Don’t Hold Back: Proxyholders’ Discretion Not Fettered by Instructions to “WITHHOLD”
Does a proxyholder have any discretion to cast a vote when a proxy voting ballot provides an instruction to “WITHHOLD”? According to an Ontario court in Mason v. Augen Capital Corp., the answer is yes.
In the Mason case, the court was asked to declare that four proposed directors were duly elected at the Augen Capital Corp.’s Annual and Special Meeting (the “Special Meeting”). A dispute arose because the management proxy distributed to shareholders in advance of the Special Meeting gave shareholders the option to vote "FOR" a recommended slate of directors, which would reduce the number of directors from six to four (the “Management Slate”), or to "WITHHOLD" from voting for that Management Slate. At the Special Meeting, the motion to reduce the number of directors from six to four was defeated and an alternate slate of directors was nominated by the applicant (the "Alternate Slate").
When it came time to cast ballots for the election of directors, a dispute arose with respect to the manner in which the applicant’s proxy vote was cast. In particular, it was alleged that the applicant’s proxy ballot was spoiled largely on the grounds that the applicant had voted for too many nominees and that he did not properly “WITHHOLD” the proxy vote. Had the ballot in question been included in the vote tally, the Alternate Slate of directors would have been elected.
The key issue before the court was whether the proxyholder's right to exercise his discretion at the Special Meeting was fettered by the instruction on the proxy to "WITHHOLD" from voting for the Management Slate.
The “WITHHOLD” Instruction DID NOT Fetter the Proxyholder’s Discretion
The court held that an instruction to "WITHHOLD" voting for a management slate does not mean that a proxyholder cannot vote in favour of other candidates if the situation arises. A proxyholder can comply with the "WITHHOLD" instruction by not voting "FOR" the management nominees set out in the management circular. By following such an instruction - which means not casting a vote for that particular slate of directors - the proxyholder has not "voted" and remains free to vote in favour of any other candidates that may be nominated from the floor or for an alternate slate.
In other words, the court held that, by marking the ballot "WITHHOLD" with respect to the Management Slate, the applicant did not exhaust, or use up, any of the six votes available to him. In voting “FOR” the Alternate Slate, the proxyholder did not act contrary to the instruction to "WITHHOLD" from voting for the Management Slate.
This case stands for the proposition that a proxyholder with instructions to “WITHHOLD” certain voting rights still retains the discretion to cast proxy votes for alternate motions that may arise in the course of a shareholders' meeting. This decision has significant implications for the interpretation of proxies that should result in more precise drafting of proxies in the future to ensure that proxyholders do not have the power to vote with unfettered discretion on alternate resolutions, unless a shareholder truly intends to give a proxyholder such unfettered discretion. What remains to be seen is whether this decision is appealed.