It is not a bad guideline to consider how the board minutes would look on the front page of a newspaper. Mr. Banks is correct that there is a need to provide some level of detail, not only to provide evidence relevant to directors’ statutory duties, but also with respect to benchmarking their activity in consideration of the business judgment rule. For those of us with financial institutions, and some other industries, we also have to consider what is required by our regulators. When considering litigation it is very relevant to consider how the language of the minutes might be “twisted out of context”. In addition, as Mr. Banks points out, regrettably in some circumstances where minutes are produced in litigation it is not just the portion thereof relevant to the suit that are disclosed, but it may also have to be the entire minutes of that meeting.
Full text of Tim Banks' post:
Board Minutes: The “Front Page of the Newspaper” Test
Posted on Dec 7th, 2011 By Tim Banks
In an earlier post, I summarized five suggestions for writing board minutes for peace of mind. In this post, I will discuss one of those suggestions in greater detail: Using the “Front Page of the Newspaper Test”. But first, let’s set the legal scene.
The Legal Scene
The Canada Business Corporations Act (“CBCA”) and, with one exception, all other business corporation statutes in Canada, prescribe that corporations maintain board minutes as part of the corporation’s records.
Maintaining minutes of board meetings would be prudent even if they were not statutorily required. Failing to accurately record the board’s deliberations in appropriate detail may lead to adverse inferences regarding whether directors have fulfilled their duties. Nevertheless, there is a natural tension between providing sufficient detail to avoid any adverse inference being drawn against the directors and a lingering apprehension that an innocuous record might, with hindsight, be twisted out of context in litigation.
The “Front Page of the Newspaper” Test
It goes without saying that board minutes must be accurate. However, in considering the level of detail, the format of the minutes and the words chosen to describe the business of the meeting, the corporate secretary should consider how the board minutes would look on the front-page of the newspaper.
The primary audience of board minutes is normally the directors, subsequent directors appointed to the board, and third parties conducting minute book reviews in connection with major transactions.
In the ordinary course, shareholders and creditors do not have an automatic right to inspect board minutes. Neither the CBCA nor any other Canadian business corporation statute requires a company to provide access to board minutes to shareholders, creditors or non-officer or non-director stakeholders. British Columbia is perhaps unique in that the British Columbia Business Corporations Act provides that the articles of the corporation might allow shareholders or other persons a right of access to board minutes.
However, from a litigation perspective, the primary audience will be the adversary in the litigation and, most importantly, the trier of fact in any judicial or arbitral proceeding. If litigation is commenced, board minutes are difficult to protect from disclosure if the minutes contain information that is relevant to the dispute. Canadian courts, particularly in Ontario, may be reluctant to accede to claims of confidentiality. It is well-entrenched in Ontario, for example, that corporate minutes do not enjoy any special protection in litigation from production and discovery. Moreover, and perhaps most problematic, some judges have ruled that redaction (deletion) of portions of documents, including minutes, for relevance is not permitted. This may mean that the whole of the board minute must be produced even if only a portion of it is relevant to the dispute.
Even outside of the litigation context, there are situations where board minutes may become producible. For example, board minutes might become producible under a personal information access request under privacy legislation to the extent that the board minute contains information about the requester.
In future posts, I will discuss how, in very limited cases, it may be possible to protect privileged or highly confidential commercial information and strategies to limit what is produced.
However, in many cases it may be very difficult to protect the minutes from public disclosure. If entered into the court record, they will be there for every competitor or interested person to read and to copy. Therefore, the “front page of the newspaper” test is the most prudent starting point when drafting and editing board minutes.
