On October 12, 2012, the British Columbia Court of Appeal allowed the appeal of the British Columbia Supreme Court's decision in Telus Corporation v. Mason Capital Management LLC. The Supreme Court's decision was summarized in our September 2012 Blakes Bulletin: Court Expresses Concern About "Empty Voting".
The Supreme Court ruled that under the British Columbia Business Corporations Act (the Act), a requisition for a meeting of Telus Corporation (Telus) shareholders could not be submitted by the registered shareholder CDS Clearing and Depository Services Inc. and CDS & Co. (CDS) on behalf of the beneficial shareholder, Mason Capital Management LLC (Mason). The Court of Appeal overturned that decision.
The Supreme Court also expressed concern over instances in which a shareholder possesses considerable voting power without a commensurate economic stake in the company through an "empty voting" arrangement. Despite sharing those concerns, the Court of Appeal could find no legal basis upon which to interfere with such practices.
The Court of Appeal concluded that the Act did not require that the beneficial owner of shares be identified in a requisition for a shareholder meeting. The legislation requires that a requisition be made by a "shareholder", a term defined in the legislation as "a person whose name is entered in a securities register of a company as a registered owner of a share of the company." The applicable provision, section 167 of the Act, was described by the Court of Appeal as being unambiguous. In the Court of Appeal's view, there was nothing in that section to suggest that the beneficial owner must submit the requisition or disclose its identity. As a registered shareholder, CDS fulfilled the statutory requirements when it requisitioned a meeting on the instructions of an intermediary that had deposited shares with it.
The Court of Appeal agreed with the Supreme Court's assessment that the Act requires identification of the requisitioning shareholder in order for the company and its shareholders to ascertain whether that shareholder holds the shares required to requisition a meeting (1/20 of issued shares)and communicate with the requisitioning shareholder. The Court of Appeal concluded that in this case, naming CDS, which was the "shareholder", accomplished these goals. The Court of Appeal indicated that Telus had been able to communicate with the requisitioning party using the address provided in the requisition. The Court of Appeal determined that the Act did not require that the name of the beneficial owner be disclosed to validly request a meeting.
The Court of Appeal indicated that in requisitioning a meeting, CDS must ensure it is acting under instructions and those instructions must come from persons who hold the requisite number of shares to request a meeting.
The Supreme Court had also found that knowledge of the requisitioning shareholder's identity was required in order to know whether the purpose of the requisition was to enforce a personal claim or redress a personal grievance against the company or any of its directors, officers or security holders (in which case, directors are not required to call a meeting). The Court of Appeal disagreed, finding that the provision did not invite the court to expand the requirements for a requisition beyond those clearly set out in section 167 of the Act. According to the Court of Appeal, directors are excused from calling meetings under certain circumstances, but are not required to detect inappropriate requests such that those provisions were not determinative as to a valid requisition of a meeting.
On the issue of empty voting, the Court of Appeal echoed the concerns expressed in the Supreme Court judgment, but left those issues to be addressed by legislative and regulatory change. Absent the court's inherent jurisdiction to control abuses, the Court of Appeal found that there was no basis for a court to intervene.
While the Act confers broad authority to control the calling of a meeting and the manner in which meetings are conducted, the Court of Appeal was not directed to any authority that allows a court to disenfranchise a shareholder on the basis of a suspicion that it is participating in "empty voting." The Court of Appeal was concerned by the fact that Mason's interests were not aligned with the economic well-being of Telus; however, in the Court of Appeal's view there was no indication that Mason was acting contrary to any laws, nor were there any statutory provisions allowing the court to intervene on equitable grounds.
This decision confirms CDS's ability as a registered shareholder to act on behalf of a beneficial owner to requisition a meeting of shareholders and that there is no requirement to furnish the names of the beneficial shareholders requesting the meeting.
Further, the court's comments in connection with "empty voting" confirm that shareholders are able to exercise their voting rights in the manner they see fit without being subject to judicial analysis as to whether their interests are adequately aligned with other shareholders.