Executive Summary: Key Legal and Evidentiary Issues

• Disqualification of proxies at the 2024 AGM and whether this amounted to oppressive or unfairly prejudicial conduct under the Business Corporations Act.

• Compliance with s. 14.12(5)(b) of Skychain’s articles regarding disclosure of arrangements conferring a right to vote or direct voting of shares.

• Procedural fairness and impartiality of the AGM chair, including the failure to provide reasons for rejecting proxies.

• Scope of required disclosure in advance notices and dissident proxy circulars under corporate articles and applicable securities laws.

• Whether coordination among shareholders, absent a right to direct voting, triggers disclosure obligations under the articles.

• Availability of remedies for oppressive conduct, including setting aside AGM results and awarding costs.

Facts and outcome of the case

Background and parties

The case involved 1154557 B.C. Limited (the Petitioner) and Skychain Technologies Inc. (the Respondent). The Petitioner, a British Columbia company holding 1,069,801 shares in Skychain, sought relief under the shareholder oppression provisions of the Business Corporations Act, S.B.C. 2002, c. 57. The dispute arose after Skychain’s management disqualified a class of proxies (the “yellow proxies”) representing a majority of shares in advance of the company’s 2024 Annual General Meeting. As a result, the dissident slate of board candidates nominated by the Petitioner could not be voted on, and Skychain management’s slate was acclaimed. The Petitioner argued that the exclusion of the proxies was contrary to its legitimate expectations for a fair and democratic voting process at the AGM.

Events leading to the dispute

Skychain, a British Columbia company listed on the TSX-Venture Exchange, had shifted its business focus from cryptocurrency mining to non-fungible tokens and decentralized finance. There was significant turnover in management and ongoing litigation involving former CEO Bill Zhang. In September 2024, The9’s subsidiary, 1111, initiated a process to requisition an AGM and filed a dissident proxy circular. The Petitioner later issued an advance notice and a dissident proxy circular with the same slate of board candidates. Skychain’s management challenged the validity of the dissident group’s advance notice and proxy circular, asserting non-compliance with s. 14.12(5)(b) of the articles. The chair of the AGM ruled the yellow proxies invalid, and no reasons were provided at the meeting despite requests from the Petitioner’s representatives.

Legal issues and arguments

The Petitioner argued that Skychain’s refusal to accept the yellow proxies was unlawful and oppressive under s. 227 of the Business Corporations Act. It maintained that its advance notice and dissident proxy circular complied with Skychain’s articles and applicable law. Skychain argued that the Petitioner failed to disclose arrangements or understandings with other shareholders, including Mr. Zhang, which it claimed was required under s. 14.12(5)(b) of the articles.

Court’s analysis

The court found that s. 14.12(5)(b) required disclosure only of arrangements, agreements, or understandings that conferred on the nominating shareholder a right to vote or direct the voting of shares. The evidence did not establish that the Petitioner had any such arrangement or agreement. The court also found that the chair’s refusal to provide any explanation for the decision to reject the yellow proxies was oppressive or unfairly prejudicial to the Petitioner and other shareholders who signed yellow proxies. The court noted that the process failed to meet the legitimate expectations of shareholders for an impartial decision and some explanation for the rejection of proxies.

Outcome

The court declared that the conduct of the 2024 AGM was oppressive or unfairly prejudicial to the Petitioner and that the chair improperly found the yellow proxies to be invalid. The court awarded costs to the Petitioner at scale B. No damages were awarded. The court invited the parties to make submissions on the appropriate remedy and form of order, noting that some of the remedies sought by the Petitioner could have far-reaching effects and had not been addressed in argument.