Recently, the B.C. Securities Commission (the Commission) clarified the interpretation of “acting jointly or in concert” in the context of a proxy fight, setting a high bar for a finding of a joint actor relationship.

In NorthWest Copper Corp., 2023 BCSECCOM 602, the Commission declined to find that certain shareholders of NorthWest Copper Corp. (NWST or the Company) acted jointly or in concert in their effort to replace one or two incumbent directors on NWST’s board, even though one of the shareholders had contributed to the costs of soliciting proxies in favour of a dissident slate of directors and selected a nominee for the slate.

Background

At the relevant times, Grant Sawiak (Sawiak), Tony Ianno (Ianno) and John Kimmel (Kimmel) were shareholders of NWST (together, the Shareholders), holding approximately 0.4%, 3.9% and 8.2% of the Company’s outstanding shares, respectively.

In April 2023, Ianno expressed concerns about NWST’s management and direction to Sawiak.

In May, Ianno informed Kimmel that a dissident slate of directors was being formed and Kimmel proposed his personal lawyer for the slate. Sawiak then delivered notice to NWST that he planned to nominate a competing slate of directors at the Company’s annual general meeting (AGM) and was not acting jointly or in concert with any other person or company.

In June, at Sawiak’s request, Kimmel agreed to help fund the proxy fight.

In July, NWST contacted Kimmel, asking him to support management’s slate of directors, among other things, in exchange for his nominee being named in the slate.

In August, Sawiak filed an amended notice disclosing that Kimmel was funding the solicitation costs.

After receiving the amended notice, NWST complained to the Commission that the Shareholders (1) were acting jointly or in concert and (2) failed to comply with the early warning 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) when they collectively held more than 10% of the Company’s outstanding shares.

As such, NWST asked the Commission for an order that either directs Sawiak to publicly disclose his joint actors or prohibits the Shareholders from voting on the election of directors at the AGM and requires them to cease trading in NWST’s shares for six months.

The Commission’s Decision

The Commission found that Kimmel did not act jointly or in concert with Sawiak and Ianno. Thus, the 10% shareholding threshold in section 5.2 of NI 62-104 was not met, and the disclosure requirements contained in that provision were not engaged.

Acting Jointly or in Concert

The Commission determined that the bar for a finding that parties are acting jointly or in concert is “set relatively high”.

To establish a joint actor relationship, it must be proven on a balance of probabilities that parties “actively worked together” to achieve a “joint specific purpose”, and were not “simply aligned in interest”.

NWST alleged that Kimmel’s agreement to finance Sawiak’s proxy solicitation was evidence that Kimmel was acting jointly or in concert with Sawiak and Ianno. However, the Commission accepted Kimmel’s explanation that he was not a joint actor as he did not share a “common specific purpose” with Sawiak or Ianno or comport himself as a member of a group pursuing a common goal, and functioned as an investor “keeping his options open”.

The Acquisition Trigger

The Commission concluded that, on the plain reading of the rules, the mere act of becoming joint actors and forming a group who together have 10% or more of an issuer’s outstanding shares does not trigger the disclosure requirements in NI 62-104. Rather, the obligation to file an early warning report arises only when a joint actor subsequently acquires shares of the issuer.

Accordingly, the Commission rejected NWST’s assertion that no acquisition of shares is required to trigger an early warning filing.

Remedy

Although no remedy was required, the Commission noted that even if it had found Kimmel to be acting jointly or in concert with Sawiak and Ianno, any potential harm to investors caused by non-disclosure could have been addressed with a disclosure order. Indeed, the Commission commented that disenfranchising dissatisfied shareholders would have been punitive and disproportionate to the alleged non-compliance.

Key Takeaway

The Commission’s decision in this case demonstrates that the standard for proving parties are acting jointly or in concert is high. Disclosure of shareholder blocks is important, but so is the free flow of information and opinion in the public markets, even if it means that some groups will “fly under the radar”.

The author would like to thank John Pritchard and Masuud Issa for their significant contribution to this article.