Simon's Legal Resources

Financial Regulation - Hedging

. Canada v. Hutchison Whampoa Luxembourg Holdings S.À R.L.

In Canada v. Hutchison Whampoa Luxembourg Holdings S.À R.L. (Fed CA, 2025) the Federal Court of Appeal dismissed merged appeals, these relating to the "withholding tax on dividends Canadian corporations pay to non-residents".

Here the court explains 'hedging' as an investment strategy:

[49] Hedging is like taking out an insurance policy in that a hedge—usually a financial instrument known as a derivative—will protect against a given risk. In most situations, a hedge will not eliminate the risk but will mitigate the financial loss that one would incur if the given risk materialized. Like an insurance policy, a hedge is not free.

[50] For example, the owner of shares in Corporation X may want to hedge against the possibility the value of the shares will fall. To this end, the owner could purchase a put option, that is, an option giving the owner the right to sell the shares at a predetermined price. To obtain a put option, the owner would have to pay a premium.

[51] Although a ""“perfect hedge”"" eliminates all risk in a position or in respect of an asset, it is difficult to achieve and, like any other hedge, has a cost: Bryan A. Garner, ed, Black’s Law Dictionary, 12th ed (St. Paul, MN: Thomson Reuters, 2024) sub verbo ""“hedge”""; Jerry White et al, eds, Canadian Dictionary of Finance and Investment Terms, 2nd ed (Hauppauge, NY: Barron’s, 2000) sub verbo ""“hedge/hedging”""; ""“Hedge: Definition and How It Works in Investing”"" Investopedia (16 May 2025), online: ; ""“Beginner’s Guide to Hedging: Definition and Example of Hedges in Finance”"" Investopedia (27 April 2025), online: .