By Alistair MacDonald
A lawsuit aimed at a member of Canada's Thomson family alleges
serious governance lapses involving the company through which the
country's richest family controls media giant Thomson Reuters
Corp.
The lawsuit and subsequent court filings describe years of
inheritance squabbles and tensions over safeguards on the family's
wealth, offering a rare glimpse of its business.
The lawsuit was filed in the Ontario Superior Court in September
2013 by James Lawson, who is claiming damages for alleged breach of
his employment agreements as chief executive of the investment arm
of the family of Sherry Brydson. Ms. Brydson is a granddaughter of
the Thomson empire's founder and a cousin of David Thomson, Thomson
Reuters's chairman.
Ms. Brydson's family company owns a substantial equity stake in
the Thomson family's main holding company.
In his suit, which is still pending, Mr. Lawson also accuses
members of the Thomson family of an elaborate effort to shield the
media clan, whose 58% stake in Thomson Reuters is valued at around
23.2 billion Canadian dollars (US$18.4 billion), from billions in
tax payments.
Mr. Lawson says in his court filings that Thomson family members
don't pay tax on the Thomson Reuters dividends and other income
they get through a family holding company called Woodbridge Co. In
2011, the documents allege, Woodbridge distributed about $350
million of its cash on a tax-free basis.
None of the Thomson interests specifically addressed the tax
allegations in their court filings. The existence of Mr. Lawson's
lawsuit and Thomson family members' response to it have only
recently come to light.
In February, the company that manages Ms. Brydson's family
wealth, Westerkirk Capital Inc., which owns a 23.6% stake in
Woodbridge, filed a counterclaim against Mr. Lawson and response to
his original lawsuit. Mr. Lawson filed his defense to the
countersuit days after that. The Toronto Star newspaper reported
some details of the case on Saturday.
Mr. Lawson alleges in his suit that he was fired from Westerkirk
in part because he pushed for better governance at Woodbridge,
whose chairman is David Thomson and through which the family
manages its Thomson Reuters stake.
Thomson Reuters competes in some businesses with Dow Jones &
Co., a unit of News Corp and publisher of The Wall Street Journal
and Dow Jones Newswires.
In its court filings, Westerkirk denies Mr. Lawson's
allegations, saying he was fired for, among other things,
incompetence, conflicts of interest and for accessing "graphic and
outrageous" pornography at work.
Through his lawyer, Mr. Lawson, who denied those claims in court
documents, declined to comment.
A spokesman for Ms. Brydson said the case is an employment
lawsuit and has nothing to do with Woodbridge. "Westerkirk and the
Brysdon family will defend themselves, and intend vigorously to
pursue their counterclaims against Mr. Lawson through the courts,"
he said.
A representative of Woodbridge, David Thomson and Thomson
Reuters declined to comment.
The Thomson empire, founded in 1931 by Roy Thomson, at one time
included over 200 newspapers in Canada, Britain and the U.S. In
2007, it became Thomson Reuters, following its $17 billion takeover
of Reuters Group PLC. In more recent years, tensions within the
empire have risen as family members have branched out to pursue
their own businesses and new generations stake their claims on
their inheritance.
In his lawsuit, Mr. Lawson alleges that, after the 2011 death of
a longtime family adviser who had served as "protector" of the
family trust, that role, which he regarded as crucial to
safeguarding wider family's interests, was left unfilled.
Woodbridge officials and Ms. Brydson later agreed to keep that role
vacant.
Appointing a protector was among the steps taken by David
Thomson's father, Kenneth Thomson, to safeguard the family fortune
for future generations, according to the lawsuit.
In his suit, Mr. Lawson describes a "complex tax-driven
reorganization" of Woodbridge in 1999 triggered by a lawsuit Ms.
Brydson brought against her uncle Kenneth Thomson that led to an
increase in Westerkirk's equity stake in Woodbridge.
As part of the reorganization, seven corporations, representing
the various branches of the Thomson family, placed their voting
rights of Woodbridge into a separate company, Thomson Investment
Ltd., to be controlled by Kenneth Thomson. That move, Mr. Lawson
alleges, was "structured to allow distributions to be paid by
Woodbridge to the family corporations on a tax-free basis." His
filings don't make clear how the reorganization might have allowed
the family to avoid tax.
Kenneth Thomson later passed voting control of Thomson
Investment to a trust run by the Bank of Nova Scotia to "maintain
its tax-advantageous structure" after he died, Mr. Lawson alleges
in his filings, with family adviser John Tory acting as protector
of wider family interests.
The directors and officers of Woodbridge, including David
Thomson and his brother Peter, are responsible for Woodbridge's
business and operations, according to Thomson Reuters's annual
proxy.
In 2012, Mr. Lawson alleges, the Thomson family grew concerned
that their tax arrangements would be scrutinized by a Canadian
telecom-and-media regulator after Westerkirk made an offer to take
over a radio-station operator. That deal required approval from the
Canadian Radio Television and Telecommunication Commission, which
"began to question" Westerkirk's relationship with Thomson
Investment, Mr. Lawson says in court filings.
Mr. Lawson alleges the 1999 reorganization led to poor corporate
governance at Woodbridge because it placed the wider family's
voting rights into the trust, giving these family members little
control of the investment. Though Westerkirk owns equity in
Woodbridge, it has "no say in its business affairs" and gets little
financial disclosure from it, he claims in court documents.
In October 2012, a Woodbridge official, David Binet, sent a
written proposal to Ms. Brydson arguing for him to replace
Woodbridge's then head and for the role of "protector" to be left
vacant, Mr. Lawson's documents allege.
Mr. Binet couldn't be reached for comment.
Mr. Lawson alleges that Ms. Brydson agreed to the management
shuffle on behalf of Westerkirk, though she didn't have the
authority to do so, and that she ignored his request to use her
consent to the change as leverage to demand better governance at
Woodbridge.
Westerkirk alleges that Ms. Brysdon's authority stemmed from,
among other things, her status as one of only two Westerkirk
directors. Its counterclaim accuses Mr. Lawson of several alleged
breaches of corporate policy and fiduciary duty. It alleges, for
instance, that the executive pushed through the sale of a Calgary
shopping mall so he could benefit from a company incentive
plan.
In his filings, Mr. Lawson denied the allegation.
Rita Trichur contributed to this article.
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