In its recent decision in Orange Capital, LLC v Partners Real Estate Investment Trust, 2014 ONSC 3793, the Ontario Superior Court has offered new guidance on the interpretation of advance notice provisions used in the context of a proxy contest.  The decision is another victory for Norton Rose Fulbright’s Special Situations team, which represented Orange Capital in this litigation.

In April 2014, Partners Real Estate Investment Trust (the REIT) announced that its annual and special meeting of unitholders (the Meeting) would be held on June 26, 2014.  The REIT later postponed the Meeting to July 15, 2014.  On June 6, 2014, Orange Capital, a unitholder in the REIT, provided notice of its intention to nominate trustees to the board of the REIT at the Meeting on July 15, 2014.

The REIT took the position that Orange’s nominations were invalid because Orange had not complied with the REIT’s advance notice policy (the Policy), which required unitholders wishing to nominate trustees to the board to provide notice to the REIT “not less than 30 and no more than 65 days prior to the date of the annual meeting of unitholders.”  The REIT argued that the original date of the Meeting should be used for the purposes of applying the Policy, meaning that any nominations for trustees were due between April 22 and May 27, 2014.  Orange countered that the Policy should be interpreted to mean that the nomination window is triggered by the actual date of the Meeting, not the originally scheduled date.

The Court found that both the plain meaning and the policy rationale behind the Policy support Orange’s interpretation.  The Court’s purposive analysis of the Policy is particularly instructive.  Justice Wilton-Siegel noted that there were important limits on an issuer’s use of such provisions:

Advance notice policies are intended to be a shield to protect shareholder or unitholders, as well as management, from ambush; they are not intended to be a sword in the hands of management to exclude nominations given on ample notice or to buy time to develop a strategy for defeating a dissident shareholder group.

The Court held that the REIT’s interpretation of the Policy would have the effect of excluding a nomination that occurred after the initial nomination window closed, notwithstanding that the timelines of the Policy had been respected.  The Court also questioned an interpretation of the Policy that would foreclose further nominations even if a shareholder meeting were postponed or adjourned “by reason of material development in the affairs of an issuer that might well call into question the appropriateness of the existing directors and management.”

More generally, the Court suggested that there was no demonstrable need for unitholders to have advance knowledge of nominations contemplated for a future meeting of any period beyond the 30-65 day period provided by the Policy.  The Court’s endorsement of such a period echoes the recommendation of similar periods by leading corporate governance firms such as ISS.