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Court Invalidates Director Elections Due to Voting Instructions Provided by Telephone

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In a recent decision,the Supreme Court of British Columbia set aside and declared invalid an annual general meeting of shareholders and the resolutions passed at the meeting following a proxy fight between management and dissident shareholders. The court found that management’s proxy solicitation firm had improperly executed proxies on behalf of shareholders, based on instructions given by telephone to representatives of the proxy-solicitation firm (the “TeleVote System”). The court concluded that the TeleVote System failed to provide a contemporaneous, reliable, and verifiable record of proxies and voting instructions with the result that the use of such a system was oppressive to shareholders.


The court’s decision arose in the context of a proxy fight between the incumbent slate of directors of Mosquito Consolidated Gold Mines Limited (“Mosquito”) and a dissident slate led by two former directors of Mosquito. Each side delivered information circulars to shareholders and engaged proxy-solicitation firms to solicit proxies from shareholders.

Management’s proxy-solicitation firms offered telephone and internet voting, using a unique control number found on a shareholder’s proxy or voting information form. In addition, one of management’s firms used the TeleVote System. Under this system, a call centre was established in which representatives of the solicitation firm telephoned registered shareholders and non-objecting beneficial owners of shares to solicit their votes for the management slate. The call centre operators were permitted to accept verbal instructions from individuals and execute proxies on their behalf.

At Mosquito’s shareholder meeting, the validity of the proxies obtained through the use of the TeleVote System was challenged by the dissident slate but the Chair of meeting ruled that the proxies were valid. The shareholder vote was in favour of the management slate, albeit by a narrow margin. Had the proxies obtained through the TeleVote System been excluded, the dissident slate would have been elected.

Oral Instructions by Telephone Not Standard Practice

A company controlled by one of the members of the dissident slate filed an application seeking a declaration that Mosquito’s annual general meeting was conducted in a manner that was oppressive to it as a shareholder of Mosquito, as well as orders nullifying the resolutions passed at the meeting and requiring a new shareholder meeting to be held.

In granting the application, the court held that, while Mosquito shareholders had a reasonable expectation that their proxies would be solicited by telephone, they did not reasonably expect that their proxies would be sought and votes would be cast at the same time. This process departed from the standard commercial practice of voting methods for shareholder meetings under securities instruments and the Securities Transfer Association of Canada Protocol. Moreover, the use of the TeleVote System was not disclosed in management’s information circular together with the other specified voting methods, including delivering a proxy by mail, hand, or fax or appointing a different proxy holder by mail or through the internet.

Lack of Verification and Safeguards

While the court noted that the use of telephone solicitation systems is a legitimate attempt to streamline shareholder proxy solicitations and the absence of guidelines does not automatically disqualify the use of such systems, it identified several problems with the use of the TeleVote System in the context of the battle for control of the board of directors of Mosquito. In particular, amongst other deficiencies, the court criticized

  • The acceptance of oral instructions without an immediate link to a verifiable, written confirmation;
  • The absence of a unique identifier to ensure the identity of the individual giving instructions;
  • The failure by management to make prior disclosure of the use of the TeleVote System;
  • The lack of sufficient safeguards to ensure that votes were taken in a manner that allows the shareholder to make his or her choices privately, on a fully informed basis, and without undue pressure from a proxy solicitor; and
  • The imbalance between the use of the TeleVote System by the management slate and the traditional proxy solicitation process used by the dissident slate.

Ultimately, the court concluded that the use of the TeleVote System constituted oppressive and unfairly prejudicial conduct and impaired the right of shareholders to a fair and transparent voting process.


In the event that an incumbent slate of directors finds itself in a proxy contest, the management slate must ensure that the proxy solicitation tactics used by its proxy solicitors are fully disclosed in management’s information circular and that such tactics will produce verifiable and reliable results. The failure to ensure the existence of sufficient safeguards risks invalidating the election of directors and other shareholder business at an otherwise valid shareholder meeting.

This article was originally published in Corporate Governance Report, Vol. 8, No. 1 and is republished with permission.