A recent case in Manitoba has explored certain issues relating to the use of proxies within the context of a limited liability partnership. The case, 177061 Canada Ltd. et al. v. 5771723 Manitoba Ltd. et al., 2016 MBQB 40, discusses two points of interests relating to proxies in a limited liability partnership setting (and, by logical extension, a partnership setting): (1) whether, under Manitoba law, a unit holder in a limited liability partnership can give to another person an irrevocable proxy to vote, which extends beyond a single meeting or adjourned meeting, and (2) if so, whether such irrevocable proxy can be revoked.
The case concerns proxies that were created in 1998 as part of a payment for debt for various transactions between two sophisticated business parties (Lount and Shelter). One of the parties, Lount, a respondent in this case, received two “irrevocable voting proxies” from a company controlled by the other sophisticated party, Shelter, and from the wife of a business associate of Shelter (Sikora), each an applicant in this case, for voting rights of a limited liability partnership (unrelated to the transactions) which beneficially owned an apartment building in Winnipeg.
Lount proceeded to use the proxies until 2011. An annual and special meeting of the limited liability partnership was scheduled for December 2013 in which significant changes to the limited partnership agreement were to be considered.
The limited partnership agreement provided that:
The General partner [sic] may secure the consent of any Limited Partner in writing in respect of any matter which requires such a consent as provided for in this Agreement, and such consent may be used in the same manner as a proxy is used for shareholder meetings in the case of corporations for the purposes of voting at a meeting of Limited Partners.
All rules of procedure applicable to meetings of corporations that offer their securities to the public within the meaning of The Corporations Act (Manitoba) shall apply to meetings of the Limited Partners. At any meeting of the Limited Partners the quorum shall be one Limited Partner present in person or by proxy…
In response to the proposed significant changes to the limited partnership agreement, the existing provisions of such limited partnership agreement, and, in the case of the proxy given by Sikora, an absence of consideration, the applicants challenged the validity of and irrevocability of the proxies.
In its decision, the Court of Queen’s Bench of Manitoba (Court) observed that proxies are a creature of statute; a right to vote by proxy is not provided by the common law. The limited partnership agreement in this case, however, incorporated such a right (as well as the rules for conduct of meetings and revocability of proxies) as set out in The Corporations Act (Manitoba) and The Securities Act (Manitoba) by referencing such acts.
Manitoba’s The Corporations Act grants shareholders the right to appoint a proxyholder to attend and act on their behalf at a meeting of shareholders. This act, however, limits this right of proxy only to the meeting in respect of which it is given (or any adjournment thereof), and provides the shareholder the right to revoke the proxy at any time before the proxy is exercised. The proxy rights granted by Manitoba’s The Securities Act are not relevant to this analysis.
The Court found that, although the proxies in question purport to be unlimited in time and irrevocable, Manitoba corporate law, as incorporated into the affairs of the limited partnership, recognized only one kind of proxy, one that is meeting-speciﬁc and revocable. Therefore, both proxies were revoked by the applicants challenge. The Court also found that, as Sikora was not a party to the payment of debt by Shelter to Lount, and therefore received no valuable consideration for the proxy, the Sikora proxy was set aside for lack of valuable consideration.
It is interesting to note the similarities and differences with other federal and provincial corporate acts. The federal corporate statute, the Canada Business Corporations Act, contains nearly identical rules to those of Manitoba’s corporate statute regarding the granting and revoking of proxies. However, Ontario’s Business Corporations Act contains differences and ambiguities that should be recognized when incorporating this act’s proxy rights into partnership agreements.
The Business Corporations Act (Ontario), unlike the Manitoba and federal statutes, does not explicitly limit the right of proxy only to the meeting in respect of which it is given (or any adjournment thereof). This act, in regards to proxies of offering corporations only (corporations that are offering its securities to the public), provides that these proxies may be granted for “a meeting or meetings” and cease to be valid one year from its date. Ontario’s act does provide the shareholder the right to revoke a proxy on or before the “day of the meeting.” While this right to revoke does provide the party granting the proxy an important means to control such a proxy, it also implies that any created proxy under the act is meeting-specific, contradicting the “meeting or meetings” nature of proxies for offering corporations. Further adding to the ambiguity of Ontario’s rules, the regulations under the Business Corporations Act (Ontario) require a proxy, except that which is accompanied by a notice of meeting or management or dissident’s information circular, to state the meeting at which it is to be used.
Non-corporate entities should take note of the limitations of proxies, and be wary of differences in the various corporate statutes as they include corporate statutory proxies into their governance documents, especially when considering the ambiguities under Ontario’s Business Corporations Act, for fear of future uncertainty. The better approach would be to include a complete statement of the right to use proxies and their attributes, and the procedural requirements for their use.