Business Organizations Law: Allard School of Law, UBC

Unbearable weirdness: The portrayal of In-House Counsel in “Pretty Woman”

By zenracer on June 26, 2019

One thing I mentioned towards the end of the course was that someday I wanted to do a post reviewing the corporate law aspects of the 1990 Julia Roberts/Richard Gere ~~film~~ movie “Pretty Woman”.

“Pretty Woman” is mostly awful, especially when watched from the vantage point of 2019. Leaving aside the myriad blatant instances of sexism and stereotypes, the focus here will be on the considerable irregularities of Philip Stuckey Esq. (played by Jason Alexander) and his totally odd relationship to corporate takeover maven Edward Lewis (played by Richard Gere).

So what’s weird? Let us count the ways:

In the opening scene of the movie Edward is super-demeaning to his counsel, saying “Phil is just my lawyer”. Have to admit I’ve never seen that or anything close to it – seriously, joking, or otherwise. There are lots of things that happen to counsel, but disrespected publically by a CEO is rarely one of those things.
Edward’s corporate base is Los Angeles. Phillip is in New York. Huh? Non-sense. Top counsel and CEO are rarely if ever based in different offices. Don’t even know why the writer’s wanted to do this as nothing plot-wise seemed to hang on it.
Have you ever seen corporate signage that names the lawyer or or law-firm involved? Who came up with this stuff?
The most unrealistic scene has to be when Phillip the lawyer gets upset with his CEO, Edward for taking a day off. Seriously? Never happens. Never will.

There is so much else that is ridiculous about Phillip as screen-written. He is an awful human, a boorish, pathetic, churlish lawyer who never overtly does anything resembling the practice of law. He gives lawyers a bad name. Fortunately he makes so little sense as a character that I doubt anyone who is not a lawyer would even identify him as an in-house counsel. Simply, this is a fictional movie whose fictions are pretty well complete. Reality need not apply.

Jon

P.S. This is a version of an original post at https://lawf3780-w2019.trubox.ca/

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Memes & Memories

By zenracer on December 30, 2018

When I saw the article you can link to above, memories certainly came flooding back. I had no idea what to expect when trying to give a corporate law lecture by inventing/using memes tailored to the purpose. After the fact it certainly felt like a “love it or hate it” event (possibly more the latter). That said it was not met with indifference from what I could see. The article is all happiness and joy when it comes to using memes in a classroom, and is limited in that way. That said, even the negative to the extent it manifests, creates the stickiness of (hopefully) useful memory of the topic at hand….”Powerful”? Yes. Positive? Maybe…

Jon

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Last Thoughts on Corporate Personhood

By floriana costea on December 21, 2016

I am glad to be able to say that my perception of corporate personhood that I had coming into this course has been reshaped radically through learning about the complexities inherent in corporate governance. Better understanding the tensions between different key actors such as directors, shareholders, and management, has helped me surpass my formerly simplistic notion about the evils of limited liability and corporate personhood.

Leaving this course I am more optimistic about the direction the Canadian courts are taking the corporations in. Even if looking at the historical changes in the jurisprudence the pace of change seems too slow, at least on the topic of director duties there have been some positive changes. The historical approach highlighted through the Dodge case allowed only one interpretation of acting in the best interests of the company, that of maximizing the profit for the shareholders. The newer approach emphasized in Peoples and BCE clarified that in determining whether directors are acting with a view to the best interests of the corporation it may be legitimate for the directors to consider, inter alia, the interests of shareholders, employees, suppliers, creditors, consumers, governments and environment. I believe the changes in our culture and our society’s increasing ambition to hold corporations responsible is reflected in these decisions. However, this new principle only permits the directors to consider these other stakeholders’ interests and it doesn’t exactly place this obligation on them. Although it’s a huge step, this provision still only operates to protect directors. I am looking forward to a more radical shift, where perhaps the courts could change the wording to “directors must consider” these interests. Although this principle still wouldn’t mean that directors must also act in a way that reflects their concern for other stakeholders’ interests, the principle would still have the potential to inject more accountability into corporate governance.

Discussion Activity 8.1

By rosegentry on December 21, 2016

I believe the test that is emerging is: Whether or not the shareholders bona fide or genuinely believed that the alteration was for the benefit of the company as a whole.

As stated in the test, shareholders need to act bona fide or honestly when voting on a special resolution. They have to vote believing that it is in fact in the best interest of the company as a whole.

Greenhalgh v. Arderne Cinemas Ltd. tells us that when shareholders are considering the company “as a whole” they are not meant to consider the company as a commercial entity. Instead, they are to take a single hypothetical member and ask “whether what is proposed is, in the honest opinion of those who voted in its favour, for that person’s benefit”. This case goes on to state that “shareholders cannot discriminate between the majority shareholders and the minority shareholders, so as to give to the former tan advantage of which the latter were deprived.” If they were to do so they would be liable for impeachment.

I feel like this section is a bit unclear on exactly what should be considered or not considered when shareholders are voting and I feel like it can be considered highly subjectively.

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Conflict of Interest and Duty

By rosegentry on December 21, 2016

I believe as a director, James H. Beatty owed a duty to the company to act in its best interest and avoid conflicts of interest. However, as a shareholder, he did not have that duty.

I don’t think that the shareholder vote necessarily relived him of that duty. Instead, it was his absence at the directors meeting that approved the transaction that negated that duty. The shareholders vote to ratify the directors meeting decision was allowed and not seen as a breach of duty because in that situation he was wearing his shareholders hat and not his directors hat. As stated on the course website “a shareholder’s vote is not disqualified by a private interest being at stake”.

I am not sure if North-West Transportation Co. could have maintained contract with James H. Beatty and also sue to recover any profit he benefitted from as a result of the transaction? I am thinking not… I do not believe that this was oppressive to other shareholders nor was it a directors’ breach of the corporation’s rights. It was substantially admitted that the steamer was essential to the efficient conduct of the companies business and the steamer was well adapted to the business and the money that was paid for the steamer was not excessive nor unreasonable.

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Discussion Activity 7.1

By steven on December 20, 2016

Peoples stated that the fiduciary duty should be judged from an objective standard which takes in to account the elements that the decision was made in, but not the director’s subjective motivations. They said the comparable circumstances require the context in which a given decision was made to be taken in to account, but that does not mean the competence of the director. I think in the context of board meetings by telephone it would require that it was the best option available. In situations where the directors are not in the same region and will not be able to make it there quick enough for a board meeting, a meeting via telephone would suffice. I think in this day and age, with the majority of large companies being multinational, board meetings by telephone may be the best option for directors at times given the circumstances.

Soper, which was a decision prior to Peoples, stated that a director does not need to perform his or her duties to a greater degree of skill and care then may be reasonably expected from a person of his or her knowledge and experience. They went on to say that they only have to attend meetings that are reasonably possible to attend. Peoples clearly stated that a director’s competence should not be considered when deciding whether they fulfilled their fiduciary duty to the company, therefore, the principles of Soper are not exactly the same as Peoples. I think Peoples used the principles from Soper as a starting point, but then decided to raise the threshold for what constitutes a director fulfilling his or her fiduciary duty.

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Thinking Back to Partnerships…

By jasminen on December 20, 2016

Thinking way back to partnerships for my final post—Discussion Activity 3.2:

The provisions of the Ontario Partnership Act relevant to determining the existence of a partnership between X and Y are sections 2 and 3. Section 2 of the Act defines partnership as the relationship between “persons carrying on a business in common with a view to profit…”. Section 3 lays out the rules for determining a partnership—clarifying that while common property or part ownership and sharing of gross returns (revenues) do not automatically create a partnership, there is a presumption of partnership, in the absence of evidence to the contrary, where a person receives a share of the profits.

X and Y’s situation raises two questions:

Are they carrying on a business in common?
Are they sharing profits, and as a result in the position of a presumptive partnership subject to evidence to the contrary?

The factors that differentiate co-ownership from a partnership agreement, and what it means to carry out a business in common and share profits, is elucidated by the case law. A.E. LePAGE Ltd. v Kamex Developments Ltd. provides that co-ownership does not automatically create a partnership relationship. Rather, we must look to the intentions of the co-owners in the context of their particular situation to determine whether or not they intended to carry on a business together. In that case, the court found that the co-owners of an apartment building had not formed an intention to carry on a business together based the terms of the co-ownership agreement, and the further steps taken to keep the co-owners’ respective beneficial interests separate for tax purposes. The need to look both to the Act and the particular facts of a case was re-iterated in Volzke Construction Ltd. v Westlock Foods Ltd. There the court rejected control as a determinative factor of partnership, finding instead that factors such as the existence of a joint checking account, the agreement to share costs and profits on an 80/20 basis, the company’s referral to each other as partners, and the company’s joint management of the property, when taken together with the Act, indicated that the companies were in a partnership relationship. Finally, looking to Pooley v Driver, it should be kept in mind the declaration by parties that they are not partners is not in itself determinative of a partnership. Whatever the parties claim, the court may analyze the business relationship and examine the true circumstances of that relationship to determine whether or not it is, in practice, a partnership.

Certain language and terms within the agreement between X and Y appears to be indicative of an intention to carry on a business in common. Similar to Westlock the parties make reference to themselves as Partners, and the agreement itself purports to deal with the work schedules and rules for the “management and operation” of the business. The parties also share certain costs, namely, 50% each of the responsibilities and obligations under the lease agreement. Unlike Westlock, and more similarly to Kamex, however, multiple terms of the agreement appear aimed at keeping the parties’ interests separate. There are clearly defined days on which either party manages the business, and they are entitled to “any and all” of the revenues earned on their particular days of occupation. Clause 2.10 requires that the parties report respective revenues separately and file taxes separately. Moreover, the parties retain the latitude to run their own advertising campaigns and source and sell their own hair related products, with a few restrictions.

Given the structure of the agreement, I would argue that X and Y are not sharing profits from the business. The division of operation days and entitlement to revenues from those days could be framed as a mechanism for dividing profits. However, because that X and Y maintain a right to gross profits rather than net profits for their operation days, and assuming the only costs they are required to cover together are those that arise under their lease obligations, it seems the structure of the agreement was intended to allow them to keep their respective net profits separate.

Even should a court construe the division of revenue as a sharing of profits however, the provisions of the agreement, read as a whole, would likely rebut a presumptive partnership in favour of co-ownership. The facts of this case bear more similarity to Kamex than Westlock. The parties keep revenues separate, they do not share a bank account, they do not file income tax returns together, and whether or not they manage the enterprise together is debatable. Yes, they laid down rules together, but each appears free to manage and promote the business as they wish on their respective operation days, provided they fulfill certain obligations (keeping the shop clean, not selling products that are not hair related, etc.). While the parties refer to themselves as partners in the agreement, the provisions of the agreement seem to be aimed at setting out their respective rights and obligations as co-owners, as opposed to laying out a partnership agreement.

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Democracy, The Tyranny of the Majority and Corporate Shareholders

By epark on December 20, 2016

I remember from 7 years ago when I first took an undergrad introduction to political science course and first learned about Jeremy Behtan’s utilitarianism theory and John Stewart Mill’s theories on democracy. Betham was a liberal and an utilitarian who argued that if people were free to do what was in their best interest and whatever that gave them the most utility, society’s overall utility would increase and hence benefit society as a whole. Mill echoed this and said that people should be free to do as they want to increase utility, but subject to one qualification. That qualification is that a person can do as he/she wishes as long as it does not harm others.

Mill also talks about democracy and the tyranny of the majority. He says that minority rights could be infringed upon if everything was decided by the majority for interests of the majority. He suggested and democratic checks and balances and constitutional rights (bill of rights) could protect against the tyranny of the majority.

I mention my vague recollections of Mill because reading about minority shareholder rights in Allen v Gold Reefs and Greenhalgh v Arderne Cinemas and how the judges tried to deal with the issues were reminiscent of Mill’s approach to democracy and utilitarianism.

In the first case, the judge considers two arguments. The first argument was argued by Justice Peterson in Dafen where he argues that it is unjust for the majority to expropriate and decide what is in a corporation’s benefit and that the majority should not have the power to make decisions (power to change articles) unless it was for the company’s benefit. He seems to take an interventionist stance where the courts would be allowed to decide what was in the company’s interest and benefit. On the other hand, Scrutton J and Banks LJ cited in Allen state that courts should not be interfering in a corporation’s decision as to what was in the benefit of a company. In Greehalgh, the judge finds in faour of the latter approach and says that the term “benefit to the corporation as a whole” does not mean the corporation as a commercial entity, but means the body of corporators generally. He further argues that if it was in the honest opinion of a voter what was in the best interest of the corporation and the majority decided the same way, that decision should not be impeached by the courts. Furthermore, the judge states that the voters/shareholder is not required to disassociate himself/herself from their own perspectives and consider the benefit to the company as a “going concern.” However, there is one exception to this argument which is that a resolution by the majority should not provide an unfair advantage for the majority that the minority is deprived of.

I think that this line of reasoning very similar to Jeremy Bentham and Mill’s theories. A shareholder/voter in a resolution could vote however it wanted according his own prospects and interests if he honestly believed that the decision would benefit the body of corporators. However, if the resolution provided an unfair advantage to the majority then the courts would step in to correct and fix the tyranny of the majority. I could infer that based on these two decisions that at leas in the English courts in the 1950s classic liberalism prevailed and that the economic trend at that time would not have been much different.

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Discussion Activity 8.3

By epark on December 20, 2016

In this third and final post, I wish to discuss the benefits of oppression actions and at the same time, discuss the disadvantages of such an equitable remedy.
The benefits of the oppression remedy, or any equitable remedy for that matter, are the flexibility that the adjudicator and the claimant can expect. The remedies, not being limited to damages or specific performance, can be almost anything that the courts seem equitable, including the removal of directors or an order for a party to purchase shares of a company. The courts can provide a remedy that satisfies each claimant for each specific set of circumstances. This is fitting as the central principle of the oppression remedy is “reasonable expectations.” As expectations vary in difference set of facts, it is fitting that the appropriate remedies vary. Because the parties can expect a variety of remedies, not limited to the traditional damage awards, parties will se
However, flexibility is also a disadvantage as flexibility leads to uncertainties in law and even arbitrariness. As situations and expectations vary, remedies will vary, but both claimants and respondents will not be able to anticipate what they can expect from the adjudicator. Sometimes the results may even seem arbitrary and unfair because judges will have the power and discretion to provide an unlimited variety of remedies that they think is just and equitable. Nevertheless, judges are well-trained in law and equitable remedies, and are trained to exercise their discretion in a disciplined manner. Hence, the uncertainty aspect of equitable remedies can be overcome.
The discussion question further asked whether the subjectivity and the fact-based analysis of oppression will become a problem in oppression remedies. Of course, reasonable expectations involve what the parties subjectively understood as the expectations of the purchase contract, but it also requires the courts to consider, based on the evidence, whether those expectations could reasonably be inferred from the wording of the contract and the conduct of the parties. This is the same in any area of law. For example, reasonable and probable grounds of arrest requires both subjective and objective grounds. In labour law, one reads the collective agreement and the past conduct of parties to infer the intention of the parties. Hence, I do not believe that the subjective element of the oppression remedy is a problem. The real problem, I think is that many times, small scale shareholders are more likely to sell their shares than to seek an oppression remedy. Legal fees and the time that needs to be invested in a legal action will prompt shareholders to just sell their shares once they are faced with prejudice or unfair treatment. Unless these shareholders can start a class action, the individual small-scale shareholders are left without an accessible and affordable remedy against corporate conduct. Thus, the oppression remedy is more accessible to the large-scale shareholders with more resources and funds to start a legal action.
Hence, the principles of oppression remedies, including flexibility and reasonable expectations are good in and of themselves, but the realities of the business world prevent it from being used effectively as a shield against bad corporate conduct.

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(Untitled)

By A Chang on December 20, 2016

Discussion Activity 6.1:

Relevant Statutory Provisions:

BCBCA section 137 (1):

“…the articles of a company may transfer, in whole or in part, the powers of the directors to manage or supervise the management of the business and affairs of the company to one or more other persons.”

BCBCA section 137 (2):

“(2) If the whole or any part of the powers of the directors is transferred in the manner contemplated by subsection (1),
- (a) the persons to whom those powers are transferred have all the rights, powers, duties and liabilities of the directors of the company, whether arising under this Act or otherwise, in relation to and to the extent of the transfer, including any defences available to the directors, and
- (b) the directors are relieved of their rights, powers, duties and liabilities to the same extent.”

Two Questions:

(1) Why do you think section 137(2)(b) of the BCBCA is necessary and worded the way it is?

One reason for the necessity of this section is liability. Without this section, a Director who has had their rights, powers, and duties over a particular area of management ousted by the articles could then be potentially liable for mismanagement over that area despite not having any control. This would be a discouragement for potential Directors as there would be complete uncertainty around being held liable even if they are meeting all their fiduciary duties. Simply put, without the section, s. 137 would operate to oust control of the Director over the particular area of management over business affairs but would not oust the liability that could attach to Directors if anything were to go wrong within that area.

(2) What would be the effect of an agreement to transfer powers of the directors to manage or supervise the management of the business to one or more other persons if that agreement was not included in articles?

An effect of such agreement would be what was discussed in the earlier question, in that the Director who has transferred the power could still be held liable for the actions of the transferee of said power. This written agreement is different from s. 137 because it would be a written form of a Directors exercising of their right to appoint officers and specify their duties. And so, if in exercising that duty they did not carry out their fiduciary duties and obligations, such as not doing their due diligence in that appointment (e.g. appointing a fraudster) then it logically flows that liability should attach to them because it is liability attached to what is in their control whereas in the circumstance where there is no s.137(2)(b), it would be liability attaching to events outside their control.

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