What constitutes a “material” interest in a contract or transaction? And would a “non-material” interest be subject to the strict rule in Aberdeen Railway Co. v. Blaikie Bros.? “Material” is not defined in the BCBCA, and recent jurisprudence reveals that this area is still unsettled. In the case of Jaguar Financial Corp. v. Alternative Earth Resources Inc. (2015 BCSC 2436), the trial judge concluded that a contract in which the directors’ jobs were at stake, or the nature of their jobs were at stake, constituted a “material” conflict that fell within the s 147(1)(c) requirements. However, the Court of Appeal (2016 BCCA 193) overturned this finding, holding that s 147(4) operated to limit s 147(1)(c) on the facts. The CA held that in this case, the contract was complex, and director remuneration or employment related only to “some part” of the contract: hence this was not a sufficient basis for finding a disclosable interest. However, the CA also commented that the wording “merely” in 147(4) implied that a contract involving remuneration of a director may still amount to a disclosable interest in some situations. This suggests that what is “material” may be a balancing exercise with respect to any complicated contract or transaction (which is seemingly most in a commercial context), and that it is highly specific to the facts of the situation.
Thus, what constitutes a “material” interest such that it requires disclosure is being interpreted quite flexibly. Application of the stricter Aberdeen rule for ostensibly lesser “non-material” conflicts would therefore cause absurd results. In this respect, the White Paper to the BC Societies Act, released in 2014, may offer some guidance. The proposed s 56 of the Societies Act relates to conflicts in which a director of a society has a “material” interest. With respect to the word “material”, the White Paper commentary states that “…only interests “material” to a director need be disclosed. This is intended to preclude the need to disclose minor, fleeting or insignificant matters.” Clearly, unsubstantial matters aren’t meant to trigger any further action on the part of the director or the court.
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I agree with you that the term “material” is meant to generate a highly fact specific analysis in each case. These sort of vague provisions seem to be characteristic of the ad-hoc nature of corporate law. I can see how this is advantageous in terms of the potential for ensuring fairness in individual cases (by not being bound by rigid definitions of “material”). However, I also recognize that this vagueness can make it more difficult for individuals to discern what should be disclosed.
Yes Floriana, I agree. The trial court in this case seemed intent on applying the provision in a very black and white way, which I’m not sure is a bad thing in theory – it is much more predictable to be able to say “if x occurs, then y”. But the CA’s interpretation is more in line with today’s contextual “facts facts facts” approach. I think their interpretation also paid heed to the business judgment rule in a way – they didn’t want to interfere with a very complicated contractual situation in which it really wasn’t clear that the directors were wilfully ignoring disclosure on one aspect of the contract. Therefore one might also say that their invocation of 147(4) was applied to excuse the directors’ failure, in an indirect way. It certainly makes it less clear for students hoping to be able to apply provisions consistently!