To briefly share my views on the discussion presented re: Peoples v Wise, I will turn to the three questions presented in the discussion activity.
Consider the impact of board meetings by telephone.
Soper v Canada tells us that although a director is not obliged to give his continuous attention to the company and therefore is not expected to go to every single board meeting, where it is reasonably prudent for him to do so, then the director ought to.
When we discuss the duty of care, diligence, and skill from s.122(1)(b) of the CBCA as set out in Peoples v Wise, it is described as an objective standard with contextual elements added in – but the core of it is that the director act as the reasonably prudent person would in comparable circumstances.
With telephone meetings becoming commonplace and accepted, and being much more convenient to attend than in-person meetings, it stands to reason that a director now has a much higher expectation to attend most if not all meetings (at least by telephone) of the board than directors in the past – because a reasonably prudent person in their position would exercise the diligence needed to do so. Therefore it is reasonable to say that it would take fewer missed board meetings than it used to in order to say that the director is breaching his statutory duty of care.
Are the principles enunciated in Soper v. Canada consistent with those in Peoples Department Stores Inc. v. Wise?
In my interpretation of the court in each case, yes – because they mean essentially the same thing, but with different language.
In Soper, the court interprets the statutory duty of care, diligence, and skill of a reasonably prudent person in comparable circumstances as having two elements. The first (arising from “reasonably prudent person”) is an objective standard. The second (arising from “comparable circumstances”) is a subjective standard – of sorts. The court in Soper is careful to note that this “subjective” component is at most due to taking into account the personal knowledge, background, and corporate circumstances of the director. In no way does the court in Soper take “subjective” to mean anything regarding the intent of the director in question – therefore not being truly subjective in the way we usually think of that term. Further, the court also makes sure we recognize that this partly subjective element does not lean in favour of accepting the director’s actions in all circumstances, saying instead that the common law should not be expected to permit directors to adhere to a standard of passivity or irresponsibility. The court in Soper explicitly calls the standard used a hybrid subjective-objective standard.
Peoples v Wise, however, tells us specifically not to use the term “subjective” in describing the statutory standard. Despite the difference in wording, however, I believe the courts are getting at essentially the same standard in practice. In Peoples, instead of saying “in comparable circumstances” introduces a subjective element into the test, the wording used is that it introduces a contextual element, where we take into account/be sensitive to the facts of the situation revolving around the director’s decision – but still not the subjective motivations of the director. If we were to analogize this to objective/subjective standards in other areas of law, this might be akin to a “modified objective standard”. Which is really what we were getting at all along.
In summary, the principles in Soper and Peoples are compatible, but Peoples uses less misleading wording, relying on “contextual” rather than “subjective” in order to connote that although the circumstances surrounding the action are to be taken into account, the director’s intentions or motives are not.
Is requiring that a report come from a “professional” before it can be relied on in good faith by directors without potential liability as set out in Peoples Department Stores Inc. v. Wise going too far? What are the core justifications for such a requirement of “professionalism”? Why does that requirement apply to reports in section 123(4)(b) but not to financial statements in section 123(4)(a)
I do not believe that the requirement that a report come from a “professional” goes too far. This is primarily due to a “professional” being described in the statute as one whose “profession lends credibility to a statement made by that person”. To me, this goes beyond the idea of just having expertise in a given area, but being part of an association (for example, a law society) which – by way of imposing ethical and professional duties and obligations on members of the profession to be fair, accurate, honest, and act in good faith (either by issuing them as requirements of being part in the profession or implied by way of reputation in the profession) – lends weight on its own to their statements. On the other hand, if one was not part of such a profession (eg. if you just had an MBA and worked as an officer for years) you would have the expertise but you wouldn’t always be seen to have the implication of good faith reliability implicit in your statements.
The difference of financial statements specifically likely extends from the idea that those statements are often presented and customarily relied upon as facts instead of “expert” opinions to be followed, and that there are obligations upon officers and especially auditors (whose job it is specifically to check these) not to mess up the numbers – which, if done on purpose for any reason, would easily amount to fraud.
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