Law Times

Law Times • January 27, 2014 Page 5 NEWS Shareholder activism's promotion of proactive measures among top M&A trends for 2014 BY Julius Melnitzer For Law Times N o one doubts the significance of shareholder activism in Canada's corporate world anymore. To be sure, the debates rage on about whether the phenomenon is an evolution or a revolution and whether activists are good for the economy because their activities enhance share value or whether their focus on short-term returns is detrimental to long-term growth. But while these debates could continue indefinitely, the numbers Incivility nets $18K costs order against two lawyers BY YAMRI TADDESE Law Times I ncivility can have "a direct effect on the pocket of a lawyer," according to a Superior Court judge who ordered two lawyers to pay the cost of a proceeding she said would not have taken place but for their actions towards opposing counsel. In a case involving a vexatious litigant application, counsel for the respondent drafted a settlement agreement that the applicant's lawyer initially approved. But shortly after sending the letter of acceptance, lawyers Kara Hamilton and Lex Arbesman said it was sent in error and argued the court shouldn't enforce the settlement. Their opposing counsel, Helen Turner, didn't buy the suggestion that Hamilton and Arbesman had made an honest mistake and instead argued they were going back on their word. In the end, the court gave the lawyers "the benefit of much doubt" and declared the settlement unenforceable. But instead of ordering costs against the losing party, Superior Court Justice Susan Healey ordered Hamilton and Arbesman to personally pick up the bill for the proceeding. Had Hamilton not created an atmosphere of incivility with Turner, Turner would have believed the letter was in fact sent in error and the motion could have been avoided, Healey found in Catford v. Catford on Jan. 7. "One of the unfortunate outcomes of incivility and lack of professionalism is that it breeds distrust among counsel and parties, and in this case the trustworthiness of Ms. Hamilton's reputation has been diminished in the eyes of the respondent and his counsel by her conduct in this proceeding," wrote Healey. She added: "Incivility covers a wide range of unprofessional behaviour that not only leads to frustration on the part of opposing counsel and the court, but increased costs and delays in the legal system.  This lack of civility unfortunately paved the way for the respondent to adopt a defensive and skeptical response to Ms. Hamilton's assertion of innocent error." The court ordered the lawyers to pay the respondent $17,740 on a partial indemnity basis. Healey said both lawyers contributed to unnecessary costs when they failed to recognize that a binding agreement had been made and didn't take accurate notes while taking instructions from their clients. But Hamilton's incivility added to the issue, according to Healey. During the motion hearing, she was "being argumentative and deliberately obtuse about the facts on which she was being examined at her cross-examination," wrote the judge, who also faulted Hamilton for "failing to maintain the standards of civility and professionalism owed by a lawyer to opposing counsel and the court." Neither Hamilton nor Arbesman would comment on the case last week. According to Turner, her opposing counsel booked court dates without notice and refused to accommodate her schedule. She says she also faced an accusation of filing a court order that didn't exist. "It feels abusive," says Turner, who's representing PlymptonWyoming, Ont., lawyer Rod Catford in a vexatious litigant application against him in relation to ongoing proceedings against his family. "I've been practising for 24 years and I'm afraid of what they're going to do next to me. I'd like to have a career when this is done and I just have a barrage of correspondence that's constantly accusing me of making false statements and misleading the court." For Healey, the case "illustrates how incivility and unprofessionalism, where it plays a role in wasting costs, can have a direct effect on the pockets of a lawyer." She added: "In the circumstances of this case, there are no individuals involved who should absorb the cost of this motion other than Ms. Hamilton and Mr. Arbesman."  LT this focus on robust sales processes reflect a certain reality or inevitawill continue in 2014." bility. A recent Torys LLP publiIn other words, shareholder cation on the top trends in mergactivism is a major contributor ers and acquisitions for 2014, for in influencing boards to build a example, notes that virtually 50 sales process that meets, in Torys' per cent of activist campaigns in words, "fairness" and "satisfactory Canada between 2008 and 2012 price discovery standards." resulted in the election of dissident But that's not to say it's all nominees. In 2012, the campaigns about procedure and optics: culminated in the replacement of shareholder activism is driving some 29 per cent of the chief exsubstantive issues, too. ecutive officers involved, a number "With boards becoming more that appears to be an all-time high. engaged, they will increasingly "I think part of the reason demand broader rights to proyou're seeing more activism is that tect their fiduciary duties," Torys there has been less strategic M&A activity and activist investors are 'The tools activists are using have been writes. available for the last 20 years, but it's only "And we expect deal terms will seeking to fill the gap by impos- in the last five that the courts have defined come under pressure. For related ing value in other ways, such as them,' says Walied Soliman. party transactions, we predict that recapitalization, dividends, and special committees of independent directors will share buybacks," says Torys partner Aaron Emes. Ultimately, however, a better way to measure the take centre stage in negotiating transactions in order impact of shareholder activism might not be to look to benefit from the most deferential treatment by the at the numbers and results alone but also the extent to courts and regulators and to help withstand criticism which it has evolved from inducing reactive behaviour from discontented shareholders." Arguably, shareholder activism has evolved from to promoting proactive measures in the boardroom, an oppositional paradigm to a creative one. particularly in the mergers and acquisitions context. "In many cases, investors are spending signifiInterestingly, Torys cites shareholder activism as a trend in and of itself only once. It lists shareholder cant resources to come up with a comprehensive activism's increasing influence on mergers and acqui- strategic plan, forcing the company's managesitions governance practices as the sixth of 10 trends. ment to defend its own strategy," Torys writes in What isn't as evident is what might be called the an oblique reference to the Canadian Pacific Raildomino effect of shareholder activism, which is to way Ltd. scenario in which the company's primary say the degree to which it's beginning to permeate shareholders compelled the overhaul of the board mergers and acquisitions practice in general. No- and the appointment of a new chief executive ofwhere is this more evident than in the overview to ficer following a failed takeover attempt. The recent maturation of the relevant jurispruthe Torys article. "A rise in shareholder activism is influencing corporate governance practices, and dence has also helped activists decide whether the risk boards are more active than ever before. In the and cost of a proxy battle are worthwhile. "The tools activists are using have been availM&A context, target boards are becoming engaged able for the last 20 years, but it's only in the last five at an earlier stage," the authors write. "They are meeting more frequently and supervis- that the courts have defined them," says Walied ing management's negotiations more closely, especial- Soliman of Norton Rose Fulbright Canada LLP's ly where conflicts of interest are prevalent. We expect Toronto office. LT Canadian Council of Criminal Defence Lawyers Conseil Canadien des Avocats de la Défense CHAIR William M. Trudell (Toronto, Ontario) VICE CHAIR Isabel J. Schurman (Montréal, Québec) Mark Brayford, Q.C. (Saskatoon, Saskatchewan) TREASURER André J. Rady (London, Ontario) SECRETARY John M. Williams (Regina, Saskatchewan) DIRECTORS David J. Bright Q.C. (Halifax, Nova Scotia) Gregory P. DelBigio (Vancouver, British Columbia) Richard S. Fowler (Vancouver, British Columbia) Peter J. Harte (Nunavut Territory) Deborah R. Hatch (Edmonton, Alberta) Kim Hawkins (Whitehorse, Yukon) Brian Hurley (Edmonton, Alberta) Lucie Joncas (Montréal, Québec) John Norris (Toronto, Ontario) Lisanne O.Maurice (Moncton, New Brunswick) Evan J. Roitenberg (Winnipeg, Manitoba) Robert E. Simmonds, Q.C. (St. John's, Newfoundland and Labrador) Once again, we thank, Bell Canada for its remarkable "Let's Talk" Campaign (January 28th, 2014) We all may know Colleagues who may be Suffering silently with Mental Health issues On January 28th, 2014, let's reach out to them! FOUNDING CHAIR Brian H. Greenspan (Toronto, Ontario) PAST CHAIR Marvin R. Bloos, Q.C. (Edmonton, Alberta) 116 Simcoe Street * Suite 100 * Toronto * Ontario * M5H 4E2 * Tel: 416.598.2019 * Fax: 416.596.2599 Web page address: http://www.cccdl.ca * Administrator's email: ahenderson@simcoechambers.com www.lawtimesnews.com

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