Canada: Court Expresses Concern About "Empty Voting"

The Supreme Court of British Columbia recently issued its decision in Telus Corporation v. CDS Clearing and Depository Services Inc.  The decision is noteworthy for two reasons:

  • its consideration of whether CDS Clearing and Depository Services Inc. and CDS & Co. (CDS) could properly requisition a meeting as a registered shareholder on behalf of a beneficial shareholder, Mason Capital Management LLC (Mason); and
  • its commentary on Mason's practice of "empty voting".

The Court determined that in order to comply with the form and substance of the relevant provisions of the British Columbia Business Corporations Act (BCBCA) it was not sufficient to have CDS as the registered owner requisition the meeting. Rather, the beneficial owner should have been identified in the requisition to satisfy the requirements of the BCBCA. The Court also expressed concern over the implications for shareholder democracy in cases where a shareholder possesses considerable voting power without a commensurate economic stake in the company through an "empty voting" arrangement.


Telus Corporation has a dual share structure composed of common shares, which carry the right to vote, and shares which did not carry the same voting right. This structure arose as a result of Canadian regulations restricting foreign ownership of Canadian telecommunications companies.

In February 2012, Telus announced a proposal to convert all existing non-voting shares into common shares at a one-to-one ratio as a result of a decline in foreign ownership of its shares. The proposal required an amendment to the Telus articles, and therefore needed special majority approval of 66-2/3% of both common and non-voting shareholders.

Historically, the common shares traded at a 5% premium when compared to the non-voting shares. The price differential between the classes of shares narrowed considerably after the announcement, presumably reflecting the one-to-one ratio proposed by Telus.

Following the announcement, Mason began to acquire common shares while at the same time short-selling non-voting shares. The value of the Telus common shares acquired by Mason was approximately equivalent to the non-voting shares it shorted. Mason's hedged position meant that it would be unaffected whether the value of Telus shares increased or decreased. In fact, due to the short sale of non-voting shares, Mason would profit by a widening of the spread between trading prices for common shares and non-voting shares. Accordingly, Mason opposed the conversion proposal. In the face of Mason's opposition and significant voting block, Telus withdrew its initial proposal.

Despite Telus having abandoned the initial proposal, the price differential between the common shares and non-voting shares did not return to historic levels. Through a requisition made by CDS, Mason sought to call a general meeting of Telus shareholders to vote on establishing a minimum acceptable premium valuation of Telus common shares over non-voting shares for the purposes of any conversion of non-voting shares. CDS is a securities depository, which acts as a registered shareholder for intermediaries such as financial institutions and brokers, allowing for shares in public companies to be traded among participants without requiring any change in registration at the public company level. The requisition made no mention of Mason, stating only that CDS was acting at the request of an intermediary participant in CDS, Citibank Canada, which was in turn acting on behalf of an unidentified beneficial owner of 10 million common shares (later identified as Mason). Telus advised CDS that Telus would not call the general meeting requested in the requisition, citing defects in the requisition which were later considered by the Court. In the meantime, Telus sought to proceed with a conversion plan by way of a plan of arrangement.


The Court first considered whether CDS could properly requisition a shareholders' meeting. The CDS requisition did not identify Mason, the beneficial owner of the shares.

To fulfil the requirement that the requisition be signed by and include the names of all of the requisitioning shareholders, CDS listed itself as the requisitioning shareholder. Telus argued that only a registered shareholder with a beneficial interest is permitted to requisition a meeting such that the requisition could only proceed if the beneficial owner were to withdraw its position in CDS and register its own shares directly. Describing the calling of a shareholder meeting as an extraordinary step, Telus took the position that requiring a beneficial owner to register its position introduced a number of important safeguards, namely that:

  • the interested parties are able to understand who is behind a requisition;
  • the person behind the requisition takes responsibility for the request to call a general meeting; and
  • the ability to requisition a meeting will be confined to those beneficial owners whose interest in the shares entitles them to acquire a registered position.

The Court cited a general reluctance to enjoin a meeting of shareholders, but concluded that the contents of the requisition must comply in both form and substance with the requirements set out in the BCBCA. The relevant provisions give a right to shareholders to requisition a meeting, prescribe the contents of the requisition, set out the directors' obligations on receiving the requisition and excuse the directors from acting on a requisition in certain cases. The term shareholder is defined in the BCBCA to mean registered shareholders, and those registered shareholders are required to "hold" the shares specified.

The Court specifically declined to decide whether CDS can requisition a meeting on behalf of a participant or beneficial shareholder, but did conclude that the BCBCA required that names and addresses of the requisitioning shareholder(s) – in this case, the actual beneficial holder, Mason. The requirement was for the benefit of shareholders entitled to vote at the general meeting and to assist the directors and company in dealing with the requisition. Knowledge of the requisitioning shareholder's identity was also required in order to know whether the purpose of the requisition was to enforce a personal claim or address a personal grievance (in which case, directors are not required to call a meeting). CDS being named as the requisitioning shareholder did not fulfil the requirement. Because the directors were only obligated to call a general meeting if the requisition requirements were fulfilled, the directors were not required to call a meeting.

Having so concluded, the Court was not required to consider the other arguments advanced by Telus, but nonetheless provided its views on them. Of particular interest were the Court's remarks as to "empty voting". The decision suggests there may be a concern where an investor is permitted to exercise significant voting control over a company without any stake in that company's long- or short-term economic health by virtue of an arrangement where the voting interest is decoupled from the share's economic interest. The Court stated that one of the foundations of shareholder democracy is that shareholders have a common interest: a desire to enhance the value of their investment. The Court stated that where a party has a vote in a company but no economic interest, that party's interests may not lie in the well-being of the company itself. Such divergent interests were said by the Court to subvert the premise underlying shareholder votes.

Mason argued that its interests were aligned with those of other common shareholders, a suggestion that was rejected by the Court. While the Court acknowledged that the conversion ratio of non-voting shares to common shares was an issue of relevance to all common shareholders, only Mason stood to profit from that price differential and Mason was indifferent to the overall value of the company itself.


This decision indicates that a beneficial holder of shares may not be able to requisition a meeting, or exercise other rights which a statute provides only to registered shareholders, without either withdrawing its shares from CDS to become a registered shareholder, or, at a minimum identifying itself as the relevant beneficial holder accompanying a CDS exercise of registered shareholder rights.

The result in this decision did not turn on whether Mason's "empty voting" position disentitled it to requisition a meeting; however, the Court appears to have been sufficiently troubled to comment and raises the question as to whether a holder of an "empty voting" position will be able to exercise votes or similar rights such as requisitioning shareholder meetings. The Court's commentary on this point appears novel in a Canadian context and the premise that a shareholder's rights may be restricted where its interests are perceived to be inconsistent with the well-being of the company does not appear to be in accord with fundamental corporate law principles that shareholders may act in their own interests as they perceive them.

Mason has appealed the decision and an expedited hearing has been scheduled by the B.C. Court of Appeal for October 4, 2012. It will be interesting to see if the appellate court comments on the "empty voting" theory articulated by the Court in this decision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions