The Importance of the Casting Vote at Directors Meetings

Published on: August 2023 | What's Trending

Toy figurines placed around a handwritten sign saying yes/no

The Chairman’s Casting Vote at Directors’ Meetings

When the directors of a corporation are deadlocked about an issue, can the chairperson  have a second or casting vote? Yes, but there are a few important considerations. In summary, it’s important to clarify from the outset that the chair has this right and, even when this voting ability exists, to understand that its use can still be limited in certain ways.

Background on Casting Votes

A casting vote is an extra vote provided to resolve a tie, and can be either exercised or withheld in the context of a deadlock. As such, it can be a very influential instrument for a chairperson and will likely have an impact on board discussions even before they are put to a vote. Importantly, for shareholders concerned about the ability to freely nominate and remove directors, the casting vote is also generally not considered to constitute “control” for income tax purposes. In all, it is an important instrument to consider granting to the chairperson of a board.

At common law, a chair does not have an automatic casting vote,[1] and neither the Canada Business Corporations Act nor the Ontario Business Corporations Act (the “Statutes”) specify whether a chair has such a right. For that reason, most corporate by-laws now contain a provision that the chairperson either does – or does not – have a second or casting vote. While the casting vote is now well-recognized by courts, this does not, however, guarantee that exercise of such will always be appropriate.

Limits on Use of a Casting Vote

Just as the Statutes and common law are silent on the existence of a casting vote, they provide no guidance on its use and, unfortunately, case law is not entirely uniform on this point either. However, an overall duty to act in good faith appears to be a common thread throughout.

In court decisions, this duty to act in good faith has often been interpreted to prevent use of a casting vote in promoting personal interests, especially when conferring competitive advantages within the context of a dispute. That said, case law is very nuanced on this point.

For example, in Daniels v. Fielder (65 O.R. (2d) 629 (Ont. Ct. Jus., 1988), a 50 percent shareholder used a casting vote to exclude the other 50 percent shareholder and take control of the corporation. The court held that this use of casting vote was “inconsistent with the partnership basis” underlying the company (as discerned through core documents) and, as such, even struck the provisions from the by-laws providing for such.

However, in a later Supreme Court of Newfoundland and Labrador decision, Alacoque v. Alacoque, the court allowed the casting vote to oust a 50 percent shareholder, and the real dispute in the case centered on which of the two shareholders would be permitted to exercise that power. The court did not find any basis for disallowing use of the casting vote to take control of the company in either the statutes or the by-laws, and therefore allowed such use. In this case, there was no discussion of equality of control in the core documents of the Company.

Exercise Care in the Use of the Casting Vote

The difference in decisions can make it challenging to definitively predict how a court would allow use of a casting vote – particularly where use would also provide a personal advantage or benefit. Thus, it is always safest to be prepared to demonstrate how use of the casting vote serves the betterment of the corporation, as opposed to advancing personal and competitive interests.

If you would like to discuss the pros and cons of allowing a casting vote in your by-laws or whether a particular use of the casting vote constitutes a breach of duty to act in good faith, a member of our business law group would be happy to speak with you.

[1] Nell v. Longbottom, [1894] 1 Q.B. 767 (Q.B.D.)