Verdun v. Toronto‑Dominion Bank, [1996] 3 S.C.R. 550
John Robert Verdun Appellant
v.
Toronto‑Dominion Bank Respondent
Indexed as: Verdun v. Toronto‑Dominion Bank
Hearing and judgment: April 29, 1996.
Reasons delivered: October 31, 1996.
Present: L’Heureux‑Dubé, Sopinka, Gonthier, Cory, McLachlin, Iacobucci and Major JJ.
on appeal from the court of appeal for ontario
Banks ‑‑ Shareholders ‑‑ Proposals ‑‑ Annual meeting of shareholders‑‑ Whether beneficial shareholder of bank may submit proposals for inclusion in bank’s management proxy circular ‑‑ Whether beneficial shareholder a “shareholder entitled to vote” within meaning of s. 143(1) of Bank Act ‑‑ Bank Act, S.C. 1991, c. 46, ss. 93(1), 143(1).
The appellant, the beneficial owner of common voting shares of the respondent Bank, submitted proposals to the Bank for inclusion in a management proxy circular, which was to be sent to the Bank’s shareholders in connection with the annual shareholders’ meeting. The Bank declined to include these proposals in its circular. The appellant then brought an application for an order to restrain the Bank from holding its annual meeting until it included his proposals in its management proxy circular. Both the Ontario Court (General Division) and the Court of Appeal dismissed the application.
Held: The appeal should be dismissed.
Per Sopinka, Gonthier, Cory, Iacobucci and Major JJ.: The appellant, a beneficial shareholder, is not entitled to have his proposals included in the Bank’s management proxy circular. Section 143(1) of the Bank Act provides that only a “shareholder entitled to vote at an annual meeting of shareholders of a bank may ... submit a proposal”. Under s. 93(1) of the Act, a bank may “treat the registered owner” of the shares “as the person exclusively entitled to vote”. Since the appellant is not the registered owner, he is not “entitled to vote” and cannot therefore submit a shareholder’s proposal. There is nothing in the context of ss. 93(1) and 143(1) to contradict their plain meaning.
Per L’Heureux‑Dubé and McLachlin JJ.: Subject to the following comment, Iacobucci J.’s reasons are substantially agreed with. Courts should generally use the “modern contextual approach” as the standard, normative approach to statutory interpretation, and may exceptionally resort to the old “plain meaning” rule in appropriate circumstances. The phrase “entitled to vote” can receive several possible definitions depending upon the context in which it is used. To determine the appropriate definition of that phrase in the present context, Iacobucci J. reviewed the provisions in their immediate context, the Bank Act as a whole, and the external context and policy implications. This process is not an application of the “plain meaning” approach but rather is an application of the “modern contextual approach” to statutory interpretation. Iacobucci J.’s interpretation of the phrase “entitled to vote” complies with the legislative text and promotes the legislative purpose, thus meeting the “plausibility” and “efficacy” criteria of the contextual approach, and the outcome in this case is reasonable and just, thus meeting the “acceptability” criterion as well.
Cases Cited
By Iacobucci J.
Referred to: Friesen v. Canada, 1995 CanLII 62 (SCC), [1995] 3 S.C.R. 103; Stubart Investments Ltd. v. The Queen, 1984 CanLII 20 (SCC), [1984] 1 S.C.R. 536; Québec (Communauté urbaine) v. Corp. Notre‑Dame de Bon‑Secours, 1994 CanLII 58 (SCC), [1994] 3 S.C.R. 3; Greenpeace Foundation of Canada v. Inco Ltd. (1984), 25 A.C.W.S. (2d) 149, aff’g [1984] O.J. No. 274 (QL).
Statutes and Regulations Cited
Bank Act, S.C. 1991, c. 46, ss. 2 “complainant”, “beneficial ownership”, 7, 93(1), 96, 126, 137(2) to (5), 138 to 140, 141, 143(1), (2), (3), (5)(b), (e), 145, 263.
Canada Business Corporations Act, R.S.C., 1985, c. C‑44.
Securities Exchange Act of 1934, 48 Stat. 881 (now 15 U.S.C. §§ 78a to 78ll (1994)), § 14(a) [am. Pub. L. 88‑467, § 5(a), 78 Stat. 569 (1964)].
17 C.F.R. § 240.14a‑8 (1976).
Authors Cited
Canada. Industry Canada. Canada Business Corporations Act Discussion Paper: Proposals for Technical Amendments. Ottawa: Industry Canada, 1995.
Driedger, Elmer A. Construction of Statutes, 2nd ed. Toronto: Butterworths, 1983.
Driedger on the Construction of Statutes, 3rd ed. by Ruth Sullivan. Toronto: Butterworths, 1994.
Ontario Securities Commission. Report of the Joint Regulatory Task Force on Shareholder Communication to the Canadian Securities Administrators. Toronto: Ontario Securities Commission, 1987.
APPEAL from an order of the Ontario Court of Appeal rendered January 12, 1995, dismissing the appellant’s appeal and allowing the respondent’s cross‑appeal from a judgment of Kent J., rendered December 9, 1994, dismissing the appellant’s application for an order to restrain the respondent from holding its annual meeting until the respondent included the appellant’s proposals in its management proxy circular. Appeal dismissed.
Philip Anisman, for the appellant.
W. Niels Ortved and R. Paul Steep, for the respondent.
The reasons of L’Heureux-Dubé and McLachlin JJ. were delivered by
L’Heureux-dubé J. -- I substantially agree with my colleague Iacobucci J.’s reasons and the result he reaches. I have only one comment which relates to the statutory interpretation methodology relied upon by my colleague.
Courts should generally use the “modern contextual approach” as the standard, normative approach to statutory interpretation, and may exceptionally resort to the old “plain meaning” rule in appropriate circumstances. One example of the latter is statutory interpretation in the area of taxation, where the words and expressions used in legislative provisions quite often have a well-defined “plain meaning” within the business community.
In argument before this Court, both parties invoked various statutory interpretation approaches, rules and maxims. I note that the phrase “entitled to vote” does not seem to have one generally accepted “plain meaning” that is recognized as such by the business community. Rather, this phrase can receive several possible definitions depending upon the context in which it is used. Consequently, our Court is called upon to determine the appropriate definition in the context and factual situation of the instant case.
My colleague decided the issue by going through a statutory interpretation exercise as follows. Firstly, various provisions of the Bank Act, S.C. 1991, c. 46, were reviewed. Secondly, the impugned provisions were compared with similar provisions in a number of federal and provincial statutes. The American Securities Exchange Act of 1934, 48 Stat. 881 (now 15 U.S.C. §§ 78a et seq. (1994)) was also looked at. Thirdly, various task force and policy papers were considered.
Thus, after reviewing the provisions in their immediate context, the Act as a whole, the external context and policy implications, my colleague came to a contextual interpretation of the phrase “entitled to vote”. I fully agree with both the process he used and the conclusions he arrived at. However, with respect, the process used by Iacobucci J. is not an application of the “plain meaning” approach: in fact, the “modern contextual approach” to statutory interpretation is the one that is actually used in the instant case.
Accordingly, the appropriate methodological reference would be Driedger on the Construction of Statutes (3rd ed. 1994), at p. 131:
There is only one rule in modern interpretation, namely, courts are obliged to determine the meaning of legislation in its total context, having regard to the purpose of the legislation, the consequences of proposed interpretations, the presumptions and special rules of interpretation, as well as admissible external aids. In other words, the courts must consider and take into account all relevant and admissible indicators of legislative meaning. After taking these into account, the court must then adopt an interpretation that is appropriate. An appropriate interpretation is one that can be justified in terms of (a) its plausibility, that is, its compliance with the legislative text; (b) its efficacy, that is, its promotion of the legislative purpose; and (c) its acceptability, that is, the outcome is reasonable and just. [Emphasis added.]
This methodology was indeed the one followed by my colleague. The outcome he arrived at is an appropriate interpretation that complies with the legislative text and promotes the legislative purpose, thus meeting the plausibility and efficacy criteria of the contextual approach as expounded in Driedger on the Construction of Statutes, supra. I share my colleague’s view that the policy changes sought by the parties in the circumstances of this case are in the domain of the legislature, not the courts. Accordingly, the outcome in the instant case is reasonable and just, and therefore meets the acceptability criterion as well.
Subject to the above considerations, I concur with my colleague’s disposition of the appeal.
The judgment of Sopinka, Gonthier, Cory, Iacobucci and Major JJ. was delivered by
- Iacobucci J. -- At the hearing on April 29, 1996, this appeal was dismissed with reasons to follow. This appeal requires us to determine whether the appellant, a beneficial shareholder of the respondent bank, is entitled to have his shareholder’s proposals included in the respondent’s management proxy circular.
I. Factual Background
The appellant, John Robert Verdun, is the beneficial owner of 200 common voting shares of the respondent, Toronto‑Dominion Bank. These shares are held through a registered retirement savings plan (“RRSP”), and the registered owner is the RRSP trustee, Montreal Trust. The appellant is also the beneficial co‑owner (with his wife) of 2,100 common voting shares of the respondent, and the registered owner of these shares is RBC Dominion Securities.
On October 25, 1994, the appellant submitted to the respondent 10 proposals (later increased to 11), with accompanying statements, for inclusion in a management proxy circular. This circular was to be sent to shareholders of the respondent in connection with the annual shareholders’ meeting scheduled for January 25, 1995. The proposals related to the structure, composition, and operation of the respondent’s board of directors, and to procedures at the annual shareholders’ meetings.
On November 4, 1994, solicitors for the respondent wrote to the appellant, advising him that the respondent would not include the proposals in the circular because the appellant was not a registered shareholder, i.e., the appellant did not satisfy the requirements of s. 143(1) of the Bank Act, S.C. 1991, c. 46, as the respondent understood those requirements. In the alternative, the respondent declined to include the proposals because, in the respondent’s opinion, the proposals came within the terms of both s. 143(5)(b) of the Bank Act, in that they were submitted to enforce a personal claim or grievance, namely the appellant’s desire, expressed in an earlier letter, to be nominated for election to the respondent’s Board, and s. 143(5)(e) of the Bank Act, in that they were submitted to secure publicity for the appellant.
In this regard, it may be noted that the appellant had a history of somewhat strained relations with the respondent. The appellant, who is the owner, editor and publisher of several small newspapers, had published articles which criticized the respondent in rather vivid language. The appellant had also participated in shareholders’ meetings and corresponded with the respondent in a manner that could be described as aggressive in nature and tone. Of course, these matters are irrelevant to s. 143(1); they are relevant only to s. 143(5).
II. Issues
This appeal raises two issues. First, is a beneficial shareholder a “shareholder entitled to vote”, within the meaning of s. 143(1) of the Bank Act? This is a threshold question. Under s. 143(1), only a “shareholder entitled to vote” may submit a shareholder’s proposal for inclusion in a management proxy circular. Second, do the appellant’s proposals run afoul of s. 143(5)(b) or s. 143(5)(e) of the Bank Act? Under s. 143(5)(b) and (e), the bank is not required to include a proposal in the circular if it is clear that the proposal was submitted primarily to enforce a personal claim or redress a personal grievance, or to promote general political, social or other listed causes; or if the rights associated with the submission of the proposal are being abused to secure publicity.
The second question is reached only if the answer to the first question is in the affirmative. Because I answer the first question in the negative, I do not reach the second question. Therefore, I refrain from commenting upon the analysis of the learned trial judge with respect to s. 143(5).
III. Relevant Statutory Provisions
- Bank Act, S.C. 1991, c. 46
(1) A bank or a trustee within the meaning of section 294 may, subject to subsections 137(2) to (5) and sections 138 to 141 and 145, treat the registered owner of a security as the person exclusively entitled to vote, to receive notices, to receive any interest, dividend or other payment in respect of the security and to exercise all of the rights and powers of an owner of the security.
(1) A shareholder entitled to vote at an annual meeting of shareholders of a bank may
(a) submit to the bank notice of any matter that the shareholder proposes to raise at the meeting; and
(b) discuss at the meeting any matter in respect of which the shareholder would have been entitled to submit a proposal.
(2) A bank that solicits proxies shall, in the management proxy circular required by subsection 261(1), set out any proposal of a shareholder submitted for consideration at a meeting of shareholders or attach the proposal to the management proxy circular.
(3) If so requested by a shareholder who submits a proposal to a bank, the bank shall include in the management proxy circular, or attach thereto, a statement by the shareholder of not more than two hundred words in support of the proposal and the name and address of the shareholder.
(5) A bank is not required to comply with subsections (2) and (3) if
(b) it clearly appears that the proposal is submitted by the shareholder primarily for the purpose of enforcing a personal claim or redressing a personal grievance against the bank or its directors, officers or security holders, or primarily for the purpose of promoting general economic, political, racial, religious, social or similar causes;
(e) the rights conferred by subsections (1) to (4) are being abused to secure publicity.
IV. Judgments Appealed From
Ontario Court (General Division)
- The appellant brought an application for an order to restrain the respondent from holding its annual meeting until the respondent included the appellant’s proposals in its management proxy circular. In an endorsement, Kent J. dismissed the application, relying upon s. 143(5) of the Bank Act. He did not consider s. 143(1) of the Act. Kent J. was not persuaded that appellant’s proposals were an attempt to redress a personal grievance (s. 143(5)(b) of the Act), but he was persuaded that the appellant’s proposals were submitted to secure publicity (s. 143(5)(e) of the Act). Accordingly, the respondent was entitled to refuse to include the appellant’s proposals in the management proxy circular. Kent J. made no order as to costs.
Ontario Court of Appeal (per Grange J.A., Labrosse and Abella JJ.A. concurring)
- The appellant appealed, and the respondent cross‑appealed. The respondent asked that the application be dismissed on the additional ground that the appellant did not satisfy the requirements of s. 143(1) because he was not a registered shareholder. In an endorsement, the Ontario Court of Appeal held that the appellant was not a “shareholder entitled to vote at an annual meeting” within the meaning of s. 143(1), and therefore he was not entitled to submit a proposal. It was unnecessary to consider s. 143(5). The appeal was dismissed and the cross‑appeal was allowed. The Court of Appeal awarded to the respondent the costs of one appeal, including the costs of an order to expedite (which had been made on the appellant’s motion).
V. Analysis
We are asked to determine a straightforward question of statutory interpretation; namely, whether a beneficial shareholder is a “shareholder entitled to vote” within the meaning of s. 143(1) of the Bank Act.
Both parties made use of several methods of statutory interpretation. These methods included the “plain meaning” approach, a contextual or structural approach (including the use of the expressio unius est exclusio alterius principle), and a purposive approach drawing upon understandings of possible legislative intent, particularly in light of the origins of comparable legislation in Canada and the development of securities regulation rules in the United States. Also included was a policy‑oriented approach which invited us to consider the desirability of interpreting s. 143(1) in a manner that would recognize the evolution of extensive beneficial holdings, and the movement towards granting to beneficial shareholders many of the rights traditionally enjoyed by registered shareholders, with respect to promoting active shareholder participation in corporate governance.
While the parties’ use of these various interpretive techniques is adept, a full discussion of these techniques is unnecessary to the resolution of this appeal. This is so because the language and context of the provisions in question make their meaning clear.
To state the obvious, the first step in a question of statutory interpretation is always an examination of the language of the statute itself. As E. A. Driedger wrote in his text, Construction of Statutes (2nd ed. 1983), at p. 87:
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.... Lord Atkinson in Victoria (City) v. Bishop of Vancouver Island [[1921] A.C. 384, at p. 387] put it this way:
In the construction of statutes their words must be interpreted in their ordinary grammatical sense, unless there be something in the context, or in the object of the statute in which they occur, or in the circumstances with reference to which they are used, to show that they were used in a special sense different from their ordinary grammatical sense.
This principle has been cited by our Court on numerous occasions: see, for example, Friesen v. Canada, 1995 CanLII 62 (SCC), [1995] 3 S.C.R. 103, Stubart Investments Ltd. v. The Queen, 1984 CanLII 20 (SCC), [1984] 1 S.C.R. 536, and Québec (Communauté urbaine) v. Corp. Notre‑Dame de Bon‑Secours, 1994 CanLII 58 (SCC), [1994] 3 S.C.R. 3. When I apply this principle to this case, I conclude that the appellant’s arguments must fail, as I will now discuss.
- For convenience, I will again reproduce s. 143(1) and (2):
- (1) A shareholder entitled to vote at an annual meeting of shareholders of a bank may
(a) submit to the bank notice of any matter that the shareholder proposes to raise at the meeting; and
(b) discuss at the meeting any matter in respect of which the shareholder would have been entitled to submit a proposal.
(2) A bank that solicits proxies shall, in the management proxy circular required by subsection 261(1), set out any proposal of a shareholder submitted for consideration at a meeting of shareholders or attach the proposal to the management proxy circular. [Emphasis added.]
In order to submit a proposal, a person must be “a shareholder entitled to vote at an annual meeting of shareholders of a bank”. This phrase is not defined expressly in the Bank Act nor in provisions which are very similar to s. 143(1). These similar provisions are found in a number of federal and provincial statutes, including the Canada Business Corporations Act, R.S.C., 1985, c. C‑44 (“CBCA”). A previous formulation (in force prior to February 1, 1977) of Rule 14a‑8 under § 14(a) of the American Securities Exchange Act of 1934, 48 Stat. 881 (now 15 U.S.C. §§ 78a et seq. (1994)), is also comparable, but the differences in statutory context, and the fact that in the present appeal there is no need to look outside the four corners of the Bank Act, have persuaded me not to address it.
The appellant urges us to interpret the term “shareholder” and the phrase “a shareholder entitled to vote” as including both registered and beneficial shareholders. To this end, he draws our attention to a number of sections of the Bank Act which he argues are supportive of this view. For instance, he points out that s. 2 of the Act defines the term “complainant” as “a registered holder or beneficial owner” (emphasis added). He notes that s. 7(1) of the Act defines “shareholder” as a person who, “according to the securities register of the body corporate ... is the owner of one or more shares of the body corporate or is entitled to be entered in the securities register or like record of the body corporate as the owner of the share or shares” (emphasis added). Section 7(2) of the Act defines a “holder of a share” by reference “to the fact that the person is registered or is entitled to be registered in the securities register or like record of the body corporate as the holder of that share” (emphasis added). The appellant also submits that by virtue of s. 263 of the Bank Act, which requires registrants to vote beneficially‑owned shares in accordance with the beneficial owner’s instructions, and the Canadian Securities Administrators’ National Policy Statement No. 41, which reinforces the right of beneficial shareholders to direct the voting of their shares, a beneficial shareholder is, effectively, a shareholder entitled to vote.
The respondent offers a number of replies to these points. The respondent submits that ss. 2 and 7 of the Act actually militate against the appellant’s position. Section 2 provides an express definition of the term “beneficial ownership” (it includes “ownership through one or more trustees, legal representatives, agents or other intermediaries”). This indicates that Parliament turned its mind to beneficial owners, and selected a term to designate them. The fact that both the “registered holder” and the “beneficial owner” are included in the definition of “complainant” in s. 2 demonstrates that when Parliament wished to refer to beneficial owners, it did so by using the designated term. The fact that s. 7 uses the terms “person ... entitled to be entered” and “person...entitled to be registered” rather than the term “beneficial owner” indicates that the former terms do not embrace beneficial shareholders. Respondent suggests that the former terms may refer to registration entitlements flowing from the death of a registered owner (s. 96 of the Act) or the transference of the shares (s. 126 of the Act). With respect to National Policy Statement No. 41, the respondent submits that the Policy imposes obligations as between the beneficial shareholder and the registrant (the intermediary) precisely because the Bank Act and other legislation do not grant the relevant rights as between the beneficial owner and the company.
But the respondent’s most compelling argument is based on s. 93(1) of the Act. Again, for convenience, I will reproduce the section:
- (1) A bank or a trustee within the meaning of section 294 may, subject to subsections 137(2) to (5) and sections 138 to 141 and 145, treat the registered owner of a security as the person exclusively entitled to vote, to receive notices, to receive any interest, dividend or other payment in respect of the security and to exercise all of the rights and powers of an owner of the security. [Emphasis added.]
Subsections (2) to (5) of s. 137 relate to the fixing of record dates, ss. 138 to 140 establish notice requirements for meetings, s. 141 addresses special business, and s. 145 relates to the list of shareholders who are entitled to receive notice of a meeting. None of these provisions has direct application to the facts of this appeal.
As we have seen, s. 143(1) provides that only a “shareholder entitled to vote” is entitled to submit a shareholder’s proposal. Section 93(1) provides that a bank is entitled to treat the registered owner as the person exclusively entitled to vote. In the face of the express language and clear meaning of s. 93(1), the appellant’s arguments about the interpretation of the word “shareholder”, and the significance of the beneficial shareholder’s right to vote by means of proxy, are, with respect, unpersuasive. The appellant’s valiant endeavour to construct purposive and policy‑based arguments to support his position must also fail. The statute is clear on its face. The respondent may treat the registered owner as the person exclusively “entitled to vote”; the appellant is not the registered owner, and therefore is not “entitled to vote”; only a shareholder “entitled to vote” can submit a shareholder’s proposal; the appellant is not “entitled to vote” and therefore cannot submit a shareholder’s proposal.
To return to the Driedger rule on statutory construction referred to above, there is nothing in the context of the provisions in question to contradict their plain meaning.
I note that the Ontario Court of Appeal came to the same conclusion in Greenpeace Foundation of Canada v. Inco Ltd., March 21, 1984 (summarized at 25 A.C.W.S. (2d) 149), aff’g [1984] O.J. No. 274 (H.C.), a case which involved the CBCA counterparts to ss. 143(1) and 93(1) of the Bank Act (ss. 137(1) (formerly ss. 131(1)) and 51(1) (formerly s. 47(1)) CBCA).
This is not to say that the appellant’s position is without merit from a policy perspective. While the respondent argues persuasively that requiring a bank to go beyond its share registry to verify the status of beneficial holders may cause administrative difficulties, the appellant counters that the Securities Exchange Commission of the United States has been able to manage these difficulties and is apparently of the opinion that the benefits of allowing beneficial shareholders to submit shareholder proposals outweigh the costs. It is evident that s. 143(1) of the Bank Act and its counterparts on federal and provincial levels represent a legislative commitment to the promotion of shareholder participation in corporate governance. It is perhaps equally evident that, as the Joint Regulatory Task Force on Shareholder Communication (reporting to the Canadian Securities Administrators) observed in its July 1987 report (at p. 5), “[t]here is no going back to the system of widespread registration in the name of individual security holders, nor should there be from the point of view of market efficiency.”
It may well be that Parliament will see fit to amend s. 143(1) of the Bank Act and its counterparts. The respondent drew our attention to a paper entitled Canada Business Corporations Act Discussion Paper: Proposals for Technical Amendments, dated September 1995, which recommended that s. 137 CBCA, a counterpart to s. 143(1) of the Bank Act, be amended to expressly permit a beneficial owner of shares to submit a shareholder proposal. The authors of the discussion paper observe (at pp. 56‑57) that
[a]n amendment to permit beneficial shareholders to submit shareholder proposals under s. 137 would both reflect the current market reality of share holdings and fit into a broader effort to improve communication among the corporation and the owners of its shares.
But however desirable or undesirable such changes might be, they are in the domain of the legislature, not the courts.
I would also observe that, at present, shareholders in the appellant’s position are not entirely without recourse. The beneficial holder may ask the registered holder to submit the beneficial holder’s proposal. Or the beneficial holder may arrange to have one or more shares registered in his or her name. As a registered holder, the shareholder would be entitled to submit proposals in his or her own right. To the extent that these options may be considered unwieldy or otherwise problematic, it is open to Parliament to revisit them.
VI. Disposition
- As noted at the outset, this appeal was dismissed at the hearing. Both parties made oral submissions on the question of costs. Upon hearing these submissions, the Court concluded that, inasmuch as we dismissed the appeal, the order for costs in the courts below would not be disturbed and there would be no order as to costs in this Court.
Appeal dismissed.
Solicitor for the appellant: Philip Anisman, Toronto.
Solicitors for the respondent: McCarthy Tétrault, Toronto.
