9 Duties of Care, Skill & Diligence Flashcards
Who owes a duty of care to the corporation?
Generally, directors and officers.
What is the general scope of the duty of care owed to the corporation/others involved?
To act honestly and in good faith in the best interests of the corporation; And to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
What is the source of the duty of care owed by officers and directors?
CBCA s. 122; Common law.
What is the ratio from Re Brazilian Rubber Plantations and Estates Ltd.?
Concerns the lowest level of duty of care, skill and diligence.
Mere errors of judgement are not sufficient to create liability on the directors for breach of duty of care.
Subjective test: Directors need only take reasonable care in doing whatever they do and if a director doesn’t do anything, arguably he or she does not need to take care. Here, the directors were mostly ignorant, but relied on good faith on company officials in reaching the conclusion that the contract would be beneficial for the company.
What is the ratio from Soper v. Canada?
Subjective-objective test: A director need not exhibit a greater degree of skill than may reasonably be expected from a person of their knowledge and experience. See CBCA s. 122(1)(b).
The standard is the “reasonable person” - NOT the “reasonable director”.
What is the ratio from Peoples Department Stores Inc. (Trustee of) v. Wise?
The principle change here is that whereas at present the law seems to be that a director is only required to demonstrate the degree of care, skill, and diligence that could reasonably be expected from him, having regard to his knowledge and experience, under s.9.19(1)(b) he is required to conform to the standard of the reasonably prudent man.
What is the ratio from BCE Inc. v. 1976 Debentureholders?
In short, if you have to pick a side, the court isn’t the best place to pick winners and losers.
The court can pick if there is an all-winner choice, but otherwise they will leave it to the directors to choose, because they are in the better position to do so.
What is the ratio from Kamin v. American Express Company?
Mere errors of judgement in the absence of fraud or self-dealing - are not sufficient as grounds for equity interference, because the powers of those entrusted with corporate management are largely discretionary.
Matters of business judgement - just because you wish they had made a different arguably better choice does not mean that there was a breach of duty assuming that good faith is not in issue.
What is the ratio from Smith v. Van Gorkom?
The rule itself “is a presumption that in making a business decision, the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.
Party attacking a board decision must rebut this presumption. Whether this is true turns on whether directors have informed themselves prior to decision of all material information reasonably available to them.
What is the ratio from UPM-Kymmene Corp. v. UPM-Kymmene Miramichi Inc.?
Asks - were the other members of the board duly careful?
Board is supposed to maximize shareholder welfare. Proper role of experts is to advise, not remove directors’ duty to be careful.
The business judgement rule cannot apply where the Board of Directors acts on the advice of a director’s committee that makes an uninformed recommendation: 1) In order to act in the best interests of the shareholders of Repap, each director was required to understand the terms and meaning of the agreement; 2) The directors did not fulfill their duties to Repap. Their decision was not an informed or reasoned one. The business judgement rule cannot be applied in these circumstances to protect their decision from judicial intervention.
What is the ratio from CW Shareholders Inc. v. WIC?
Directors’ actions are not to be judged against perfect hindsight. Should be measured against facts as they existed at time decision was made. Courts should be reluctant to substitute own opinion for directors where decision was based on advice of financial and legal advisors.
Where business decisions have been made honestly, prudently, in good faith and on reasonable and rational grounds, the court will be reluctant to interfere and to usurp the board of directors’ function in managing the corporation.
ASK: Was the result reasonable? Was the process reasonable? If yes to both, won’t subject them to microscopic examination.
