Company Law Question Solution Essay
Ramrajee Baboo is a young attorney with a Master’s Degree in Corporate Law, specialising in project financing documentation. Ramrajee has been appointed to the Board of UDECOTT as it moves forward in a new program based on project financing for its new proposed constructions. UDECOTT is a state enterprise and Ramrajee is paid a stipend of $3,000.00 per month. UDECOTT had previously engaged the services of a general commercial law practitioner, Buji Bamee, to provide legal advice at a cost of $50,000.00 per month. Unknown to Ramrajee, the Chairman of the Board in an informal meeting with the Chief Executive Officer of UDECOTT agreed to terminate the contract of the consultant and have Ramrajee vet the project financing documents in her capacity as a director.
Ramrajee was never informed of this decision. Two weeks prior to a board meeting, Ramrajee received board papers including certain project financing contracts for discussion at the next board meeting (scheduled to take place two weeks later). Ramrajee perused the papers cursorily and made certain brief notes. At the board meeting the documents were discussed and Ramrajee made certain general observations. The agreements were subsequently executed.
It later transpired that the documents were not properly vetted and UDECOTT suffered a 10 million dollar loss. The agreements were not examined by any attorney other than Ramrajee. The government minister responsible for UDECOTT is quite annoyed and would like someone to be held liable. The Chairman said he relied on Ramrajee to vet the documents but Ramrajee has stated that her duty is that of a general review and would have needed detailed legal analysis beyond what is contemplated by her role as a director to uncover the deficiencies in the documents that occurred. Advise the Minister as to the conduct of Ramrajee.
ISSUE: Did Ramrajee exercise the level of skill required of her as director?
LAW: Directors’ behaviour in office is governed by statutory and common law. Directors hold a fiduciary responsibility to the company for which they work which requires them to properly manage the assets of the company within the powers conferred on them.
Under statute, according to section 60(b) of the Companies Act of Trinidad and Tobago, a director shall “direct the management of the business and the affairs of the company”. In effecting this management, he must do so in accordance with section 99(1) of the said Act which states that a director and officer of a company shall in exercising his powers and discharging his duties: a) Act honestly and in good faith with a view to the best interest of the company; and b) Exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. These are all to be done in the best interest of the company. Where directors act in accordance with section 99, they may be indemnified against any liabilities incurred as a result of holding such a position pursuant to section 101.
Under common law, the director owes a fiduciary duty to the company, as found in Pardy v Dobbin NFCA 11 (CanII), which “exacts from directors a strict ethic to act honestly and in good faith in the corporation’s best interest”.
ANALYSIS: As a director of the board, Ramrajee owed a very specific duty of care towards the company. In particular, she was expected to exercise diligence and a level of skill that reflected her qualifications, as found in section 99(1)(b). While Ramrajee was unaware of the informal decision to terminate the consultant who was hired to perform general commercial law activities, the mere fact that Ramrajee was a member of the Board and had specialized skills in project financing documentation means that it would be expected that she use these skills. Moreover, the highly-paid consultant was a general practitioner and did not have this specialized skill.
In addition, she was given two weeks to review the documents during which time she could have scrutinized them, but she did not. Her duties under statutory and common law required her to review the documents carefully. She did not exercise the level of care and skill required by her fiduciary position which was not in the best interest of the Company. As she breached section 99 of the Companies Act, as well as her common law fiduciary duties, she should be held liable and will not be indemnified by the company under section 101 for the loss sustained.
RECOMMENDATION: Minister, she is in breach of her statutory and common law duties and should be held liable.