to nominate alternative directors at NWST’s 2023 annual meeting of shareholders (the “AGM”). In early April 2023, GS approached a second shareholder who held approximately 3.9% of the shares of NWST (“TI”) about his concerns with NWST’s management. TI subsequently discussed the possibility of replacing one or two of the incumbent directors with a third shareholder who held approximately 8.2% of the shares of NWST (“JK”). JK expressed interest in having a representative on the board and proposed a nominee for the slate in early May 2023.

In May 2023, GS delivered notice to NWST that he planned to nominate a competing slate of directors at the AGM, and such notice indicated that he was not acting jointly or in concert with any other person or company. NWST postponed its AGM and wrote to GS, asserting that it believed that GS was acting jointly or in concert with others and was required to disclose this fact.

In July 2023, NWST announced a new AGM date, and GS delivered a second notice of his intention to nominate alternative directors. The new notice disclosed that the cost of any solicitation in respect of the nominees would be borne by GS and JK. NWST once again postponed the AGM and requested that GS disclose that he was acting jointly or in concert with others, which he declined to do.

NWST alleged that GS was acting jointly or in concert with TI and JK, that the three of them together held more than 10% of the outstanding shares of NWST and that they were required to make public early warning disclosure of their joint actor status. NWST sought orders from the BCSC prohibiting the respondents from exercising voting rights attached to their shares with respect to the election of directors at the AGM, requiring that they cease trading in NWST’s shares for six months and directing GS to comply with the early warning rules.

Key Findings

Whether a person is acting jointly or in concert with another is a question of fact. While NI 62-104 does not define “acting jointly or in concert”, subsection 1.9(1) sets out circumstances in which persons will be deemed or presumed to be joint actors, including where there is an agreement, commitment or understanding to exercise voting rights jointly or in concert.

The BCSC determined that NWST did not satisfy its onus of proving on a balance of probabilities that JK was acting jointly or in concert with GS and TI. The ruling offers the following helpful guidance:

• Early warning rules apply to proxy solicitations by joint actors: the BCSC confirmed that the early warning regime and joint actor rules extend beyond the context of a take-over bid or issuer bid and apply in the context of proxy solicitations;
• High threshold to establish joint actor relationships: the bar for finding that parties are acting jointly or in concert is set relatively high, as reflected in the presumption and deeming provision set out in subsection 1.9(1) of NI 62-104;
• Importance of information sharing among shareholders: the free flow of information and opinion among shareholders of a public company is important. It is better to insist on sufficiently clear, convincing and cogent evidence that parties are acting jointly or in concert and take the risk that, by doing so, some groups will fly under the radar, than to allow reliance on speculation to create a climate that stifles discussion among shareholders;
• Joint specific purpose: NWST was required to demonstrate that the respondents actively worked together to achieve a joint specific purpose and were not simply aligned in interest. While the shareholders had discussed their concerns about NWST’s board and management, their interactions did not constitute a plan of action or commitment to pursue it. There did not appear to be any form of mutual understanding about how each respondent would vote the shares he owned or controlled;
• Acquisition trigger: if the parties are acting jointly or in concert, the early warning requirements are only triggered by the subsequent acquisition of additional shares. The formation of a group in itself does not trigger the early warning reporting obligations (although we note that if one or more members were already early warning reporters then the formation of a group would seem to require disclosure as a change in a material fact contained in the prior report); and
• Proportionate remedies: to the extent that there is a breach of securities law, the remedy should be proportionate to the circumstances of the case. The right of shareholders to elect directors is of critical importance, and regulators will generally decline to disenfranchise shareholders where potential harm to investors might be addressed in another manner, such as with better disclosure.