"Board Minutes: The "Front Page of the Newspaper" Test" at
http://bit.ly/tyY7WL
(and the full text is also set out below) is a continuation of Tim Banks’ series on writing Board minutes. This is his second post, the first being a summary of what he intends to cover in his five substantive posts.
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.
