TELUS Corporation v. Mason Capital Management LLC,


2012 BCCA 403

Date: 20121012

Dockets: CA040241 & CA040249

Docket:  CA040241


TELUS Corporation




Mason Capital Management LLC




Docket:  CA040249


TELUS Corporation




CDS Clearing and Depository Services Inc.
and CDS & Co.





The Honourable Madam Justice Levine

The Honourable Madam Justice D. Smith

The Honourable Mr. Justice Groberman

On appeal from: Supreme Court of British Columbia, September 11, 2012,
(TELUS Corporation v. CDS Clearing and Depository Services Inc.,
2012 BCSC 1350, Vancouver Registry No. S126154)

Counsel for the Appellant, Mason Capital Management LLC:

S.R. Schachter, Q.C.
G.B. Gomery, Q.C.
P.R. Senkpiel

Counsel for the Appellants, CDS Clearing and Depository Services Inc. and CDS & Co.:

G.R. Johnson

Counsel for the Respondent, TELUS Corporation:

R.S. Anderson, Q.C.
O.G. Pasparakis
E.C.L. Miller

Place and Date of Hearing:

Vancouver, British Columbia

October 4, 2012

Place and Date of Judgment:

Vancouver, British Columbia

October 12, 2012


Written Reasons by:

The Honourable Mr. Justice Groberman

Concurred in by:

The Honourable Madam Justice Levine
The Honourable Madam Justice D. Smith


Reasons for Judgment of the Honourable Mr. Justice Groberman:

[1]             This appeal concerns the validity of a requisition for a general meeting of TELUS shareholders made by the appellants. A Supreme Court chambers judge held that the requisition was invalid, both because it did not comply with the requirements of the Business Corporations Act, S.B.C. 2002, c. 57 and because the resolutions sought to be introduced at the proposed meeting did not conform with the company’s articles. The appellants seek to overturn this order and to reinstate a meeting called for the morning of October 17, 2012.

[2]             Underlying the dispute is the issue of whether, and at what rate, non-voting shares of TELUS will be converted to, or exchanged for, common shares. The Board of Directors of TELUS has proposed plans that would see the non-voting shares converted into or exchanged for common shares at the rate of 1:1. The clients of Mason Capital Management LLC (“Mason”) oppose those plans, and have an interest in keeping the value of the common shares higher than that of the non-voting shares.

The Parties

[3]             TELUS is a Canadian telecommunications company incorporated under the Business Corporations Act with its head office in Vancouver.

[4]             CDS Clearing and Depository Services Inc. is Canada’s national securities depository. CDS & Co., a related entity, holds shares as the nominee of CDS Clearing and Depository Services Inc. For the purposes of this litigation, it is unnecessary to differentiate between the two entities, and I will refer to them, together, as “CDS”.

[5]             CDS is the registered shareholder of approximately 95% of outstanding TELUS common shares, which it holds on behalf of many other intermediaries.

[6]             Mason is an investment fund manager based in New York. Investment funds controlled by Mason are beneficial owners of approximately 18.7% of outstanding TELUS common shares. The shares have been deposited with CDS, which is the registered shareholder of them.

The share structure of TELUS

[7]             The current TELUS Corporation is the result of a 1999 merger between the former TELUS Corporation and BC Telecom Inc. At the time of the merger, a substantial proportion of BC Telecom Inc. was owned by foreign investors. The new merged entity was required to comply with the foreign ownership restrictions in the Telecommunications Act, S.C. 1993, c. 38 and the Canadian Telecommunications Common Carrier Ownership and Control Regulations, SOR/94-667. In particular, TELUS, as a holding company that owned a telecommunications carrier, needed to maintain status as a “qualified corporation” with at least 2/3 of its voting shares owned by Canadians.

[8]             At the time of the merger, slightly more than 1/3 of the shares of the merged entity were expected to be held by non-Canadians. In order to qualify under the regulation, TELUS adopted a capital structure with two classes of shares – common shares and non-voting shares. The shares had identical attributes and rights attached to them, except that the non-voting shares did not carry voting rights. In keeping with the rationale for creating the non-voting share class, the corporation’s articles provided that holders of non-voting shares could convert their holdings to common shares if all applicable foreign ownership restrictions were lifted. As well, the articles contained provisions for converting common shares to non-voting shares in the event that the company would otherwise cease to be a “qualified corporation” by reason of excessive foreign ownership of voting shares.

[9]             The largest foreign investor in TELUS disposed of its shares in 2004, and the proportion of shares owned by non-Canadians fell to approximately 20%. The rationale for having two classes of shares disappeared. In recent months, the directors of TELUS have explored the possibility of consolidating the share structure of TELUS by converting or exchanging the non-voting shares for voting shares.

[10]         The directors favour consolidation for several reasons. They are of the view that good corporate practice favours the distribution of voting rights in accordance with capital investment. They also contend that consolidation of shares into a single class will enhance the liquidity and marketability of TELUS shares, including listing of the common shares on the New York Stock Exchange (currently, only the non-voting shares are listed on the NYSE).

[11]         TELUS currently has issued 174,910,546 common shares and 150,890,960 non-voting shares. The non-voting shares have historically traded at a slight discount relative to the trading price of the common shares. While the discount has varied, it has averaged approximately 4.5% of the value of the common shares over the three years prior to February 2012.

TELUS’s Initial Proposal and Mason’s Arbitrage Plan

[12]         On February 21, 2012, TELUS announced a proposed arrangement whereby non-voting shares would be converted on a one-for-one basis to common shares. The proposed arrangement included amendments to the corporate articles, and would have required the approval of a special majority (i.e., 2/3 of votes cast) of each of the two classes.

[13]         The announcement resulted in an immediate narrowing of the price differential between the two classes of shares. It also appears to have had the effect of increasing the value of both classes of share.

[14]         Mason executed an arbitrage plan immediately after the announcement of the proposed arrangement. It set about acquiring TELUS common shares for its funds, hedging its position by short selling both common and non-voting shares. It anticipated voting against the arrangement, and profiting from the re-emergence of the historical premium attached to the voting shares once the arrangement was defeated or withdrawn.

[15]         By April 10, 2012, Mason’s funds held 32,722,329 common shares of TELUS (approximately 18.7% of the issued common shares) and 602,300 non-voting shares (approximately 0.4% of the issued non-voting shares). They also had obligations to return to lenders a total of 10,963,529 common shares and 21,672,700 non-voting shares in connection with short sales. While Mason’s funds controlled 18.7% of the common shares of TELUS, their financial stake in the corporation was small. TELUS contends that the funds’ net investment in the company represented only 0.21% of the company’s capital.

[16]         It became clear to the directors of TELUS that they would be unable to secure the special majorities required to amend its articles and implement its original proposal. On May 8, 2012 (the day before the company’s annual general meeting), the company announced that the proposal was being withdrawn. The company also indicated, however, that it remained committed to a one-for-one exchange of non-voting shares for common shares, and said it was considering alternate means of achieving that result.

Mason’s Requisition

[17]         On August 1, 2012, CDS, purporting to act under s. 167 of the Business Corporations Act, issued a requisition for a general meeting of TELUS. It stated that it was the registered holder of more than 1/20 of the issued voting shares of TELUS, and stated that it was operating under direction from a beneficial owner of 10,000,000 common shares. While the requisition did not identify the beneficial owner of the shares, it is common ground that the owners are the investors in Mason funds. Mason announced on August 2, 2012 that it had requisitioned the meeting.

[18]         The requisition sets out four resolutions that Mason wished to place before the shareholders. The first would add a provision to Article 9 of TELUS’s articles, the article dealing with alterations to TELUS’s share structure. The new provision would prohibit the company from exchanging non-voting shares for common shares at a ratio of less than 1.08 non-voting shares per common share, except in accordance with existing obligations under the articles or as authorized by an exceptional resolution approved by 80% of the common shareholders.

[19]         The second resolution specifies that it is to be considered only if the first resolution does not pass. It is identical to the first, except that it specifies a lower ratio of exchange of 1.0475 non-voting shares to one common share.

[20]         The third resolution, which is to be considered only if the first two resolutions fail, is a non-binding recommendation to the directors that they not proceed with any exchange of shares at a ratio of less than 1.08 non-voting shares to one common share.

[21]         The final resolution mirrors the third resolution, but specifies a minimum rate of exchange of 1.0475 non-voting shares to one common share.

[22]         On August 21, 2012, TELUS wrote to CDS indicating that it believed the requisition to be defective in a number of respects. It declined to schedule the meeting demanded by the requisition.

The Second TELUS Proposal and TELUS Meeting

[23]         Earlier on August 21, 2012, TELUS obtained an order of the Supreme Court of British Columbia granting it leave to hold its own meeting of shareholders to vote on a second proposed arrangement. This proposed arrangement would allow non-voting shares to be exchanged for voting shares on a one-for-one basis. Unlike the first proposal, however, this proposal does not include the amendment of the company’s articles or a change in its capital structure. While non-voting shares would be cancelled upon exchange for common shares, the issuance of such shares would continue to be authorized by the articles.

[24]         The meeting is scheduled to be held on the afternoon of October 17, 2012.

[25]         TELUS takes the position that the current proposal does not affect or amend the company’s articles; it says it merely proposes a court-ordered arrangement with holders of non-voting shares. Holders of the non-voting shares must approve the proposal by a 2/3 majority, but only a bare majority of the common shareholders need approve it.

CDS Meeting

[26]         On August 31, 2012, CDS sent a notice to TELUS shareholders calling a general meeting on the morning of October 17, 2012 for the purpose of considering the four resolutions that it had previously provided to TELUS with its requisition of August 1, 2012.

[27]         TELUS immediately commenced proceedings in the Supreme Court, seeking and obtaining the following orders and declarations:

1.         The actions of CDS in relation to a requisition of a general meeting of shareholders as delivered to TELUS on August 2, 2012 (the “Requisition”) are not in compliance with the Business Corporations Act, S.B.C. 2002, c. 57 or TELUS’ Articles of Incorporation;

2.         The Notice of Record and Meeting Dates sent by or on behalf of CDS on August 30, 2012 is not in compliance with the Business Corporations Act or TELUS’ Articles of Incorporation;

3.         The respondents are not entitled to call or hold a meeting of shareholders of TELUS pursuant to the Requisition either on October 17, 2012 or on any other date.

[28]         Both CDS and Mason have appealed from the orders.

Standing to bring an appeal

[29]         TELUS brings a preliminary objection to the appeals, arguing that the appeal by CDS must be quashed because it does not challenge the trial judge’s order, and contending that Mason does not have standing to appeal. I would reject both of these contentions.

[30]         While CDS does not challenge all aspects of the judge’s order, it does contend that it is entitled to requisition a general meeting when it acts on the instructions of an intermediary that has deposited shares with it (a “participant”). It denies that the requisition that it sent to TELUS was technically defective, though it takes no position on whether the substantive content of the requisition (i.e., the resolutions set out in it) were appropriate.

[31]         While CDS’s stake in this litigation is not a particularly large one, it does have an interest in promoting an efficient depository system, and seeks to establish that the procedural steps that it took to requisition the meeting were proper.

[32]         In my view, the position adopted by CDS is a direct challenge to the first of the declarations granted by the chambers judge, and forms a proper basis for an appeal.

[33]         With respect to Mason, TELUS argues that only a registered shareholder has the right to requisition a meeting, and that Mason therefore has no standing in this matter.

[34]         In my view, this is not an argument that can be entertained by the Court. The petition in this matter was filed by TELUS, and it is TELUS that named Mason as a respondent. If TELUS was of the view that Mason was not a proper party to the proceeding, it should not have named it as a respondent (though it would still have had to serve Mason under Rule 16-1(3) of the Supreme Court Civil Rules, B.C. Reg. 168/2009, r. 16-1, which requires that a petition be served “on all persons whose interests may be affected by the order sought”).

[35]         I have no doubt that if Mason had not been named as a party, and had it not been successful in applying to be added as a party, it would have made arrangements with CDS to ensure that its position was fully argued before the court. In the circumstances of this case, it would be prejudicial to Mason, and contrary to the interests of justice, to allow a technical argument about its standing to be raised at this juncture, when it is too late for such arrangements to be made.

[36]         In the circumstances, I express no opinion as to whether Mason was properly made a party to these proceedings.

The Proper Manner of Delivering a Requisition

[37]         TELUS argues that it is improper for CDS to deliver a requisition for a general meeting. It says that properly construed, the Business Corporations Act only allows a person who is both a registered and beneficial shareholder to requisition a meeting. It says that if holders of Mason funds wished to requisition a meeting, they needed to re-register their shares in their own names before doing so.

[38]         The chambers judge did not decide the question of whether CDS has the power to requisition a general meeting, but held that if it does possess such a power, it can only use it by fully identifying the beneficial owner of the shares that are being used to call the meeting.

[39]         I am of the view that TELUS misconstrues the statute in suggesting that CDS is incapable of requisitioning a meeting on behalf of the beneficial owner of shares that are deposited with it. Further, I am of the view that the chambers judge erred in reading into the statute a requirement that the beneficial owners of shares be identified in a requisition.

[40]         Section 167 of the Business Corporations Act is an unambiguous provision. The relevant subsections are as follows:

167 (1) Shareholders referred to in subsection (2) may requisition a general meeting for the purpose of transacting any business that may be transacted at a general meeting.

(2) A requisition under this section may be made by shareholders who, at the date on which the requisition is received by the company, hold in the aggregate at least 1/20 of the issued shares of the company that carry the right to vote at general meetings.

(3) A requisition under this section

(b) must be signed by, and include the names and mailing addresses of, all of the requisitioning shareholders,

[41]         “Shareholder" is defined in s. 1(1) of the Act. It means “a person whose name is entered in a securities register of a company as a registered owner of a share of the company”. CDS is the registered shareholder in respect of the shares that were used to requisition the meeting in this case. Unless there are compelling reasons to hold otherwise, the plain words of the statute dictate that CDS is entitled to requisition a meeting.

[42]         The chambers judge purported to apply a purposive approach in finding that CDS must disclose the name of the beneficial owner of shares in order to requisition a meeting:

[60]          The requisition must include the names and addresses of the requisitioning shareholders. Surely this information is there for the benefit of the shareholders who are entitled to vote at the general meeting and to assist the directors and company in dealing with the requisition.

[61]      I do not think that a requisition naming only CDS & Co. fulfills that requirement. CDS & Co. is only the nominee of CDS Clearing and Depository Services Inc. It is the registered holder of approximately 95% of the common shares in TELUS. What the statute requires is that the requisition be signed and contain the names and addresses of the requisitioning shareholders who hold in the aggregate the required number of shares. To interpret the provision otherwise would make it devoid of meaningful content.

[62]      Further, the obligation on the directors is only to call a general meeting if the provisions of ss. 167(2) and (3) are met. I do not know how the directors can ascertain whether the required threshold is met by a requisition naming only CDS & Co. and listing its address as the requisitioning shareholder.

[63]      I am reinforced in this opinion by the provisions of s. 167(7)(d)(ii). I agree with the petitioner that in many cases, in order to know whether the purpose of the requisition is to enforce a personal claim or address a personal grievance, the identity of the requisitioning shareholders must be known. I do not think that naming the nominee of the statutory depository on a requisition requiring a general meeting fulfills that purpose. Nor do I think that such an interpretation impairs the efficient operation of capital markets.

[64]      … [I]n my opinion the Requisition must identify the beneficial shareholders behind the requisition so the directors can meet their duties under ss. 167(2), (3) and (7). The subject Requisition fails to do so.

[Emphasis in original.]

[43]         I agree with the chambers judge that the apparent purpose of s. 167(3)(b) of the Act is to identify the requisitioning shareholder so that the company and its shareholders can ascertain whether that shareholder has the requisite holdings, and can communicate with it. I do not agree with his view that naming CDS, which is the “shareholder” under the statute, fails to accomplish these goals.

[44]         TELUS was fully able to determine that CDS held more than the requisite shares to requisition a meeting. Further, as the correspondence in this case shows, TELUS was able to communicate with the requisitioning party using the address provided in the requisition.

[45]         CDS, as Canada’s national securities depository, holds shares on behalf of numerous intermediaries who in turn hold them on behalf of numerous other intermediaries and beneficiaries. CDS’s responsibilities, both to keep proper records and to ensure that it only acts on appropriate instructions, may be onerous ones. In requisitioning a meeting under s. 167 of the Business Corporations Act, it must ensure that it is acting under instructions, and that those instructions come from persons who hold the requisite number of shares to requisition a meeting. These responsibilities, however, are entrusted to CDS and do not, under the Business Corporations Act, transfer to either the corporation that is being asked to hold a meeting or its shareholders.

[46]         There is nothing in s. 167(3)(b) that suggests either that a requisitioning shareholder must be the beneficial owner of shares, or that he, she, or it must disclose the name of the beneficial owner. Indeed, the definition of “shareholder” is to the opposite effect.

[47]         It is well established that the proper approach to statutory construction begins with Driedger’s “modern approach”:

Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament. (Elmer Driedger, Construction of Statutes (2nd ed. 1983), p. 87, quoted in Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, [2002] 2 S.C.R. 559 at para. 26).

[48]         In my view, the wording of s. 167, combined with the clear and precise definition of “shareholder” under the statute does not permit the interpretation arrived at by the chambers judge.

[49]         The judge also fell into error in relying on s. 167(7)(d)(ii) for the proposition that the beneficial owner of shares must be revealed before a requisition can be made. Section 167(7)(d)(ii) excuses the directors of a company from calling a meeting where “it clearly appears that the primary purpose for the requisition is enforcing a personal claim or redressing a personal grievance against the company or any of its directors, officers or security holders.” The section does not place any duty on directors to detect inappropriate requests for meetings – it merely gives them discretion to refuse to call a meeting in certain circumstances. I acknowledge that there might be rare cases in which knowledge of the identity of a beneficial shareholder may be critical to weeding out an inappropriate requisition for a meeting. Nothing in s. 167(7)(d)(ii), however, invites the court to expand the requirements for a requisition beyond those clearly set out in the statute in order to facilitate the detection of inappropriate requests.

[50]         In short, the language of s. 167(3)(b) is clear and unequivocal – a requisition must be signed by a registered shareholder, and the registered shareholder’s address must be furnished. There are no requirements in the section to furnish the names of those beneficially entitled to shares, and the chambers judge erred in reading such requirements in.

Are the Resolutions Ultra Vires?

[51]         The chambers judge also found that the proposed resolutions were contrary to TELUS’s articles and the Business Corporations Act. He found, in particular, that the resolutions, if adopted, would effectively amend Article 27 without complying with the requirements set out in that provision.

[52]         Article 27 is an extensive provision dealing with rights, privileges, restrictions and conditions attached to common shares and non-voting shares. It specifically deals with three situations in which one class of shares will be converted to another (a takeover offer, the repeal of foreign content regulations, and excess foreign ownership of voting shares). Apart from these very specific situations, it does not refer in any way to the exchange of one class of shares for the other. The possibility that the company might seek to consolidate the two classes of shares into one is not addressed by Article 27. Indeed, nothing in the articles appears to either contemplate or preclude a proposal allowing for the exchange of non-voting shares for common shares. Nor, except in the three particular situations already described, is there any provision in the articles that would preclude the fixing of any particular ratio for such an exchange.

[53]         The chambers judge gave two reasons for holding the resolutions to be contrary to Article 27. First, he said at para. 77 that “the business proposed by Resolutions 1 and 2 are cognate provisions with Article 27”. By this, I take him to mean that the resolutions concern matters that could reasonably have been dealt with in Article 27. He seems to have considered that because the resolutions could comfortably have fit within Article 27, they constituted amendments to that article. Article 27.10 deals with amendments to Article 27:

27.10 Amendment Rights

The provisions of this Article 27, may be deleted, amended, modified or varied in whole or in part upon the approval of any such amendment being given by holders of the Common Shares, by a special separate resolution of 2/3 of the votes cast thereon and by the holders of Non-Voting Shares by special separate resolution of 2/3 of the votes cast thereon and as required by the Business Corporations Act.

[54]         Article 27 does not purport to be the exclusive provision of the articles setting out the rights, privileges, restrictions and conditions that attach to shares. The fact that the proposed resolutions might have been placed in Article 27, therefore, is of little import. They could, equally, be placed elsewhere in the articles.

[55]         The real question that must be answered is whether the resolutions “delete, amend, modify or vary” existing provisions of Article 27. They do not appear to do so.

[56]         The chambers judge’s second reason for finding that the resolutions are ultra vires was his view that they violate the provisions of Article 27.9:

27.9 Same Attributes

Save as aforesaid, each Common Share and each Non-Voting Share shall have the same rights and attributes and be the same in all respects

[57]         The judge seems to have taken the view that the rate to be paid on exchange or conversion of shares is a “right” or “attribute” of the shares:

[77]      Article 27.9 provides that “[s]ave as aforesaid, each Common Share and each Non-Voting Share shall have the same rights and attributes and be the same in all respects”. The proposed Resolutions 1 and 2 set minimum exchange ratios between Common Shares and Non-Voting Shares. In doing, so they would entrench new rights and attributes to both the Common Shares and Non-Voting Shares.

[58]         On the face of it, the proposed resolutions do not affect any “right” or “attribute” of the non-voting shares, because there is no right or ability to convert or exchange shares. TELUS argues, however, that “the mere fact that a shareholder entitlement is contingent upon the exercise of discretion by a director does not render it any less a right”, relying on McClurg v. Canada, [1990] 3 S.C.R. 1020, [1990] S.C.J. No. 134.

[59]         In my view, McClurg is not of assistance in this case. In McClurg, the directors of a company held class A shares, and their wives held Class B shares. The directors declared dividends only for the class B shares, as they were expressly authorized to do under the company’s articles. The Minister of National Revenue sought to attribute the dividends equally to the directors and their wives, arguing that they should have been split equally between the class A and class B shares. Among other arguments put forward by the Minister was an argument that because the declaration of a dividend was discretionary, the receipt of the dividend by the shareholder could not be considered a “right”. The Supreme Court rejected that argument.

[60]         In McClurg, the right of class B shareholders to receive dividends was explicitly included in the company’s articles, which provided, in respect of the shares, that “the said shares shall carry the distinction and right to receive dividends exclusive of other classes of shares in the said corporation”. Thus, the right in question was expressly made an attribute of the shares.

[61]         The same cannot be said in respect of the ability to exchange TELUS non-voting shares for common shares. Except in narrowly defined circumstances, the articles do not suggest any ability to exchange non-voting shares for voting ones. Nor is this a matter left in the discretion of the board of directors.

[62]         There is, then, no existing right to exchange or convert non-voting shares to common shares, nor will the resolutions, if passed, create such a right. Article 27.9 would, therefore, appear not to be applicable.

[63]         I conclude that the chambers judge erred in finding that the first and second of the proposed resolutions are inconsistent with the provisions of Article 27.

[64]         The chambers judge went on to consider the third and fourth resolutions, which are purely advisory, and concluded that they, too, were flawed. He gave two reasons for so finding. First, he noted that the resolutions were only intended to be considered if the first two resolutions failed to pass. Because he ruled the first two resolutions to be ultra vires, he reasoned that there was no possibility of reaching consideration of the third and fourth resolutions.

[65]         As I would find the first two resolutions to be valid, I need not address this issue. I would comment, however, that a more flexible approach to the issue might have been required.

[66]         The judge also found the resolutions to be invalid because, unlike the first two resolutions, they did not explicitly exclude from their ambit share conversions taking place under the specific conditions referred to in Article 27.

[67]         In my view, there is no conflict between resolutions 3 and 4 and Article 27. The resolutions are expressly subject to the overriding duties of the directors, which include the duty to comply with the articles. While it might have been better if the third and fourth resolutions had expressly excluded Article 27 exchanges from their ambit, the exclusion is implied.

[68]         TELUS argues, on this appeal, that the third and fourth resolutions, being merely advisory, are not the sort of “business” contemplated by s. 167 of the Business Corporations Act. It points out that the convening of a general meeting is a considerable undertaking for a public company, and suggests that the statute should not be interpreted as requiring a company to go to that effort and expense simply in order to have advisory resolutions passed.

[69]         I am not convinced that the consideration of advisory resolutions falls outside the phrase “transacting any business that may be transacted at a general meeting” as it is used in s. 167. That phrase would appear to have very a wide ambit.

[70]         While I agree with TELUS that the consideration of the two purely advisory resolutions, alone, might not justify the calling of a special shareholder meeting, I am not convinced that s. 167 precludes shareholders from requisitioning a meeting for that purpose. I note that s. 167(10) can be used to require the requisitioning shareholders to pay the expenses incurred in calling and holding the meeting.

Empty Voting

[71]         TELUS also argues that Mason should not be allowed to requisition a meeting under s. 167 because its hedged position means that it has a very limited net financial interest in the company.

[72]         The limited financial stake that Mason has in TELUS is a cause for concern. It has placed itself in a position where the well-being of the company or the value of the company’s shares is of limited concern to it. Instead, its interests lie in widening the gap between the prices of non-voting and common shares.

[73]         TELUS cites a number of cases and scholarly articles which raise concerns about the phenomenon of “empty voting” – the accumulation of votes by a party that has a very limited financial stake in a company. The discussion of the Delaware Supreme Court in Crown Emak Partners, LLC v. Kurz, 992 A.2d 377 (Del. 2010) at 387-388 is representative:

Shareholder voting differs from voting in public elections, in that the shares on which the shareholders’ vote depends can be bought and sold. Vote buying in the context of corporate elections and other shareholder actions has been and continues to be an important issue. Several commentators have addressed the corporate voting process and techniques by which shareholder voting rights can be manipulated.

The Court of Chancery noted a 1983 scholarly analysis of shareholder voting which concluded “[i]t is not possible to separate the voting right from the equity interest” and that “[s]omeone who wants to buy a vote must buy the stock too.” The Court of Chancery also recognized, however, that over the last twenty-five years “[i]nnovations in technology and finance have made it easier to separate voting from the financial claims of shares.” Today, “the market permits providers to slice and dice the shareholder’s interest in a variety of ways, and investors are willing to buy these separate interests.”

According to a recent scholarly study of corporate voting by Professors Robert Thompson and Paul Edelman, a disconnect between voting rights and the economic interests of shares “compromises the ability of voting to perform its assigned role.” They concluded that “[a] decision-making system that relies on votes to determine the decision of the group necessarily requires that the voters’ interest be aligned with the collective interest. [Therefore, i]t remains important to require an alignment between share voting and the financial interest of the shares.” [Footnotes omitted.]

[74]         While the problem of “empty voting” has been identified in cases and in legal literature, TELUS has not pointed to any authority that suggests that courts have inherent jurisdiction to control abuses. Courts are entitled to intervene only when they have specific authority to do so under statutory provisions.

[75]         In the case before us, TELUS contends that two statutory provisions should be considered. First, it says that s. 167 itself should be interpreted to preclude a shareholder in Mason’s position from requisitioning a meeting:

The policy behind s. 167(2) is clear: only a shareholder with a material interest in the company should have the ability to call together a company’s shareholders for a meeting. Mason, however, has no net material interest in the company. Using the language of s. 167(2), Mason’s “aggregate” position is nominal (0.021%), a position that does not even come close to the 5% required to requisition a meeting.

[76]         I am unable to interpret s. 167(2) in this manner. The language of the section  is clear:

167(2)  A requisition under this section may be made by shareholders who, at the date on which the requisition is received by the company, hold in the aggregate at least 1/20 of the issued shares of the company that carry the right to vote at general meetings.

[77]         The section does not refer to any particular level of net investment in a company, but only to the holding of a particular proportion of the issued voting shares. The reference to the “aggregate” shareholding simply allows the voting shares of multiple shareholders to be added together; it does not allow the court to look behind shareholdings to determine whether the shareholding represents a “material interest in the company”.

[78]         The second statutory provision referred to by TELUS is s. 186, which gives the court broad administrative powers in respect of company meetings:

186 (1) The court may, on its own motion or on the application of the company, the application of a director or the application of a shareholder entitled to vote at the meeting,

(a) order that a meeting of shareholders be called, held and conducted in the manner the court considers appropriate, and

(b) give directions it considers necessary as to the call, holding and conduct of the meeting.

(2) The court may make an order under subsection (1)

(a) if it is impracticable for any reason for the company to call or conduct a meeting of shareholders in the manner required under this Act, the memorandum or the articles,

(b) if the company fails to hold a meeting of shareholders in accordance with this Act or the regulations or its memorandum or articles, or

(c) for any other reason the court considers appropriate.

(3) Without limiting subsection (1), the court may order that the quorum or notice required by the memorandum or articles or this Act or the regulations be varied or dispensed with in respect of a meeting

[79]         TELUS argues that the court has powers, under this section, to enjoin the holding of a requisitioned meeting. I see nothing in the provision that grants such a power. Further, while the section gives the court fairly broad authority to control the calling of a meeting and the manner in which it is conducted, nothing in the section allows a court to disenfranchise a shareholder on the basis of a suspicion that it is engaging in “empty voting”.

[80]         It should also be noted that, despite its hedged position, Mason does hold an economic interest in TELUS. Further, its contention that the historic premium that has applied to the TELUS common shares should be preserved in any share exchange is a cogent position that could reasonably be advanced by any holder of common shares. In the exchange proposed by TELUS, the common shareholders will see a massive dilution of their voting power without any direct economic compensation or benefit.

[81]         The fact that Mason has hedged its position to the extent that it has is cause for concern. There is, at the very least, a strong concern that its interests are not aligned with the economic well-being of the company. That said, there is no indication that it is violating any laws, nor is there any statutory provision that would allow the court to intervene on broad equitable grounds. To the extent that cases of “empty voting” are subverting the goals of shareholder democracy, the remedy must lie in legislative and regulatory change.

Technical Difficulties with the Proposed Meeting

[82]         TELUS’s final contention is that there are difficulties with the record date specified in CDS’s notice of meeting, and that the holding of two meetings on the same day at different places and under different rules will be confusing and unwieldy.

[83]         I agree that the problems identified by TELUS are genuine. The issue of the appropriate record date for the meeting called by CDS must be resolved. As well, it would seem that a practical solution should be found to ensure that the October 17, 2012 meetings can proceed without undue confusion or inconvenience to shareholders.

[84]         These concerns, however, do not entitle the court to cancel the meeting called by CDS, nor do they justify prohibiting Mason from putting its resolutions before the shareholders.

[85]         Counsel for Mason has advised that the parties will appear before the Supreme Court for the purposes of obtaining a court order giving directions as to the conduct of the October 17, 2012 meeting or meetings. It seems to me that s. 186 of the Business Corporations Act (quoted above) gives the court ample powers to give directions and make orders to ensure that the meetings take place in an orderly manner and without causing undue confusion. In my view, it is appropriate to allow the parties to work out the logistics for the scheduled meetings, with the assistance of the Supreme Court, as necessary.


[86]         I would allow the appeals, set aside the order in the Supreme Court and substitute an order dismissing TELUS’s petition.

“The Honourable Mr. Justice Groberman”

I agree:

“The Honourable Madam Justice Levine”

I agree:

“The Honourable Madam Justice D. Smith”