Legal Updates

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Wednesday, February 1, 2017

The Ontario Superior Court of Justice (the “Court”) in its recent decision in Koh v. Ellipsiz Communications Ltd. has contributed to the line of cases defining the ability of a shareholder to exercise the right to requisition a meeting of shareholders under the Business Corporations Act (Ontario) (the “OBCA”). 


In November 2015, Ellipsiz Communications Ltd. (“ECL”) became a public company following the completion of a reverse takeover. The principal asset of ECL is a wholly-owned Taiwanese operating subsidiary, Ellipsiz Communications Taiwan Ltd. (“ECTW”). ECTW operates an engineering services business that provides technical engineering services to major telecommunications companies in Taiwan. 

On May 18, 2016, ECL’s board of directors (the “Board”) unanimously approved a management information circular for ECL’s annual meeting of shareholders to be held on June 30, 2016 (the “Meeting”),which included a proposed slate of directors comprised of the largest shareholder of ECL (the “Requisitioner”), the president of ECL and ECTW, three resident Canadians (the “Canadian Directors”) and another individual. 

On or about June 29, 2016, the Requisitioner (who owned approximately 42% of the outstanding shares of ECL) changed his mind and attempted to withhold his votes in respect of the Canadian Directors at the Meeting. At the Meeting, the scrutineer rejected the Requisitioner’s proxy, and the slate of directors proposed by ECL was elected, including the Canadian Directors. 

In August 2016, the Requisitioner demanded that the Canadian Directors resign, failing which he would requisition another shareholders meeting to remove them. When the Canadian Directors failed to resign, the Requisitioner submitted a requisition (the “Requisition”) pursuant to the OBCA seeking a shareholders meeting to be convened to consider two resolutions -  a resolution to remove the Canadian Directors and, if approved, a further resolution to elect three new directors identified in the Requisition. 

The Board rejected the Requisition. The basis for its decision was its assertion that the Requisition was for the primary purpose of redressing a personal grievance of the Requisitioner against ECL and its directors. In particular, among other items, the Board claimed that the Requisitioner: (i) wanted to be chairman of ECL and ECTW; (ii) wanted to be ECL’s negotiator in respect of a potential ECL acquisition; (iii) wanted to arrange financing for ECL; and (iv) insisted on reimbursement of expenses related to ECL. As such, the Board asserted that it was entitled to decline the Requisition pursuant to the OBCA. 

The Requisitioner applied to the Court seeking, among other relief, a declaration that the Requisition was valid.               

The Requisition Right 

Under the OBCA, the  holders  of  not  less  than  five per  cent  of  the  issued  shares  of  a corporation that carry the right to vote at a meeting sought to be held may requisition the directors to call a meeting of shareholders for the purposes stated in the requisition. Upon receiving the requisition, the directors must call a meeting of shareholders to transact the business stated in the requisition unless: (i) a record date has been fixed and notice thereof has been given; (ii) the directors have called a meeting of shareholders and have given notice thereof; or (iii) the business of the meeting as stated in the requisition includes certain prescribed matters, including those in which it clearly appears that the primary purpose of the requisition is to enforce a personal claim or redress a personal grievance against the corporation or its directors, officers or security holders. The Board refused the Requisition on the basis of (iii). 

The Contending Positions of the Parties 

In support of the rejection of the Requisition, ECL submitted to the Court that the fundamental cause of the dispute between the Requisitioner and ECL was that the Requisitioner objected to what he perceived to be a lack of respect for him, particularly in his capacity as the largest shareholder of ECL. ECL contended that the evidence demonstrated that the Requisition was primarily directed to redressing this personal grievance against the Canadian Directors, whom the Requisitioner believed had frustrated or impeded his personal agenda. 

The Requisitioner claimed that there was nothing on the face of the Requisition that supported the Board’s view that the primary purpose of the Requisition was to redress a personal grievance. The Requisitioner characterized the purpose of the Requisition as being the reconstitution of the Board and submitted that this purpose related entirely to the business and affairs of ECL. The Requisitioner claimed that there was no evidence to support the Board’s determination that the Requisition was for the primary purpose of allowing the Requisitioner to seek personal retribution or redress of a personal grievance against the Canadian Directors, and that the Canadian Directors were attempting to entrench themselves as directors in breach of their duties to ECL’s shareholders. 

The Decision of the Court 

In answering the question of what constitutes a personal grievance for the purposes of the requisition right in the OBCA, the Court stated that a personal grievance “involves a dispute that does not entail an issue of corporate policy or operations, but rather involves an issue primarily pertaining to the personal interest of the complainant.” The Court further stated that relevant considerations could include “not only the nature of the dispute at issue, but also: (i) the extent to which such dispute is properly the subject of a shareholders meeting, or lies within the domain of the directors; and (ii) the extent to which the complainant acted alone or with the support of other like-minded individuals.” 

The Court also set out the following principles in evaluating whether the rejection by a board of a requisition as a personal grievance is justified: 

  • The OBCA requires that a board must call a requisitioned meeting unless it is “clearly apparent” that the business proposed by the requisitioner is proposed for the primary purpose of redressing a personal grievance.
  • It is necessary for a board to look beyond the language of a requisition to determine the primary purpose for which the requisition is put forward. In making this determination, a board is not making a business decision. Rather, the board’s determination must be made on the basis of objective evidence in the form of the requisitioner’s actions, including an examination of any documentation prepared and delivered by the requisitioner. The objective evidence cannot be limited only to an examination of the resolutions in the requisition.
  • A determination of the requisitioner’s primary purpose must be made against a standard of what a director would reasonably find based on the evidence before the directors.
  • The OBCA imposes a high threshold of proof (the onus of the proof being on the board) by virtue of the requirement that it must be clearly apparentthat the primary purpose of a requisition is to enforce a personal claim or redress a personal grievance. A board’s authority to refuse to call a meeting depends on such a finding. This reflects, among other things, the fact that the right of dissident shareholders to requisition a meeting of shareholders is a fundamental right in respect of corporate governance afforded by the OBCA. 

With respect to the evidence before the Court, ECL submitted affidavits of each of the Canadian Directors and the president of ECL and ECTW, which included correspondence from the Requisitioner, minutes of meetings of the boards of ECL and one of its subsidiaries, and other documentary evidence. The Requisitioner did not submit any evidence regarding his purpose in making the Requisition. The Court noted that the Requisitioner’s letter demanding the resignation of the Canadian Directors did not set out any specific issues of corporate policy in dispute between the Requisitioner and the Canadian Directors, and that “there is no evidence before the Court that the Board had functioned in a dysfunctional manner nor that any directors had engaged in clandestine activity. Nor is there any evidence of any complaints from any shareholders other than the applicant [the Requisitioner].” 

Based on this evaluation of the evidence, the Court found that the Board had properly exercised its right to reject the Requisition, and declined to issue a declaration that the Requisition was valid:

“The foregoing evidence collectively supports the conclusion that the applicant’s alleged concerns were never credible. Accordingly, I conclude that the evidence regarding the applicant’s opposition to the reconstitution of the board of directors does not reveal any serious difference of opinion among the directors regarding the corporate governance or operations of ECTW. Instead, I find that the applicant was, in fact, principally concerned to maintain his position as a director and chairman of ECTW.” 

“In a larger sense, the acrimony between the applicant and the Canadian Directors reflects a conflict between the applicant’s sense of his entitlement as the largest shareholder of ECL and the Canadian Directors’ position that these matters are properly addressed by the Board and that, as a director, the applicant should act in the best interests of ECL. The important point is that the evidence described above regarding the five matters in dispute demonstrates that the applicant’s position reflected his own personal interests rather than any larger sense of the best interests of ECL. In other words, the dispute does not reflect a significant difference between the parties regarding corporate policy or corporate operations.”


Koh v. Ellipsiz Communications Ltd. is an important decision because in it the Court sets out principles in examining whether a requisition has been validly rejected by a corporation’s board on the grounds that it is a personal grievance. The parties to the case agreed that until this decision of the Court, there was no case law directly on point. 

There have been a number of cases in recent years in which shareholders whose requisitions have been rejected, or hindered, by boards have complained to the courts. The results of these cases have been generally unfavourable to the requisitioning shareholders. For example, courts have taken a strict statutory interpretation approach in judging whether shareholders have properly followed prescribed procedures to exercise the requisition right. This literal approach has enabled boards to thwart substantively valid requisitions on technical grounds. Courts have also deferred to the business judgement of boards as to when a requisitioned meeting should be held; this deference has given boards strategic advantages as to the timing of putting contentious matters to votes of shareholders. 

For activist investors, Koh v. Ellipsiz Communications Ltd. gives some welcome relief from this board-friendly trend. The decision puts the onus on the board to clearly prove that it had reason to block the requisition. Critically, the appropriateness of a board’s actions will be judged objectively, and not by giving deference to the business judgement of the board. Also, the decision gives practical guidance respecting behavior that will fall into the “personal grievance” category. Presumably, in most instances, this behavior should not be problematic to avoid. 

If you have any questions with respect to the matters discussed above, please contact Mark Wilson ( or any other member of our Corporate Governance practice group. 

This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.


Mark Wilson