Until very recently, there was little if any guidance from the
courts as to the scope of a proxy holder's voting discretion in
circumstances where the instruction is to "withhold"
voting for the management slate of directors. This changed on
September 27, 2010, when the Ontario Superior Court of Justice
handed down its decision in Mason v. Augen Capital Corp. 2010 ONSC
5319. The proceeding was started immediately after a shareholder
meeting of Augen Capital Corp. ("Augen"), during the
course of which the chair had disregarded a ballot cast by a
proxyholder (Mr. Mason). Consequently, the slate of directors
favoured by management prevailed over an alternative slate proposed
by Mr. Mason.
Management had delivered a customary information circular and
management proxy to Augen shareholders, soliciting support for,
among other matters, a resolution reducing the number of directors
on the board of directors from six to four and, in anticipation of
that resolution passing, for the election of management's four
nominees to the board. The management form of proxy included two
options for the election of directors: "for" or
Mr. Mason held a clear majority of proxies. Once the meeting
started, the resolution reducing the number of directors from six
to four was defeated. Management then nominated two new candidates
from the floor. Mr. Mason nominated four new candidates. Mr. Mason
received four ballots (representing all shareholders who had
appointed him their proxy), each containing two choices beside the
candidates' names: "for" or "withhold."
Unlike on three of the ballots, on the fourth and disputed one, the
scrutineer had preselected the "withhold" option
regarding the four management candidates. Mr. Mason checked off the
"for" option beside each of his four nominees, which then
made it a total of eight marks. The chair rejected this ballot on
the basis that Mr. Mason had effectively cast eight votes
– four "fors" and four
The Court disagreed with the chair's characterization of the
four "withholds" as equivalent to a vote cast. The Court
reasoned that common sense and logic inferred a difference between
withholding a vote and casting a vote. Therefore, an instruction to
"withhold" is not the same as casting a vote. And, by
marking the ballot "withhold" with respect to the four
management nominees, Mr. Mason had not exhausted any of the six
votes available to him. The Court also held that there was no
established practice that once the proxy has been marked
"withhold" the proxy holder is precluded from voting the
shareholder's shares for other nominees.
This case will have important ramifications in the context of
proxy fights as, for the first time, the "amorphous
concept" of "withhold" has been judicially
clarified. In the future, management, their proxy solicitation
agents and scrutineers will need to be careful to treat
"withhold" proxy instructions as, in effect, blank voting
instructions with respect to new nominations not contained in the
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