COUNCIL OF LEGAL EDUCATION

HUGH WOODING LAW SCHOOL

Academic Year 2016/2017

YEAR OF PROGRAMME: 2

ASSIGNMENT #: 2

COURSE NAME: CIVIL PROCEDURE AND PRACTICE II

CORPORATE PRACTICE AND PROCEDURE

COURSE DIRECTORS: MS. PAULA PIERRE

STUDENT I.D. NO:

JURISDICTION:

GROUP NO:

Issue A
Legislation

As a director of the company, the Chair must disclose the nature and extent of any
material interest in any body that is a party to a proposed material contract with the
company (Section 90(1)(b), Companies Act, Cap. 89:01, hereinafter “the Act”). Since
he is related to the supplier with whom there is a proposed contract for the purchase of
equipment, the contract will be considered material for the purposes of the statute (Exide
Canada Inc. v Hilts (2005) 11 BLR(4th) 311). That there is a real possibility of a conflict
of interest is sufficient (North-West Transportation Co. vs Beatty [1887] 12 App. Cas.
189), and failure to disclose this may cause the court to set aside the contract upon
application by the company or a shareholder (Section 93, the Act).

Procedure

The Chair must therefore make this disclosure in writing, or request to have it entered
into the minutes of the upcoming meeting when the proposed contract will apparently
first be considered (Section 90(2)(a), the Act). However, a general notice to this effect
will be sufficient (Section 91, the Act). This will prevent the contract from being void or
voidable even if he is present at the meeting and counted to constitute a quorum (Section
92, the Act). However, he should not vote on this proposal (Wade v Kendrick (1905) 37
SCR 32), for if he does the decision will not be valid unless it is approved by not less
than two-thirds of the votes of the shareholders to whom notice of his interest is given in
reasonable detail (Section 90(5)(e), the Act). The Board must then make and enter into
the minutes a resolution on the proposal that is in the best interest of the company
(Section 96(1)(a), the Act), which especially speaks to its financial interest. The
supplier’s track record may be considered, but the Board must consider whether they can
bypass the tendering process and, if so, whether this will be in the best interest of the
company, considering the value of fairness and transparency to the company’s public
image.

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Issue B

Legislation

The CEO, as an officer of the company, also has a duty to disclose a material interest in a
body that is party to a material contract with the company (Section 90(1)(b), the Act).
Since his wife is a director of the company retained by Construct It Ltd. to provide
software for its new electronic system, this is an actual conflict of interest which should
have been disclosed by him, even though he is a non-voting member of the Tenders
Committee. His failure to disclose this renders the contract voidable upon application by
the company or a shareholder of the company (Section 93, the Act). Since it is the
company to whom he owes fiduciary duties, any action brought must be in the name and
on behalf of the company (Section 222(1), the Act) and may only be brought if the Court
is satisfied that it appears to be in the best interest of the company (Section 222(2)(c), the
Act).

Procedure

The issue must be brought to the attention of the Board, and the CEO should be given an
opportunity to address it. The Board must the make a resolution as to what, if any, action
should be taken against him. Since there is an actual conflict and the contract may be set
aside, the Board must also decide whether this is best for the company (Section 96(1)(a),
the Act). We are informed that the system will save the company millions of dollars
annually, and thus it would appear best for it to be maintained. The fact that an
unsuccessful bidder has legally challenged the retention should not prevent the company
from doing this, as he cannot bring an action on behalf of the company. However, while a
resolution may be made to challenge the action on the basis of locus standi, the Board
may also consider the public effect of such information, and for the preservation of
fairness and transparency may still make a resolution to apply to the Court for the
contract to be set aside, followed by a re-tendering.

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Issue C

Legislation

The Board must have regard to the interests of the company’s employees in general as
well as the interests of its shareholders in determining the best interest of the company
(Section 96(2), the Act), but the duty is owed to the company alone (Section 96(3), the
Act). The company may thus terminate the employment of employees as part of a
reduction in the work force owing to the commissioning of the new electronic system
(Section 12(2)(a), Termination of Employment and Severance Pay Act, Cap. 96:01,
hereinafter “TESPA”).

Procedure

When the issue is raised the Board will have to weigh the potential consequences to
determine what best serves the interest of the company. If it decides to proceed with
retrenchment they must arrange for the recognised trade union to be informed, within one
month from the existence of the circumstances resulting in the termination, of these
circumstances, the reasons, the number and categories of persons to be affected and the
period over which the retrenchment will occur (Section 12(3), TESPA). A consultation
with the union must also be arranged, as such a consultation is necessary before a final
decision is taken (Section 23(5), Trade Union Recognition Act, Cap. 98:07).

From the facts available it appears that an agreement with the Union for a partial
deferment of the retrenchment may be in the company’s best interest, since the potential
liquidated damages and damage to its reputation from the halted construction project may
be more detrimental than any losses suffered by a delay in the commissioning of the new
system. It will be the Board’s responsibility to examine this thoroughly for proposal to
the shareholders at the upcoming Annual General Meeting (AGM), especially since the
majority shareholder has expressed his grave concern with such a move.

Since the retrenchment appears inevitable even if delayed, the Board may resolve to
negotiate suitable terms with the Union such as assisting in the retrenched employees

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finding new employment, which may also maintain a good relationship with the Union
that may be beneficial in the future.

Issue D

Legislation

Directors have a duty to act in the best interest of the company (Section 96(1)(a), the
Act), and in doing so they must consider the interests of the shareholders of the company
(Section 96(2), the Act). However, the duty is owed to the company alone (Section
96(3), the Act), and not to any individual or group of shareholders. Nevertheless, since a
director may be removed at a general meeting by ordinary resolution (Section 71(1), the
Act), and this vacancy may be filled at the same meeting (Section 71(3), the Act) by
ordinary resolution (Section 68(1), the Act), the majority shareholder may do as he
desires by demanding a vote by ballot (Section 132, the Act), in which case he will have
one vote for every share held (Section 129, the Act) and thus hold the majority vote.
However, two persons may not be appointed by a resolution unless a resolution that this
be done is first made and passed unanimously (Section 68(6), the Act).

Procedure

The Board may have to resolve to conduct a complete assessment of the potential issues
that may arise from the proposed appointments. In both cases, there appears to be
significant potential for conflicts of interest in the performance of directors’ duties by
those persons. The nominee linked to a competitor may always have conflicts of interest
since the interests of the company and its competitor will rarely, if ever, align. Likewise,
the nominee with political connections may always be affected by those connections,
whether the effect is actual or perceived. The extent of their ‘links’ and ‘connections’
need to be ascertained by further investigation before decisions are made, but neither
seems, prima facie, to be suitable nominees.

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Afterwards, a resolution must be made to put this argument to the shareholders,
indicating that the decision may actually negatively impact the financial performance of
the company, which will affect its profitability and thus its shareholders’ financial
interest. If this is done, the majority shareholder may be more inclined to agree with the
Board’s decision and choose to not challenge it.

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