Superior Court Dismisses Application Against Environmental Management Solutions

On July 12, 2005, Justice Colin Campbell of the Ontario Superior Court of Justice dismissed an application brought by Frank D’Addario following an election vote taken at a shareholders’ meeting of Environment Management Solutions Inc. (EMS), a public company, at which Mr. D’Addario and his slate of “dissident directors” were unsuccessful.

Mr. D’Addario asked the Court to review the election of the directors of EMS pursuant to section 145 of the Canada Business Corporation Act (CBCA). Mr. D’Addario also asked for the appointment of an inspector under sections 229 and 230 of the CBCA to conduct an investigation to aid in the review and relief in respect of the election results under the oppression remedy power prescribed under section 241 of the CBCA. At an April 29, 2005 annual and special meeting of shareholders, the result of the directors’ election was very close, with 50.35 per cent of the votes cast being in favour of the management slate, and 49.65 per cent in favour of the slate endorsed by Mr. D’Addario. Mr. D’Addario asserted that there were several anomalies with the election that could have changed the overall result and therefore an independent investigation was required.

Two of the issues raised by Mr. D’Addario related to ADP Investor Communication Corp. (ADP). ADP is an independent company specializing in communicating with beneficial shareholders and was separately retained by both EMS and Mr. D’Addario for the meeting. Mr. D’Addario alleged that the meeting’s chairman should have declared invalid certain proxies allegedly received late, and that there was a potential for “double counting” of votes as a result of additional mailings of supplemental management and dissident voting materials. Justice Campbell held that the chairman of the meeting did not err in accepting the disputed proxies, for reasons that included that the chair had obtained independent legal advice on the issue. Justice Campbell further held that ADP had acted in accordance with regulatory, its own and EMS’ expectation and that there was no reasonable ground to question the votes received as a result of the proxies tabulated and re-tabulated by ADP’s computer program.

In dismissing Mr. D’Addario\'s application, Justice Campbell upheld the ongoing principle of a chairman’s discretion in ruling on the votes of an election. In particular, EMS’ chairman’s rulings on rejected proxies were accepted for a variety of reasons including that the chairman had sought and received expert independent legal advice prior to making any decision.

The Court was also asked by Mr. D’Addario to consider whether there was an obligation on the part of the board of directors of EMS to look behind information provided to it regarding the issuance of EMS shares to a third party. Justice Campbell concluded that shares issued to third parties that were validly issued and voted could not now be set aside to change a decision reached as a result of a shareholders vote. His Honour held that to go behind the valid issuance of shares would amount to an intrusion into the views and reasonable expectations of all shareholders of EMS.

Fred Myers and Francy Kussner of Goodmans LLP, assisted by corporate counsel William Rosenfeld and Sheldon Freeman, acted as counsel to Aird & Berlis LLP, EMS’ corporate counsel, led by Andrew Wilder and William Chalmers.

Mr. D’Addario was represented by William Burden, John Birch and Linda Knol of Cassels Brock & Blackwell LLP, with the assistance of corporate counsel Jeffrey Roy and Paul Stein.

ADP was represented by Laura Fric and Allan Coleman of Osler, Hoskin & Harcourt LLP, with the assistance of corporate counsel, Andrew MacDougall.