On September 20, 2012, the British Columbia Supreme Court granted a shareholder’s request to appoint an independent chair in connection with Western Wind’s annual meeting of shareholders. The shareholder’s request was made in connection with a fiercely contested proxy battle to replace the Company’s board of directors. The Company’s defence included the initiation of legal proceedings against the shareholder, proceedings which were ultimately abandoned or dismissed. Complicating matters, the Company’s Chairman of the Board, who, in accordance with the Company’s by-laws, would otherwise be entitled to chair the meeting, was also a senior executive reporting to the Company’s President and CEO. In these circumstances, the Court reasoned that allowing the existing Chairman to chair the meeting raised a “reasonable apprehension concerning the conduct of the meeting”.

Background

In July 2012, Western Wind announced its board of directors had determined to seek a sale of the Company. Following the announcement, Savitr Capital, the dissident shareholder, announced that it was proposing five director nominees to replace the existing board and to oversee the sale process. This set off a proxy contest for control of the board.

In the proceedings before the Court, the dissident alleged that the Company, led by its President and CEO, launched an aggressive and hostile campaign, which included filing applications in the US and Canada seeking to disqualify the dissident’s proxies because of its use, in alleged violation of the Company’s trademark rights, of the Company’s logo in materials intended to solicit proxies in favour of the dissident.

Savitr’s petition to appoint an independent chair was filed in response to Western Wind’s application. Savitr raised concerns that elements of the Company’s organizational structure prevented the Chairman from acting as a neutral party at the Company’s annual meeting. In particular, the dissident noted that the Chairman also held the position of Executive Vice President of Business Development and reported to the President and CEO.

The Court’s Decision

The Court cited Re MTC Electronic Technologies Co., a British Columbia Supreme Court decision, for the proposition that it is not sufficient to suggest that a chairperson will act out of self-interest because the meeting will deal with the election of directors and the chairperson could lose his or her directorship. The Court noted that if that were so, no existing director could chair an annual meeting of shareholders since at such meetings the possibility always exists that the directors will be replaced.

However, the Court also cited the judgement of the Supreme Court of Canada in Blair v. Consolidated Enfield Corp., and noted that the chairman of any meeting of shareholders is to operate under a duty of administrative fairness directed toward the best interests of the company. The Court held that in instances where a company has advance notice or reason to anticipate a contentious meeting, serious consideration should be given to the appointment of an independent chair.

In the end, the Court was of the view that the series of events leading up to the meeting, in combination with the Chairman’s relationship with the President and CEO, made it inappropriate for the Chairman to chair the Company’s annual meeting.

Conclusion

Despite the outcome in favour of the dissident, Western Wind is consistent with a line of cases in which courts have been reluctant to grant orders appointing an independent chair based on the assertion of conflict of interest arising merely from the fact the chair stands for re-election with the other directors. Such a conflict exists in almost all annual meetings and has been found to be insufficiently material to prevent the chair from fulfilling the duties of chair in a fair manner. Where courts have appointed an independent chair, they generally have done so on the basis of a more acute conflict of interest or where there is evidence of bias that suggests that the appointment of an independent chair is necessary to create the perception of fairness.

Notwithstanding the courts reluctance to intervene, it is nevertheless common practice for a dissident to request that a company appoint an independent chair in the context of a proxy battle. While under no obligation to do so, a company may (if its by-laws permit) grant such a request, often in connection with establishing a common set of protocols with the dissident to govern the conduct of the meeting.