UBC Theses and Dissertations

UBC Theses Logo

UBC Theses and Dissertations

The process of law reform : focus on the new B. C. companies act Waldron, Mary Anne 1974

Your browser doesn't seem to have a PDF viewer, please download the PDF to view this item.

Item Metadata

Download

Media
831-UBC_1974_A6_4 W34.pdf [ 7.56MB ]
Metadata
JSON: 831-1.0077621.json
JSON-LD: 831-1.0077621-ld.json
RDF/XML (Pretty): 831-1.0077621-rdf.xml
RDF/JSON: 831-1.0077621-rdf.json
Turtle: 831-1.0077621-turtle.txt
N-Triples: 831-1.0077621-rdf-ntriples.txt
Original Record: 831-1.0077621-source.json
Full Text
831-1.0077621-fulltext.txt
Citation
831-1.0077621.ris

Full Text

THE PROCESS CF LAV/ REFORM--FOCUS ON THE NEW B.C. COMPANIES ACT by MARY ANNE WALDRON B.A., B r a r a c r U n i v e r s i t y , 1 9 6 9 L.L.B., U n i v e r s i t y o f M a n i t o b a , 1 9 7 3 A THESIS SUBMITTED IN PA R T I A L FULFILMENT OE THE REQUIREMENTS FOR THE DEGREE OF MASTER OF LAWS i n t h e F a c u l t y o f We a c c e p t t h i s t h e s i s a s c o n f o r m i n g t o t h e r e q u i r e d s t a n d a r d THE UNIVERSITY OF B R I T I S H COLUMBIA S e p t e m b e r , 1 9 7 z -In p r e s e n t i n g t h i s t h e s i s in p a r t i a l f u l f i l m e n t o f the requirements f o r an advanced degree at the U n i v e r s i t y of B r i t i s h Columbia, I agree that the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e fo r reference and study. I f u r t h e r agree tha t permiss ion fo r e x t e n s i v e copying of t h i s t h e s i s f o r s c h o l a r l y purposes may be granted by the Head of my Department or by h i s r e p r e s e n t a t i v e s . It i s understood that copying or p u b l i c a t i o n of t h i s t h e s i s f o r f i n a n c i a l ga in s h a l l not be a l lowed without my w r i t t e n p e r m i s s i o n . Depa rtment The U n i v e r s i t y of B r i t i s h Columbia Vancouver 8, Canada i ABSTRACT This t h e s i s i s an i n v e s t i g a t i o n of the process of lav; reform as i t was i l l u s t r a t e d by the Corporate L e g i s l a t i o n Committee of the Department of the Attorney-General, f o r B r i t i s h Columbia i n i t s d r a f t i n g of a new Companies Act. To provide the context f o r t h i s study, the opening chapter b r i e f l y surveys the v/ork that has been done up to the present i n law reform as a subject f o r i n v e s t i g a t i o n . The n e c e s s i t y f o r an understanding of the workings of s e m i - o f f i c i a l and o f f i c i a l bodies to which the governments are more and more fr e q u e n t l y a s s i g n i n g problems of 1 aw- reform - i s stre-ssed. The next p o r t i o n of the t h e s i s begins the study of the work of the Corporate L e g i s l a t i o n Committee.- I t s method of -procedure and the c r - i t e r i a i t . u l t i m a t e l y selected, to guide i t s d r a f t i n g of the new act are analysed i n terms of the Committee's s t r u c t u r e and the major trends i n company lav/ reform. Then four areas of the new s t a t u t e are s e l e c t e d to correspond with and represent the four major areas of change i n t o which the Committee d i v i d e d i t s work. These areas are assessed f o r the i n f l u e n c e they r e v e a l of the form, procedure and p o l i c y of the Committee. Each i n turn i s examined through i t s l e g i s l a t i v e h i s t o r y , i t s background of law i n t h i s and other c o u n t r i e s , and the way with which i t has been d e a l t by other major law reform proposals. i i F i n a l l y , conclusions are drawn about the a c t u a l sections d r a f t e d by the Committee. The t h e s i s concludes that i n the case of t h i s ad hoc law reform body, there was a very close connection between the c r i t e r i a i t s e l e c t e d as a g u i d e l i n e f o r reform and the changes i t made i n the Companies Act. However, because of the Committee's s t r u c t u r e and methods of procedure, these c r i t e r i a were formulated i n i s o l a t i o n from many of the p r a c t i c a l economic r e a l i t i e s of companies today. They were g e n e r a l l y conservative i n p o l i c y , and drawn l a r g e l y from the v/ork of other law reform p r o j e c t s i n company law. The se c t i o n s of the new act examined r e f l e c t these l i m i t a t i o n s . G e n e r a l l y , they f u l f i l l v/ell the goals of l i m i t e d change sele c t e d by the Committee. i i i TABLE OF CONTENTS CHAPTER PAGE I. Law Reform: Background to a Case Study . . . . . . . 1 Lav; Reform: Myth and D i s o r d e r 2 O f f i c i a l Sources of Reform P r o p o s a l s 9 The H i s t o r i c a l and Present Importance of the Study of Law Reform 15 I I . A H i s t o r y of the B.C. Companies Act 2 5 The D r a f t i n g of the New Act 2 5 The L e g i s l a t i v e H i s t o r y of the Act . • . 2 7 I I I . The C r i t e r i a For Reform - 2 9 L e g a l P o l i c y v. L e g a l P r i n c i p l e 2 9 L i m i t a t i o n s on the Conceptual Study of the Committee 3 1 C r i t e r i a Not Accepted . . . . . . . 3 3 The C r i t e r i a S e l e c t e d 3 7 IV. Shareholder Democracy and the.Pre-Emptive Right . . . 5 ^ I n t r o d u c t i o n 5 ^ The H i s t o r y of S. 40 . . . . . . . . . . . . . . . 5 5 Background of the S e c t i o n . . '. 5 8 The F i e l d of Choice f o r Reform 66 The S e l e c t i o n of the Committee 7 0 i v TABLE OF CONTENTS (Continued) CHAPTER PAGE V . Shareholder P r o t e c t i o n and the D i s s e n t Proceedings 7 9 The H i s t o r y of S. 2 2 8 . 7 9 The Background of the D i s s e n t Proceedings . . . . . . 8 5 The Choice of the Committee 98 V I . Company Management and Duty of D i r e c t o r s to D i s c l o s e T h e i r I n t e r e s t i n C o n t r a c t s Before the Board 1 0 5 The H i s t o r y of S. ] A 3 , ikk, and 1^5 . . . . . . . . 1 0 5 The Background of S. 1^3, ikk and l V 5 1 1 0 The F i e l d of Choice f o r Reform 1 1 5 The Choice of the Committee 12.3 V I I . P r o t e c t i o n f o r Those D e a l i n g w i t h Companies and the Company Records 133. H i s t o r y of S. 1 8 6 and 187 1 3 3 The Background of the S e c t i o n s 137 The F i e l d of Choice 1^1 The Choice of the Committee 1 ^ V I I I . C o n c l u s i o n . 1 5 2 B i b l i o g r a p h y 157 CHAPTER I • LAW REFORM: BACKGROUND TO A CASE STUDY LAW REFORM A3 A SUBJECT Although t h i s paper w i l l d i s c u s s numerous aspects of Company Law, and, i n p a r t i c u l a r , of the new B r i t i s h Columbia Companies Act,"*" i t s p r i n c i p a l subject i s not Company Law. Rather, i t i s law reform. Nor i s i t s c h i e f i n t e r e s t Company Law reform. Rather, i t i s the process of reforming s t a t u t e law. The s t a t u t e discussed i s chosen f o r the purpose of pursuing a case study i n t h i s process, by examining the nature and shape of the mechanism used to decide upon and d r a f t new l e g i s l a t i o n . During t h i s i n v e s t i g a t i o n , . i t i s expected that conclusions w i l l emerge about the r e l a t i o n s h i p between t h i s mechanism and the l e g i s l a t i o n produced that w i l l f i t a reasonably p r e d i c t a b l e p a t t e r n . Embarking on such a p r o j e c t u s u a l l y r e q u i r e s a departure from the f i r m base of a w e l l - d e f i n e d subject area. This base i s l a c k i n g i n the study of law reform. The study of the process of law reform has lagged f a r behind the study of the processes of parliament or the c o u r t s . As a heading i n l e g a l p e r i o d i c a l i n d i c e s , Law Reform di d not make an appearance u n t i l the nineteen f o r t i e s . Not u n t i l the f i f t i e s were any a r t i c l e s published d e a l i n g with other than s p e c i f i c reforms. Even now, there are s c a r c e l y more than t h i r t y or f o r t y 2 a r t i c l e s that attempt to deal with law reform i t s e l f as a subject 2 for i n q u i r y and research. Of these, the vast majority are con-cerned only with the functions of law reform committees. There-f o r e , i t seems necessary to begin t h i s study with a more lengthy d i s c u s s i o n of the subject that s u p p l i e s i t s background than might be necessary i n an already w e l l organized area. This d i s c u s s i o n w i l l both provide a d e f i n i t i o n of the terms of reference i n which "law r e f o r m " . w i l l be viewed i n the case study proper, and r a i s e a s e r i e s of questions as yet unanswered by the e x i s t i n g s t u d i e s of the process of law reform i t s e l f . LAW REFORM:• MYTH AND DISORDER The l i t e r a t u r e that p r e s e n t l y e x i s t s on the subject of law reform i s disordered and c l u t t e r e d with imprecise terms. "Law reform" i s i t s e l f a phrase with no g e n e r a l l y agreed upon meaning, used i n many d i f f e r e n t ways. I t i s u s u a l l y t r e a t e d as a popular r a t h e r than a t e c h n i c a l term. Some w r i t e r s , however, have attempted to define the words more s t r i c t l y . In h i s a r t i c l e Law Reform i n H i s t o r i c a l 3 P e r s p e c t i v e , for example, Lawrence M. Freedman gives two uses of the words i n common speech. They may mean "a more or l e s s gen-e r a l r e v i s i o n of the laws or some branch of law i n the d i r e c t i o n of consistency or systematic arrangement. This i s reform through c o d i f i c a t i o n . . . . The second use of the phrase r e f e r s to proce-d u r a l improvement — change i n the housekeeping aspects of j u s t i c e . " 3 But Professor Freedman has confined himself to law reform i n h i s t o r i c a l p e r s p e c t i v e , and s p e c i f i c a l l y , American h i s t o r i c a l p e r s p e c t i v e . He puts great emphasis on the r e s t r i c t i o n i n the United States of the nineteenth century of law reform to the 5 works of c o d i f i c a t i o n and t e c n n i c a l change. I t i s do u b t f u l that t h i s movement ever g r e a t l y a f f e c t e d Canada or the United Kingdom. Just as uns u c c e s s f u l , for general purposes, have been the attempts of numerous other w r i t e r s to define "law reform" on the basis of some d i s t i n c t i o n bet-ween "lawyer's law", which i s the proper subject f o r law reform, and " p o l i t i c i a n ' s law", which i s not. This d i v i s i o n has been productive only of disagreement and confusion. Defending the v a l i d i t y of the d i s t i n c t i o n , Geoffrey Sawer suggests that only S i r L e s l i e Scarman, and to some extent Professor Wade, have denied the relevance of the concept to law reform, while a long l i s t of d i s t i n g u i s h e d authors have accepted i t . ^ However, Professor Lord Lloyd of Hampstead has been quoted as making a d i r e c t attack on the d i s t i n c t i o n , saying that "The old f a l l a c y that there i s a sphere of 'lawyer's law' which i s purely t e c h n i c a l , and can be d i v i d e d from l e g i s l a t i o n i n v o l v i n g p o l i c y , r e t a i n s i t s hold on few se r i o u s students of the law t o -r day'. A l l law i n e v i t a b l y i n v o l v e s p o l i c y d e c i s i o n s of some kind."' And, apparently using the term wi t h the same " p o l i c y " - " t e c h n i c a l " d i s t i n c t i o n , Professor Gower commented that "there i s no need f o r a law reform commission to f i g h t shy of h i g h l y charged s o c i a l i s s u e s , and c e r t a i n l y no need f o r i t to attempt to r e s t r i c t i t s e l f to 'lawyer's law', whatever t h a t may mean." Pa r t of the d i f f i c u l t y w i t h t h i s e f f o r t to o r g a n i z e the theory of law reform has been a l a c k of understanding of what "lawyer's law" i s supposed, by i t s s u p p o r t e r s , to mean. Thus Hanan, the l a t e A t t o r n e y - G e n e r a l of New Zealand, was able to say i n an address on Law Reform tha t "where a matter i s c o n t r o v e r s i a l then i t can not and should not escape the c r u c i b l e s of the p o l i -t i c a l p r o c e s s . Lord G a r d i n e r touched on t h i s when he s a i d t h a t the Law Commission of England ought to keep out of s o c i a l ques-9 t i o n s and q u e s t i o n s i n v o l v i n g p a r t y p o l i t i c s . " However, other w r i t e r s quoted by Sawer as u p h o l d i n g the concept, use the term i n r a t h e r d i f f e r e n t ways. Some, L i n d e n " ^ among them, f o r example, a t t a c h the simple d i v i s i o n of c o n t r o v e r s i a l as opposed to non c o n t r o v e r s i a l legislation."'"''" T h i s makes no comment as to p o l i c y c o n t e n t . However, i n d e s i g n a t i n g areas f o r law reform, t h i s d e f i n i t i o n of the d i s t i n c t i o n i s pro b a b l y l e s s u s e f u l than i t sounds. Gower, a man not without experience i n the matter, p o i n t e d out that "parliament i s u t t e r l y u n p r e d i c t a b l e so t h a t i t 12 i s i m p o s s i b l e to guess what w i l l be c o n t r o v e r s i a l . " Another s u p p o r t e r of some type of d i v i s i o n i n law as i t r e l a t e s to the process of reform i s Macdonald, the chairman of 13 the New York Law R e v i s i o n Commission. Again, however, he approaches the problem i n a d i f f e r e n t way. He s t a t e s t h a t h i s commission has "sought to avoid recommendations on t o p i c s i n which the primary q u e s t i o n has been one of p o l i c y r a t h e r than 5 law. This p r a c t i s e has' been based:'on an opinion that the best work of the commission car.! be done, i n areas i n which lawyers as lawyers have more to o f f e r to solve the problem than other 1 4 s k i l l e d persons cr groups." This i s not a d i s t i n c t i o n of theory, but one of p r a c t i s e . This p r a c t i c a l d i s t i n c t i o n i s adopted by Professor Beetz i n d i s c u s s i n g why reform has l a r g e l y been confined to "lawyers' law" or "those chapters of the law which were already part of 1 5 i n t e g r a t e d l e g a l systems." He denies that lawyers are not and. should not be concerned with p o l i c y . Instead of a t h e o r e t i c a l boundary, he suggests that the character of law reform has been determined l a r g e l y by i s o l a t i n g "some parts of the law that i n -volved a smaller number of v i s i b l e p o l i c y d e c i s i o n s and i n which a t a c i t agreement may have n a t u r a l l y emerged between statesmen, p o l i t i c i a n s and government departments on the one hand and law reform commissioners on the other, to the e f f e c t that i t was more f i t t i n g that the area of p o l i c y be l e f t to those who are respon-s i b l e f o r i t and the province of lawyers' law to those who know about i t . In other words, a sort of agreement between the members of two profess i o n s about t h e i r r e s p e c t i v e zones of i n f l u -ence."^^ This probably i s d e s c r i p t i v e of the net r e s u l t of the i n t e r a c t i o n between law .reform commissions and governments. How-ever, i t i s an ad hoc and adjustable boundary that could a l t e r s i g n i f i c a n t l y at any time. I t i s not a general concept s i g n i f i -cant to a general theory of Law reform. 6 "Lawyers' law", i n each and every sense t h a t i t has been used i n the f o r e g o i n g d i s c u s s i o n i s p u r e l y a problem of the law reform commission. As Macdonald's comments i l l u s t r a t e d , the problem v a r i e s w i t h the nature of the commission and the way i n which i t works. Dr. Gosse, i n d i s c u s s i n g the p r a c t i c a l i t i e s of the law reform commission as a t o o l f o r law reform sums up the s i t u a t i o n by s a y i n g that "Each commission appears to be develop-i n g i t s own p h i l o s o p h y on how f a r i t should go i n p o l i c y mat-17 t e r s . " I t i s , i n f a c t , the compromise tha t a permanent law. reform body must make when e n t r u s t e d with the r o l e of mediator between the l e g i s l a t u r e and the c o u r t s w i t h the a l r e a d y e s t a b -l i s h e d j u r i s d i c t i o n s of government departments. But i t remains, t h e r e f o r e , before b e g i n n i n g a case study of a "law reform" p r o j e c t , to g i v e the reader at l e a s t f a i r warn-i n g of the area i n which the study w i l l o p erate. The q u e s t i o n , a f t e r r e v i e w i n g the a u t h o r i t y , s t i l l p e r s i s t s : I f t h i s paper p u r p o r t s to be about "lav; reform" what i s "law reform"? In some sense, every s t a t u t e , even every case d e c i s i o n makes some change, however minute i n the law. I t has a l s o been p o i n t e d out t h a t l8 "reform does not n e c e s s a r i l y mean change." Thus some w r i t e r s 19 would r e f e r to mere c o d i f i c a t i o n as reform. However, t h i s does not r e f l e c t the'common usage a t t a c h e d to the phrase. I f "law reform" i s a po'pular term, then l e t i t be d e f i n e d to m i r r o r i t s popular meaning. G e n e r a l l y , i t i s submitted, "law reform" i s ta-ken to 7 refer to the i n j e c t i o n into the p o l i t i c a l process of a demand for s p e c i f i c changes i n the law to be effected by the l e g i s l a t u r e which originates with some definable group that has at least a measure of independence from the standard channels of the cabinet - c i v i l service lawmaking process. In the general process of law reform, Lord Devlin has observed that there- are two stages, the f i r s t i n which the law i s discussed and the second, the stage i n 20 which the law i s implemented by the parliament. I f there i s a difference between the common usage of the words "law reform" and the normal statutory business of the l e g i s l a t u r e , obviously, the difference must be i n the f i r s t , the discussion, stage. It i s suggested that there i s indeed such a difference i n usage. This hypothesis i s supported by another distinguished judge, Turner, J..of the New Zealand Court of Appeal. He adopts the same two stages as does Lord Devlin, c a l l i n g them the dynamics 21 and the mechanics of law reform. In discussing the dynamics of law reform he l i s t s the ways i n which law reform proposals come, to be suggested. The sources he l i s t s are the following: general public f e e l i n g or opinion, often mobilized by the press; pro-posals of private i n d i v i d u a l c i t i z e n s ; comments on the law attached by j u r i e s as " r i d e r s " to verdicts; unfavourable comments about a statute made by the j u d i c i a r y in the course of judgments; the Grand Jury "sounding o f f " on l e g a l abuses and suggested reforms; Royal Commissions and similar committees entrusted with s p e c i f i c investigatory tasks; writings of theorists and academic lawyers; 8 Law Reform Commissions and t h e i r subcommittees. The mechanics o f law r e f o r m then i n v o l v e s the i m p l e m e n t a t i o n o f thes e sugges-t i o n s by the government i n p a r l i a m e n t . T h i s l i s t i l l u s t r a t e s the d i s t i n c t i o n between law r e f o r m and g e n e r a l s t a t u t o r y enactments. G e n e r a l l y , the c a b i n e t i s the 23 c h i e f s o u r c e o f new l e g i s l a t i o n p r o p o s a l s . ' But the c a b i n e t i s not i n c l u d e d i n the above l i s t . T h i s i s because what o r i g i n a t e s s o l e l y i n those s t a n d a r d c h a n n e l s i s not commonly c o n s i d e r e d law-r e f o r m . An example may make the p o i n t . I t has been s u g g e s t e d 2^ t h a t no one would t h i n k a new t a r i f f a measure f o r law r e f o r m . I f the M i n i s t e r o f Trade, proposed such a t a r i f f , the t e c h n i c a l d e t a i l s were d e v i s e d by h i s s t a f f and the l e g i s l a t i o n d r a f t e d by the l e g i s l a t i v e c o u n c i l , i t would not be i n k e e p i n g w i t h common usage to- c a l l the measure law r e f o r m . .However, i f the M i n i s t e r a p p o i n t e d a R o y a l Commission to i n v e s t i g a t e the t a r i f f r e g u l a -t i o n s and t h a t Commission recommended a new t a r i f f be imposed, the t a r i f f would much more r e a d i l y be thought o f as law r e f o r m . I t i s the source o f the s p e c i f i c p r o p o s a l , n ot the p r o p o s a l i t s e l f , t h a t makes i t , i n common p a r l a n c e , law r e f o r m or n o t . As r e a d i n g the suggested l i s t o f T u r n e r , J . i m p l i e s , t h e s o u r c e s o f what can be c a l l e d law r e f o r m l e g i s l a t i o n are many. Some o f h i s s u g g e s t i o n s , however, do not a p p l y to the- Canadian s i t u a t i o n and some o t h e r s might here be added. However, i t i s wort h r e m a r k i n g t h a t some of these s o u r c e s , a l t h o u g h e n j o y i n g c o n s i d e r a b l e independence from d i r e c t d i r e c t i o n o f the c a b i n e t i n t h e i r p r o p o s a l s are more or l e s s under the c o n t r o l of the govern-ment. Royal Commissions!,'1 task f o r c e s , other ad hoc committees appointed to review a s p e c i f i c area-'of law and Law reform Commissions a l l have to a g r e a t e r or l e s s e r degree a c o n n e c t i o n to the government. The government c r e a t e s and makes the a p p o i n t -ments to a l l these bodies; i n the case of Royal Commissions, t a s k f o r c e s and other ad hoc committees, the government p r o v i d e s terms of r e f e r e n c e t h a t may d i r e c t very s p e c i f i c a l l y the k i n d of i n q u i r y and recommendations made; i n the case of Law Reform Commissions, p r o j e c t s may have to be suggested or i f not sugges-ted at l e a s t approved by the m i n i s t e r r e s p o n s i b l e and i n some 25 j u r i s d i c t i o n s , he i s even a memoer of the-, commission. What work has been done i n the g e n e r a l theory of law reform as a s u b j e c t has a l r e a d y been b r i e f l y d i s c u s s e d . Any s p e c i f i c s t u d i e s .that have been made have tended to focus on these o f f i c i a l sources of p r o p o s a l s r a t h e r than on the l e s s w e l l o r g a n i z e d s o u r c e s . S i n c e t h i s study w i l l be d i r e c t e d c h i e f l y toward law reform i n t h i s o f f i c i a l c o n t e x t , i t w i l l a i d i n d e f i n -i n g more s p e c i f i c a l l y the q u e s t i o n s t h i s case study endeavours to r a i s e to summarize some of the t r e n d s i n the work being done w i t h these o f f i c i a l groups. OFFICIAL SOURCES OF REFORM PROPOSALS As might be supposed from the f o r g o i n g d i s c u s s i o n , the l a r g e b u l k of the work done on these bodies from a l e g a l view-10 point has been done with law reform commissions as the i r object. A good deal of l i t e r a t u r e exists surveying the composition and methods of work of law reform groups i n Alberta, A u s t r a l i a , New Zealand, New York and Ontario as well as many a r t i c l e s dealing with the English Commission. - Many of the a r t i c l e s have been written by the chairman or director or a commissioner of these 27 bodies. Most of them are simply descriptive of the structure of the commission and the kind of work i t has undertaken. The s p e c i a l role for a law reform commission has usually been seen i n the l i t e r a t u r e as a body to provide general organi-zation to the work of law reform. So Lord Devlin says that "what i s s i g n i f i c a n t about the creation of the Law Commission i s that for the f i r s t time i n our l e g a l history, the work of law reform 28 i s being properly organized and directed.". It i s popular to speak of the purpose of such commissions i n the words of Cardozo, J . who, i n an address to the New York City Bar Associa-t i o n , delivered a plea for an agency to "mediate between the le g i s l a t u r e and the courts . . . act as messenger from courts to 29 l e g i s l a t u r e and l e g i s l a t u r e to courts." A law reform commis-sion was to be the body that would speak the one word needed to release the law from the tyranny of precedent. The f i e l d of choice for the structure of these commis-sions has been thoroughly described. However, very l i t t l e has been done to assess the influence of the structure either upon the boundaries set to their scope or their success of t h e i r 11 proposals. Neither has there been any attempt to assess whether they do i n fa c t f u l f i l l the r o l e mapped out for them. Royal Commissions have been more thoroughly evaluated i n t h i s r espect. Courtney, f o r example, discusses the purposes f u l -f i l l e d by such bodies and the success of t h e i r recommendations.^^ Royal Commissions are seen as f u l f i l l i n g three major f u n c t i o n s . F i r s t , an i n v e s t i g a t i o n can i t s e l f be a p o l i c y of the government. Thus Wilson, i n an essay on the r o l e of Royal Commissions and task f o r c e s , ^ p o i n t s out that governments pressed by many prob-lems and demands i n time of r e c e s s i o n or depression have r e s o r t e d more f r e q u e n t l y to the Royal Commission than have governments i n more prosperous times. He suggests that t h i s i l l u s t r a t e s the 32 government using the Commission to "buy time". Courtney has pointed out and discussed the f u n c t i o n o f a Royal Commission i n 33 educating p u b l i c opinion and both authors have dealt with i t s 3^ r o l e m formulating l e g a l p o l i c y . In t h i s l a s t r o l e , opinions vary as to the success of Royal Commissions i n producing.useful. recommendations. Courtney, on the whole, takes an o p t i m i s t i c view of t h e i r u s e f u l n e s s , but poi n t s out the d i f f i c u l t y i n estab-l i s h i n g c r i t e r i a f o r success as some recommendations simply have invol v e d the government's co n t i n u i n g to pursue an already accepted p o l i c y , some have r e q u i r e d no s p e c i f i c l e g i s l a t i o n , some have been a f f e c t e d by change i n government and some have been enacted 35 long a f t e r the recommendation was made. Some comments have also been made on the p r a c t i c a l 12 aspects of using Royal Commissions. These have ranged from con-s i d e r a t i o n of t h e i r c o s t , which i s u s u a l l y tremendous, and t h e i r speed, which i s u s u a l l y unimpressive, to an a n a l y s i s of how e f f e c t i v e l y they may be manipulated by s e l e c t i o n of personnel. The Honourable Mr. Motherwell was once recorded as remarking that i f he could choose the chairman and counsel f o r a Commission, he could guarantee the nature of the r e p o r t . O c c a s i o n a l l y , t h i s , p r e d i c t a b i l i t y has broken down as when the H a l l Commission on Health S e r v i c e s , f o r ins t a n c e , a commission described by a maga-zine as " w e l l spiked with Bay Stre e t i n f l u e n c e s " produced a report that was assessed as being r a d i c a l enough "to stagger even 37 the former CCF government of Saskatchewan." C o n t r o l by budget allotment of the government has also received mention. However, l i t t l e has been done with the study of Royal Commissions wi t h respect to i t s nature as a body i n v o l v e d i n law reform. Most of the e x i s t i n g d i s c u s s i o n s have been w r i t t e n by p o l i t i c a l s c i e n t i s t s w i t h the aim of analyzing t h e i r general r o l e i n government and more p a r t i c u l a r l y , how they i l l u s t r a t e t h e o r i e s of p o l i c y making. Two a r t i c l e s have been w r i t t e n assessing the values used by Royal Commissions, i n England i n making, t h e i r recommendations and comparing them to the values used by lawyers on law reform commissions. More work on the d i s t i n c t i v e nature of Royal commissions as an instrument f o r law reform could use-f u l l y be done. Task forces and s i m i l a r ad- hoc committees of l e s s formal 1 3 nature than the Royal Commission, have received the l e a s t study of a l l these o f f i c i a l l y sponsored, law reform bodies. The task force i t s e l f has only come i n t o vogue r e c e n t l y i n Canada, begin-39 ning w i t h the government of Prime M i n i s t e r Pearson. Again,-most of the a n a l y s i s of t h i s type of body has been done by and for p o l i t i c a l s c i e n t i s t s . I t has been found to be speedier and cheaper than the Royal Commission and has the q u a l i t y of being able to be made i n a c c e s s i b l e to the p u b l i c . I t s secrecy has been commented upon wi t h m i s g i v i n g . An i n t e r e s t i n g case study has been done by Axworthy on the H e l l y e r task force on housing, a n a l y z i n g the d i f f i c u l t i e s i t faced, i n c l u d i n g p a r t i c u l a r l y i t s c l a s h w i t h the e s t a b l i s h e d government departments r e s p o n s i b l e f o r housing. The cautious e s t a b l i s h i n g of boundaries by law reform k2 commissions has already been noted. Apparently, some such boundaries worked out mutually between the law reform body and the department are important f o r the success of any p r o j e c t . A t a s k . f o r c e , as an ad hoc body attempting to work i n a speedy way, may have d i f f i c u l t y e s t a b l i s h i n g i t s area of study without arous-in g h o s t i l i t y . Also of i n t e r e s t to students of law reform are Wilson's comments on the e f f e c t i v e n e s s of task forces as policy-making 43 agents. He suggests that some at l e a s t have tended to pay "scant regard to fundamental c o m p l e x i t i e s i n problem s o l v i n g and kk have tramped where angels have feared to tread." ' He a l s o p o i n t s out b r i e f l y the need when using ad hoc bodies to i n v o l v e Ik p r o f e s s i o n a l b u r e a u c r a t s o f the c i v i l s e r v i c e i n the f o r m u l a t i o n o f t he new p o l i c i e s . O t h e r w i s e , he c o n c l u d e s , the c i v i l s e r v i c e departments a r e , when f a c e d w i t h p u r e l y e x t e r n a l p o l i c y recommen-k5 d a t i o n s , " q u i t e c a p a b l e o f r e f o r m u l a t i n g them." Some of t h e s e problems of the ou t p u t o f ad hoc b o d i e s i n g e n e r a l have been b r i e f l y c o n s i d e r e d s p e c i f i c a l l y i n r e l a t i o n t o law r e f o r m . E n g l a n d , b e f o r e the e s t a b l i s h m e n t o f a permanent r e f o r m commission p a r t i c u l a r l y , made c o n s i d e r a b l e use o f the recommendations of ad hoc b o d i e s . Dr. Goodhart observed i n the 1 9 5 2 H o l d s w o r t h L e c t u r e t h a t ad hoc committees had " u n d o u b t e d l y had u s e f u l r e s u l t s , but t h e r e a r e t h r e e o b j e c t i o n s . . . r e f o r m s tend t o be haphazard . . . some d i f f i c u l t y i n c o l l e c t i n g n e c e s -s a r y e v i d e n c e . . . and as t h e r e i s no permanent s t a f f w h i c h i s conc e r n e d w i t h t h i s p r oblem, t h e r e i s no machinery which i s k6 d i r e c t l y r e s p o n s i b l e f o r the i m p l e m e n t a t i o n o f any r e p o r t . " Task f o r c e s u s u a l l y make s u f f i c i e n t use o f o u t s i d e e x p e r t i s e t o escape the second problem Dr. Goodhart mentioned, but t h e i r s t r u c t u r e o f t e n makes them, i n common w i t h o t h e r ad hoc methods, u n c o - o r d i n a t e d , s u p e r f i c i a l and e a s i l y sabotaged by a h o s t i l e c i v i l s e r v i c e . A l t h o u g h g a i n e d i n b i t s and p i e c e s , a c o n s i d e r a b l e amount o f i n f o r m a t i o n i s p r e s e n t e d by s p e c i f i c l i t e r a t u r e d e a l i n g w i t h t h e s e law r e f o r m b o d i e s . However, i t i s d i s o r g a n i z e d and i s u s u a l l y not w r i t t e n from m o t i v e s o f i n v e s t i g a t i n g problems i n the p r o c e s s o f law r e f o r m . 15 THE HISTORICAL AND PRESENT IMPORTANCE OF THE STUDY OF LAW REFORM Few areas are explored academically u n t i l some r e c o g n i -t i o n of t h e i r a c t u a l or p o s s i b l e s i g n i f i c a n c e has been r e a l i z e d . In none of the l i t e r a t u r e d e a l i n g with law reform as a s u b j e c t , as opposed to l i t e r a t u r e urging s p e c i f i c reforms, has such impor-tance been e x p l i c i t l y attached to "law reform". I t i s e a s i l y recognized by authors eager f o r l e g i s l a t i v e change that t h e i r p a r t i c u l a r p r o j e c t i s important and that some committee or com-mission should deal with i t at once, but not so e a s i l y recognized i n a r t i c l e s d i s c u s s i n g the theory of law reform why such theory should r e c e i v e a t t e n t i o n . Since t h i s chapter has set i t s e l f the task of f i l l i n g i n the background to such a study, the general h i s t o r y and present s i g n i f i c a n c e of the process of law reform deserves, perhaps, a few words of mention. As a demand, and as a governmental response to that demand, law reform has a long h i s t o r y . The c a l l to reform the laws of England began as a concerted movement w i t h the pamphle-tee r s of the l 6 4 0 ' s . The Diggers and the L e v e l l e r s c a l l e d f o r sweeping reforms of the old common law, often with very l i t t l e conception of the nature of the system they were a t t a c k i n g . Pamphlets appeared asking that the laws of the land be set down i n c l e a r E n g l i s h prose i n one book and d i s t r i b u t e d .throughout the land so that every man who could read could inform himself of the law. The obvious by-product.of these reforms 16 would be the a b o l i t i o n o f the u n n e c e s s a r y and p e r n i c i o u s r a c e o f l a w y e r s . O l i v e r Cromwell c o n s t a n t l y brought the m a t t e r b e f o r e the p a r l i a m e n t i n the days o f the p r o t e c t o r a t e , p l e a d i n g f o r g e n e r a l r e f o r m o f the lav/. But he a l s o a d m i t t e d t h a t he had no kg i d e a o f how such r e f o r m c o u l d be c a r r i e d o u t . Not a l l the e a r l y r e f o r m i s t s were so p o o r l y i n f o r m e d . I n the same p e r i o d , W i l l i a m Sheppard, a l a w y e r , wrote the pamphlet "England's Balme" i n which he d i s c u s s e d many of the r e f o r m s t h a t ' were l a t e r c a r r i e d out i n the n i n e t e e n t h c e n t u r y . The Hale Commission, perhaps the f i r s t law r e f o r m commission i n the w o r l d , was e s t a b l i s h e d i n 1652. Under the l e a d e r s h i p o f S i r Matthew H a l e , t h a t body proposed many r e a s o n a b l e and moderate r e f o r m s p a r t i c u l a r l y t o the h a r s h c r i m i n a l law o f E n g l a n d . The Hale Commission, a p p o i n t e d -by the p a r l i a m e n t o f the t i m e , was one of the f i r s t r e s p o n s e s o f government t o the p o p u l a r c a l l f o r r e f o r m . I t was an attempt t o e s t a b l i s h some body t h a t would have r e s p o n s i b i l i t y f o r the g e n e r a l r e f o r m o f the l a w , whatever r e f o r m was t a k e n t o mean. However, the appointment o f the commission was government's o n l y r e s p o n s e . I t s s u g g e s t i o n s were not enacted and the law r e f o r m movement f e l l under the coun-t e r a t t a c k s o f the m a j o r i t y o f the l e g a l community f o r whom law r e f o r m was p r o b a b l y too c l o s e l y c o n n e c t e d w i t h a p u b l i c d e s i r e t o see l a w y e r s l o s e t h e i r f e e s and p o s s i b l y t h e i r heads. W i t h the r e s t o r a t i o n , law r e f o r m as a p o p u l a r cause, f e l l i n t o o b s c u r i t y a l m o s t u n t i l the n i n e t e e n t h c e n t u r y . 17 S i n c e the n i n e t e e n t h c e n t u r y , government has r e l i e d more and more h e a v i l y on i t s o f f i c i a l l y c r e a t e d law r e f o r m b o d i e s f o r s o u r c e s o f new l e g i s l a t i o n . At the p r e s e n t t i m e , p a r t i c u l a r l y i n the Trudeau government, f e d e r a l l y , the i n s t i t u t i o n ' o f p a r l i a m e n t 5 0 i s u n d e r g o i n g change. I n c r e a s i n g r e l i a n c e on the b o d i e s j u s t d i s c u s s e d i n the p r e c e d i n g pages i s f o c u s s i n g and p r e c i p i t a t i n g t h a t change. I t has been s u g g e s t e d t h a t p a r l i a m e n t may be s u r -r e n d e r i n g i t s r o l e as the so u r c e o f new laws t o the law r e f o r m 51 commission. T h i s appears t o be the a t t i t u d e o f S i r L e s l i e Scarman, Chairman o f the E n g l i s h Lav/ Reform Commission. I n h i s ad d r e s s Law Reform-~Lessons from the E n g l i s h E x p e r i e n c e , he p r e s e n t s a p i c t u r e o f a s t r o n g , independent body w i t h the r i g h t t o a p p e a l t o p u b l i c o p i n i o n t o judge between i t s p o s i t i o n and 5 2 t h a t o f the e l e c t e d government, s h o u l d they d i f f e r . He sees the commission as.' a major o r i g i n a t i n g f o r c e f o r law and p a r l i a -ment, w i t h i t s u l t i m a t e c o n t r o l o f the i m p l e m e n t a t i o n p r o c e d u r e , as a check on the commission's a c t i v i t i e s . Task f o r c e s a r e e q u a l l y h a v i n g impact upon the p a r l i a m e n t a r y system. P o l i t i c a l s c i e n t i s t s when exa m i n i n g the e x t e n s i v e r e l i a n c e o f the Trudeau government on the t a s k f o r c e ask "why, a f t e r a l l , s h o u l d i t be n e c e s s a r y t o 'bother' w i t h r e p r e s e n t a t i v e i n s t i t u t i o n s when, f o r a few thousand d o l l a r s , the P r e m i e r can o b t a i n a v e r y a c c u r a t e 53 e s t i m a t e o f the ' g e n e r a l w i l l 1 w i t h o u t p a r l i a m e n t . " C l e a r l y , the u s e , and perhaps misuse o f t h e s e law r e f o r m b o d i e s i s a s u b j e c t t h a t w i l l occupy t h e o r i s t s i n many f i e l d s f o r 18 some time to come. The need to understand the workings, and the r e l a t i o n s h i p of these bodies to t h e i r output i n terms of laws enacted by the parliament i s i n c r e a s i n g . The questions have only j u s t begun. A f t e r examining the philosophy of the E n g l i s h Law Reform Commission, an American w r i t e r , Sutton, poses two of the many questions to be expected. " F i r s t " , he qu e r i e s , "has a con-scious e f f o r t been made to adapt the machinery of law reform to the p a r t i c u l a r needs of each s t a t e and country? . . . Second, have v/e been too conservative i n what we think a law commission can achieve? Have v/e been too ready to circumscribe i t s a c t i v i -st t i e s w i t h a r b i t r a r y boundaries?" Many other questions a r i s e from the b r i e f survey of the st a t e of the study of lav; reform j u s t undertaken. What should the r e l a t i o n s h i p between, lav/ commissions and ad hoc reform bodies be to promote e f f i c i e n t reform? How should parliament deal w i t h the proposals of each body? What g u i d e l i n e s determine which pro-j e c t i s given to what committee or body and what i s the r e s u l t ? What c h a r a c t e r i s t i c marks, i f any, are l e f t by a p a r t i c u l a r l y c o n s t i t u t e d body upon the l e g i s l a t i o n i t produces? What bodies are most s e n s i t i v e to p u b l i c opinion and pressure and why? At what stages i s the i n f l u e n c e of p u b l i c opinion f e l t ? How does the choice of body a f f e c t the r e a c t i o n of the p u b l i c to i t s recommendations? Although the r o l e of parliament i s i n some ways being a l t e r e d by these bodies, the cabinet-government machinery s t i l l 19 has c o n t r o l o f the second and v i t a l p r o c e s s o f i m p l e m e n t a t i o n . I t i s a m i s t a k e t h e r e f o r e t o c o n c e n t r a t e s o l e l y on the l e s s e n i n g of the r o l e o f government c o n f r o n t e d w i t h the s u g g e s t i o n s o f these v a r i o u s g r o u p s . The government a l s o c o n t r o l s , as d i s c u s s e d above, the o f f i c i a l groups f o r law r e f o r m themselves d e s p i t e t h e i r independence o f recommendation. O b v i o u s l y , government must l e a r n t o l i v e w i t h t h e s e b o d i e s o f t h e i r c r e a t i n g and w i l l want t o draw out of them l e g i s l a t i v e s u g g e s t i o n s t h a t w i l l be r e a s o n -a b l e i n l i g h t of the e x i s t i n g p o l i t i c a l s i t u a t i o n . That i s , i t i s u s u a l l y of no use f o r the government t o r e c e i v e a s u g g e s t i o n f o r r e f o r m t h a t i s t o t a l l y opposed t o i t s own p o l i c i e s or t h a t i s g o i n g t o be c o m p l e t e l y u n a c c e p t a b l e t o the v o t e r . O t h e r w i s e , the p r o c e s s o f law r e f o r m w i l l break down c o m p l e t e l y . P r o j e c t s w i l l not be r e f e r r e d t o e x t e r n a l b o d i e s and -the e f f i c i e n c y o f g o v e r n -ment w i l l be reduced f a r below p r e s e n t l e v e l s . I t i s t h e r e f o r e e s s e n t i a l t h a t an u n d e r s t a n d i n g o f some of the q u e s t i o n s posed above be r e a c h e d . The government must be a b l e t o u n d e r s t a n d t h e f u l l i m p l i c a t i o n s o f i t s a c t i o n s i n c r e a t i n g an o f f i c i a l law r e f o r m body, i n r e f e r r i n g a p a r t i c u l a r p r o j e c t t o i t i n a p a r -t i c u l a r way and i n b y p a s s i n g the normal c h a n n e l s o f lav/ making. E v e r y government needs a p h i l o s o p h y o f law r e f o r m , and w i l l need i t i n c r e a s i n g l y as the volume o f r e q u i r e d l e g i s l a t i v e change m u l t i p l i e s . But much of the d a t a t o answer these q u e s t i o n s i s not y e t a v a i l a b l e . T h i s paper w i l l attempt t o take a v e r y s m a l l s t e p i n 20 the d i r e c t i o n of a c q u i r i n g some of t h i s necessary data. I t i s , as already s t a t e d , a study of one p a r t i c u l a r group c a r r y i n g out one p a r t i c u l a r lav/ reform p r o j e c t . That group was an ad hoc body appointed f o r the purposes of producing new companies' l e g i s l a -t i o n . I t was composed of c i v i l servants who a l s o had other r e s -p o n s i b i l i t i e s . In the f o l l o w i n g chapters, t h i s paper w i l l analyze that process, beginning with a b r i e f h i s t o r y of how,the committee proceeded and how the act was produced. Then, the p o l i c y estab-l i s h e d by the committee w i l l be r e l a t e d to the method and s t r u c -ture of the body. S p e c i f i c parts of the s t a t u t e w i l l be examined for the i n f l u e n c e of the p o l i c y adhered to by the committee and f o r the e f f e c t of p u b l i c o p i n i o n . G e n e r a l l y , i t w i l l be expected that there w i l l be a c l o s e and p r e d i c t a b l e connection between the s t r u c t u r e of the Committee and i t s methods of procedure; between i t s methods of procedure and the c r i t e r i a f o r reform of the s t a t u t e that i t s e l e c t s ; and betv/een these c r i t e r i a and the l e g i s l a t i o n f i n a l l y produced. 21 FOOTNOTES, CHAPTER I """Companies A c t , 1973 S t a t s . B.C., c. 18 . G e o f f r e y Sawer, The L e g a l Theory of Law Reform, (1970) , 20 U. Toronto L . J . i S j at p. 185 found t h i r t y a r t i c l e s . However, the amount w r i t t e n has i n c r e a s e d g e o m e t r i c a l l y s i n c e then. ^Freedman, Law Reform i n H i s t o r i c a l P e r s p e c t i v e , (1969) , S t . L o u i s U.L.J. 3.51-k I b i d . , at p. 351-^ I b i d . , at p. 369 -370 . "The new k i n d of law reform movement grew up i n the l a s t h a l f of the n i n e t e e n t h c e n t u r y . . . t h e i r e f f o r t s were t e c h n i c a l and c r a f t s m a n l i k e , " p.. 370. ^Supra, f o o t n o t e 2 , at p. 192. Quoted by Gosse, Role of Law Reform i n the Quest f o r J u s t i c e , (.1969), 19 U.N.B.L.J. 29 , at p. kO. a L.C.B. Gower, Law Reform, (1973) , Can. B.J.I, p. 3 -V n a n , Law Reform, (1969) , N.Z.L.J. 3 ^ 5 , at p. 370. ] B.J. 268 1 0 L . R. Linden, Challenge of Law Reform, (1966) , 9 Can. 1 1 I b i d _ 1 , at p. 27^+. 12 Supra, f o o t n o t e 8 , at p. 2 . "^Macdonald, The New York Law R e v i s i o n Commission, (1965) , 28 Mod. L. Rev. 1 . Ik I b i d . , at p. 15 . 15 Jean Beetz, R e f l e c t i o n s on C o n t i n u i t y and Change i n Law Reform, (1972) , 22 U. Toronto L . J . 129, at p. 139. 1 6 T , . , I b i d . 17 Supra, f o o t n o t e 7 , at p. kl. l 8 Supra, f o o t n o t e 15, p. 138. 19 Supra, f o o t n o t e 3 -22 20 Lord D e v l i n , Process of Law Reform, (1966) , 63 L. Soc. Gaz. 453 . 21 S i r Alexander Kingcome Turner, J . , Changing the Law, (1969) , 3 N.Z.U.L. Rev. kOk at p. kOk. 2 2 I b i d . , at p. 4o4 -4o8. 23 Of course, t h i s i s somewhat s i m p l i f i e d . The c a b i n e t i s the o f f i c i a l source of l e g i s l a t i v e p r o p o s a l s , but these are based on p o l i c i e s formulated i n i n t e r a c t i o n with s e n i o r c i v i l s e r v a n t s . The i n t e r a c t i o n d i f f e r s i n each government too. For a b r i e f sum-mary of how these i n t e r a c t i o n s took p l a c e i n the government of Trudeau, Pearson and D i e f e n b a k e r , see G. Bruce Doern, The Development of P o l i c y O r g a n i z a t i o n i n the E x e c u t i v e Arena, The S t r u c t u r e s of P o l i c y Making i n Canada, ed. Doern and A u c o i n , (1971) . 24 Supra, f o o t n o t e 3 -25 As i n New Zealand. See Deech, Lav; Reform: The Choice of Method, (1969) , 47 C.B. Rev. 395 , f o r an. a n a l y s i s of the s p e c i f i c r e l a t i o n s h i p s ' between v a r i o u s governments and t h e i r Commissions. 26 There are a l s o a number of a r t i c l e s recommending v a r -i o u s s t r u c t u r e s . • 27 For example, Scarman of the E n g l i s h Commission; Conacher of the N.S.W.; Macdonald of the New York; Gower of the E n g l i s h ; Bowker of A l b e r t a ; Gosse of O n t a r i o . 28 Supra, f o o t n o t e 20 , at p. 4-55-29 The l e c t u r e was d e l i v e r e d i n 1921. S u r p r i s i n g l y , i t i s quoted both by Macdonald, supra, footnote 13 and Scarman, Law Reform--Lessons from the E n g l i s h E x p e r i e n c e , (1968) , 3 Man. L . J . 4-7 at p. 49 . Yet the two have s e t very d i f f e r e n t bounds on the work of t h e i r commissions. " ^ J . C. Courtney, Canadian Royal Commissions of I n q u i r y 19^6 -1962 , (1964) . 31 V. Seymour Wilson, The Role of Royal Commissions and Task F o r c e s , The S t r u c t u r e of P o l i c y Making i n Canada, ed. Doern and Aucoin, (1971) , p. 113. I b i d . , at p. Il8. 23 p. 121 . 35 33 Supra, f o o t n o t e 30 . ^ S u p r a , f o o t n o t e 3 0 , at p. 184; supra, f o o t n o t e 3 1 , at Courtney, op. c i t . at p. 137-155* 36 Quoted i n Courtney, op. c i t . at p. 68. from Canada, it-Debates (Commons), CCXVII (I .938) , 4 4 4 9 . 37 From T r e v o r Emrys, '' L i b e r a l Government S t u d i e s the H a l l Commission Report on Medicare," Canadian Dimension (September -October, 1964) , p. 4 . •2 o F. E. Dowrick, Lawyers' Values f o r Law Reform, (1963) , 79 L.Q.R. 556; Laymen's Values f o r Law Reform, (1966) , 82 L.Q.R. 497. I n t e r e s t i n g l y , he found the v a l u e s of laymen and lawyers remarkably s i m i l a r , with the laymen on the Royal Commission l a y -i n g s l i g h t l y more emphasis on the i n d i v i d u a l i s t e t h i c and the axiom of d i s t r i b u t i v e j u s t i c e . 39 See Wilson, op. c i t . , at p. 122. I f°Ibid. , at p. 1 2 4 . 4 l L l o y d Axworthy, The Housing Task F o r c e : A Case Study, The S t r u c t u r e c f P o l i c y Making i n Canada, ed. Doern and Aucoin, • (1971) , at p. 130. ^ S e e above, p. 5 -^3 Supra, footnote 3 1 , at p. 125-44 I b i d . ^ I b i d . , at p. 126. 46 Dr. A. T. Goodhart, Holdsworth L e c t u r e , 1952, quoted i n G a r d i n e r , The Machinery of Law Reform i n England, (1953) , 69 L.Q.R. 46, at p. 5 6 . hi For an account of the v a r i o u s pamphleteers, t h e i r pro-p o s a l s and pamphlets, see Donald V e a l , The Popular Movement f o r Law Reform 1640-1660 (1970) . 48 I b i d . , a t p. 94 . 49 P a r t i c u l a r l y , the Hale Commission proposed r e d u c i n g the number of c a p i t a l o f f e n c e s , which were many. 24 y For example, the by p a s s i n g of p a r l i a m e n t as an i n s t r u -ment of p o l i c y with the expanded s t a f f of the Prime M i n i s t e r ' s O f f i c e ; the s h u t t i n g out of p a r l i a m e n t by use of task f o r c e s whose r e p o r t s may be kept s e c r e t . 51 In d i s c u s s i o n f o l l o w i n g a paper by the Deputy Chairman of the N.S.W. Commission, Conacher, Law Reform, (1969) , ^3 A u s t . L . J . 513 , at p. 5 2 1 . t ; 2 ^ Scarman, Law R e f o r m — L e s s o n s from the E n g l i s h E x p e r i e n c e , (1968) , 3 Man. L . J . 47 , at p. 5 5 -53 Supra, f o o t n o t e 31» at p. 124. 5k Sutton, E n g l i s h Law R e v i s i o n Commission: A New P h i l o s o p h y of Law Reform, (1967) , 20 Vand. L.R. 1009, at p. 1027-55 However, t h i s c o n t r o l c o u l d be l e s s e n e d i n some i n s t a n -ces i f the request of Lord D e v l i n , The Process of Lav/ Reform, (1966) , 63 Law Soc. Gaz. 453 were granted. He suggested a spe-c i a l l e g i s l a t i v e machinery to hasten the passage of odd b i t s and p i e c e s of reform turned out by the Commission. The problems r a i s e d by such a s u g g e s t i o n are too obvious to r e q u i r e mention. How, f o r example, w i l l i t be d e c i d e d which l e g i s l a t i o n can be passed by the s t r e a m l i n e d process? 25 CHAPTER I I A HISTORY OF THE B.C. COMPANIES ACT THE DRAFTING OF THE NEW ACT The new companies act''" was c r e a t e d by a committee e s t a b -l i s h e d by the A t t o r n e y G e n e r a l o f B r i t i s h Columbia. The committee was drawn from the A t t o r n e y G e n e r a l ' s department and composed of the D i r e c t o r of C o n s t i t u t i o n a l Law, Mr. M. Smith, and. the D i r e c t o r of C i v i l Law, Mr. D. Sheppard. I t was not s p e c i f i c a l l y r e q u e s t e d to produce a new a c t . I n s t e a d , i t was r e q u i r e d to undertake a study " t o review and r e p o r t upon the p r o v i s i o n s • a n d working of the Companies A c t , the S e c u r i t i e s Act and r e l a t e d c o r p o r a t e and s e c u r -i t i e s l e g i s l a t i o n ; and to recommend what changes i n the law are 2 d e s i r a b l e . " I t was g i v en no procedure- to f o l l o w and no p o l i c y g u i d e l i n e s . I n s t e a d , i t had the independence of a c t i o n and recom-mendation tha t c h a r a c t e r i z e g e n e r a l l y the o f f i c i a l law r e f o r m b o d i e s . In a d d i t i o n to i t s members, the Committee asked Mr. H a l l , the R e g i s t r a r of Companies, Mr. B. I r v i n , Superintendent of Brokers and Mr. T. C a n t e l , the I n s p e c t o r of R e a l E s t a t e to a t t e n d t h e i r meetings. Before b e g i n n i n g t h e i r study, they h i r e d Mr. P e t e r Manson as c o u n s e l . These a d d i t i o n a l members provi d e d p r a c t i c a l e x p e r t i s e . They worked as an i n t e g r a l p a r t of the Committee i n d r a f t i n g the l e g i s l a t i o n . The f i r s t s t e p of the Committee was to p u b l i s h a d v e r t i s e -ments i n major newspapers f o r b r i e f s on the s u b j e c t to be submit-26 t e d t o them. T h i s i s the same p r o c e d u r e as i s f o l l o w e d by the New South Wales Law Reform Commission. Mr. Cohacher, the Deputy Chairman of t h a t commission d e s c r i b e d t h e i r r e s u l t s from such a d v e r t i s e m e n t s as i n v a r i a b l y d i s a p p o i n t i n g . However, he b e l i e v e d t h a t t he p r a c t i s e was c a r r i e d on "because i t seems r i g h t as a m a t t e r o f p r i n c i p l e , but i t might o t h e r w i s e be h a r d t o j u s t i f y the expense." Whether or not t h i s was the f e e l i n g o f the A t t o r n e y - G e n e r a l ' s Committee or whether t h e y s i m p l y proceeded t o work out t h e i r own a p p r o a c h , i s unknown. However, as' w i l l be mentioned l a t e r , t h e i r e x p e r i e n c e w i t h t h i s method was much the 5 same as t h a t o f the N.S.W. Commission. The Committee s p e c i f i c a l l y s o l i c i t e d b r i e f s from s u c h o r g a n i z a t i o n s as the C.G.A., the I.D.A. , the Stock'Exchange and the Vancouver Board o f Trade. Focussing- on the company law f i r s t , the Committee under-took a c o n c e p t u a l s t u d y o f the p o l i c y o f Company Law. Then t h e y proceeded t o produce a d r a f t a c t . Once t h i s was c o m p l e t e d , the Committee was i n f a v o u r o f r e l e a s i n g the d r a f t f o r p u b l i c s c r u -t i n y b e f o r e i t s p r e s e n t a t i o n t o the house. The E n g l i s h Commission, f o r example, works i n t h i s way w i t h t h e i r r e p o r t s , r e l e a s i n g them f i r s t i n w h i t e paper form and t h e n l a t e r i n f i n a l recommendations. However, because t h i s took the form o f a d r a f t b i l l , some h e s i t a t i o n was f e l t i n r e l e a s i n g a document t h a t e x p r e s s e d a p o l i c y t o which the government might or might not d e c i d e t o commit i t s e l f O n December 2 1 , 1971? however, the 27 d r a f t was s u b m i t t e d t o g e t h e r w i t h a f i n a l s t u d y r e p o r t on the 7 Companies A c t t o the A t t o r n e y - G e n e r a l . These documents were r e l e a s e d . THE LEGISLATIVE HISTORY OF THE ACT B i l l 66 , as the d r a f t a c t was c a l l e d , was i n t r o d u c e d i n t o the B.C. L e g i s l a t u r e and g i v e n i t s f i r s t r e a d i n g on March 2 3 , o 1972. I t was the f i n a l s e s s i o n o f the t w e n t y - n i n t h p a r l i a m e n t , and the b i l l was not passed d u r i n g t h a t s e s s i o n . At the end o f the s e s s i o n , an e l e c t i o n was c a l l e d . When the new p a r l i a m e n t met, t h e S o c i a l C r e d i t P a r t y who had sponsored t h e b i l l , no l o n g e r formed the government o f the p r o v i n c e . I n the meantime, some e x t e n s i v e c r i t i c i s m had been l e v e l -l e d a t B i l l 66 , p a r t i c u l a r l y by the Company Law s u b s e c t i o n o f the 9 Canadian Bar A s s o c i a t i o n , and the Committee had r e v i s e d t h e b i l l i n s e v e r a l r e s p e c t s . " ^ T h i s r e v i s e d b i l l was p l a c e d on the o r d e r paper as B i l l 16 by the new government. B i l l 16 was i n t r o d u c e d i n t o the l e g i s l a t u r e and g i v e n i t s f i r s t r e a d i n g on F e b r u a r y 2 , 11 12 1973. I t s second r e a d i n g was g i v e n on A p r i l k and on A p r i l 1 7 , " ^ the b i l l was g i v e n t h i r d r e a d i n g and p a s s e d . I t o c c a s i o n e d no debate i n the House, not s u r p r i s i n g l y because i t had been put f o r w a r d as p a r t o f the l e g i s l a t i v e program o f b o t h the government and what was now the o f f i c i a l o p p o s i t i o n . The New Companies A c t was g i v e n r o y a l a s s e n t on A p r i l 1 8 , lk 1973. I t came i n t o e f f e c t October 1 o f t h a t same y e a r . 28 FOOTNOTES, CHAPTER I I ^Companies A c t , S t a t s . B.C. 1973, c. l 8 . p D e p a r t m e n t a l Study R e p o r t of the Department o f the A t t o r n e y - G e n e r a l o f B r i t i s h C olumbia (1971) , p. 1 . "^See C h a p t e r I . k Conacher, Law Reform, (1969) , 43 A u s t . L . J . 513 a t p. 515. 5 See I n f r a , Chapter IV. ^Mr. Sheppard e x p r e s s e d t h i s h e s i t a t i o n , b u t , f o r t he purposes o f a r o u s i n g p u b l i c comment t o a s s i s t i n the c r e a t i o n o f a s t a t u t e i n k e e p i n g w i t h the needs o f the community, was i n f a v o u r o f r e l e a s e . 7 Supra, f o o t n o t e 2 . g Votes and P r o c e e d i n g s , March 2 3 , 3rd S e s s . 29th P a r i . ^Comments on Proposed B.C. Companies A c t , B i l l 6 6 , S u b m i t t e d t o the A t t o r n e y - G e n e r a l ' s C o r p o r a t e L e g i s l a t i o n Committee by the C o r p o r a t e L e g i s l a t i o n • C o m m i t t e e o f the Ca n a d i a n Bar A s s o c i a t i o n , B.C. Branch (1972) . 1 0 S e e f o l l o w i n g C h a p t e r s V - V I I I f o r numerous i n s t a n c e s . ''"''"Votes and P r o c e e d i n g s o f the L e g i s l a t i v e Assembly o f B r i t i s h C olumbia, (1973) . 12T, ., I b i d . 1 5 I b i c U I b i d . 29 CHAPTER I I I THE CRITERIA FOR REFORM LEGAL POLICY V. LEGAL PRINCIPLE G i v e n a body w i t h power t o d r a f t a s t a t u t e on a m a t t e r t h a t has not p r e v i o u s l y been the s u b j e c t o f l e g i s l a t i o n , the f i r s t l o g i c a l s t e p i s f o r t h a t body t o d e c i d e upon a p o l i c y t o u n d e r l i e and g i v e u n i t y t o t h e i r new a c t . I n some c a s e s , s u c h a p o l i c y i s g i v e n t o the d r a f t i n g body, ready-made, a l r e a d y formu-l a t e d by the c a b i n e t , or the m i n i s t e r or some group a l l o t e d t h a t s e p a r a t e r e s p o n s i b i l i t y . T h i s w i l l be the common case where the m a t t e r a r i s e s i n the government department and i s passed a l o n g t o the L e g i s l a t i v e C o u n s e l f o r embodiment i n s t a t u t e form. But p o l i c y t h e r e must be. G i v e n a body w i t h power t o r e f o r m an e x i s t i n g s t a t u t e , the s i t u a t i o n a l t e r s . There i s the t e m p t a t i o n t o "have a t " the e x i s t i n g a c t i n p i e c e m e a l fashion.''" But each amendment, whether or not i t i s p a r t o f an o v e r a l l scheme, has some p o l i c y b e h i n d i t . There i s something t h a t each amendment i s meant to accom-p l i s h or i t would not be s u g g e s t e d at a l l . And t h a t p u r p o s e , t h a t d e c i s i o n t o a c c o m p l i s h X i n s t e a d o f l e a v i n g the m a t t e r a l o n e and t h e r e b y c o n t i n u i n g t o a c c o m p l i s h Y i s a p o l i c y d e c i s i o n . The r e s u l t o f p i e c e m e a l r e f o r m o f an e x i s t i n g s t a t u t e i s the i m p l e -m e n t a t i o n of many such p o l i c y d e c i s i o n s t h a t , because 30 u n a r t i c u l a t e d , may be i n c o n f l i c t w i t h each o t h e r or w i t h the 2 p o l i c y o f the o r i g i n a l a c t . Such u n a r t i c u l a t e d p o l i c y d e c i s i o n s have even been approved f o r s t a t u t e s d r a f t e d by law r e f o r m b o d i e s , as opposed t o s t a ^ t e s o r i g i n a t i n g i n the u s u a l p r o c e s s o f g o v e r n m e n t - c i v i l s e r v i c e . L e g a l p r i n c i p l e , not l e g a l p o l i c y , i s t o be the sub-j e c t o f law r e f o r m committees, s a i d the House of L o r d s i n 4 debate. T h i s d i s t i n c t i o n has been c h a r a c t e r i z e d by W.Wedderburn 5 as a f a l s e s i m p l i f i c a t i o n . U n l e s s the d u t i e s o f the law r e f o r m body are c o n f i n e d t o mere summarizing of the e x i s t i n g law w i t h -out any recommendations where c o n f l i c t s i n t h a t law a r i s e , s u c h d i s t i n c t i o n i s c e r t a i n l y i m p o s s i b l e t o m a i n t a i n . Where t h e r e i s any c h o i c e o f a l t e r n a t i v e s , p o l i c y , a r t i c u l a t e d o r n o t , t h e r e w i l l be. The D e p a r t m e n t a l Committee r e s p o n s i b l e f o r the new Companies A c t ^ was g i v e n the r e s p o n s i b i l i t y , not o f summary, but of recommendation. T h e i r terms o f reference,- i n s o f a r as t h e y r e l a t e t o Company lav/ were "To r e v i e w and r e p o r t upon t h e p r o v i s -i o n s and w o r k i n g of the Companies A c t . . . and t o recommend what 7 changes i n the law are d e s i r a b l e . " Guided by such t e r m s , the Committee c o u l d not a v o i d p o l i c y c o n s i d e r a t i o n s . F o r t u n a t e l y , the Committee d e c i d e d t o f a c e p o l i c y d e c i s -i o n s d i r e c t l y . They d i v i d e d t h e i r t a s k i n t o t h r e e p h a s e s -r e s e a r c h , a c o n c e p t u a l s t u d y , and the p r e p a r a t i o n of a d r a f t a c t . I n t h a t phase which the y d e s i g n a t e d the c o n c e p t u a l s t u d y , the 31 e x p r e s s e d purpose o f the committee was " t o e s t a b l i s h the r e q u i r e -8 merits o f the community i n r e s p e c t o f the c o r p o r a t e form." S i n c e i t i s a p r i n c i p l e h y p o t h e s i s o f t h i s paper t h a t t h e body s e l e c t e d to c a r r y out a p r o j e c t o f law r e f o r m i n f l u e n c e s the p o l i c y t h a t . p r o j e c t u l t i m a t e l y a d o p ts and t h a t i n t u r n , t h a t p o l i c y s t r o n g l y a f f e c t s the f i n a l c h a r a c t e r of t h e new a c t , t h i s c h a p t e r w i l l be devoted t o a d i s c u s s i o n and a n a l y s i s o f the c r i -t e r i a f o r r e f o r m s e l e c t e d by the Committee as a r e s u l t o f i t s c o n c e p t u a l s t u d y . LIMITATIONS ON THE CONCEPTUAL STUDY OF THE COMMITTEE The range o f p o s s i b l e c r i t e r i a f o r company law r e f o r m i s g v e r y broad. The D e p a r t m e n t a l Study R e p o r t r e v e a l s t h r e e i n f l u -ences t h a t no doubt narrowed t h e f i e l d o f c h o i c e . The r e c o g n i -t i o n o f thes e i n f l u e n c e s can e s t a b l i s h a g e n e r a l u n d e r s t a n d i n g why c e r t a i n p r o p o s a l s f o r company law r e f o r m , d i s c u s s e d i n the next s e c t i o n o f t h i s c h a p t e r , were a p p a r e n t l y not s e r i o u s l y c on-s i d e r e d by the Committee. The f i r s t o f t h e s e f a c t o r s i s a r e c o g n i t i o n by t h e Committee o f the c l o s e h i s t o r i c a l t i e s between B r i t i s h C o l u m b i a company law and t h a t o f the U n i t e d Kingdom."^ T h i s acknowledge-ment, u n d o u b t e d l y a c c u r a t e , p r o v i d e s a l o g i c a l s t a r t i n g p o i n t f o r any s t u d y of the Committee: That i s , how has the U n i t e d Kingdom m o d i f i e d i t s own Companies A c t ? F r e q u e n t b o r r o w i n g s from U n i t e d 11 Kingdom amendments as w e l l as the r e l a t i v e l y prominent p l a c e 32 1? 13 given to the Jenkins and Cohen committee r e p o r t s i n the Study 14 Report suggest that t h i s obvious course was indeed f o l l o w e d . With such a beginning, an hypothesis can be made suggesting that unless c l e a r and urgent reasons to the contrary were shown, the Committee would be u n l i k e l y to depart from the basic framework e s t a b l i s h e d by the United Kingdom l e g i s l a t i o n . This hypothesis i s confirmed by both the c r i t e r i a s e l e c t e d by the Committee and by those e v i d e n t l y r e j e c t e d . By the Committee's own account, t h e i r conceptual study followed and was made "having regard to the r e s u l t s of" the l6 Committee's research. This research consisted p r i m a r i l y of submissions s o l i c i t e d from the p u b l i c at large by advertisement; submissions s o l i c i t e d from s p e c i f i c groups and agencies; meetings with government o f f i c i a l s i n v o l v e d i n companies work; and commis-17 s i o n r e p o r t s of other j u r i s d i c t i o n s . Apparently, the number of 18 submissions r e c e i v e d by the committee was s m a l l . This suggests then that the major source of p o l i c y f o r the new act would be various commission r e p o r t s and that the c r i t e r i a s e l e c t e d would be u s u a l l y drawn from the mainstream of government sponsored com-pany law reform. F i n a l l y , the scope of t h i s conceptual study i s l i m i t e d by the terms i n which the committee e s t a b l i s h e d i t s purpose. This was, as w i l l be r e c a l l e d , to " e s t a b l i s h the requirements of the community i n respect of the corporate form." 1^ This demands that the f i r s t task of the Committee be to define what community i t 33 w i l l c o n s i d e r , i t sharpens the need, p r e s e n t i n any att e m p t t o d r a f t a s t a t u t e , t o d e f i n e t h a t group t o whom the s t a t u t e w i l l 20 p r i m a r i l y be addr e s s e d and t o d e c i d e whether i t w i l l be t h i s group or some o t h e r whose needs and wishes w i l l be uppermost con-s i d e r a t i o n s i n f o r m u l a t i n g p r o v i s i o n s . Where a s t a t u t e i s enab-l i n g , as opposed t o p r o h i b i t i v e , the n e c e s s i t y o f e n s u r i n g i t s u t i l i z a t i o n among t h a t group t o whom i t i s a d d r e s s e d p r e s s e s f o r the i d e n t i f i c a t i o n o f the two gro u p s . The needs and w i s h e s o f 2 1 t h o s e p e r s o n s e x p e c t e d t o use the s t a t u t e cannot be i g n o r e d . I n many c a s e s , t h e n , i t can be a n t i c i p a t e d that, the " r e q u i r e m e n t s o f the community" w i l l mean t he r e q u i r e m e n t s o f thos e t o whom the s t a t u t e i s a d d r e s s e d , o r , g e n e r a l l y , p r o m o t o r s , s h a r e h o l d e r s , c r e d i t o r s , d i r e c t o r s , o f f i c e r s and a u d i t o r s of companies. W i t h t h e s e g u i d e l i n e s i n mind t h e n , some p r o g r e s s can be made i n d e t e r m i n i n g what c r i t e r i a would not be a c c e p t a b l e t o the committee and why. CRITERIA NOT. ACCEPTED These r e s t r i c t i v e i n f l u e n c e s e l i m i n a t e d f o r the Committee, f o r example, the ga r g a n t u a n t a s k o f r e c o n s i d e r i n g t h e whole concept of " c o r p o r a t e n e s s " . Such r e c o n s i d e r a t i o n i s u s u a l l y urged by s c h o l a r s c o n s i d e r i n g e i t h e r the v e r y s m a l l o r the v e r y l a r g e c o r p o r a t e s t r u c t u r e . They b e l i e v e t h a t some form o t h e r t han the a l l - e m b r a c i n g n o t i o n o f a c o r p o r a t i o n must be de s i g n e d t o cope w i t h the s p e c i a l problems o f the c l o s e o r o f the 3 ^ m u l t i - n a t i o n a l o r g a n i z a t i o n . L i n k i n g the two by use o f the word "company" or " c o r p o r a t i o n " o b s c u r e s the e s s e n t i a l d i f f e r e n c e s i n a foggy m i s l e a d i n g c o n c e p t . Thus F r a n c i s W. C o k e r , J r . found a c e n t r a l problem of the c l o s e c o r p o r a t i o n t o be the i n s i s t e n c e o f the law i n t r e a t i n g " c o r p o r a t e n e s s " as a r e a l t h i n g from w h i c h p r i n c i p l e s or g e n e r a l i z a t i o n s c o u l d be drawn i n s t e a d o f p u r e l y a c r e a t i o n of the l e g i s l a t u r e . E v e r y r u l e needed f o r a c l o s e c o r -p o r a t i o n had t o be . j u s t i f i e d as an " e x c e p t i o n " where t h e r e was i n 22 r e a l i t y no g e n e r a l r u l e a t a l l . At the o t h e r end o f the s c a l e , the f e a r of the l a r g e c o r p o r a t i o n as a t h r e a t t o i n d i v i d u a l f r e e -23 dorn was a n a l y z e d by B a y l e s s Manning. There, " c o r p o r a t i o n " was seen as a c o n v e n i e n t t a g , o b l i t e r a t i n g the need t o s e a r c h f u r t h e r f o r the c h a r a c t e r i s t i c s o f t h o s e o r g a n i z a t i o n s a c t u a l l y p o s i n g 2k such a t h r e a t . So r e s e a r c h i n t o t h e • o r g a n i z a t i o n - p o w e r - f r e e d o m t r i a d was e f f e c t i v e l y h a l t e d . But the h i s t o r i c a l nexus, and the wide a c c e p t a n c e o f the c o r p o r a t e form i n the community made i t u n n e c e s s a r y , even unde-s i r a b l e , t h a t any new s t r u c t u r e be s u g g e s t e d . And the Committee d i d not c o ntemplate such fundamental a l t e r a t i o n i n the p r i n c i p l e s o f b u s i n e s s o r g a n i z a t i o n . I t was the c o r p o r a t e s t r u c t u r e i n the 2 5 community f o r w h i ch they sought g u i d e l i n e s . ' A c o m p l e t e l y new way o f g o v e r n i n g b u s i n e s s r e l a t i o n s h i p s would o b v i o u s l y be a t a s k f a r beyond the c a p a c i t i e s of a two man committee whose members 26 had o t h e r r e s p o n s i b i l i t i e s as w e l l . S i m i l a r l y , i t was not t o be e x p e c t e d t h a t the Committee 35 would e s t a b l i s h any r a d i c a l l y new p h i l o s o p h y o f c o r p o r a t e con-t r o l . The d i v i s i o n between ownership and c o n t r o l i n the c o r p o r -27 ate w o r l d has, of c o u r s e , been r e c o g n i z e d s i n c e 1932. S i n c e t h a t t i m e , the s t a n d a r d government p o l i c i e s have i n c l u d e d a r e t u r n o f some measure o f d e m o c r a t i c c o n t r o l . t o t h e s h a r e h o l d e r s . 28 29 Documents such as the Cohen R e p o r t and the J e n k i n s R e p o r t have a d v i s e d l o n g e r n o t i c e s f o r company meetings f o r the s h a r e -h o l d e r s , ^ a l l o w i n g r e m o v a l o f d i r e c t o r s by o r d i n a r y r e s o l u t i o n 31 b e f o r e e x p i r a t i o n o f t h e i r term, c h o i c e by the s h a r e h o l d e r even 32 when v o t i n g by p r o x y and a scheme f o r c o n t r o l by the g e n e r a l 33 3k' meeting o f share i s s u e s . But as has been p o i n t e d o u t , t h i s r e t u r n t o c o r p o r a t e democracy i s nowhere a d v o c a t e d i n suc h docu-ments as a r e t u r n t o a town meeting s t y l e o f democracy. The Committee was l i k e l y t o f o l l o w t h i s mainstream o f company law t r a d i t i o n . Had i t d e c i d e d not t o do s o , i t would have been f a c e d w i t h a b e w i l d e r i n g a r r a y o f c o u n t e r - p r o p o s a l s among w h i c h i t s s i z e and s t r u c t u r e made i t v e r y u n s u i t e d t o choose. And h a v i n g made a s e l e c t i o n , not a l l the Committee's l e g i s l a t i v e s k i l l c o u l d have made the c h o i c e v/orkable. The " p r o -f e s s i o n a l s h a r e h o l d e r " would have a r e t u r n t o d i r e c t c o n t r o l by the s h a r e h o l d e r s . O t h e r s , l i k e B a y l e s s Manning, welcome the d e c r e a s i n g i m p o r t a n c e o f the s h a r e h o l d e r ' s v o t e and su g g e s t t h a t the c o r p o r a t e democrats a r e " r o m a n t i c and m i s g u i d e d , t r y i n g t o 35 put c o n t r o l back w i t h o w n e r s h i p . " The a p t n e s s o f the a n a l o g y o f p o l i t i c a l democracy t o the g o v e r n i n g o f a c o r p o r a t e body has 36 been q u e s t i o n e d . C o n t r o l o f company boards by some k i n d o f " s u p e r - b o a r d " ; i m p o s i t i o n of s t a t e - l i k e " c o n s t i t u t i o n a l s a f e g u a r d s f o r human r i g h t s ; and a r o l e f o r w o r k e r s on the company board have a l l , i n t h e i r t u r n , been a d v o c a t e d . C h o i c e from t h e s e a l t e r n a t i v e s would a l s o have r e q u i r e d , . not merely a c o n c e p t u a l s t u d y f o r company lav/, but an e x t e n s i v e economic s t u d y t o d e t e r m i n e where and how c o n t r o l i n the c o r p o r a -37 t i o n i s under the p r e s e n t system e x e r t e d . I t would have r e q u i r e d some k i n d of d i s t i n c t i o n between the l a r g e and the s m a l l company based on the e x e r c i s e o f c o n t r o l , s i n c e i t i s o n l y i n the l a r g e company t h a t the s e p a r a t i o n from ownership e x i s t s , and t h e n o n l y i n p a r t i c u l a r l a r g e companies. T h i s k i n d o f r a d i c a l d i s -t i n c t i o n i n how v a r i o u s c o r p o r a t i o n s s h o u l d be governed i s i n s e p -a r a b l e from the r e c o n s i d e r a t i o n of the p r i n c i p l e of " c o r p o r a t i o n " d i s c u s s e d i n the f i r s t p a r agraphs o f t h i s s e c t i o n . B o d i e s r e q u i r i n g d i f f e r e n t s o r t s o f c o n t r o l f o r d i f f e r e n t p u r p o s e s would 39 have t o be t r e a t e d i n d i f f e r e n t ways. A t h i r d major a r e a which i t c o u l d not be e x p e c t e d t h a t the c r i t e r i a s e l e c t e d by the committee would a t t a c k i s the ques-t i o n o f the s o c i a l purpose of the c o r p o r a t i o n . A g a i n , the p r o b -lem i s c h a r a c t e r i z e d by a p l e t h o r a o f s u g g e s t i o n s . Wedderburn, f o r example, would i m p o r t i n t o the c o r p o r a t e law the n o t i o n o f i r r e c o n c i l a b l e g o a l s f o r management and l a b o u r and r e j e c t any i n c o r p o r a t i o n of w o rkers on the company b o a r d . B u t , he would r e q u i r e as a c o n d i t i o n p r e c e d e n t t o i n c o r p o r a t i o n t h a t a company 37 ko be w i l l i n g t o engage i n c o l l e c t i v e b a r g a i n i n g . More b r o a d l y , i t has been suggested t h a t the c o r p o r a t i o n s h o u l d be encouraged t o pursue the g o a l , not o f p r o f i t making, but o f a vague " c o r p o r -a t e good c i t i z e n s h i p " . The g e n e r a l s o c i a l good s h o u l d be sought by the managers o f the company. T h i s p o s i t i o n has been c r i t i -c i z e d on the b a s i s t h a t "freedom w i l l d i s a p p e a r when a c t i v i t i e s kl must meet a s o c i a l p u r p o s e " and a l s o on the more r a t i o n a l ground t h a t a c o n c r e t e a p p l i c a t i o n o f such a p o l i c y would l e a d t o kz r e v o l u t i o n a r y changes i n the i n d u s t r i a l system. The unknown and as y e t u n i n v e s t i g a t e d e f f e c t s . o f such changes a p a r t from a l l the o t h e r i m p o n d e r a b l e s i n v o l v e d i n the p r o m o t i o n of t h i s p o l i c y a g a i n make i t one t h a t the Committee was i l l - e q u i p p e d and h i g h l y u n l i k e l y t o i n v e s t i g a t e s e r i o u s l y . L i m i t s imposed on the Committee by i t s form, i t s s i z e , the p r e c o n c e p t i o n s w i t h w h ich i t began i t s r e s e a r c h - a n d the methods i t employed e l i m i n a t e d t h e s e broad a r e a s o f i n q u i r y . I t was l e f t w i t h a f a i r l y r e s t r i c t e d range of c o n v e n t i o n a l aims from which t o s e l e c t i t s c r i t e r i a f o r r e f o r m . The n e x t s e c t i o n o f t h i s c h a p t e r w i l l p roceed t o an a n a l y s i s o f the c r i t e r i a f i n a l l y c hosen. THE CRITERIA SELECTED The c r i t e r i a s e l e c t e d by the committee a r e c o n t a i n e d i n i+3 P a r t Three of t h e i r r e p o r t . They a r e c o n t a i n e d i n s i x p a r a -graphs and may, f o r g r e a t e r c o n v e n i e n c e o f r e f e r e n c e , be f u r t h e r 38 d i v i d e d i n t o f o u r t e e n s e p a r a t e i d e a s . D i v i d e d and numbered by p a r a g r a p h and i d e a , t h e y are as f o l l o w s : 1. a. The l e g i s l a t i o n must s e r v e the needs of the community. b. The -s t a t u t e must be d r a f t e d remembering t h a t i t w i l l be a w o r k i n g t o o l f o r many w i t h o u t b e n e f i t o f p r o f e s -s i o n a l a d v i s e r s . 2. c. U n i f o r m i t y i s d e s i r a b l e , but not paramount. d. A d a p t a t i o n s o f l e t t e r s p a t e n t concept cannot be recommended f o r B r i t i s h C o l u m b i a . 3 - e- Companies l e g i s l a t i o n s h o u l d be s e l f - r e g u l a t i n g . f . Means s h o u l d be p r o v i d e d f o r members and c r e d i t o r s t o know what i s o c c u r r i n g and t o c a l l t o account t h o s e who wrong them. g. Government i n v o l v e m e n t s h o u l d be c o n f i n e d t o p r o v i d -i n g a r e c o r d o f s t a t u s and a s e c u r e r e c o r d o f v i t a l i n f o r m a t i o n . k. h. The r u l e s e s t a b l i s h e d s h o u l d be c l e a r and m e a n i n g f u l , i . The r u l e s must be e n f o r c e a b l e w i t h i n the r e a s o n a b l e economic r e s o u r c e s o f the- community. • j . The r u l e s must be p r e d i c t a b l e i n t h e i r i n v o c a t i o n and r e s u l t . 5 . k. P u b l i c s c r u t i n y i s r e c o g n i z e d as a p o w e r f u l weapon f o r s e c u r i n g c o m p l i a n c e . 1 . P u b l i c s c r u t i n y i s of l i t t l e use i f i t i s u n r e a s o n -39 a b l y e x p e n s i v e t o comply or produces a p l e t h o r a o f i n f o r m a t i o n o f t e n h o p e l e s s l y out o f d a t e . 6. m. Companies l e g i s l a t i o n i s not and s h o u l d not be s o c i a l l e g i s l a t i o n . n. Remedy o f a s o c i a l wrong not d i r e c t l y r e l a t e d t o the c o r p o r a t e form s h o u l d be e f f e c t e d by l e g i s l a t i o n aimed d i r e c t l y a t the m a t t e r , not i n d i r e c t l y t h r o u g h the Companies A c t . P o i n t ( a ) , t h a t the l e g i s l a t i o n must s e r v e the needs o f the community, has, i n i t s e l f , l i t t l e meaning. I t i s a mere r e p e t i t i o n of the words i n which the Committee phrased i t s own 45 s e a r c h f o r the c r i t e r i a f o r r e f o r m . I t does not f u r t h e r i d e n -t i f y the community t o which i t r e f e r s . Assuming the community t o 46 be t h e b u s i n e s s w o r l d , the r e a d e r i s not i n f o r m e d o f what o f i t s many p o s s i b l e needs the committee b e l i e v e s t h a t company law s h o u l d f u l f i l l . P o i n t ( b ) , a l s o p a r t o f the Committee's f i r s t c r i t e r i o n , h e l p s t o answer some of t h e s e q u e s t i o n s . One need a t l e a s t t h a t the Committee sees as worthy o f a t t e n t i o n i s a c e r t a i n s i m p l i f i -c a t i o n i n the s t a t u t e . I n the words o f the Committee, "hoary language w h i c h i s i r r e l e v a n t or o b s cure has no p l a c e i n a 47 s t a t u t e " such as the Companies A c t . T h i s c r i t e r i o n s t a n d s a p a r t from many of the o t h e r s s e l e c t e d by the Committee. S i m p l i -f i c a t i o n , as a d e s i g n a t e d end, u s u a l l y forms no p a r t of. company 4o law r e f o r m p r o p o s a l s made i n o t h e r j u r i s d i c t i o n s . One e x c e p t i o n t o t h i s r u l e might be s a i d t o be Gower's 48 r e p o r t on the company law of Ghana. H i s form o f s i m p l i f i c a t i o n encompassed add i n g t o the forms i n which b u s i n e s s i s c a r r i e d on a s i m p l e r type o f l i m i t e d a s s o c i a t i o n than the complete c o r p o r a t i o n and d r a f t i n g a complete code o f laws t o e l i m i n a t e the need t o 49 r e l y on B r i t i s h p r e c e d e n t . These were b o t h i n answer t o s p e c i -f i c problems o f the Ghanaian s i t u a t i o n . The recommended I n c o r p o r a t e d P r i v a t e P a r t n e r s h i p A c t was d e s i g n e d t o p r o v i d e f o r the u n s o p h i s t i c a t e d A f r i c a n businessman who was not y e t r e a d y f o r f u l l i n c o r p o r a t i o n . But a more c o m p l i c a t e d form, l i k e B r i t i s h company law r e q u i r e m e n t s was l e f t f o r o t h e r b u s i n e s s e s . More-o v e r , e l i m i n a t i o n o f a r e l i a n c e on p r e c e d e n t meant the s t a t u t e had t o be l o n g e r than i t s B r i t i s h o r Canadian companions i n the f i e l d . The r e s u l t i n g d r a f t companies a c t was as complex t h e r e -f o r e as any o t h e r company l e g i s l a t i o n . E x c e p t f o r t h i s r e p o r t , c o p i n g w i t h a unique economic s i t u a t i o n , o t h e r company law r e f o r m r e p o r t s have made no c o n c e s s i o n s t o the businessman w i t h o u t a d v i s -e r s who u n d o u b t e d l y would have t r o u b l e u n d e r s t a n d i n g the s t a t u t e . 50 The J e n k i n s Committee Rep o r t even went so f a r as t o s t a t e e x p r e s s l y t h a t t h e y saw i t as no p a r t o f t h e i r f u n c t i o n t o s i m -51 p l i f y an i n e s c a p a b l y complex s t a t u t e . I t may be doubted whether the businessman or wronged s h a r e h o l d e r i s o f t e n i n the p o s i t i o n o f h a v i n g t o use the Companies A c t w i t h o u t a d v i c e . Where t h e r e i s a company, t h e r e i s kl i n v a r i a b l y , b u s i n e s s . And where t h e r e i s b u s i n e s s o f s u f f i c i e n t c o m p l e x i t y t o r e q u i r e i n c o r p o r a t i o n , t h e r e w i l l i n v a r i a b l y be b o t h l a w y e r s and a c c o u n t a n t s . I t may f u r t h e r be doubted w h e t h e r , s h o u l d such o c c a s i o n a r i s e , an a c t w i t h o u t hoary language w i l l be 52 much a s s i s t a n c e t o "many w i t h o u t p r o f e s s i o n a l a d v i s e r s " who a r e a l s o presumably w i t h o u t knowledge e i t h e r o f b a s i c company law p r i n c i p l e s or of the a l l p e r v a s i v e f o r m a l r e q u i r e m e n t s o f Companies Branch. But s i m p l i c i t y i s g e n e r a l l y d e s i r a b l e where i t can be a c h i e v e d w i t h o u t c o n f u s i o n . Whether t h i s program was s u c -c e s s f u l l y implemented by the Committee i n i t s f i n a l a c t w i l l be a 53' c h i e f t o p i c o f i n q u i r y i n o t h e r c h a p t e r s o f t h i s t h e s i s . I n p o i n t ( c ) , d e a l i n g w i t h the q u e s t i o n o f u n i f o r m i t y , the Committee f o l l o w e d a w e l l - e s t a b l i s h e d Canadian t r a d i t i o n . A l t h o u g h the p r o v i n c e s have a l l borrowed each o t h e r ' s i d e a s i n 5k 55 s p e c i f i c a r e a s , n e i t h e r the D i c k e r s o n r e p o r t nor the Lawrence r e p o r t , the two major Canadian company law r e f o r m p r o p o s a l s p r e -c e d i n g the B.C. a c t , a d v o c a t e d u n i f o r m i t y . However, as d i s c u s -sed above, c e r t a i n fundamental company law c o n c e p t s were n o t c l o s e l y examined by the Committee. One r e a s o n f o r t h i s i s u n d o u b t e d l y t h a t e v e r y Canadian j u r i s d i c t i o n , i n c l u d i n g B r i t i s h C o l u m b i a , i s aware t h a t her companies must be a b l e t o f u n c t i o n i n the o t h e r j u r i s d i c t i o n s and her laws be a b l e t o d e a l w i t h compan-i e s from o t h e r j u r i s d i c t i o n s f u n c t i o n i n g . i n her own. A c e r t a i n u n i f o r m i t y , a t l e a s t i n the b a s i c concept o f a c o r p o r a t i o n and i t s f u n c t i o n i s thu s imposed. k2 The r e f u s a l t o f o l l o w the a d a p t a t i o n s o f l e t t e r p a t e n t c o n c e p t s recommended f o r Canada and O n t a r i o found i n p o i n t (d) i s not f a t a l t o t h i s b a s i c u n i f o r m i t y . Recommendations f o r d i l u -56 t i o n o f the u l t r a v i r e s d o c t r i n e , f o r a r e c o g n i t i o n i n l e t t e r s 57 p a t e n t j u r i s d i c t i o n s o f a r i g h t t o i n c o r p o r a t e and f o r i m p l e -58 m e n t a t i o n of a d i r e c t o r s ' r i g h t t o manage s e c t i o n i n B.C. have c o n s i d e r a b l y l e s s e n e d any gap between the methods o f i n c o r p o r a -t i o n , a l t h o u g h t h e y remain d i f f e r e n t i n form. The s e l f - r e g u l a t i o n , a d v o c a t e d i n p o i n t ( e ) , i s a l s o a common p o s i t i o n i n company law r e f o r m . The u s u a l r a t i o n a l e f o r the p o s i t i o n i s t h a t , as d i s c u s s e d above, companies a c t s a r e e n a b l i n g l e g i s l a t i o n . T h e i r purpose i s t o g i v e l e g a l s a n c t i o n and s t r u c t u r e t o a p a r t i c u l a r method of c a r r y i n g on b u s i n e s s . The D i c k e r s o n r e p o r t e x p r e s s e s t h i s by s a y i n g t h a t "The p r i m a r y purpose o f c o r p o r a t i o n law i s not r e g u l a t o r y . They a r e e n a b l i n g a c t s t o a u t h o r i z e businessmen t o o r g a n i z e and o p e r a t e t h e i r b u s i -5 9 n e s s , l a r g e or s m a l l . " S e l f - r e g u l a t i o n i m p l i e s l a c k o f r e g u l a t i o n from some e x t e r n a l body. I t would appear, t a k i n g o n l y the w o r d i n g of the c r i t e r i a , t h a t the Committee saw t h i s e x t e r n a l body p r i m a r i l y as the government. I n p o i n t ( g ) , they d e f i n e government i n v o l v e m e n t as c o n s i s t i n g p r i m a r i l y as a r e p o s i t o r y of i n f o r m a t i o n and r e c o r d s o f s t a t u s . ^ But s e l f - r e g u l a t i o n r e q u i r e s some i n s t r u -ment whereby the company or someone i n the company may r e g u l a t e . T h i s i n s t r u m e n t can be i n d i r e c t , such as the s t o c k market p r i c e , k3 w h i c h some a u t h o r i t i e s see as f l u c t u a t i n g w i t h s h a r e h o l d e r o p i n - ' i o n s u f f i c i e n t l y t o i n f l u e n c e the conduct o f the company's 6 l a f f a i r s . Or the i n s t r u m e n t can be d i r e c t , s u c h as new a c t i o n s i n the c o u r t s t o r e d r e s s wrongs o r r e s t r a i n c e r t a i n c o u r s e s o f c o n d u c t . ^ 2 There emerge a s e r i e s o f c h o i c e s . S e l f - r e g u l a t i o n can mean r e g u l a t i o n by the d i r e c t o r s o r the s h a r e h o l d e r s . I t can be c a r r i e d out t h r o u g h l a i s s e z - f a i r e methods or by c o u r t a c t i o n . And the c h o i c e s made a f f e c t one a n o t h e r . I f i t i s d e s i r e d t h a t the " s e l f " i n s e l f - r e g u l a t i o n mean the board o f d i r e c t o r s , t h e n , a l a i s s e z - f a i r e method w i l l g i v e o n l y s c a n t power t o the s h a r e -h o l d e r s and the d i r e c t o r s w i l l a c t w i t h o u t much i n t e r f e r e n c e . I f the method chosen i s c o u r t a c t i o n , t hen the " r e g u l a t i o n " i n s e l f -r e g u l a t i o n i s more l i k e l y t o be r e s t r a i n t on the powers o f d i r e c -t o r s and s h a r e h o l d e r s w i l l have more c o n t r o l . Only r a r e l y are the s e q u e s t i o n s f a c e d by a law r e f o r m commission or committee d i r e c t l y . U s u a l l y t h e i r s t a n d must be i n f e r r e d from the mechanisms t h e y s e t o u t . The Lawrence E e p o r t i s i n some measure an e x c e p t i o n t o t h i s , a l t h o u g h t h e r e i s no e v i d e n c e t h a t they approached the problem i n any c o n s i s t e n t way. They s e t out f i r s t the s t a n d a r d p r i n c i p l e t h a t "The r u l e o f non-i n t e r f e r e n c e i n the i n t e r n a l a f f a i r s or d i s p u t e s o f a company i s 6k a deep-seated p r i n c i p l e o f A n g l o - C a n a d i a n law." Then t h e y add t o t h i s a condemnation o f the remedy f o r o p p r e s s i o n s u g g e s t e d by the Cohen r e p o r t because i t " i s o b j e c t i o n a b l e on the grounds t h a t i t i s a complete d e r e l i c t i o n o f the e s t a b l i s h e d p r i n c i p l e o f 65 j u d i c i a l n o n - i n t e r f e r e n c e i n the management of companies." Whether or not the committee was c o r r e c t i n t h i s i n t e r p r e t a t i o n 66 o f the r u l e , i t s application»in t h i s c i r c u m s t a n c e would seem t o i n d i c a t e a c h o i c e f o r r e g u l a t i o n by the d i r e c t o r s o n l y and a l a i s s e z - f a i r e approach t o s h a r e h o l d e r s ' c l a i m s . Even s o , t h e y a r e not p e r f e c t l y c o n s i s t e n t i n t h i s a p p r o a c h , s p o n s o r i n g i n c l u s i o n o f a r e p r e s e n t a t i v e a c t i o n f o r s h a r e h o l d e r s i n the a c t . T h i s would r e q u i r e t h a t a s h a r e h o l d e r e s t a b l i s h b e f o r e t h a t c o u r t t h a t i t i s p r i m a f a c i e i n the i n t e r e s t s o f the company t h a t the a c t i o n 67 be b r o u g h t . T h i s would appear t o be as much j u d i c i a l i n t e r f e r -ence as an i n q u i r y as t o whether a conduct c o n s t i t u t e s o p p r e s -s i o n . Some r e c o g n i t i o n o f these c h o i c e s appears t o have been g i v e n by the B.C. Committee. P o i n t ( f ) s u g g e s t s t h a t members and c r e d i t o r s be p r o v i d e d w i t h the means f o r knowing what i s o c c u r -r i n g and f o r c a l l i n g t h o s e who wrong them t o a c c o u n t . Some r e g u -l a t i o n a t l e a s t i s a p p a r e n t l y t o be p r o v i d e d by b o t h s h a r e h o l d e r s and c r e d i t o r s and a t l e a s t t o some e x t e n t , presumably t h r o u g h the c o u r t s . The r e c o g n i t i o n i m p l i e d i n t h i s p a r a g r a p h o f the c r i t e r i a o f c r e d i t o r s ' r i g h t s i l l u s t r a t e s the acceptance by the committee o f the g e n e r a l t h e o r y o f c o r p o r a t e c o n t r o l d i s c u s s e d e a r l i e r i n 68 t h i s c h a p t e r . W h i l e the s h a r e h o l d e r s a r e t o be able, t o c a l l t o account t h o s e who wrong them and t o know the s t a t e o f t h e 4 5 company's a f f a i r s , t h e r e i s no c a l l f o r a r e a l r e t u r n t o t h e ' c o r -p o r a t e democracy o f the s m a l l company. The c h a n g i n g p o s i t i o n o f s h a r e h o l d e r s from owners t o i n v e s t o r s seems i n p a r t t o be r e c o g -n i z e d by l i n k i n g t h e i r p o s i t i o n i n r e s p e c t o f the r i g h t t o know and t o c a l l t o account w i t h t h a t o f c r e d i t o r s . P a r a g r a p h 4. i n c l u d i n g p o i n t s (h),- ( i ) and ( j ) espouse, the g o a l s o f c l a r i t y , m e a n i n g f u l n e s s , e n f o r c e a b i l i t y and p r e d i c t -a b i l i t y f o r the a c t . These are not s i m p l y r e q u i r e m e n t s o f com-pany law. I n s t e a d , t h e y are g e n e r a l r e q u i r e m e n t s f o r the e f f i -69 cacy o f any law. They o n l y have e f f e c t on c o n c r e t e p r o p o s a l s f o r r e f o r m , hov/ever, when the community f o r whom the r u l e s a r e t o be c l e a r , m e a n i n g f u l , p r e d i c a b l e and e n f o r c e a b l e has been d e f i n e d . I t w i l l be remembered t h a t the Committee d i d , a t l e a s t p a r t i a l l y , d e f i n e t h i s a udience i n t h e i r f i r s t p a r a g r a p h as i n -c l u d i n g t h o s e who must use the Companies A c t w i t h o u t the b e n e f i t o f p r o f e s s i o n a l a d v i s e r s . But, i n e v a l u a t i n g t h e s e c r i t e r i a , i t i s a l s o n e c e s s a r y t o keep i n mind the i n f l u e n c e o f the w i s h e s o f a l l t h o s e who w i l l use the a c t on i t s c o n t e n t s . The r e a s o n s f o r 70 t h i s i n f l u e n c e have a l r e a d y been d i s c u s s e d i n t h x s c h a p t e r . T h i s community w i l l a l s o i n c l u d e the l a w y e r , a c c o u n t a n t and more s o p h i s t i c a t e d businessman. P u b l i c s c r u t i n y , as recommended by the committee i n t h e i r f i f t h p a r a g r a p h , has h i s t o r i c a l l y been much r e l i e d upon i n con-t r o l l i n g b e h a v i o u r i n the c o r p o r a t e f i e l d . Thus the 1933 71 S e c u r i t i e s A c t i n the U n i t e d S t a t e s was based on the pre m i s e 46 7 2 t h a t s u n l i g h t was the best d i s i n f e c t a n t . ' I n 19^5 , the Cohen . . r e p o r t s a i d i n i t s opening paragraphs t h a t "the f u l l e s t p r a t i c -a b l e d i s c l o s u r e o f i n f o r m a t i o n c o n c e r n i n g the a c t i v i t i e s o f com-p a n i e s w i l l l e s s e n such o p p o r t u n i t i e s f o r abuse and a c c o r d w i t h a 73 wakening s o c i a l c o n s c i o u s n e s s . " By 1962, the J e n k i n s R e p o r t c o u l d say s i m p l y t h a t " d i s c l o s u r e i s r i g h t i n p r i n c i p l e and n e c e s s a r y t o p r o t e c t those who t r a d e w i t h and e x t e n d c r e d i t t o 7 4 l i m i t e d companies." P a r a l l e l t o t h i s , the main t r e n d of c o r p o r a t e ' l a w r e f o r m has a l s o always k e p t i t s views on how-much d i s c l o s u r e and a t what time was p r a c t i c a l . The f a c t o r s m i t i g a t i n g a g a i n s t c e r t a i n d i s -c l o s u r e s a r e , a c c o r d i n g t o the B.C. Committee, t o be expense and p r a c t i c a l i t y of k e e p i n g the i n f o r m a t i o n up t o d a t e . These f a c -t o r s appear t o be somewhat d i f f e r e n t from those o f the J e n k i n s r e p o r t , f o r example, where i t was thought the c o n s i d e r a t i o n s s h o u l d i n c l u d e u s e f u l n e s s of i n f o r m a t i o n t o the p e r s o n s r e c e i v i n g i t ; the amount o f work i n p r e p a r i n g i t ; and whether the d i s c l o s -7 5 ure would be h a r m f u l t o the company's b u s i n e s s . The r e l a t i o n s h i p between companies law and s o c i a l harms t h a t may be seen t o r e s u l t from c o r p o r a t e conduct of b u s i n e s s i s d e a l t w i t h by the committee i n p a r a g r a p h s i x . I t was a l r e a d y d i s c u s s e d above t h a t a committee c o n s t i t u t e d and g u i d e d as t h i s committee was u n l i k e l y t o q u e s t i o n the s o c i a l p urposes o f the c o r p o r a t i o n . The scope o f a s t u d y n e c e s s a r y i f s u c h p u r p o s e s 76 were t o be r e d e s i g n e d was a l s o d i s c u s s e d . The n a t u r a l r e s u l t hi f o l l o w s , and i n p o i n t (m), the committee d e c l a r e d a " h a n d s - o f f " p o l i c y f o r s o c i a l r e f o r m . T h i s p o l i c y , a g a i n , f o l l o w s the t r e n d o f p a s t r e p o r t s on company law. As Wedderburn p o i n t e d o u t , n e i t h e r the J e n k i n s nor 77 Cohen r e p o r t was concerned t o d e a l w i t h s o c i a l p o l i c y . I n Canada, the D i c k e r s o n r e p o r t s t a n c h l y adhered t o the t r a d i t i o n . "We have not come t o t h i n k t h a t the m i l l e n i u m can be a c h i e v e d by 7 8 r e f o r m i n g c o r p o r a t i o n law" was t h e i r f o r m u l a t i o n o f the problem. "A c o r p o r a t i o n law i s not the p l a c e f o r c o n t r o l l i n g o b j e c t i o n a b l e 79 or d i s c r i m i n a t o r y p r a c t i s e , " t h e y s t a t e d l a t e r i n t h e i r i n t r o -d u c t i o n . Even Gower, who a d m i t t e d t h a t h i s d r a f t code had t o 80 cope w i t h a unique s o c i a l s i t u a t i o n , f i n a l l y saw s o c i a l pivr-poses as b e i n g o n l y v a g u e l y a s s i s t e d by the company law. He con-c l u d e d t h a t " I n the l a s t r e s o r t , c o n f i d e n c e , w h i c h i s the b a s i s o f e v e r y t h i n g e l s e , depends on g e n e r a l s t a n d a r d s o f c o m m e r c i a l m o r a l i t y , on. p o l i t i c a l and economic s t a b i l i t y and on government p o l i c y . A company law cannot a s s u r e A f r i c a n s a t t a i n a l a r g e r s h are i n i n d u s t r y and commerce. . . . On the o t h e r hand, company law can p r o v i d e good or bad i n s t r u m e n t s t h r o u g h w hich p o l i c y can 8 l g e n e r a t e . " But the company law i t s e l f was not t o be a v e h i c l e o f p o l i c y . T h a t , a s the B.C. committee approved i n p o i n t ( n ) , was t o be l e f t t o o t h e r l a w s , o t h e r committees. Having completed t h i s a n a l y s i s of the o r i g i n s and meaning o f the fundamental c r i t e r i a s e l e c t e d by the d r a f t s m e n and formu-l a t o r s o f the new companies a c t , t h i s paper w i l l proceed t o d i s c u s s whether, and i f s o , when and where t h e s e c r i t e r i a a c t u a l l y shaped the p r o p o s a l s and d r a f t i n g o f the s t a t u t e . FOOTNOTES, CHAPTER I I I ''"Such s t a t u t e s abound. The o l d F e d e r a l Income Tax A c t , b e f o r e t h e new a c t , may be one of the b e s t examples. 2 From many p o s s i b l e c h o i c e s , t a k e the example o f R e s i d e n t i a l T e n a n c i e s i n P a r t IV o f the M a n i t o b a L a n d l o r d and Tenant Act.. These, c o n t r a c t u a l r i g h t s r a t h e r t han p r o p e r t y r i g h t s a r e r e c o g n i z e d t o be the b a s i s f o r a l e a s e o f r e s i d e n t i a l p r o p e r t y . But i n the remainder o f the a c t , unreformed, l e a s e s a r e s t i l l p r i m a r i l y the c r e a t i o n o f an i n t e r e s t i n p r o p e r t y . What i s the l o g i c a l d i s t i n c t i o n among the t y p e s o f tena n c y ? 3 F o r a d i s c u s s i o n o f such p r o c e s s d i s t i n c t from "law r e f o r m " , see Chapter 1 , s u p r a . See K. W. Wedderburn, F a b i a n T r a c t #363, 1965, Company Law Reform, 3 -^ I b i d . , p. k. S t a t s . B.C. 1973, c. 18 . 7 D e p a r t m e n t a l Study R e p o r t o f the Dept. o f the A.-G. o f B.C., 1971, The Companies A c t , 1 . 8 I b i d . , a t p. 5 -9 7 I b i d . 2 . " ^ H i s t o r y and R e l a t e d Systems, D e p a r t m e n t a l Study R e p o r t , ''""'"See the d i s c u s s i o n i n f r a i n .Chapter VI and f o l l o w i n g f o r examples. 12 Gr. B r i t a i n Board o f Trade Report o f the Committee on Company Law Amendment, (1962) . 13 Gr. B r i t a i n Board o f Trade R e p o r t o f the Committee on Company Law Amendment, (1949) . 14 D e p a r t m e n t a l Study R e p o r t p. 2 . Of the f o u r o f perhaps e i g h t major company law r e p o r t s (Cohen, J e n k i n s , Kimber, Lawrence, D i c k e r s o n , Ghana, N.Y., American Bar A s s o c . ) t h a t were mentioned by the committee by name, two were from the U.K. and two from O n t a r i o . A l s o , i n the Committee's f i l e s , the J e n k i n s Report appeared most f r e q u e n t l y i n t h e i r s e c t i o n by s e c t i o n c o n-s i d e r a t i o n o f the s t a t u t e . 50 15 See the d i s c u s s i o n i n the f o l l o w i n g two s e c t i o n s o f t h i s c h a p t e r . "^Study R e p o r t P a r t I I , p. 5 -1 7 I b i d . l 8 Mr. Dennis Sheppard c h a r a c t e r i z e d the r e s p o n s e a t t h i s s t a g e as " d i s a p p o i n t i n g . " 19 c S u p r a , f o o t n o t e o. 20 The p r i m a r y a u d i e n c e . See D i c k e r s o n , Fundamentals o f L e g a l D r a f t i n g , (1965) , p. 19 . 21 I t i s w e l l known t h a t e f f e c t i v e l e g i s l a t i o n must have a l a r g e degree of a c c e p t a n c e by the p r i m a r y a u d i e n c e . See J o n e s , The E f f i c a c y o f Law, 1968 R o s e n t h a l L e c t u r e s and K. L l e w e l y n , Law Observance v. Law E n f o r c e m e n t , J u r i s p r u d e n c e R e a l i s m i n Theory and P r a c t i s e , (1962) , p. 399 f o r two d i s c u s s i o n s o f t h i s f a c t o r . 22 F r a n c i s W. Coker, J r . , Book Review C l o s e Corp. - Law and P r a c t i s e by F. Hodge O'Neal 1959 3 N.Y.U.L. Rev. 799 a t p. 802. 23 B a y l e s s , Manning, C o r p o r a t e Power and I n d i v i d u a l Freedom: Some G e n e r a l A n a l y s i s and P a r t i c u l a r R e s e r v a t i o n s i960 55 N.W.U. Law Rev. 3 8 . 2h I b i d . , p. hO. 25 As t h e y p h r a s e d the t a s k t h e y had s e t t h e m s e l v e s . See P- ^ 26 Only a body such as a R o y a l Commission c o u l d have attempted such a f e a t . Even t h e n , i t i s d o u b t f u l t h a t p u b l i c o p i n i o n would be s u f f i c i e n t l y u n i f i e d t o o v e r b e a r the c o n c e r t e d p o s i t i o n of the p r e s e n t c o r p o r a t e s t r u c t u r e . (1932) . 27 B e r l e and Means, The Modern Corp. and P r i v a t e P r o p e r t y 2 8 0 f o o t n o t e 12. S u p r a , 29 S u p r a , f o o t n o t e 13. Cohen, p. 126. Cohen, p. 130. 51 32 J e n k i n s , p. 464. 33 J e n k i n s , p. 122. 34 Harry G. Manne, The Higher C r i t i c i s m o f The Modern C o r p o r a t i o n 1962, 62 Columbia Law. Rev. 399 at p. 408. 35 B a y l e s s Manning, Book Review, The American S t o c k h o l d e r by J . A. L i v i n g s t o n 1958, 67 Y a l e L . J . 1477 at 1490. 36 F o r a d i s c u s s i o n of t h i s p o s i t i o n and s e v e r a l of the o t h e r s f o l l o w i n g , see Manne's a r t i c l e , s u p r a . His arguments r e f u t i n g each p o s i t i o n are based on a f a i t h i n the e x i s t e n c e of a t r u e f r e e market economy, but he p r e s e n t s a broad overview of the suggested a l t e r n a t i v e s f o r c o r p o r a t e c o n t r o l . 37 There i s , of course, no consensus on t h i s p o i n t . F o r the t h e s i s t h a t c o n t r o l of c o r p o r a t i o n s has s h i f t e d from the c a p i t a l i s t to -the t e c h n o c r a t or the " o r g a n i z a t i o n man", see J . K. G a l b r a i t h , The New I n d u s t r i a l S t a t e , (1967) . 38 Wedderburn suggests such a d i s t i n c t i o n on the b a s i s of where a. member no l o n g e r f u l f i l l s a f u n c t i o n of making management work, supra, f o o t n o t e 4, p. 12. But s u r e l y the p r a c t i c a l prob-lems of such a d i s t i n c t i o n , e s p e c i a l l y at the time of i n c o r p o r a -t i o n , make the d i s t i n c t i o n unwieldy. 39 And t h i s i g n o r e s , of c o u r s e , the p r e v a i l i n g p r a c t i c a l problem t h a t a B.C. system of i n c o r p o r a t i o n c o u l d not a f f e c t more than a s m a l l percentage of e x i s t i n g companies o p e r a t i n g i n the p r o v i n c e . See the d i s c u s s i o n of " u n i f o r m i t y " , i n f r a . 40 K. W. V^edderburn, supra, . footnote 4, a t p. 15. 41 Supra, f o o t n o t e 3k at p. 430. 42 H e t h e r i n g t o n , F a c t and L e g a l Theory - S h a r e h o l d e r s , Managers and Corporate S o c i a l R e s p o n s i b i l i t y 1969, 21 S t a n f o r d L. Rev. 248. k3 Supra, f o o t n o t e 14, p. 8. 44 I have taken some l i b e r t y here wi t h the p h r a s i n g of the Committee but only to complete sentences where n e c e s s a r y . Most of the wording, t h e r e f o r e , i s d i r e c t quotes. The paragraph numbers are the Committee's, the o t h e r s are mine. 45 ^The requirements of the community i n r e s p e c t of the c o r p o r a t e form," Departmental Study Report, p. 7 . 52 46 See the d i s c u s s i o n p. 4 Chapter IV, supra. 4-7 Fundamental C r i t e r i o n paragraph 1 , Dept. Study Report, p. 7 . 48 L.C.B. Gov/er, F i n a l Report of the Commission of I n q u i r y i n t o the Working and A d m i n i s t r a t i o n of the Present Company Law of Ghana. 4 9 . I b i d . , I n t r o d u c t i o n . 5 0 Supra, footnote 1 3 -51 I b i d . , I n t r o d u c t i o n , p. 2 . 52 Supra, p. 9- This i s a d i r e c t quote from the Study Report, p. 7 . 5 5 I n f r a , Chapter V, VI, V I I , V I I I . 5 4 Proposals f o r a New Business Corporation Law f o r Canada ( 1 9 7 D . 5 5 Interim Report of the S e l e c t Committee on Company Law ( 1 9 6 7 ) . 5 6 See Lawrence, p. 4.-.1.6; Dickerson, p. 7 9 ; B.C. Companies Act 1 9 7 3 S t a t s . B.C., s. 2 3 . 5 7 Dickerson, p. 5 1 ; Lawrence, p. 1 . 1 . 9 - This r e p l a c e s the old idea of l e t t e r s patent being issued at the d i s c r e t i o n of the Crown. 5 8 See s. 140, B.C. Act. A l s o , note Dickerson, p. 1 0 f o r a m o d i f i c a t i o n of the l e t t e r s patent d o c t r i n e to allow more power to shareholders through s t r i c t e r a c c o u n t a b i l i t y of d i r e c t o r s . 5 9 Dickerson, Preface. ^ S t u d y Report, Fundamental C r i t e r i a , p. 2 . "^""See Manne's a r t i c l e , supra, footnote 3 4 f o r t h i s t h e s i s . A l s o , see the a r t i c l e by B e r l e , immediately f o l l o w i n g , f o r i t s r e f u t a t i o n . 6 2 Such as the remedy f o r oppression, f i r s t suggested by the Cohen Commission, p. 6 0 . ^ I n t e r i m Report of the S e l e c t Committee on Company Law ( 1 9 6 7 ) . 53 64 I b i d . , p. 7•3•1• 65 ^ I b i d . , p. 7 - 3 - 1 2 . 66 G e n e r a l l y , c o u r t assessment of d i r e c t o r , management of the company business i s c o n f i n e d to .the q u e s t i o n as to whether the d i r e c t o r s a c t e d i n what they c o n s i d e r e d to be i n the best i n t e r e s t s and the co u r t w i l l not s e t i t s judgment above t h e s e . See Gower, The P r i n c i p l e s of Modern Company Law 3rd ed., p. 520 , f o r example. But i s i t t h i s k i n d of j u d i c i a l i n t e r f e r e n c e i n the management to decide whether the b u s i n e s s i s being conducted o p p r e s s i v e l y to a group. ^ S u p r a , f o o t n o t e 6 3 , p- 7 - ^ - 3 -Supra, p. o. ^ S e e Harry M. Jones, 1968 R o s e n t h a l L e c t u r e s , The E f f i c a c y of Law f o r a d i s c u s s i o n of a l l these requirements i n h i s comments on f a i l u r e of o b l i g a t i o n and communication i n law.. 70„ • Supra, p. 4. 7 1 S e c u r i t i e s Act of 1933, ^8 S t a t . 7k. 72 L. B r a n d e i s , Other People's Money (1933) , p.. 6 2 . 73 Cohen, p. 5 -74 • J e n k i n s , p. 6 l . 75 ^ I b i d . , p. 1 3 . 76 See Supra, p. 7 , 8 . 77 Supra, f o o t n o t e 4, p. 1 - 3 -78 D i c k e r s o n , p. 9 -7 9 I b i d . , p. 42. 80 Ghanaian r e p o r t , I n t r o d u c t i o n . T h i s s i t u a t i o n was the gap between the u n s o p h i s t i c a t e d A f r i c a n s m a l l businessman and the h i g h l y s o p h i s t i c a t e d , o f t e n e x p l o i t i n g , f o r e i g n c o r p o r a t i o n . CHAPTER IV : SHAREHOLDER DEMOCRACY AND THE PRE-EMPTIVE RIGHT INTRODUCTION When the A t t o r n e y - G e n e r a l ' s Committee s u b m i t t e d t h e i r r e p o r t , t h e y c h a r a c t e r i z e d the changes the y had made i n the new a c t as f a l l i n g i n t o f o u r major c a t e g o r i e s . These were as f o l l o w s : S h a r e h o l d e r democracy; s h a r e h o l d e r p r o t e c t i o n ; p r o t e c -t i o n f o r persons d e a l i n g v/ith companies; and changes i n company management.''" I n t h i s and the f o l l o w i n g t h r e e c h a p t e r s , t h i s paper w i l l examine those a r e a s i n terms of the c r i t e r i a s e l e c t e d by the committee. T h i s e x a m i n a t i o n w i l l proceed by s e l e c t i o n from each a r e a of one major and r e p r e s e n t a t i v e s e c t i o n and a d i s -c u s s i o n o f the background o f t h a t s e c t i o n , the e f f e c t i t i s l i k e l y t o have on the law and the b u s i n e s s and l e g a l community. I t must be emphasized t h a t the framework f o r these e n s u i n g d i s -c u s s i o n s i s t h a t a l r e a d y drawn i n the f i r s t c h a p t e r s . There w i l l be no a ttempt to e v a l u a t e the s e l e c t e d s e c t i o n s i n any terms o f "what i s good f o r company law", o n l y i n terms o f how i t was i n f l u e n c e d and shaped by the form, methods and chosen c r i t e r i a o f the committee t h a t d r a f t e d i t . The s e c t i o n s t o be d i s c u s s e d i n t h i s manner w i l l be s. kO, the pre-emptive r i g h t s e c t i o n i n the a r e a of s h a r e h o l d e r •z democracy; s. 228, the s h a r e h o l d e r ' s a p p r a i s a l remedy i n the 55 area of shareholder protection;' s. 1 8 6 and, i n e v i t a b l y it's c l o s e l y related s. 1 8 7, the record keeping sections i n the area of protection for those dealing with companies; and s. 14-3,^  the d i r e c t o r s ' disclosure section i n the area of company management. These sections are generally classed in t h i s paper as they were c l a s s i f i e d i n t h e i r areas by the committee in i t s study 7 report. Also, an attempt has been made to choose sections that represented major departures from the old act and that represented a f a i r "cross section" of the committee's choices. It i s sug-gested that i t might be said of a l l these sections as Bayless Manning said of the shareholder's appraisal remedy, that . . . here on a t i n y glass s l i d e , one may see, i f he looks, something of the chemistry of the law—the interplay of past and present, s t a b i l i t y and mutation, ideology and p o l i c y , market and myth, cold analysis and v/arm j u s t i c e , good sense and' s i l l i n e s s , Realism ( 4 t h C. B.C-. ) and. Realism ( 2 0 t h C. A.D.), the c r u c i a l i t y of procedure, the needs of the p r a c t i -t i oner, the demands of commerce and the eternal p o l i t i c a l contest between the many and the few.8 THE HISTORY OF S. kO S. 4-0, the shareholders' pre-emptive right i s the one exception to the statement made in the l a s t section of t h i s paper in the provisions of the new act chosen for this study. The Committee did not c l a s s i f y i t under the head of shareholder demo-cracy i n i t s study report. That i s because at the time the report was written, i t was not included i n the act at a l l . It w i l l be r e c a l l e d that the o r i g i n a l draft b i l l of the Committee, B i l l 6 6 , was not the b i l l that ultimately was 56 e n a c t e d . D u r i n g the d e l a y between the two b i l l s caused by t h e i n t e r v e n i n g e l e c t i o n , the C o r p o r a t e L e g i s l a t i o n S e c t i o n o f the Canadian Bar A s s o c i a t i o n , B.C. b r a n c h , p r e p a r e d a l e n g t h y c r i t i q u e o f B i l l 66."^ T h i s c r i t i q u e was p r o b a b l y the most i n f l u e n t i a l i n p u t by the p u b l i c s u b m i t t e d t o the committee. C e r t a i n l y , when B i l l l6 appeared i n the house, a number of the changes s u g g e s t e d by the A s s o c i a t i o n ' s r e p o r t , p a r t i c u l a r l y changes concerned w i t h t e c h n i c a l m a t t e r s , were i n c l u d e d i n it."*'"'" The one major change urged by the A s s o c i a t i o n t h a t was implemented by the Committee was t h e i r c a l l f o r the i n c l u s i o n o f some k i n d of p r e - e m p t i v e r i g h t f o r s h a r e h o l d e r s o f a company. At f i r s t g l a n c e , t h i s i n c l u s i o n may seem s u r p r i s i n g . The A s s o c i a t i o n ' s b r i e f gave no r e a l arguments s u p p o r t i n g the a d d i -t i o n , nor d i d i t s u r v e y e i t h e r the problem the r i g h t might be e x p e c t e d t o overcome, the form the r i g h t s h o u l d t a k e , or any 12 a l t e r n a t i v e s o l u t i o n s t o the problem the y e v i d e n t l y p e r c e i v e d . However, the Committee, a l t h o u g h i t had not made any sweeping commitment t o s h a r e h o l d e r democracy i n any r a d i c a l s e n s e , had, by i t s own assessment i n the s t u d y r e p o r t , a l r e a d y i n c l u d e d t h r e e s e c t i o n s i n the a c t t o s t r e n g t h e n the s h a r e h o l d e r s ' v o t i n g " 1 3 r i g h t s . These s e c t i o n s p r o v i d e d f o r a b a l l o t type p r o x y and i n c r e a s e d a c c e s s by r e q u i s i t i o n i s t s and by d i r e c t o r nominees o f s h a r e h o l d e r s t o the p r o x y machinery. C l e a r l y , t h e s e s e c t i o n s c e n t e r around more e f f e c t i v e e x e r c i s e o f the power a l r e a d y i n the s h a r e h o l d e r s r a t h e r than around any new powers. The i d e a o f a 57 p r e - e m p t i v e r i g h t f i t t e d n e a t l y i n t o t h i s scheme. As w i l l be d i s c u s s e d below, such r i g h t s a r e d e s i g n e d p r i m a r i l y t o p r o t e c t the p r o p o r t i o n a t e v o t i n g s t r e n g t h of the s h a r e h o l d e r t h a t he i s g i v e n by h i s h o l d i n g s . I f the r i g h t was a c c e p t a b l e • t o the com-munity u s i n g the s t a t u t e whose needs t h e committee had s e t as a Ik paramount c o n s i d e r a t i o n , i t i s p r e d i c t a b l e t h a t the r i g h t , would be i n c l u d e d . Moreover, the r i g h t was a l s o a s t e p i n the d i r e c t i o n o f i n c r e a s e d s e l f - r e g u l a t i o n f o r companies, a concept a l s o t o w h i c h 15 the c r i t e r i a of the Committee committed them. Presumably, such a r i g h t , i f p r o p e r l y drawn, would reduce the d i r e c t o r s ' o p p o r t u n -i t i e s f o r s t o c k w a t e r i n g and s i m i l a r l y reduce the need f o r s h a r e -h o l d e r s to c a l l on o u t s i d e i n t e r v e n t i o n . I n any e v e n t , the s e c t i o n appeared i n B i l l l6 and was l6 e n a c t e d w i t h t h a t b i l l . I t was amended once, s u b s e c t i o n (4) b e i n g a l t e r e d from a sweeping c a r t e b l a nche f o r any w r i t t e n w a i v e r by s h a r e h o l d e r s t o e x c l u d e the r i g h t t o a more modest p e r -m i s s i o n f o r e x c l u s i o n by w r i t i n g o f the s e c t i o n f o r any s p e c i f i c o f f e r i n g . The amendment was u n d o u b t e d l y prompted by the f e a r t h a t s u b s e c t i o n (4) as i t s t o o d would a l l o w a g e n e r a l w a i v e r o f the r i g h t i n the a r t i c l e s , w h i c h , by the s t a t u t e , i s a c o n t r a c t among a l l the members. T h i s , of c o u r s e , would have made the r u l e m e a n i n g l e s s . F o r c o nvenience o f r e f e r e n c e , the p r e-emptive r i g h t as i t now s t a n d s amended i s as f o l l o w s : 5 8 s.40 (1) The d i r e c t o r s o f ev e r y company t h a t i s not a r e p o r t i n g company s h a l l , b e f o r e a l l o t t i n g any s h a r e s , o f f e r those s h a r e s pro r a t a t o the members; but where t h e r e are c l a s s e s o f s h a r e s ; the d i r e c -t o r s s h a l l f i r s t o f f e r the s h a r e s by a l l o t t e d p r o r a t a t o the members' h o l d i n g s h a r e s o f the c l a s s proposed t o be a l l o t t e d and, i f any s h a r e s r e m a i n , the d i r e c t o r s s h a l l t h e n o f f e r the r e m a i n i n g s h a r e s pro r a t a t o the o t h e r members. (2) The o f f e r r e f e r r e d t o i n s u b s e c t i o n ( l ) s h a l l be made by n o t i c e s p e c i f y i n g the number o f s h a r e s o f f e r e d and the t i m e , which s h a l l be not l e s s t h an seven days , f o r a c c e p t a n c e . (3) A f t e r the e x p i r a t i o n o f the time f o r a c c e p t a n c e o f the o f f e r r e f e r r e d t o i n s u b s e c t i o n (1) or'on r e c e i p t o f w r i t t e n c o n f i r m a t i o n from the p e r s o n t o whom the o f f e r i s made t h a t he d e c l i n e s t o a c c e p t the o f f e r , and where t h e r e a r e no o t h e r members who s h o u l d f i r s t r e c e i v e an o f f e r the d i r e c t o r s may, f o r t h r e e m o n t h s . t h e r e a f t e r , o f f e r the s h a r e s .to such p e r s o n s and i n such manner as they t h i n k most b e n e f i c i a l t o the company, but the o f f e r t o those p e r s o n s s h a l l not be a t a p r i c e l e s s t h a n , or on terms more f a v o u r a b l e t h a n , the o f f e r t o the members. ' • (4) A member may not waive g e n e r a l l y h i s r i g h t t o be o f f e r e d s h a r e s r e f e r r e d t o i n s u b s e c t i o n ( l ) , but a member may, i n w r i t i n g , waive h i s r i g h t t o be o f f e r e d a s p e c i f i e d a l l o t m e n t o f s h a r e s . BACKGROUND OF THE SECTION The c l a s s i f i c a t i o n o f a pre - e m p t i v e r i g h t under p r o v i s -i o n s r e l a t e d to s h a r e h o l d e r democracy can be e a s i l y d efended. The c h i e f , i n d eed the o n l y , i n c i d e n t o f such democracy i n t o d a y ' s c o r p o r a t i o n i s the vote which most o f the s h a r e s c o n f e r upon 17 t h e i r h o l d e r . I n a l a r g e c o r p o r a t i o n , the s h a r e h o l d e r s them-s e l v e s have u s u a l l y , t o a l l i n t e n t s and p u r p o s e s , s u r r e n d e r e d the e f f e c t o f t h a t v o t e . Both they and the company managers, r e g a r d 59 s h a r e h o l d e r s c h i e f l y as i n v e s t o r s , c e r t a i n l y not p a r t i c i p a n t s i n the b u s i n e s s i n any r e a l s e nse. Large and wi d e s p r e a d h o l d i n g s i n these c o r p o r a t i o n s make c o n c e r t e d s h a r e h o l d e r a c t i o n u s u a l l y i m p r a c t i c a l . However, i n the s m a l l company, u s u a l l y i n the B.C. l8 t e r m i n o l o g y , n o n - r e p o r t i n g , s h a r e h o l d e r v o t i n g can s t i l l e x e r -c i s e a r e a l i n f l u e n c e i n the b u s i n e s s , sometimes p r o v i d i n g a con-s i d e r a b l e t h r e a t t o the incumbent d i r e c t o r s . I n t h e s e companies, p a r t i c u l a r l y , t h e r e f o r e , the t e m p t a t i o n i s g r e a t f o r d i r e c t o r s t o m a n i p u l a t e s h a r e h o l d i n g s so t h a t the vo t e w i l l be i n t h e i r f a v o u r . T h i s has o f t e n been a c c o m p l i s h e d by " s t o c k w a t e r i n g " , t h a t i s , by i s s u i n g s h a r e s t o a group the d i r e c t o r s would l i k e t o see a c q u i r e or m a i n t a i n power i n the company i n s u f f i c i e n t num-be r s t o ensure t h a t consequence. O b v i o u s l y , i f t h i s p r a c t i s e were to' be u n r e s t r a i n e d , the v o t e o f the s h a r e h o l d e r s , i n p r e -c i s e l y those c a s e s where i t might be o f r e a l v a l u e t o them would be w o r t h l e s s . I t i s the c o n t r o l o f t h i s p r a c t i c e t h a t i s the prime t a r g e t and the major use o f a pre-emptive r i g h t . I n t h i s p o r t i o n o f t h i s c h a p t e r , the law r e g a r d i n g t h i s d i l u t i o n o f v o t i n g s t r e n g t h w i l l be examined as the mat t e r s t o o d i n B r i t i s h C o l u m b ia b e f o r e the i n c l u s i o n of s.kO i n the a c t . In a B.C. company, the d i r e c t o r s have u s u a l l y had the o p p o r t u n i t y t o water the s h a r e s because t h e y have u s u a l l y had the a u t h o r i t y t o i s s u e them. T h i s has not been so as a m a t t e r o f law. I n O n t a r i o , f o r example, the p r e s e n t B u s i n e s s C o r p o r a t i o n s A c t s p e c i f i c a l l y g i v e s the d i r e c t o r s power t o a l l o t the company's 6 0 s h a r e s t o whom th e y see f i t . The B.C. A c t has never mentioned who was t o have t h a t a u t h o r i t y . The d i v i s i o n o f power between the s h a r e h o l d e r s i n g e n e r a l meeting and the board o f d i r e c t o r s 20 was t o be d e t e r m i n e d by the c o n t r a c t c o n t a i n e d i n the a r t i c l e s . 21 T h i s now has been i n c o r p o r a t e d i n t o s t a t u t e by s .14-0 o f the new ac t w h i c h g i v e the d i r e c t o r s pov/er g e n e r a l l y t o manage the b u s i -n e s s , but s u b j e c t t o the p r o v i s i o n s o f the a c t and the company's a r t i c l e s . But i t was never common f o r the a r t i c l e s t o d e a l e x p l i c -i t l y w i t h the a l l o t m e n t o f s h a r e s e i t h e r . I n s t e a d , t h e y u s u a l l y c o n t a i n e d s i m p l y the g e n e r a l power now found i n s . l 4 0 o f the a c t . F a i l i n g some more s p e c i f i c a rrangements, a l l o t m e n t o f s h a r e s would f a l l w i t h i n t h i s "management" s e c t i o n and b e l o n g t o the d i r e c t o r s . Moreover, once the pov/er belonged t o the d i r e c t o r s , i t •' belonged t o them e x c l u s i v e l y and w i t h o u t f u r t h e r r e s t r i c t i o n by t h e ' s h a r e h o l d e r s , e x c e p t , o f c o u r s e , where the s h a r e h o l d e r s c o u l d 22 amend the a r t i c l e s . The A u t o m a t i c S e l f - C l e a n s i n g case made i t c l e a r t h a t where the a r t i c l e s gave a power t o the d i r e c t o r s , the g e n e r a l meeting c o u l d no l o n g e r i n t e r f e r e w i t h i t s e x e r c i s e . T h i s then was the g e n e r a l system on which most B.C. companies 2"5 o p e r a t e d . Once the power was g r a n t e d t o the d i r e c t o r s , the o n l y r e s t r a i n t o p e r a t i n g upon them was a g e n e r a l f i d u c i a r y duty t o the oh.. company. T h i s duty was e x p r e s s e d i n Re Smith & F a w c e t t ^ t o be 6 1 t h a t o f a c t i n g bona f i d e i n what t h e y , the d i r e c t o r s , not the c o u r t , c o n s i d e r the be s t i n t e r e s t s o f the company and not f o r any c o l l a t e r a l purpose. "The company" v/as l a t e r d e f i n e d i n M a r t i n v. 25 G i b s o n t o be the g e n e r a l body o f the s h a r e h o l d e r s , the m a j o r i t y and the m i n o r i t y t o g e t h e r . As might be e x p e c t e d , t h i s duty d i d p r e v e n t one s i t u a t i o n i n w h i c h share v/atering c o u l d o f t e n t a k e p l a c e . Where the d i r e c -t o r s d e c i d e d t o i s s u e s h a r e s t o m a n i p u l a t e an a n t i c i p a t e d v o t e so t h a t the r e s u l t s would be t o t h e i r - l i k i n g w i t h o u t any r e g a r d as t o whether t h a t r e s u l t would a l s o be f o r the good o f the company, the c o u r t s would i n t e r f e r e . T h i s t y p e of s i t u a t i o n , f o r example, 2 6 o c c u r r e d i n Punt v. Symons & Co. L t d . The company's a r t i c l e s gave t he g o v e r n i n g d i r e c t o r the power t o remove and a p p o i n t d i r e c t o r s . A f t e r h i s d e a t h , t h i s power p a s s e d , a g a i n by the terms o f the a r t i c l e s , t o h i s t r u s t e e s who proceeded t o a p p o i n t two managing d i r e c t o r s . When d i s p u t e s a r o s e between'the t r u s t e e s and one o f thes e d i r e c t o r s , t h e d i r e c t o r s i s s u e d s h a r e s t o new members f o r the s o l e purpose o f o b t a i n i n g a s u f f i c i e n t m a j o r i t y t o a l t e r the a r t i c l e s and d e p r i v e t h e t r u s t e e s o f t h e i r powers. T h i s i s s u e was h e l d t o have been made not bona f i d e , and the d e f e n d a n t s were e n j o i n e d from h o l d i n g a c o n f i r m a t o r y m e e t i n g . Having p l a c e d the t e s t on the q u e s t i o n o f m o t i v a t i o n , t h e f i d u c i a r y duty was l e s s s u c c e s s f u l i n d e a l i n g w i t h o t h e r i s s u e s , j u s t as h a r m f u l t o the s h a r e h o l d e r s and i n p r e c i s e l y the same way, but made because the d i r e c t o r s h o n e s t l y c o n s i d e r e d t h a t a 62 v o t e f o r the p o s i t i o n t h e y s u p p o r t e d would be be s t f o r the com-pany. O b v i o u s l y , the d i s t i n c t i o n i n d i r e c t o r s ' s t a t e o f mind i s i m m a t e r i a l t o the p o s i t i o n o f the s h a r e h o l d e r s . T h e i r v o t i n g power i s n u l l i f i e d j u s t the same. However, i f the t e s t as t o when the c o u r t s w i l l p r e v e n t such d i l u t i o n o f v o t i n g i s s o l e l y the bona f i d e s of the d i r e c t o r s , t h e r e i s no p r o t e c t i o n from the t y r a n n i c a l but w e l l meaning b o a r d . The law d i d make some f l u t t e r i n g moves t o a v o i d t h i s s i t -2 7 u a t i o n . The c o n c l u d i n g words o f the Re Smith & Fawcett t e s t , "and not f o r any c o l l a t e r a l p u r p o s e " were used as e a r l y as the 28 Punt v. Symons case t o suggest t h a t every power g i v e n t o the d i r e c t o r s h a d . i n some vague sense t h a t was never c l e a r l y d e f i n e d , a "purpose" f o r which i t had been g i v e n . A l t h o u g h the c o u r t s h e l d t h a t " i t was not p o s s i b l e t o put a p r e c i s e l i m i t on the p e r i p h e r a l c o n s i d e r a t i o n s and the powers and d u t i e s o f d i r e c t o r s 29 i n r e s p e c t t o them," two l i m i t s d i d e x i s t . The d i r e c t o r s c o u l d n o t , d e s p i t e the be s t o f m o t i v e s , j u s t i f y a c t s which s i m p l y main-t a i n e d t h e i r p e r s o n a l p o s i t i o n ; f u r t h e r , they c o u l d n ot e x e r c i s e an e x p r e s s power f o r purposes w h o l l y u n r e l a t e d t o those f o r w h i c h the power was c o n f e r r e d . ^ The advantages o f t h i s f o r m u l a t i o n of. p r i n c i p l e a r e many. Wi t h o u t i t b e i n g n e c e s s a r y to t i e the hands o f the d i r e c t o r s , the c o u r t c o u l d y e t e x e r c i s e a g e n e r a l s u p e r v i s i o n o f t h e i r b e h a v i o u r and i f i t seemed t o pass the bounds o f what d i r e c t o r s ought t o be d o i n g , t h e i r purpose c o u l d be c l a s s i f i e d as " c o l l a t e r a l " and the 63 c o u r t c o u l d p r o p e r l y i n t e r v e n e . Perhaps the b e s t known of the c ases t h a t f o l l o w e d t h i s l i n e was Hogg v. Cramphorn L t d . and O t h e r s . " ^ D u r i n g a s t r u g g l e f o r c o n t r o l o f the company, the d i r e c t o r s i s s u e d s h a r e s t o employees who c o u l d be counted on t o s u p p o r t t h e i r p o s i t i o n . The c o u r t e x o n e r a t e d the d i r e c t o r s c o m p l e t e l y from any unworthy mo-t i v e s . But, i t d e c l a r e d t h a t the p r i m a r y purpose of the i s s u e o f s h a r e s was t o s e c u r e a d d i t i o n a l c a p i t a l . D i r e c t o r s were not e n t i t l e d t o use t h i s power "merely f o r the purpose o f m a i n t a i n i n g t h e i r c o n t r o l over the company or merely f o r the purpose o f 32 d e f e a t i n g the w i s h e s of the e x i s t i n g m a j o r i t y of s h a r e h o l d e r s " , however pure t h e i r m o t i v e s . There i s however a l i n e o f c a s e s t h a t have r e f u s e d t o adopt t h i s u s e f u l , i f vague, p o s i t i o n , but have a f f i r m e d t h a t the words "and not f o r any c o l l a t e r a l p urpose" are s i m p l y a n o t h e r way o f e x p r e s s i n g the bona f i d e t e s t o f the f i r s t c l a u s e . So i n 33 A u s t r a l i a n M e t r o p o l i t a n L i f e A s s u r a n c e Co. v. Ure, I s s a c s , J . o f the A u s t r a l i a n High Court s a i d t h a t a d i r e c t o r ' s d i s c r e t i o n "must be e x e r c i s e d bona f i d e - - t h a t i s , . f o r the purpose f o r w h i c h i t was c o n f e r r e d , not a r b i t r a r i l y o r a t the a b s o l u t e w i l l o f the d i r e c t o r s , but h o n e s t l y , i n the i n t e r e s t of the s h a r e h o l d e r s as a „3* whole.' I n B r i t i s h C o l u m b i a , B e r g e r , J . i n Teck.Corp. L t d . v. 35 M i l l a r e t a l . f a v o u r e d the e x i s t e n c e of one s i n g l e t e s t , t h a t 36 o f bona f i d e . He c o n s i d e r e d t h a t Hogg v. Cramphorn was an 6k 37 i n f r i n g e m e n t of the g e n e r a l Ee S m i t h & Fawcett R u l e , because i t had s u g g e s t e d t h a t s h a r e s c o u l d not be i s s u e d t o d e f e a t a con-t r o l l i n g b i d , even i f such d e f e a t was c o n s i d e r e d i n the b e s t i n t e r e s t s o f the company. He p r e f e r r e d d i c t a i n the Spooner•v. Spocner O i l s ' d e c i s i o n where one judge s a i d t h a t t h e r e was n o t h -i n g i n Canadian law t o " p r e v e n t an i s s u e f o r the s o l e purpose o f g i v i n g c o n t r o l i f d i r e c t o r s h o n e s t l y b e l i e v e d on r e a s o n a b l e 39 grounds t h a t i t was i n the b e s t i n t e r e s t s o f the company." The B.C. p o s i t i o n , t h e n , appears to be t h a t a share a l l o t m e n t can be i n t e r f e r e d w i t h by the c o u r t s o n l y when the d i r e c t o r s have a c t e d from m o t i v e s o f bad f a i t h , not c o n s i d e r i n g the i n t e r e s t s of the company. T h i s , as mentioned above, a l l o w s a m a t t e r of g r e a t i n t e r e s t t o the s h a r e h o l d e r s t o t u r n s o l e l y upon p r o o f o f the s t a t e of mind of the d i r e c t o r s , a s u b j e c t w h i c h , when c o n f r o n t e d w i t h a d r a s t i c a l l y weakened v o t e , i s not l i k e l y t o seem as s i g n i f i c a n t to the v i c t i m s . The problems of p r o o f , as w e l l , are so o b v i o u s as t o r e q u i r e no e l a b o r a t i o n . As v / e l l as these d i f f i c u l t i e s , the c o u r t s have added a n o t h e r bar to e f f e c t i v e i n t e r v e n t i o n i n cases o f improper p u r -pose. In some c i r c u m s t a n c e s , a t l e a s t , the g e n e r a l meeting o f the company can c u r e the i m p r o p r i e t y of a share a l l o t m e n t by a v o t e o f r a t i f i c a t i o n . T h i s p r i n c i p l e was f i r s t e s t a b l i s h e d i n ko kl what was p r o b a b l y a d e p a r t u r e b o t h from E n g l i s h and Canadian kz law by Hogg v. Cramphorn. I t w i l l be r e c a l l e d t h a t i n t h a t c a s e , the i s s u e was not one of improper purpose, but of 6 5 c o l l a t e r a l p u r p o s e , and the d i r e c t o r s ' good f a i t h was not c a l l e d i n t o q u e s t i o n . What made the a l l o t m e n t bad was the attempt by the d i r e c t o r s t o d e f e a t the w i l l o f the e x i s t i n g m a j o r i t y . Of c o u r s e , i t makes l o g i c a l sense t o extend t h i s p r i n c i p l e t o say t h a t i f the m a j o r i t y has i n f a c t approved the i s s u e , t h e r e i s no b a s i s f o r the a c t i o n . T h i s i s p r e c i s e l y what B u c k l e y , J . d i d . He h e l d t h a t "had the m a j o r i t y o f the company i n g e n e r a l m e e t i n g approved the i s s u e o f the 5 i 7 0 7 s h a r e s b e f o r e i t was made . . . I do not t h i n k t h a t any member c o u l d have complained o f the i s s u e b e i n g made, f o r i n thos e c i r c u m s t a n c e s , the c r i t i c i s m t h a t t h e d i r e c t o r s were by the i s s u e o f the s h a r e s a t t e m p t i n g t o d e p r i v e the m a j o r i t y o f t h e i r c o n s t i t u t i o n a l r i g h t s would have ceased t o 43 have any f o r c e . " But t h i s p r i n c i p l e , w h i ch would not have a f f e c t e d t h e mala f i d e s i t u a t i o n a t a l l , was not l e f t on t h a t b a s i s . I n 4 4 Bamf or d v. Bamford, the E n g l i s h C o u r t o f A p p e a l seemed t o deny, the s e p a r a t e c o l l a t e r a l purpose t e s t and y e t h o l d an improper a l l o t m e n t t o be r a t i f i a b l e . Thus Harman, L . J . s a i d " the a l l o t -ment . . . was not made bona f i d e i n the i n t e r e s t s o f Bamfords because i t was a t a c t i c a l move i n a b a t t l e f o r c o n t r o l . . . h a v i n g as i t s p r i m a r y purpose t o make i t more d i f f i c u l t f o r 45 E x c a v a t o r s t o o b t a i n c o n t r o l . " And a g a i n : " t h e s e d i r e c t o r s . . . made t h i s a l l o t m e n t i n b r e a c h o f t h e i r duty--mala f i d e , as i t i s s a i d . They made i t not w i t h a s i n g l e eye t o the b e n e f i t o f 46 the company." Gower i s s t i l l a b l e t o say t h a t "When, however, 66 d i r e c t o r s do not a c t bona f i d e i n the i n t e r e s t s o f the company, 1+7 i t seems t o be i m p o s s i b l e t o r a t i f y " on the b a s i s t h a t i n Bamford "not bona f i d e " was used o n l y i n the sense o f " e x c e e d i n g the d i r e c t o r s ' powers because t h e y were not a u t h o r i z e d t o a c t f o r 48 t h a t p u r p ose." But the f a c t r e m a i n s t h a t the E n g l i s h C o u r t o f A p p e a l , p u r p o r t i n g t o a c t on the assumption t h a t an a l l o t m e n t had been made mala f i d e s , h e l d t h a t t h a t a l l o t m e n t was n o n e t h e l e s s r a t i f i a b l e . I t l e a v e s the law, t o say the l e a s t , i n a v e r y u n s e t t l e d s t a t e , p a r t i c u l a r l y f o r the m i n o r i t y s h a r e h o l d e r about t o see h i s m i n o r i t y r e duced t o a p o w e r l e s s f r a c t i o n and perhaps l e f t t o the mercy o f the m a j o r i t y , who may be the same or a t l e a s t have the same i n t e r e s t s as the a l l o t t i n g d i r e c t o r s . THE FIELD OF CHOICE FOR REFORM Other j u r i s d i c t i o n s have h e s i t a t e d t o f i n d a s o l u t i o n t o t h i s problem i n a d i r e c t p r e - e m p t i v e r i g h t . I t i s not the p e r -f e c t answer t o share w a t e r i n g . There a r e c i r c u m s t a n c e s , f o r example, where i n f l e x i b l e r u l e s such as the B.C. p r o v i s i o n p r o -v i d e s can th e m s e l v e s work an i n j u s t i c e . I f a company has s e v e r a l c l a s s e s o f s h a r e s and wants t o i s s u e more s h a r e s o f one c l a s s o n l y , t h e sh a r e s w i l l have t o be o f f e r e d f i r s t t o the p e r s o n s a l r e a d y h o l d i n g t h a t c l a s s . I t may be t h a t the d i r e c t o r s b e l i e v e i t would be u n f a i r t o produce the change i n v o t i n g b a l a n c e t h a t would r e s u l t i f the h o l d e r s o f the one c l a s s t a k e up a l l t h e s h a r e s t o be a l l o t t e d . However, u n l e s s they w i s h t o a l t e r t h e i r 6 7 p l a n t o i s s u e , i n c a r e f u l p r o p o r t i o n , . s h a r e s o f a l l the c l a s s e s , t h i s may be the r e s u l t . D i r e c t o r s who are t r u l y d e t e r m i n e d on c h a n g i n g the share b a l a n c e i n a p a r t i c u l a r way may be a b l e t o use t h i s i n f l e x i b i l i t y t o t h e i r advantage. I n t h i s c a s e , o f c o u r s e , the g e n e r a l s t a n d a r d s f o r d i r e c t o r s duty a p p l y and the p r e -emptive r i g h t has no e f f e c t . The problem of f l e x i b i l i t y can be s o l v e d i f the r i g h t i s not l a i d down i n f i x e d r u l e s , but i s a g e n e r a l r i g h t i n the s h a r e h o l d e r s t o m a i n t a i n t h e i r p r o p o r t i o n o f v o t i n g s t r e n g t h . T h i s k i n d o f pre-emptive r i g h t d e v e l o p e d a t common law i n the U n i t e d S t a t e s , g a i n i n g r e c o g n i t i o n t h e r e as e a r l y as 1 8 0 7 i n the case o f Gray v. P o r t l a n d Bank. T h i s d o c t r i n e r e q u i r e d a s e p a r -a t e d e c i s i o n on the c a p i t a l s t r u c t u r e o f each company as t o how the s h a r e s s h o u l d be a l l o t t e d t o p r e s e r v e the p r o p o r t i o n s o f power e x i s t i n g i n each s h a r e h o l d e r . A f a i r p r i c e had a l s o t o be f i x e d i n each s i t u a t i o n . T h i s r i g h t , a p p l y i n g as i t d i d t o a l l companies, became o f n e c e s s i t y immensely complex as i t was imposed upon e q u a l l y complex c a p i t a l s t r u c t u r e s of modern b u s i -n e s s . By 1 9 7 1 , i t was a d m i t t e d t o be " i m p o s s i b l e t o f i n d any method o f a l l o c a t i n g the a d d i t i o n a l s h a r e s t h a t w i l l p r e s e r v e , i n 5 0 a p r a c t i c a l manner, the s h a r e h o l d e r s ' r i g h t s . " W i t h t h i s d i f f e r e n t background and d i f f e r e n t p roblem, the c h o i c e s o f the American s t a t u t e s are of l i t t l e use t o the Canadian s i t u a t i o n . The s e c t i o n s o f the American model a c t , f o r example, s i m p l y p e r m i t the common law r i g h t t o be i n c l u d e d , 68 e x c l u d e d or l i m i t e d by the a r t i c l e s . T h i s , o f c o u r s e , s o l v e s the problem .of toe much f l e x i b i l i t y . ' Where the c o r p o r a t i o n i s l a r g e , i t s c a p i t a l s t r u c t u r e complex, and the r i g h t p r o p o r t i o n -a t e l y u n n e c e s s a r y and i n c o n v e n i e n t , i t may be e l i m i n a t e d . - How-e v e r , i t may a l s o be e l i m i n a t e d by the s m a l l company where the r i g h t i s needed and s i m p l e t o a p p l y . The p r o t e c t i o n becomes s i m p l y a m e a n i n g l e s s r u l e . I n E n g l a n d , the p r e - e m p t i v e r i g h t was c o n s i d e r e d and r e -52 j e c t e d by the J e n k i n s Committee. They su g g e s t e d t h a t "a c e r t a i n f l e x i b i l i t y w h i c h i t v/ould be v e r y d i f f i c u l t t o p r o v i d e 53 i n the a c t i s n e c e s s a r y i n i t s a p p l i c a t i o n . " 'However, a p r e -emptive r e q u i r e m e n t of the London S t o c k Exchange was approved because t h a t body had the freedom t o make s p e c i a l e x c e p t i o n s 5 4 where d e s i r a b l e . But f o r the s m a l l company, not l i s t e d on the Exchange, and where the p r o t e c t i o n i s more needed than, i n the l a r g e c o r p o r a t i o n , the J e n k i n s Committee proposed not a p r e -emptive r i g h t , but a power i n the g e n e r a l meeting t o s u p e r v i s e share a l l o t m e n t s . D i r e c t o r s were t o be a b l e t o i s s u e s h a r e s o n l y on the a p p r o v a l of the s h a r e h o l d e r s . T h i s a p p r o v a l was t o be by o r d i n a r y r e s o l u t i o n , e i t h e r f o r a s p e c i f i c i s s u e or f o r a g e n e r a l y e a r l y mandate t o make i s s u e s as the d i r e c t o r s d e t e r m i n e d . Such a mandate c o u l d be s u b j e c t t o any c o n d i t i o n s and was r e v o c a b l e a t 55 any t i m e . T h i s adds an a d d i t i o n a l s a f e g u a r d t o the d i r e c t o r s ' d u t y , but i t i s a weak one. 56 Gower, i n h i s proposed companies a c t f o r Ghana, moves a 69 s t e p c l o s e r t o g r a n t i n g s h a r e h o l d e r s a p r e - e m p t i v e r i g h t . A share i s s u e must be approved by the o r d i n a r y r e s o l u t i o n o f the g e n e r a l meeting u n l e s s the d i r e c t o r s o f f e r the s h a r e s o f any new i s s u e t o the e x i s t i n g s h a r e h o l d e r s or t o the h o l d e r s o f the c l a s s • 57 or c l a s s e s b e i n g i s s u e d i n p r o p o r t i o n t o t h e i r p r e s e n t h o l d i n g s . I f the i s s u e i s t o be t o d i r e c t o r s o r p a s t d i r e c t o r s , o f the com-pany or any a s s o c i a t e d company o r t h e i r nominees or any body c o r -p o r a t e c o n t r o l l e d , by them, i t may not be made a t a l l u n l e s s t h e s h a r e s have f i r s t been o f f e r e d on the same terms pro r a t a t o the 58 members o r , i n the case o f a p u b l i c company, t o the p u b l i c ' T h i s amounts to a p r e - e m p t i v e r i g h t t h a t may be waived f o r a l l s h a r e h o l d e r s i n most c i r c u m s t a n c e s by a bare m a j o r i t y . Such a p r o v i s i o n would be an improvement over the B.C. law b e f o r e s. hO, s i n c e i t would ensure t h a t e v e r y u n b a l a n c e d share a l l o t m e n t , would have t o be -submitted t o the m a j o r i t y f o r a p p r o v a l . How-e v e r , c o n s i d e r i n g the u s u a l r e l a t i o n s h i p between the g e n e r a l meeting and the c o n t r o l over i t e x e r c i s e d by the board o f d i r e c -t o r s , t h i s a d d i t i o n would be more of form t h a n o f s u b s t a n c e . I n Canada, o n l y the F e d e r a l p r o p o s a l s , the D i c k e r s o n 59 R e p o r t , i n t r o d u c e a s t a t u t o r y p r e - e m p t i v e r i g h t . They propose t h a t "no s h a r e s o f a c o r p o r a t i o n s h a l l be i s s u e d u n l e s s s h a r e s have f i r s t been o f f e r e d t o s h a r e h o l d e r s o f t h a t c l a s s who s h a l l have a p r e - e m p t i v e r i g h t t o a c q u i r e the o f f e r e d s h a r e s i n p r o p o r -t i o n t o t h e i r h o l d i n g s o f the s h a r e s o f t h a t c l a s s . " ^ The r i g h t i s t o be i n c l u d e d i n the company's a r t i c l e s u n l e s s s p e c i f i c a l l y 70 e x c l u d e d . The o n l y Canadian p r e c e d e n t then has two o b v i o u s and 6 l s e r i o u s f l a w s . L i k e the American Model A c t , t h e r i g h t p r o v i d e s no r e a l p r o t e c t i o n because i t can be e x c l u d e d even i n the s i t u a -t i o n s i n which i t i s most needed. The D i c k e r s o n Committee's hopes t h a t the need t o make a d e l i b e r a t e e x c l u s i o n o f the r i g h t i f i t i s t o be abandoned may d e t e r such abandonment u n l e s s t h e r e 62 ' ' i s good r e a s o n a r e c l e a r l y u n t e n a b l e . The promoters o f the company who approve the a r t i c l e s a r e u s u a l l y n ot the s h a r e h o l d e r s who want the p r o t e c t i o n such a r i g h t c o u l d give.. Moreover, t h e l a w y e r s ' s t a n d a r d form a r t i c l e s , p r e s s e d i n t o s e r v i c e f o r many d i v e r s e s i t u a t i o n s , are u n l i k e l y t o r e t a i n such a p r o v i s i o n t h a t c l i e n t s w i l l p r o b a b l y d e s i r e o n l y i n a few i n s t a n c e s . Even i f the r i g h t i s not e x c l u d e d , i t i s e a s i l y a v o i d e d . I f the d i r e c -t o r s s i m p l y i s s u e s h a r e s o f a c l a s s not a l r e a d y i s s u e d , t h e r e w i l l be no h o l d e r s of the s h a r e s o f t h a t c l a s s t o whom any o f f e r need be made. The d i r e c t o r s may o f f e r the new s h a r e s t o whomever they w i s h . THE SELECTION OF THE COMMITTEE I t has a l r e a d y been observed t h a t the concept o f a p r e -emptive r i g h t agreed w e l l w i t h a t l e a s t one of the committee's fundamental c r i t e r i a f o r change and w i t h one o f t h e i r a r e a s o f r e f o r m . That i s , a pre - e m p t i v e r i g h t would tend t o promote s e l f r e g u l a t i o n i n company law and would p r o t e c t the s h a r e h o l d e r ' s 7 1 v o t e w h i c h the Committee d e c i d e d , i n some measure a t l e a s t , t o s t r e n g t h e n . But the l a c k o f such a r i g h t i n B i l l 66 i s nonethe-l e s s f u l l y e x p l i c a b l e . A l l the s u g g e s t i o n s f o r r e f o r m t o accom-p l i s h the purpose o f p r e - e m p t i v e r i g h t s j u s t d i s c u s s e d o f f e n d a g a i n s t o n e . c r i t e r i o n s e l e c t e d by the Committee. None o f them 63 p r o v i d e s a m e a n i n g f u l r u l e . E i t h e r , as i n the case o f the 64 J e n k i n s s u g g e s t i o n , the p r o t e c t i o n has l i t t l e r e a l s u b s t a n c e t o 6 5 improve the s h a r e h o l d e r ' s l o t , o r , l i k e the D i c k e r s o n and American Model Act^° p r o p o s a l s , i t i s so e a s i l y done away w i t h as t o be l i t t l e more than " w i n d o w - d r e s s i n g " . C o n s i d e r i n g the methods o f r e s e a r c h o f the Committee, which c h i e f l y i n v o l v e d e x a m i n a t i o n o f l e g i s l a t i o n from o t h e r j u r i s d i c t i o n s , i t s s i z e and the p r i m a r i l y " c o n s e r v a t i v e " c r i t e r i a 6 7 f o r change i t had s e l e c t e d , i t becomes q u i t e p r e d i c t a b l e t h a t l a c k o f a p r e c e d e n t t h a t was not i n v i o l a t i o n o f the Committee's p o s i t i o n , would be a s e r i o u s check. However, impetus was added by a d i r e c t r e q u e s t from a body r e p r e s e n t i n g a community t h a t would 68 be g r e a t l y concerned w i t h the o p e r a t i o n o f the s t a t u t e . Such a r e q u e s t i n d i c a t e d t h a t a p r e - e m p t i v e r i g h t was seen as a need o f 69 the community t o which the a c t was a d d r e s s e d . The f a c t t h a t t h a t "community" s e r v i n g as a u d i e n c e f o r the new a c t was o n l y d i m l y p e r c e i v e d or a n a l y z e d by the Committee d i d not a f f e c t t h i s c o n c l u s i o n . They viewed t h a t community a t l e a s t as encompassing 70 those who were t o "use the a c t " , and the Bar A s s o c i a t i o n was i t s e l f and might c l a i m t o speak f o r such a group. A n o t h e r of the 72 c r i t e r i a s e l e c t e d by t h e C o m m i t t e e ha d b e e n a c t i v a t e d i n f a v o u r o f t h e i n c l u s i o n o f a p r e - e m p t i v e r i g h t . T h i s was s u f f i c i e n t t o s t i r t h e C o m m i t t e e t o i n c l u d e s u c h a r i g h t . H o w e v e r , t h e i r s e l e c t i o n i l l u s t r a t e s t h a t t h e y d i d n o t i n c l u d e i t w i t h o u t m a k i n g e f f o r t s t o e l i m i n a t e t h e c o n f l i c t w i t h t h e i r c r i t e r i o n . T h e y c h o s e t h e t r u e s t a t u t o r y p r e - e m p t i v e r i g h t 7 1 s u c h a s t h e D i c k e r s o n r e p o r t u s e d . T h i s p r o v i d e d s u b s t a n t i a l p r o t e c t i o n a n d was t h e a p p r o a c h t o t h e p r o b l e m t h a t had b e e n r e q u e s t e d by t h e B a r A s s o c i a t i o n . B u t i n s t e a d c f a l l o w i n g t h e p r o v i s i o n t o be e x c l u d e d by t h e company, t h e C o m m i t t e e c o n f i n e d i t s o p e r a t i o n t o t h e s m a l l , o r n o n - r e p o r t i n g company a n d made i t s o p e r a t i o n m a n d a t o r y . I n t h i s a r r a n g e m e n t t h e r e may be s e e n a c o m p r o m i s e w h i c h a g a i n i s p e r f e c t l y i n a c c o r d w i t h - t h e Committee's c r i t e r i a a n d m e t h o d s o f o p e r a t i o n . C o n f i n i n g t h e m a n d a t o r y r i g h t t o t h e n o n - r e p o r t i n g company i s an o b v i o u s s o l u t i o n t o " s e v e r a l Of t h e p r o b l e m s t h a t h a v e b e s e t t h e s e a r c h f o r a m e a n i n g f u l p r e -e m p t i v e r i g h t . I t i s i n t h e s m a l l company, a s e x p l a i n e d e a r l i e r , t h a t t h e p r o t e c t i o n i s r e a l l y n e c e s s a r y , b e c a u s e i t i s i n s u c h c o m p a n i e s t h a t r e a l c o n t r o l i n t h e s h a r e h o l d e r s may e x i s t . T h i s i s q u i t e c o n s i s t e n t w i t h t h e m o d e r a t e a p p r o a c h t o s h a r e h o l d e r d e m o c r a c y e s p o u s e d by t h e c o m m i t t e e . A l t h o u g h f o u r s e c t i o n s w ere a d d e d t o t h e new a c t t o i m p r o v e t h e p o s i t i o n o f t h e s h a r e h o l d e r who may w i s h t o u s e h i s v o t e a g a i n s t t h e . i n c u m b e n t b o a r d , sweep-i n g c h a n g e s i n t h i s a r e a were n o t p a r t o f t h e C o m m i t t e e ' s p o l i c y e i t h e r i n t h e i r s e l e c t e d c r i t e r i a o r i n t h e a r e a s t h e y c h o s e f o r 73 change.'^ I t i s p r e d i c t a b l e t h a t the Committee made, nor,- i n the i n c l u s i o n of the p r e - e m p t i v e r i g h t , was a t t e m p t i n g t o make any r e v e r s a l o f the t r e n d i n b u s i n e s s f o r the l a r g e c o r p o r a t i o n s ' s h a r e h o l d e r s t o s l i d e i n t o a p o s i t i o n more c l o s e l y a k i n t o c r e d i -t o r s than t o owners. A l s o , c o n f i n i n g the p r e - e m p t i v e r i g h t t o the non-r e p o r t i n g company made i t p o s s i b l e t o have a mandatory p r o v i s i o n . I t i s o n l y i n the l a r g e c o r p o r a t i o n s i n w h i c h such r i g h t s t e n d t o become d i f f i c u l t t o a p p l y and p r o d u c t i v e of n u i s a n c e and d e l a y , t h a t the l i a b i l i t i e s o f a p r e - e m p t i v e r i g h t might o u t w e i g h t i t s d e s i r a b l e ( i n terms o f the Committee's c r i t e r i a ) consequences. A p p a r e n t l y , the Committee attempted t o make the B.C. p r e -emptive r i g h t l e s s e a s i l y a v o i d e d t h a n the F e d e r a l p r o p o s a l . P u t t i n g i n a g e n e r a l duty on d i r e c t o r s t o o f f e r s h a r e s pro r a t a t o the members and t hen d i s c u s s i n g the s i t u a t i o n where t h e r e a r e c l a s s e s o f s h a r e s appears t o be an e f f o r t t o t i g h t e n the p r o v i s -i o n s , w h i c h , i n the D i c k e r s o n p r o p o s a l s , enabled the e n t i r e r i g h t t o be a v o i d e d s i m p l y by c r e a t i o n of a new c l a s s o f s h a r e s . U n f o r t u n a t e l y , t h a t p o r t i o n o f the s e c t i o n d e a l i n g w i t h s h a r e c l a s s e s s t i l l c o n t a i n s a m b i g u i t y . I t i s p o s s i b l e s t i l l t o i n t e r -p r e t the s e c t i o n as meaning t h a t where t h e r e are share c l a s s e s but t h e r e a r e no h o l d e r s o f the s h a r e s o f t h a t c l a s s b e i n g i s s u e d , t hen t h e r e i s no one t o whom suc h an o f f e r must be made. I t i s a l s o p o s s i b l e , o f c o u r s e , t o argue t h a t i n t h i s s i t u a t i o n the g e n e r a l p a r t o f the s e c t i o n r e q u i r i n g shares t o be o f f e r e d t o the members g e n e r a l l y pro r a t a , t a k e s e f f e c t . However, i t does appear from (3) t h a t t h i s l a t t e r r e s u l t was the one the Committee a t l e a s t i n t e n d e d . That s u b s e c t i o n c l e a r l y a n t i c i p a t e s some p r e -emptive o f f e r h a v i n g t o be made t o someone i n a l l c a s e s where the d i r e c t o r s w i s h t o i s s u e s h a r e s . The Committee seems t o have wished t o t i g h t e n the p r o v i s i o n , even though i t has done so r a t h e r i n e p t l y . T h i s e f f o r t a g a i n i s p r e d i c t a b l e i f the Committee i s seen t o be f o l l o w i n g i t s own p o l i c y . 75 FOOTNOTES, CHAPTER IV "'"Departmental Study R e p o r t o f the Department o f the A t t o r n e y - G e n e r a l o f B r i t i s h C o l u m b i a , 1 9 7 1 , at p. 9 , P a r t F o u r , Major Changes. p Companies A c t , S t a t s . B.C. 1 9 7 3 , c. 1.8. 5 I b i d . ^ I b i d .  6 I b i d . l a t e r . 7 Supra, f o o t n o t e 1 . The one e x c e p t i o n w i l l be d i s c u s s e d 8 B a y l e s s Manning, S h a r e h o l d e r ' s A p p r a i s a l Remedy, ( 1 9 6 2 ) , 72 Y a l e Law J o u r n a l 223 a t p. 2 6 2 . 9 See C h a p t e r I I I , A L e g i s l a t i v e H i s t o r y . "^Study R e p o r t o f The C o r p o r a t e L e g i s l a t i o n Committee o f the Canadian Bar A s s o c i a t i o n . "'""'"For example, numerous changes i n w o r d i n g o f s. 2 2 8 . 12 . I n f a c t , no background d i s c u s s i o n was p r o v i d e d a t a l l , even as t o the n a t u r e o f the p r o t e c t i o n d e s i r e d . 13 s. 1 3 3 , 179 and l 8 0 as they appear i n the f i n a l A c t . See the S t u d y • R e p o r t , s u p r a , f o o t n o t e 1 , a t p. 9 - 1 0 . 14 See the Study R e p o r t , P a r t Three, Fundamental C r i t e r i a , p a r a . 1 , a t p. 7 . A l s o , the d i s c u s s i o n i n Ch a p t e r IV o f t h i s paper f o r d i s c u s s i o n . 15 Study R e p o r t , P a r t T h r e e , Fundamental C r i t e r i a , p a r a . 2 , P. 7-"^Amended B i l l No. 1 1 5 , 1 9 7 3 , Second S e s s i o n B.C. L e g i s l a t u r e , s. 1 . . 17 Of c o u r s e , s h a r e s need not be v o t i n g . See P a r t IX T a b l e A, Companies Act f o r t y p i c a l v o t i n g arrangements. 76 l8 A c t u a l l y , a company t h a t i s not a r e p o r t i n g company as d e f i n e d s. 1 of the Companies A c t . " ^ B u s i n e s s C o r p o r a t i o n s A c t , R.S.O. 1 9 7 0 , c. 5 3 , s. 4 4 . 20 See B a r r y S l u t s k y , The R e l a t i o n s h i p between the Board of D i r e c t o r s and the S h a r e h o l d e r s i n G e n e r a l M e e t i n g , 1 9 6 7 - 6 8 3 U.B.C.L. Rev. 8l. 21 Companies A c t , S t a t s . B.C. 1 9 7 3 , c. 1 8 . 22 A u t o m a t i c S e l f - C l e a n s i n g F i l t e r S y n d i c a t e Co. v. Cuninghame, C1906J 2 Ch. 3 4 ( C . A . ) . 23 Of c o u r s e , i t must be ke p t i n mind th r o u g h o u t t h i s d i s -c u s s i o n t h a t t h i s was t r u e o n l y i f t h e a r t i c l e s o f the company made no o t h e r p r o v i s i o n . P r e - e m p t i v e r i g h t s , i n f a c t , were a s t a n d a r d c l a u s e i n the s t a n d a r d form a r t i c l e s of some law f i r m s . ? 4 -. [19^2] Ch. 3 0 4 ( C . A . ) . 2 5 [1907] , 15 O.L.R. 623 (Ont. Sup. C t . ) . of [1903] 2 Ch. 506 (Ch. ). 27 Supra, f o o t n o t e 24. 28 S u p r a , f o o t n o t e 2 6 . 29 Savoy Corp. L t d . v. Development U n d e r w r i t i n g L t d . , [1963] N.S.W.R. 138 (Sup. C t . o f N.S.W.). ^°Ibid., a t p. 1 4 5 . 5 1 r _ 1 9 6 7 l Ch. 2 5 ^ ( C h . ) . ^ 2 I b i d . , a t p. 2 6 8 . 5 5 ( 1 9 2 3 ) , 33 C.L.R. 199 ( H i g h C t . o f A u s t r a l i a ) . J I b i d . , a t p. 2 1 7 . 3 5 ( 1 9 7 2 ) , 3 3 D.L.R. ( 3 d . ) 288 (B.C. Sup. C t . ) . 36 S u p r a , f o o t n o t e 3 1 -37 Supra, f o o t n o t e 2 4 . 5 8 [ 1 9 3 6 J 2 D.L.R. 634 ( A l t a . C.A.). 77 5 9 I b i c U , a t p. 636. 4o See Wedderburn, Unreformed Company Law, ( 1 9 6 9 ) , 32 Mod. L. Rev. 563. kl Note S m i t h v. Hanson T i r e & S u p p l y , L1927H 3 D.L.R. 786 (Sask. C.A.); M a r t i n v. G i b s o n , s u p r a , f o o t n o t e 25; B o n i s t e e l v. C o l l i s L e a t h e r C o . (1919) , 4-5 O.L.R. 195 (Ont. Sup. C t . ) . Note, •a l s o G l a c e Bay P r i n t i n g Co. e t a l v. H a r r i n g t o n e t a l , ( l 9 1 0 ) , 45 N.S.R. 276 (N.'S.C.A. ) i n which i t seemed t o be-assumed t h a t had r a t i f i c a t i o n been a c c o m p l i s h e d , i t would have been s u c c e s s f u l . k2 S u p r a , f o o t n o t e 31-k3 I b i d . , a t p. 268. kk r j l 9 6 9]l A l l E.R. 969 ( C . A . ) . k5 ^ I b i d . a t p. 972. I b i d . k? L.C.B. Gower, The P r i n c i p l e s o f Modern Company Law, 3 r d ed. (1969), a t p. 567. 48_, . I b i d . 4Q ^(1807), 3 Mass. 364. 50 The Model B u s i n e s s Corp. A c t A n n o t a t e d , 2nd ed., V o l . 1, s. 1-4-7, Committee on C o r p o r a t e Laws, 1971 a t p. 533-51 The Model A c t p r o v i d e s two a l t e r n a t i v e s e c t i o n s . The f i r s t e l i m i n a t e s the pr e - e m p t i v e r i g h t c o m p l e t e l y except as e x p r e s s l y i n c l u d e d i n the a r t i c l e s . The a l t e r n a t i v e p r o v i d e s a pre-e m p t i v e r i g h t e xcept as l i m i t e d by the a c t or the a r t i c l e s . 5 2 G r e a t B r i t a i n Board o f Trade Report of the Committee on Company Law Amendment, (1962). 53 I b i d . , p a r a . 113-54 ^ I b i d . ^ I b i d . , p a r a . 122 ( h ) . 56 L.C.B. Gower, F i n a l Report o f the Commission o f E n q u i r y i n t o the Working and A d m i n i s t r a t i o n o f the p r e s e n t Company Law o f Ghana. ^ 7 I b i d . , s. 2 0 2 . 3 8 I b i d . 59 P r o p o s a l s f o r a New.Business C o r p o r a t i o n s Law f o r Canada, 1 9 7 1 . 6°Ibid., s. 5 - 0 5 -6 l S u p r a , f o o t n o t e 5 0 . 62 S u p r a , f o o t n o t e 59> V o l . 1 , p a r a . 5 « 0 5 -6 3 T h i s , i t w i l l be r e c a l l e d , was one of the c r i t e r i a s e l e c t e d by the Committee. Supra, f o o t n o t e 5 2 . 65 Supra, f o o t n o t e 5 9 . ^ S u p r a , f o o t n o t e 5 0 . See Chapter I I I . 68 The Canadian Bar A s s o c i a t i o n . 69 See Chapter IV f o r a d i s c u s s i o n o f the Committee's f i r s t c r i t e r i a — w h o was t o need the a c t . 70 ' Study R e p o r t , P a r t I I I . 71 Supra, f o o t n o t e 5 9 « 7 2 S e e Chapter IV. CHAPTER V SHAREHOLDER PROTECTION AND THE DISSENT PROCEEDINGS THE HISTORY OF S. 2 2 . 8 1 U n l i k e s. 40, the p r e s e n t s. 228 was i n c l u d e d i n the d r a f t a c t when i t appeared as B i l l 6 6 . I n the D e p a r t m e n t a l Study 3 r e p o r t , t h i s s e c t i o n was c l a s s e d w i t h t h o s e t o i n c r e a s e s h a r e -4 h o l d e r p r o t e c t i o n . However, m the f i r s t d r a f t , s. 2 3 2 , as the d i s s e n t s e c t i o n was t h e n numbered, was o f a v e r y r e s t r i c t e d ap-p l i c a t i o n . The s e c t i o n s i n w h i c h d i s s e n t p r o c e e d i n g s c o u l d be i n v o k e d were not l i s t e d i n s. 2 3 2 , but the o n l y s i t i i a t i o n s t o which i t a p p l i e d were th o s e i n the then numbered s e c t i o n s 247, 2 6 9 , 2 7 5 5 and 3 1 5 - T h i s meant t h a t o n l y p e r s o n s who were mem-bers o f the company a t the time a t w h i c h the a c t came i n t o e f f e c t had any a c c e s s to d i s s e n t p r o c e e d i n g s i f the r e s t r i c t i o n s on b u s i n e s s i n the memorandum were a l t e r e d ^ or i f a s p e c i a l l y l i m i t e d company were c o n v e r t e d t o a company w i t h a Form 1 memo-7 randum; any member o f an amalgamating company c o u l d d i s s e n t and r e q u i r e the company t o purchase h i s s h a r e s i n the case o f an g amalgamation; and the p r o c e d u r e l i s t s a v a i l a b l e t o a l l members who had v o t e d a g a i n s t a s p e c i a l r e s o l u t i o n a u t h o r i z i n g t h e l i q u i d a t o r on w i n d i n g up the company t o a c c e p t s h a r e s , d e b e n t u r e s or o t h e r i n t e r e s t s o f a c o r p o r a t i o n as compensation f o r a s a l e o f the company b e i n g wound up i f t h a t t r a n s f e r , s a l e or arrangement 80 i n v o l v e d payment or l i a b i l i t y f o r payment o f money by the 9 members. I n these few c i r c u m s t a n c e s , the member c o u l d g i v e n o t i c e of d i s s e n t and once the r e s o l u t i o n was passed and proposed t o be a c t e d upon, he c o u l d compel the company to purchase h i s s h a r e s a t the f a i r market v a l u e . However, a l l t h i s was s u b j e c t t o two f u r -t h e r c o n d i t i o n s . The s e c t i o n would not a p p l y i f the company were i n s o l v e n t or i f the purchase o f the member's s h a r e s would render" i t i n s o l v e n t nor would i t a p p l y i n the v a g u e l y d e f i n e d c i r c u m -s t a n c e o f "the n o t i c e o f d i s s e n t b e i n g made i n e f f e c t i v e by an a c t i o n o f the d i s s e n t i n g member."^ By the time B i l l l 6 was i n t r o d u c e d , the Committee had made s e v e r a l s u b s t a n t i a l changes t o s. 2 3 2 . Some o f t h e s e changes were a p p a r e n t l y i n resp o n s e t o ' c r i t i c i s m s o f the s e c t i o n made by the Canadian Bar A s s o c i a t i o n brief,"'""'" once a g a i n , a sub-s t a n t i a l i n f l u e n c e on the f i n a l a c t . A t t h e i r s u g g e s t i o n , t h e s e c t i o n s t o which the d i s s e n t p r o c e d u r e , now s. 2 2 8 , would a p p l y were l i s t e d i n t h a t s e c t i o n . T h i s c l a r i f i c a t i o n i s c o n s i s t e n t v/ith the Committee's g o a l s o f p r o d u c i n g as e a s i l y u n d e r s t a n d a b l e an a c t as p o s s i b l e . A l s o r e s u l t i n g from the CBA comments, the c o n d i t i o n o f meeting a s o l v e n c y t e s t was dropped. At the same t i m e , however, the c o u r t ' s power t o f i x the p r i c e and t e r m s . o f the purchase or s a l e o f the s h a r e s was made s u b j e c t t o the p r o -v i s o t h a t i t be e x e r c i s e d " w i t h due r e g a r d f o r the r i g h t s o f 12 c r e d i t o r s . " The new s e c t i o n a l s o extended the s i t u a t i o n s i n 81 which the procedure could a p p l y . S. 1L9'L:? which r e q u i r e d a spec-i a l r e s o l u t i o n of the company to a u t h o r i z e the d i r e c t o r s to s e l l , l e a s e , or otherwise d i s p o s e of the whole or s u b s t a n t i a l l y the whole of the u n d e r t a k i n g of the company, was now i n c l u d e d . The Canadian Bar A s s o c i a t i o n had been of two minds r e g a r d i n g t h i s p a r t i c u l a r e x t e n s i o n . In the comments on s. 149 j such e x t e n s i o n 14 was suggested; i n the comments on s. 232, the i d e a was r e -j e c t e d . " ^ The i n c l u s i o n o f s. 14-9 d e s p i t e c o n f l i c t i n g a d v i c e even from the same source was p r e d i c t a b l e from the p o l i c y c r i t e r i a of the Committee once the matter had been brought to i t s a t t e n t i o n . I t would, o f course, i n widening the area of a p p l i c a t i o n o f the s e c t i o n , presumably widen.the p r o t e c t i o n of the s h a r e h o l d e r . T h i s , i n at l e a s t a c o n s e r v a t i v e measure, was a course o f which the Committee approved. I t was, as a l r e a d y mentioned, one o f the l6 primary areas toward which the D r a f t a c t was d i r e c t e d . But to omit s. 14-9 from coverage of the d i s s e n t proceedings was to reduce the meaningful nature of the p r o t e c t i o n a l r e a d y g i v e n . I t i s q u i t e obvious t h a t much of what i s accomplished by an amalgam-a t i o n of companies, a s i t u a t i o n where the d i s s e n t p r o c e e d i n g i s allowed, may a l s o be accomplished by a s a l e o f the u n d e r t a k i n g . A company wishing to a v o i d the r i g h t s of i t s m i n o r i t y s h a r e -h o l d e r s t o d i s s e n t from an amalgamation would f i n d l i t t l e d i f f i -c u l t y i n s e t t i n g the scheme i n the form of a s a l e of one com-pany's u n d e r t a k i n g to the o t h e r , i f the s a l e was f r e e from the 82 encumbrances of the d i s s e n t e r s . T h i s has i n d e e d been the e x p e r -i e n c e o f c e r t a i n j u r i s d i c t i o n s i n the U n i t e d S t a t e s where the d i s s e n t p r o c e e d i n g s , or a p p r a i s a l remedies as t h e y a r e t h e r e 17 c a l l e d , have been i n e x i s t e n c e f o r some y e a r s . As McDonough l8 n o t e s i n an a r t i c l e on the p r o v i s i o n s i n Iowa, the c o u r t s deve-l o p e d a de f a c t o merger d o c t r i n e t o cope w i t h the a v a i l a b i l i t y o f a p p r a i s a l remedies f o r merger but not f o r s a l e . As he s a y s , "The de f a c t o merger d o c t r i n e has been u t i l i z e d by the c o u r t s as a means t o p r e s e r v e a p p r a i s a l r i g h t s f o r d i s s e n t i n g s h a r e h o l d e r s i n cases where the t r a n s a c t i o n s were e f f e c t e d under p r o v i s i o n s o f the s t a t e ' s c o r p o r a t i o n s t a t u t e o t h e r than the merger p r o v i s i o n s , such as the s a l e o f a s s e t s , where t h e r e i s no a p p r a i s a l f o r such 19 t r a n s a c t i o n s . " The i n c l u s i o n o f s. 149 s i m p l y e l i m i n a t e d what the e x p e r i e n c e o f o t h e r s had shown t o be an o b v i o u s f l a w i n the scheme the Committee wished t o a d o p t . To a l l o w the f l a w t o con-t i n u e would have been c o n t r a r y t o the Committee's e x p r e s s e d 20 d e s i r e t o a v o i d u s e l e s s r u l e s . The a p p l i c a t i o n o f s. 228 was a l s o broadened by d r o p p i n g the r e q u i r e m e n t t h a t d i s s e n t was a v a i l a b l e when r e s t r i c t i o n s on b u s i n e s s were a l t e r e d o r a s p e c i a l l y l i m i t e d company c o n v e r t e d o n l y t o t h o s e who had been members o f the company a t the t i m e o f the coming i n t o e f f e c t o f the new a c t . These changes were once 21 a g a i n i n response t o the comments o f the Bar A s s o c i a t i o n b r i e f , and once a g a i n , they are p r o v i s i o n s which broaden, r a t h e r t h a n narrow, the p r o t e c t i o n a f f o r d e d t o the s h a r e h o l d e r by t h e s e c t i o n . 83 The r e q u e s t o f the Bar A s s o c i a t i o n t o narrow the e f f e c t o f the s e c t i o n by e l i m i n a t i n g any r i g h t of d i s s e n t d u r i n g t h e 22 l i q u i d a t i o n o f a company was i g n o r e d by the Committee. One f u r t h e r change was made i n the s e c t i o n , a p p a r e n t l y i n the i n t e r e s t s o f c l a r i t y . The p r o v i s i o n s u g g e s t i n g t h a t a n o t i c e o f d i s s e n t c o u l d be r e n d e r e d i n e f f e c t i v e by an a c t i o n o f the member was a l t e r e d t o e x c l u d e the s e c t i o n when a member, h a v i n g f i l e d a n o t i c e o f d i s s e n t , a c t s i n c o n s i s t e n t l y w i t h t h a t n o t i c e . ' F o r c o n v e n i e n c e o f r e f e r e n c e , s. 228 i n i t s f i n a l form was as f o l l o w s : 228. (1) Where (a) b e i n g e n t i t l e d t o g i v e n o t i c e of d i s s e n t t o a r e s o -l u t i o n as p r o v i d e d i n s e c t i o n s 149, 243, 265, 270, or 310, a member o f a c o m p a n y ( i n t h i s A c t c a l l e d a " d i s s e n t i n g member") g i v e s n o t i c e o f d i s s e n t ; (b) the r e s o l u t i o n r e f e r r e d t o i n c l a u s e ( a ) i s passe d ; and ( c ) the company or i t s l i q u i d a t o r proposes t o a c t upon the a u t h o r i t y o f the r e s o l u t i o n r e f e r r e d t o i n c l a u s e ( a ) , the company or the l i q u i d a t o r s h a l l f i r s t g i v e t o the d i s s e n t i n g member n o t i c e o f the i n t e n t i o n t o a c t and a d v i s e the d i s s e n t i n g member o f h i s r i g h t s under t h i s s e c t i o n . (2) Upon r e c e i v i n g a n o t i c e o f i n t e n t i o n t o a c t i n accordance w i t h s u b s e c t i o n ( l ) , a d i s s e n t i n g member i s e n t i t l e d t o r e q u i r e the company t o purchase a l l h i s s h a r e s i n r e s p e c t o f which the n o t i c e o f d i s -s e n t was g i v e n . (3) The d i s s e n t i n g member s h a l l e x e r c i s e h i s r i g h t under s u b s e c t i o n (2) by d e l i v e r i n g t o the r e g i s -t e r e d o f f i c e o f the company, w i t h i n f o u r t e e n days 8 4 a f t e r the company, or the l i q u i d a t o r , g i v e s the n o t i c e of i n t e n t i o n t o a c t , (a) a n o t i c e t h a t he r e q u i r e s t h e company t o pur c h a s e a l l h i s s h a r e s r e f e r r e d t o i n s u b s e c t i o n ( 2 ) ; and (b) the share c e r t i f i c a t e s r e p r e s e n t i n g a l l h i s s h a r e s r e f e r r e d t o i n s u b s e c t i o n ( 2 ) ; and thereupon he i s bound t o s e l l those s h a r e s t o t h e company and the'company i s bound t o purchase them. ( 4 ) A d i s s e n t i n g member who has c o m p l i e d w i t h s u b s e c -t i o n ( 3 ) j the company, o r , i f t h e r e has been an amalgamation, the amalgamated company, may a p p l y t o the C o u r t , w h ich may (a) r e q u i r e the d i s s e n t i n g member t o s e l l , and the com-pany or the amalgamated company t o p u r c h a s e , t h e sh a r e s i n r e s p e c t o f which the n o t i c e o f d i s s e n t has been g i v e n ; (b) f i x the p r i c e and terms o f the purchase and s a l e , or o r d e r t h a t such p r i c e and terms be e s t a b l i s h e d by a r b i t r a t i o n i n e i t h e r case h a v i n g due r e g a r d f o r the r i g h t s o f c r e d i t o r s ; ( c ) j o i n i n the a p p l i c a t i o n and any o t h e r d i s s e n t i n g member who has c o m p l i e d w i t h s u b s e c t i o n ( 3 ) ; snd (d) make such c o n s e q u e n t i a l o r d e r s and g i v e s u c h d i r e c -t i o n s as i t c o n s i d e r s a p p r o p r i a t e . ( 5 ) The p r i c e t o be p a i d t o a ' d i s s e n t i n g member f o r h i s sh a r e s s h a l l be the f a i r v a l u e t h e r e o f as o f the day b e f o r e the da t e on which the r e s o l u t i o n r e f e r -r e d t o i n s u b s e c t i o n ( 1 ) was passed, i n c l u d i n g any a p p r e c i a t i o n or d e p r e c i a t i o n i n a n t i c i p a t i o n o f the vot e upon the r e s o l u t i o n and every d i s s e n t i n g mem-ber who has c o m p l i e d w i t h s u b s e c t i o n ( 3 ) s h a l l be p a i d the same p r i c e . ( 6 ) The amalgamation o r winding-up of the company, or any change i n i t s c a p i t a l , a s s e t s or l i a b i l i t i e s r e s u l t i n g from the company . a c t i n g upon the a u t h o r -i t y o f the r e s o l u t i o n r e f e r r e d t o i n s u b s e c t i o n ( 1 ) s h a l l not a f f e c t the r i g h t o f the d i s s e n t i n g member and the company under t h i s s e c t i o n or the p r i c e t o be p a i d f o r the s h a r e s . 85 (7) Every d i s s e n t i n g member who has complied w i t h sub-s e c t i o n (3) may (a) not vote, or exercise or asse r t any r i g h t s of a member, i n respect of the shares f o r which n o t i c e of d i s s e n t has been given, other than under t h i s s e c t i o n ; (b) not withdraw the requirement to purchase h i s shares, unless the company consents t h e r e t o ; and (c) u n t i l he i s paid i n f u l l , e x ercise and as s e r t a l l the r i g h t s of a c r e d i t o r of the company. (8) Where the Court determines that a person i s not a d i s s e n t i n g member, or i s not otherwise e n t i t l e d to the r i g h t provided by subsection ( 2 ) , the Court may make such order, without prejudice to any acts or proceedings which the company, i t s members or any c l a s s of members may have taken during the i n t e r -vening p e r i o d , as i t considers appropriate to remove the l i m i t a t i o n s imposed upon him by subsec-t i o n ( 7 ) . (9) The r e l i e f provided by t h i s s e c t i o n i s not a v a i l -able i f , subsequent to g i v i n g h i s n o t i c e of d i s -sent, the d i s s e n t i n g member acts i n c o n s i s t e n t l y with h i s d i s s e n t ; but a request to withdraw the requirement to purchase h i s shares i s not an act i n c o n s i s t e n t with h i s d i s s e n t . THE BACKGROUND OF THE DISSENT PROCEEDINGS The B r i t i s h Columbia Dissent proceedings s e c t i o n i s an expression of an idea that has e x i s t e d i n the United States f o r many years. The A p p r a i s a l S t a t u t e s , as American w r i t e r s c a l l them,provide a s i m i l a r "out" f o r shareholders i n c e r t a i n corpor-ate circumstances. In 1931, an American w r i t e r r e f e r r e d to the 23 then e x i s t i n g a p p r a i s a l s t a t u t e s as "purely experimental", y but by 1972, s i m i l a r s t a t u t e s e x i s t e d i n nearly every American j u r i s -24 d i c t i o n . 86 The r e a s o n s f o r the p o p u l a r i t y of the a p p r a i s a l s t a t u t e s are not d i f f i c u l t t o t r a c e i n the U n i t e d S t a t e s where the p r o v i s -i o n s formed an i n t e g r a l p a r t of the development of c o r p o r a t e government. At common law, many i m p o r t a n t c o r p o r a t e t r a n s a c t i o n s r e q u i r e d the unanimous a p p r o v a l o f the s h a r e h o l d e r s . A.s the needs o f c o r p o r a t e management f o r more freedom o f a c t i o n i n - ' c r e a s e d , and the unanimous a p p r o v a l r e q u i r e m e n t s were s t e a d i l y r e d u c e d , a c e r t a i n degree o f p r o t e c t i o n f o r the u n w i l l i n g s h a r e -h o l d e r was r e t a i n e d by a l l o w i n g him t o compel the company t o buy 25 h i s s h a r e s . I n t u r n , the v e r y e x i s t e n c e o f the a p p r a i s a l remedy h e l p e d t o f r e e the a c t i o n s o f American management f u r t h e r from i t s s h a r e h o l d e r s . Where t h e remedy e x i s t e d , the c o u r t s be-came r e l u c t a n t t o g r a n t i n j u n c t i o n s r e q u e s t e d by m i n o r i t y s h a r e -h o l d e r s even on grounds where, b e f o r e the enactment o f t h e new 26 remedy, such i n j u n c t i o n s had been g r a n t e d . I n a t h o r o u g h a n a l y s i s o f the b a s i s f o r and e f f e c t s o f the a p p r a i s a l s t a t u t e s , B a y l e s s Manning r e f e r s t o t h e i r p r o l i f e r a t i o n as e v i d e n c e o f " t h e g e n e r a l tendency i n the c o r p o r a t e f i e l d t o c e n t e r w i t h i n manage-ment a l l s i g n i f i c a n t o p e r a t i o n a l c o n t r o l , and t o r e l e g a t e the s h a r e h o l d e r ' s c l a i m of 'ownership' t o the s t a t u s o f a f u n g i b l e 27 d o l l a r c l a i m . " So, i n the U n i t e d S t a t e s , where the remedy f i r s t d e v e l o p e d , a p p r a i s a l s t a t u t e s came t o s e r v e , and were p r o b -a b l y d e s i g n e d t o serve,' a d u a l p u r p o s e . They were t o be b o t h a "bulwark f o r the r i g h t s o f the m i n o r i t y " and a " l u b r i c a n t t o 28 speed the s p r ead o f m a j o r i t a r i a n i s m . " 87 The i n t r o d u c t i o n of the remedy i n t o the laws o f B r i t i s h C o l u m b i a , however, d i d not have t h i s d ouble a s p e c t . B e f o r e the new Companies A c t , " m a j o r i t a r i a n i s m " was a l r e a d y the r u l e i n a l l the c i r c u m s t a n c e s but one t h a t the d i s s e n t p r o c e e d i n g s were 29 d e s i g n e d t o c o v e r . I n the o l d a c t , s. 50 a l l o w e d s u c h a l t e r a -t i o n s o f the o b j e c t s o f a company as were p e r m i t t e d t o be made by 30 a s p e c i a l r e s o l u t i o n c o n f i r m e d by the c o u r t ; s. 51 r e q u i r e d o n l y an o r d i n a r y r e s o l u t i o n of the company or r e s o l u t i o n o f the d i r e c t o r s t o i n c l u d e or e x c l u d e the a n c i l l i a r y powers g r a n t e d i n 31 s. 22; c o n v e r s i o n o f a s p e c i a l l y l i m i t e d company c o u l d be 32 a c c o m p l i s h e d under s. 69 by s p e c i a l r e s o l u t i o n ; and, as under the nev; a c t , amalgamation c o u l d be a c c o m p l i s h e d by s p e c i a l r e s o -l u t i o n p l u s a r e s o l u t i o n o f t h r e e q u a r t e r s o f the s h a r e s o f each 33 c l a s s , as was s e t out i n s. 178. S a l e o f the u n d e r t a k i n g under the o l d a c t was an a n c i l l i -a r y power o f the company w h i c h c o u l d be i n c l u d e d o r e x c l u d e d from • 34 the memorandum. The c o n t r a c t u a l base o f the d i v i s i o n o f powers between the d i r e c t o r s and the g e n e r a l meeting has a l r e a d y been 35 b r i e f l y d i s c u s s e d i n an e a r l i e r c h a p t e r . There were no s p e c i a l s t a t u t o r y p r o v i s i o n s r e g a r d i n g how the s a l e o f the u n d e r t a k i n g o f the company was t o be c o m p l e t e d or a u t h o r i z e d . I n t h e absence o f c o n t r a c t u a l agreement, the s t a n d a r d form a r t i c l e s i n the Companies Ac t p r o v i d e d t h a t the d i r e c t o r s "may e x e r c i s e a l l s u c h powers o f the Company as a r e n o t , by the Companies A c t , or any s t a t u t o r y m o d i f i c a t i o n t h e r e o f f o r the time b e i n g i n f o r c e , or by t h e s e 88 a r t i c l e s , r e q u i r e d t o be e x e r c i s e d by the Company i n g e n e r a l 36 m e e t i n g . " U n l e s s the s p e c i f i c memorandum o f the company made s p e c i a l p r o v i s i o n f o r a p p r o v i n g the s a l e o f the u n d e r t a k i n g , t h e r e f o r e , i t , l i k e a l l t h e o t h e r powers o f the company, c o u l d be e x e r c i s e d by r e s o l u t i o n o f the d i r e c t o r s . The o n l y e x c e p t i o n . t o t h i s l a c k o f power i n the s i n g l e d i s s e n t i n g s h a r e h o l d e r was i n the r e s t r i c t e d case where d u r i n g w i n d i n g up o f the company, some or a l l o f i t s p r o p e r t y was t o be s o l d f o r a t l e a s t p a r t i a l compensation o f some i n t e r e s t i n the p u r c h a s i n g company where t h i s arrangement i n v o l v e d the payment or l i a b i l i t y f o r payment o f money by the members o f the t r a n s f e r r e r 37 company. I n t h a t r e s t r i c t e d c a s e , a k i n d o f d i s s e n t p r o c e e d i n g was p r o v i d e d f o r an o b j e c t i n g member whereby he c o u l d compel the l i q u i d a t o r e i t h e r t o a b s t a i n from c a r r y i n g the s p e c i a l r e s o l u t i o n a u t h o r i z i n g t h i s t r a n s a c t i o n i n t o e f f e c t or to purchase t he d i s -s e n t e r ' s s h a r e s . The c h o i c e was l e f t t o the l i q u i d a t o r . The new a c t c o n t i n u e s the g e n e r a l e f f e c t o f t h i s p r o v i s i o n by g i v i n g the s h a r e h o l d e r i n the s i t u a t i o n j u s t d e s c r i b e d the r i g h t o f d i s s e n t . However, such a t r a n s a c t i o n c o u l d and s t i l l can be implemented on the a u t h o r i t y of a s p e c i a l r e s o l u t i o n . The r e a s o n a b l e c o n c l u s i o n t o t h i s i n v e s t i g a t i o n o f the background o f the d i s s e n t p r o c e e d i n g might be t h a t i n B r i t i s h C o l u m b i a , where the m a j o r i t y was a l r e a d y i n c o n t r o l o f the c o r -p o r a t i o n , the new remedy c o u l d have no o t h e r e f f e c t than t o i n c r e a s e s h a r e h o l d e r p r o t e c t i o n . However, t h i s i s a p u r e l y 89 s u p e r f i c i a l v i ew. As a d e v i c e f o r economic p r o t e c t i o n o f the s h a r e h o l d e r , the d i s s e n t p r o c e e d i n g s have not proved v e r y e f f e c -t i v e . A comment on the Iowa p r o v i s i o n s , f o r example, s u g g e s t s t h a t the remedy p r o v i d e s " s u b s t a n t i a l l y e f f e c t u a l p r o t e c t i o n o f the m i n o r i t y ' s economic i n t e r e s t s " o n l y i n the case o f c l o s e l y 7 0 h e l d c o r p o r a t i o n s . Manning has an even h a r s h e r assessment o f the p r o v i s i o n ' s u s e f u l n e s s . He s u g g e s t s t h a t i f the company's s h a r e s have a market, the d i s s e n t p r o c e e d i n g s w i l l o b v i o u s l y be -o f no b e n e f i t t o the s h a r e h o l d e r , o n l y d e l a y i n g h i s payment w h i c h he c o u l d o b t a i n w i t h l e s s d i f f i c u l t y by a s i m p l e s a l e . I f t h e r e i s not an a c t i v e market, then the s h a r e h o l d e r i s f a c e d w i t h the problems of v a l u a t i o n . " A f t e r months o f l i t i g a t i o n and expense, the c o u r t may f i n d a h i g h v a l u a t i o n f o r the d i s s e n t e r ' s s t o c k . Or i t may f i n d a low one. The o n l y t h i n g s c e r t a i n a r e the u n c e r -3 9 t a i n t y , the d e l a y , and the expense." The o n l y s i t u a t i o n i n w h i ch he sees the a p p r a i s a l remedy as e c o n o m i c a l l y b e n e f i c i a l i s t h a t i n w h ich an a c t i v e l y t r a d e d s t o c k drops p r e c i p i t a t e l y " i n d e m o n s t r a b l e r e a c t i o n t o the t r a n s a c t i o n the s h a r e h o l d e r f i n d s ko o b j e c t i o n a b l e " i n w h i c h c a s e , the s h a r e h o l d e r w i l l be e n t i t l e d t o the v a l u e of h i s s h a r e s b e f o r e t h e i r drop i n v a l u e . T h i s , however, i s the American r u l e , not the B r i t i s h Columbian. Sub-s e c t i o n (5) o f the B.C. s e c t i o n p r o v i d e s , i t w i l l be remembered, t h a t the v a l u e o f the s h a r e s t o w h ich t h e i r owner i s e n t i t l e d w i l l i n c l u d e the e f f e c t on t h a t v a l u e of the a n t i c i p a t e d e v e n t s . The background of the remedy once a g a i n e x p l a i n s the 90 s e e m i n g l y i n e f f i c a c i o u s n a t u r e o f t h i s economic p r o t e c t i o n . The p r o t e c t i o n s t h a t a p p r a i s a l remedies were i n t e n d e d t o p r o v i d e were not economic a t a l l , but p r o t e c t i o n s w h ich n i n e t e e n t h c e n t u r y t h e o r i s t s saw as e s s e n t i a l t o the n a t u r e of companies. A comment i n the H a r v a r d Law Review e x p r e s s e s t h i s by s t a t i n g t h a t the "purpose of the s e c t i o n s was so t h a t m i n o r i t y s h a r e h o l d e r s s h o u l d not be c o m p e l l e d t o a c c e p t a f undamental change i n the n a t u r e of 41 t h e i r i n v e s t m e n t . " In the n i n e t e e n t h c e n t u r y , l e g a l comments abounded w i t h a r t i c l e s c oncerned w i t h the r e a l n a t u r e o f the c o r p o r a t i o n . Was i t " r e a l " o r " f i c t i o n a l " ? S i m i l a r l y , i t was s a i d t h a t c o r p o r a t i o n s were i n h e r e n t l y i n c a p a b l e o f c e r t a i n a c t i o n s . There seemed t o be some c o n c e p t u a l d i f f i c u l t i e s i n d e a l i n g w i t h an e n t i t y t h a t had no c h a r a c t e r i s t i c s e x c e p t t h o s e i m p a r t e d t o i t by s t a t u t e . As Manning e x p l a i n s i t , a h o r s e c o u l d not moo and a c o r p o r a t i o n , by i t s v e r y n a t u r e , must have c e r t a i n c h a r a c t e r i s t i c s l i k e the whinny o f a h o r s e , t h a t c o u l d be p o s t u -l a t e d from i t s v e r y e x i s t e n c e once the l e g i s l a t u r e had c r e a t e d 4? x t . F o r the same r e a s o n s , i t o f f e n d e d the t h e o r i s t s t o t h i n k 43 t h a t a man c o u l d own "a horse and s u d d e n l y f i n d he owned a cow." So some escape mechanism had t o be p r o v i d e d f o r s h a r e h o l d e r s i n the event o f c e r t a i n t r a u m a t i c changes i n the c o r p o r a t i o n , a f f e c t i n g i t s v e r y n a t u r e . T h i s i s why the e v e n t s t r a d i t i o n a l l y t r i g g e r i n g the a p p r a i s a l remedy have been merger (by f a r the most p o p u l a r and 44 common t o almost a l l American a p p r a i s a l s t a t u t e s ) , s a l e o f the 91 u n d e r t a k i n g and c e r t a i n c h a r t e r a l t e r a t i o n s . These are by no means the o n l y e v e n t s i n c o r p o r a t e ' l i f e t o a d v e r s e l y a f f e c t t h e economic i n t e r e s t s o f the s h a r e h o l d e r . I n f a c t , t h e i r e f f e c t may be t o i n c r e a s e the v a l u e o f the s h a r e s . But t h e y a r e a l l , e i t h e r i n d i r e c t l y or i n t h e m s e l v e s , e v e n t s p r o d u c i n g the o b j e c t i o n a b l e "horse-cow" t r a n s f o r m a t i o n . Thus damage i s i r r e l e v a n t t o the a v a i l a b i l i t y o f t h e d i s s e n t p r o c e d u r e . The B.C. p r o v i s i o n i s , i t w i l l have been n o t i c e d , t r i g -g e red by the same k i n d o f c i r c u m s t a n c e s as i s t r a d i t i o n a l i n the American s t a t u t e s . The e x c e p t i o n seems t o be the a v a i l a b i l i t y o f the remedy on w i n d i n g - u p , where economic c o n s i d e r a t i o n s a r e c r u -c i a l . I t i s not. the d e c i s i o n t o a c c e p t i n t e r e s t s i n a n o t h e r com-pany t h a t a c t i v a t e s the d i s s e n t p r o c e d u r e , but a c o m b i n a t i o n o f t h a t d e c i s i o n t o g e t h e r w i t h f i n a n c i a l l i a b i l i t y f o r the company's members. Yet i n a n o t h e r way, the c i r c u m s t a n c e i s q u i t e c o n s i s -t e n t w i t h n i n e t e e n t h c e n t u r y t h e o r y . The l i a b i l i t y o f the member o f the c o r p o r a t i o n i s l i m i t e d . N o r m a l l y , he i s r e s p o n s i b l e f o r no more f i n a n c i a l c o n t r i b u t i o n t h a n the p r i c e o f h i s s h a r e s . I t would be c o n t r a r y t o t h e n a t u r e o f t h e c o r p o r a t i o n i f t h e members c o u l d , by any k i n d o f m a j o r i t y v o t e , change t h a t c h a r a c t e r i s t i c f o r the u n w i l l i n g member. Winding-up i t s e l f i s a n a t u r a l event t o a c o r p o r a t i o n , as d e a t h i s t o a l i v i n g c r e a t u r e . B u t , afgain, a change i n c h a r a c t e r i s n o t . Thus the d i s s e n t p r o c e d u r e s a t i s f i e s needs o f t h e ' b u s i -ness community o n l y i n s o f a r as tho s e needs a r e c o n c e i v e d i n terms 9 2 o f n i n e t e e n t h c e n t u r y s t y l e c o r p o r a t e t h e o r y . They p r o t e c t the s h a r e h o l d e r i n terms of l e g a l changes i n the e n t i t y , not economic r i s k . T h i s i l l u s t r a t e s how i m p o s s i b l e i t i s t o d i s c u s s a p r o v i s -i o n i n a new s t a t u t e , even i n terms o f the c r i t e r i a s e l e c t e d by the d r a f t i n g body f o r i t s r e f o r m , w i t h o u t an a n a l y s i s of the f a c -t o r s t h a t i n t e r p r e t t h o s e c r i t e r i a t o the minds o f the d r a f t s m e n . As was d i s c u s s e d i n an e a r l i e r c h a p t e r , the s i z e and n a t u r e o f the C o r p o r a t e L e g i s l a t i o n Committee made i t u n l i k e l y t h e r e would' be any q u e s t i o n i n g of the concept o f " c o r p o r a t e n e s s . " An a n a l y -s i s o f i t s own d i s c u s s i o n o f i t s c r i t e r i a f o r r e f o r m s u p p o r t e d t h i s h y p o t h e s i s . Here ar e i t s r e s u l t s . G i v e n t h e myths o f the c o r p o r a t e p e r s o n a l i t y i n t h e i r t o t a l i t y , the d i s s e n t p r o c e d u r e i s a p r o c e d u r e needed and a p r o t e c t i o n d e s i r e d by the community o f s h a r e h o l d e r s . But t h i s i s o n l y so i n the l i g h t o f t h e s e myths. Without them, i t becomes i m p o r t a n t t o ask whether the p r e s e n t s h a r e h o l d e r s r e a l l y p e r c e i v e t h e m s e l v e s any l o n g e r i n terms o f owners; whether they c a r e about the l e g a l e n t i t y o f t h e i r c o r -p o r a t i o n as l o n g as t h e y have f a i r p r o t e c t i o n f o r t h e i r i n v e s t -ment; whether i t i s any l o n g e r u s e f u l t o the b u s i n e s s community t o p r e s e r v e the i d e a s o f the " r e a l " . n a t u r e o f a c o r p o r a t i o n . W i t h the myths a c c e p t e d , however, the d i s s e n t p r o c e d u r e became a n a t u r a l c h o i c e of the committee. The f i e l d o f c h o i c e f o r r e f o r m . I t was even more p r e d i c t a b l e t h a t a d i s s e n t p r o c e d u r e would be a c c e p t e d once account i s t a k e n o f the heavy r e l i a n c e o f the Committee on changes i n o t h e r j u r i s d i c t i o n s . As a l r e a d y 9 3 mentioned, a p p r a i s a l s t a t u t e s , the American c o u n t e r p a r t o f the d i s s e n t p r o c e d u r e , are common i n the U n i t e d S t a t e s . Such a s e c -47 t i o n was i n c l u d e d i n the American Model A c t . I n Canada, the d i s s e n t p r o c e d u r e has su d d e n l y g a i n e d g r e a t p o p u l a r i t y . • B o t h t h e 48 new O n t a r i o B u s i n e s s C o r p o r a t i o n s A c t and the F e d e r a l P r o p o s -49 a l s c o n t a i n some form o f the p r o v i s i o n . I n t h i s s e c t i o n , t h i s paper w i l l i n v e s t i g a t e the forms o f the pr o c e d u r e adopted by the Model A c t , the O n t a r i o A c t and the F e d e r a l P r o p o s a l s , as p r o v i d -i n g models upon w h i c h the C o r p o r a t e L e g i s l a t i o n Committee c o u l d , and p r o b a b l y d i d , draw. 50 The Model A c t p r o v i s i o n i s l e n g t h y and the p r o c e d u r e complex. A r i g h t o f d i s s e n t a r i s e s i n the case b o t h o f merger and o f s a l e . The p r o c e e d i n g s a r e begun by the d i s s e n t i n g s h a r e -h o l d e r f i l i n g a n o t i c e o f d i s s e n t b e f o r e the meeting a t w h i c h t h e 51 m a t t e r i s t o be v o t e d upon. Only s h a r e h o l d e r s o f r e c o r d may d i s s e n t and they may d i s s e n t f o r l e s s than t h e i r r e c o r d e d number 52 o f s h a r e s . T r u s t e e s f o r more t h a n one p e r s o n , t h e r e f o r e , a r e 53 f r e e t o d i s s e n t o r not on the i n s t r u c t i o n s o f each b e n e f i c i a r y . I f the motion p a s s e s , t h e n the s h a r e h o l d e r must f i l e h i s demand on the company w i t h i n a f i x e d t i m e . The remedy i s e x c l u s i v e o f a l l o t h e r s s i n c e the s h a r e h o l d e r s must e i t h e r f i l e t h e i r demand or be bound by the v o t e . Once the demand i s made the s h a r e h o l d e r has no o t h e r r i g h t s than the r i g h t t o payment o f the f a i r v a l u e f o r h i s s h a r e s u n l e s s h i s demand i s withdrawn and the company c o n s e n t s t o the w i t h d r a w a l , o r u n l e s s the proposed a c t i o n i s 9^ abandoned, i n which c a s e , the s h a r e h o l d e r i s r e i n s t a t e d . W i t h i n t en days c f the c o r p o r a t e a c t i o n ' s b e i n g e f f e c t e d , the company must make a w r i t t e n o f f e r t o the s h a r e h o l d e r , and the two p a r t i e s have t h i r t y days t o agree on a p r i c e . ' I f the p r i c e i s agreed upon, then t h e r e i s a f u r t h e r time l i m i t f o r payment. I f the p r i c e i s not agreed upon, the c o r p o r a t i o n must w i t h i n s i x t y days f i l e a p e t i t i o n t o have the mat t e r a d j u d i c a t e d by the c o u r t . A p p r a i s e r s may be a p p o i n t e d . I n t e r e s t s h a l l be g r a n t e d a t a f a i r and e q u i t a b l e r a t e d e t e r m i n e d by the c o u r t . C o s t s a r e n o r m a l l y t o be a s s e s s e d a g a i n s t t h e c o r p o r a t i o n u n l e s s t h e actions o f the s h a r e h o l d e r have been a r b i t r a r y , v e x a t i o u s ' or not i n good f a i t h . The c o s t s w i l l not n o r m a l l y i n c l u d e f e e s o f c o u n s e l u n l e s s t h e c o r p o r a t i o n has not made a r e a s o n a b l e o f f e r . The s h a r e h o l d e r must submit h i s s h a r e s c e r t i f i c a t e s t o the c o r p o r a t i o n f o r n o t a t i o n t h e r e o n t h a t a demand has been made w i t h i n twenty days o f h i s demand o r f o r f e i t h i s r i g h t s a t t h e o p t i o n o f the c o r p o r a t i o n . The v a l u e t o be p a i d the s h a r e h o l d e r i s t o be the f a i r v a l u e a t the date p r i o r t o t h e d a t e on w h i c h the a p p r o v i n g v o t e was t a k e n , e x c l u d i n g any e f f e c t on t h a t v a l u e o f the a n t i c i p a t i o n 54 o f the v o t e . The p r o c e d u r e under the F e d e r a l p r o p o s a l s i s v e r y l i k e the Americ an Model A c t ' s . The remedy i s a v a i l a b l e not o n l y f o r merger ( o r amalgamation i n Canada) and s a l e , but a l s o f o r v a r y i n g the r e s t r i c t i o n s on t r a n s f e r o f s h a r e s o f a c l a s s , v a r y i n g 95 c e r t a i n r i g h t s ' o r c o n d i t i o n s . o f a c l a s s l i s t e d i n the a c t and f o r a v o t e t o c o n t i n u e the company under the laws o f a n o t h e r j u r i s -d i c t i o n . But the g e n e r a l scope o f the s e c t i o n i s narrowed i n comparison t o the American by a d d i n g a s o l v e n c y c o n d i t i o n . A s h a r e h o l d e r may withdraw h i s n o t i c e o f d i s s e n t i f t h i s c o n d i t i o n e x i s t s or he has the o p t i o n o f t a k i n g a c l a i m a g a i n s t the company 55 b e f o r e o t h e r s h a r e h o l d e r s , but below t h a t o f the c r e d i t o r s . Other p o i n t s o f d i f f e r e n c e from the American A c t i n c l u d e one mere n o t i c e p r o v i s i o n t han t h a t a c t c o n t a i n s . The Company must n o t i f y s h a r e h o l d e r s who f i l e n o t i c e s o f d i s s e n t when the r e s o l u t i o n has been adopted. A p a r t from t h a t , the p a t t e r n o f n o t i c e s and time l i m i t s i s v e r y s i m i l a r . Once the o f f e r has been. . made and the time f o r i t s a c c e p t a n c e has l a p s e d , the Canad i a n pro c e d u r e f o r g e t t i n g the matter b e f o r e the c o u r t i s s l i g h t l y d i f f e r e n t . The company has a l i m i t e d time i n w h i c h i t may, n o t must, make such a p e t i t i o n . I f i t f a i l s t o do s o , the s h a r e -h o l d e r has an a d d i t i o n a l twenty days t o a p p l y . No s p e c i a l men-t i o n i s made of appo r t i o n m e n t o f c o s t s . The p r o v i s i o n a l l o w i n g a t r u s t e e t o d i s s e n t i n r e s p e c t t o the s h a r e s o f o n l y one o f h i s c e s t u i que t r u s t e n t i s a l s o i n -c l u d e d , but worded more t i g h t l y , t o p r e v e n t the anomalous s i t u a -t i o n o f p e r m i t t i n g a s h a r e h o l d e r t o d i s s e n t w i t h o n l y h a l f h i s 56 s h a r e s as w e l l . The v a l u e to be p a i d f o r the s h a r e s i s , a g a i n , the f a i r v a l u e , but no mention i s made o f the e f f e c t on the v a l u e o f the o b j e c t i o n a b l e r e s o l u t i o n . The problem o f e x c l u s i v e n e s s o f 96 remedy i s s o l v e d i n the o p p o s i t e d i r e c t i o n t o the American A c t , p r o v i d i n g t h a t the r i g h t o f d i s s e n t i s i n a d d i t i o n t o any o t h e r r i g h t . The s i m p l e s t , by f a r , o f t h e s e d i s s e n t s t a t u t e s i s t h a t 57 found i n the O n t a r i o B u s i n e s s C o r p o r a t i o n s A c t . Perhaps the r e a s o n f o r i t s s i m p l i c i t y i s t h a t i t a p p l i e s o n l y t o c o r p o r a t i o n s t h a t a r e not o f f e r i n g s h a r e s t o the p u b l i c . P resumably, t h e s e c o r p o r a t i o n s would . u s u a l l y be s m a l l and t h e r e would be no need f o r the e l a b o r a t e p r o c e d u r e s o f the w i d e l y h e l d company. The r e s t r i c t i o n does make a c e r t a i n degree of s e n s e , c o n s i d e r i n g t h a t , i f d i s s e n t p r o c e e d i n g s a f f o r d economic p r o t e c t i o n a t a l l , they do so p r i m a r i l y i n the " c l o s e " c o r p o r a t i o n . However, the t r a n s a c t i o n s the O n t a r i o a c t l i s t s as t r i g g e r i n g the p r o c e d u r e are t h o s e t r a d i t i o n a l l y s e l e c t e d because of t h e i r l e g a l trauma w i t h i n the c o r p o r a t i o n . S a l e o f the u n d e r t a k i n g , amalgamation and d e l e t i o n of t r a n s f e r r e s t r i c t i o n s p r o v i d e the o n l y c i r c u m -s t a n c e s i n which the p r o c e e d i n g " can be used. I f i t i s economic p r o t e c t i o n the a c t i s s e e k i n g , t h e n i t i s i n c o n s i s t e n t not t o extend the d i s s e n t p r o c e e d i n g s t o o t h e r e c o n o m i c a l l y t h r e a t e n i n g e v e n t s . I f i t i s p r o t e c t i o n a g a i n s t d r a s t i c l e g a l change, t h e n i t i s i n c o n s i s t e n t not t o a p p l y the p r o c e e d i n g s t o l a r g e c o r p o r a -t i o n s as w e l l . ^ ^ Moreover, the O n t a r i o p r o v i s i o n r e q u i r e s t h a t the d i s -s e n t i n g s h a r e h o l d e r have v o t e d a g a i n s t the c o n f i r m a t i o n o f the r e s o l u t i o n . Whatever the motive b e h i n d the d i s s e n t p r o c e e d i n g s , 97 t h i s r e s t r i c t i o n seems i l l o g i c a l . F o r i t means t h a t h o l d e r s o f non v o t i n g s h a r e s c o u l d never make use of the p r o v i s i o n s and such s h a r e h o l d e r s are b o t h l e g a l l y and e c o n o m i c a l l y i n as g r e a t need of the remedy as h o l d e r s o f v o t i n g s h a r e s . The d i s s e n t i n g s h a r e h o l d e r does not need t o g i v e any n o t i c e t o the c o r p o r a t i o n u n t i l he makes h i s demand f o r p u r c h a s e , u n l i k e the o t h e r p r o p o s a l s c o n s i d e r e d i n t h i s s e c t i o n . F a i l u r e t o r e q u i r e n o t i c e b e f o r e the meeting i n q u e s t i o n c o u l d h i n d e r t h e d e c i s i o n o f the s h a r e h o l d e r s . An amalgamation, f o r example, might not be c a r r i e d t h r o u g h i f too many s h a r e h o l d e r s had g i v e n n o t i c e o f i n t e n t i o n t o d i s s e n t b e f o r e the v o t e . A f t e r t h e v o t e i s t a k e n , too many d i s s e n t e r s may p l a c e the company i n an impos-s i b l e p o s i t i o n w i t h r e s p e c t t o the a c t i o n they have a u t h o r i z e d Once the a c t i o n i s i n e f f e c t , the company and the d i s s e n -t e r have n i n e t y days t o a r r i v e a t an agreement. There a r e no o t h e r time l i m i t s . I f they f a i l t o r e a c h agreement i n t h a t t i m e , the d i s s e n t i n g s h a r e h o l d e r must a p p l y t o the c o u r t t o f i x the p r i c e . No s h a r e s a r e t o be p u r c h a s e d i f t o do so would r e n d e r the company i n s o l v e n t . ' The s e c t i o n makes no p r o v i s i o n f o r c o s t s o f the p r o c e e d -i n g , i n t e r e s t or v a l u e t o be g i v e n f o r the s h a r e s . Nor does i t have any p r o v i s i o n s f o r w i t h d r a w a l o f the demand once i t has been s u b m i t t e d . I f the a c t i o n i s not c a r r i e d .out, the r i g h t s o f the s h a r e h o l d e r under the d i s s e n t p r o v i s i o n c e a s e s , but no p r o v i s i o n s f o r r e s t o r i n g him t o h i s r i g h t s are g i v e n . What the r i g h t s o f 98 the s h a r e h o l d e r a r e d u r i n g the p e r i o d between g i v i n g h i s d i s s e n t and the purchase o f h i s s h a r e s i s not s p e c i f i e d . THE CHOICE OF THE COMMITTEE The d e c i s i o n o f the C o r p o r a t e L e g i s l a t i o n Committee t o i n c l u d e a d i s s e n t p r o c e d u r e has a l r e a d y been d i s c u s s e d . The terms i n w h i c h the new p r o c e d u r e was d r a f t e d r e p r e s e n t a compro-mise between the s i m p l i c i t y o f the O n t a r i o p r o v i s i o n s w h i c h l e a v e many q u e s t i o n s unanswered and the s t r i c t l y d e f i n e d p r o c e d u r e s o f the A m e r i c a n - F e d e r a l p r o p o s a l s w h i c h p r o v i d e many p i t f a l l s v/here the unwary may l o s e h i s r i g h t s . Thus t h e r e are few time l i m i t s i n the B.C. p r o v i s i o n s , but problems such as the e f f e c t o f a n t i c -i p a t e d v o t i n g on the v a l u e of the s h a r e s , the r i g h t s o f a d i s -s e n t i n g s h a r e h o l d e r w h i l e w a i t i n g f o r payment, and re m o v a l o f the r e s t r i c t i o n s on the d i s s e n t i n g member's r i g h t s i f f o r some r e a s o n he i s d i s s e n t i t l e d t o d i s s e n t a r e d e a l t w i t h . C o r r e s p o n d i n g t o r e l a t i v e s i m p l i c i t y o f pr o c e d u r e i n the B.C. Act compared w i t h the A m e r i c a n , i s the f a r g r e a t e r d i s c r e -t i o n and scope g i v e n t o the c o u r t under s. 228. N e i t h e r t h e award o f c o s t s nor i n t e r e s t i s mentioned i n the s e c t i o n , but the Court i s g i v e n a g e n e r a l power t o "make such c o n s e q u e n t i a l o r d e r s and g i v e such d i r e c t i o n s as i t c o n s i d e r s a p p r o p r i a t e . " ^ As observed i n Chapter IV of t h i s p aper, a d e s i r e t o make a s e l f -r e g u l a t i n g companies a c t , combined w i t h an i n c r e a s e i n power and p r o t e c t i o n t o the s h a r e h o l d e r s i s l i k e l y t o expand the d i s c r e t i o n 99 and powers of the C o u r t s , j u s t as s e l f - r e g u l a t i o n combined w i t h a c o n v i c t i o n t h a t d i r e c t o r s s h o u l d g e n e r a l l y have complete c o n t r o l 62 over c o r p o r a t e a f f a i r s i s l i k e l y t o c o n s t r i c t t h e i r powers. Moreover, i f p r o c e d u r a l r u l e s a r e t o be k e p t t o a minimum, so t h a t the a c t can be u s e d , a t l e a s t i n some c i r c u m s t a n c e s , by 63 those v/ithout p r o f e s s i o n a l a d v i c e , some mechanism must be p r o -v i d e d t o work out n e c e s s a r y d e t a i l s , such as i n t e r e s t p a y a b l e and c o s t s , on a r e a s o n a b l y j u s t b a s i s i n each i n d i v i d u a l c a s e . The c o u r t s are q u i t e accustomed t o b e i n g a s s i g n e d s u c h t a s k s . The g e n e r a l p a t t e r n o f s. 228 appears t o be t o c o n f i n e the time l i m i t s and p r o c e d u r a l i n t r i c a c i e s t o the main p o i n t o f g e t t i n g the v a l u e f o r the s h a r e s and l e a v e s u r r o u n d i n g problems t o be s o l v e d by the c o u r t s . But i n d e a l i n g w i t h the bare p r o c e d u r e , the B.C. A c t un-d e n i a b l y has numerous f a u l t s . The b a s i c scheme i s , a l t h o u g h somewhat pared down, a system of n o t i c e s and c r o s s - n o t i c e s l i k e the American system. However, i n the B.C. A c t , many of the t r i g -g e r i n g t r a n s a c t i o n s have d i f f e r e n t time l i m i t s i n which the s h a r e h o l d e r must f i r s t f i l e h i s n o t i c e of d i s s e n t . F o r a s a l e , 64 f o r example, the n o t i c e must be f i l e d two days b e f o r e the v o t e . I n case of an amalgamation, the s h a r e h o l d e r has u n t i l f i v e days 65 a f t e r the agreement has been adopted t o f i l e h i s n o t i c e . P a r -t i c u l a r l y i n these t r a n s a c t i o n s , t h e r e seems no r a t i o n a l e x p l a n a -t i o n f o r the d i f f e r e n c e . The undue h a r d s h i p imposed on the company by a l l o w i n g i t t o a c t b e f o r e i t i s aware of p o s s i b l e 100 d i s s e n t e r s has been mentioned. Moreover, a l t h o u g h the CBA com-ments persuaded the Committee t o enumerate the t r i g g e r i n g t r a n s -a c t i o n s i n s. 228, the t i m e s w i t h i n w h i ch the n o t i c e s o f d i s s e n t must be f i l e d a re l e f t i n the s e c t i o n s d e s c r i b i n g the t r a n s -a c t i o n s . S u r e l y c l a r i t y would be much a i d e d by p l a c i n g a l l t h e p r o c e d u r a l r e q u i r e m e n t s f o r d i s s e n t i n the same s e c t i o n , even i f t h a t i n v o l v e d r e p e a t i n g them. E x c e s s i v e r e p e t i t i o n may n o t be good l i t e r a r y s t y l e , but i t i s a u s e f u l and n e c e s s a r y d r a f t i n g t e c h n i q u e , p a r t i c u l a r l y when the s t a t u t e i s d i r e c t e d t o the l a y -66 man. These f l a w s a r e not c o n s i s t e n t w i t h the Committee's c r i t -67 e r i a of c l a r i t y and s i m p l i c i t y . However, p e r f e c t c l a r i t y i n d r a f t i n g can not be ex p e c t e d from a Committee w i t h o t h e r r e s p o n -s i b i l i t i e s and demands on t h e i r t i m e . W i t h i n t h e i r c o n c e p t s o f the c o r p o r a t i o n and t h e i r own demands f o r s i m p l i c i t y , the C o r p o r a t e L e g i s l a t i o n Committee has produced a m e a n i n g f u l remedy 68 f o r the s h a r e h o l d e r . 101 FOOTNOTES, CHAPTER V "''Companies A c t , S t a t s . B.C., 1973, c. l 8 , h e r e a f t e r r e f e r r e d to as s. 2 2 8 , or the B.C. d i s s e n t p r o c e d u r e . Companies A c t , S t a t s . B.C., 1973, c. l 8 . The p r e -emptive r i g h t , see Chapter V. 3 D e p a r t m e n t a l Study R e p o r t o f the Department o f the A t t o r n e y - G e n e r a l o f B r i t i s h C o l u m b i a , 1971-4 B i l l 66, 1972. 5 I b i d _ L 6 s . 24?V.Bill 66. 7 s . 269, B i l l 66. o s. 275, B i l l 66. 9 s . 315, B i l l 66. 1 0 s . 232 ( 9 ) ( b ) . '"'""'"Study R e p o r t o f the C o r p o r a t e L e g i s l a t i o n Committee o f the Canadian Bar A s s o c i a t i o n , B.C. B r a n c h , 1972. 1 2 s . 228 ( 4 0 ( b ) . "^Companies A c t , S t a t s . B.C., 1973, c. 18. The s e c t i o n had the same numering i n B i l l 66. 14 Supra, f o o t n o t e 3. The Comments are l i s t e d i n the body of the Report by the s e c t i o n numbers t o which they r e l a t e . Com-ments of t h i s Committee w i l l be l i s t e d here by the s e c t i o n numbers i n whose d i s c u s s i o n they appear. 1 5 I b i d J _ "^Chapter IV, I n t r o d u c t i o n . 17 F o r example, see Lee H. P a r r i s h , C o r p o r a t i o n s -S t o c k h o l d e r s , A p p r a i s a l R i g h t s , (1966), 35 U. C i n . L.R. 704. l8 L. James McDonough, The A p p r a i s a l Remedy f o r D i s s e n t i n g S h a r e h o l d e r s i n Iowa and the De F a c t o Merger D o c t r i n e : R a t h v. Rat h P a c k i n g Company (1966-68) 16-17 Drake L.R. 22. 102 1 9 I b i d . , p. 25. 20 See Chapter I V , The C r i t e r i a S e l e c t e d , p a r a . (4), i d e a ( h ) . 21 Supra, f o o t n o t e 3, comments on s. 232. 22 I b i d . 23 B a l l a n t i n e , Q u e s t i o n s of P o l i c y i n D r a f t i n g a Modern C o r p o r a t i o n Law, (1931), 19 C a l i f . L.E. 465, a t p. 482. 24 The Model B u s i n e s s C o r p o r a t i o n A c t A n n o t a t e d , 2d. ed., V o l . I I , Committee on C o r p o r a t e Laws, 1971, P- ^35, Comments on s. 80. 25 Comment, D i s s e n t i n g S t o c k h o l d e r s — E i g h t t o Demand Purchase o f S h a r e s — N . Y . S t o c k Corp. Law, (1955), 1 N.Y.L.F. 80. A l s o see Manning's a r t i c l e , I n f r a , f o o t n o t e 27-26 . . As i n the case c o m b i n a t i o n K e l l e r t o Havender t o H o t t e n s t e i n ' d i s c u s s e d by B a y l e s s Manning, S h a r e h o l d e r ' s A p p r a i s a l Remedy, (1962), 72 Y a l e Law J o u r n a l 223 at p. 227-28. 27 Manning, op. c i t . , p. 230. I b i d . 2 9 C o m p a n i e s A c t , E.S.B.C. I960, c. 67-?°Ibid. ^ 1 I b i d . 5 2 I b i d . 5 5 I b i d . 34 s. 22 ( l ) ( l ) . s. 22 (1) p r o v i d e d t h a t a company had these a n c i l l i a r y powers u n l e s s t h e y were s p e c i f i c a l l y e x c l u d e d . 35 See Chapter V, f o o t n o t e s 20-23. ^ S u p r a , f o o t n o t e 29, F i r s t S c h e d u l e , T a b l e A, s. 56. 3 7 I b i d . , s. 225 (2) o f the A c t . 38 Comment: C o r p o r a t i o n s — E e o r g a n i z a t i o n , (1966), 51 Iowa L. Eev. 1096 a t p. 1101. 103 39 S u p r a , f o o t n o t e 27, a t p..233-I b i d . 4 l Comment: R i g h t o f S h a r e h o l d e r s D i s s e n t i n g from C o r p o r a t e C o m b i n a t i o n s t o Demand Cash Payment f o r T h e i r S h a r e s , (1959), 72 Harv. L.R. 1132 a t p. 114-3. 42 Supra, f o o t n o t e 27, a t p. 246. 43 " I b i d . 44 . Supra, f o o t n o t e 24. N e a r l y a l l American j u r i s d i c t i o n s i n c l u d e merger. The t r i g g e r i n g t r a n s a c t i o n s f o r each s t a t e a r e found i n the American Model A c t . 45 A g a i n , the q u e s t i o n i s : What i s i n h e r e n t l y n a t u r a l t o a c o r p o r a t i o n ? 46 See Chapter IV, L i m i t a t i o n s on the C r i t e r i a . 47 Supra, f o o t n o t e 24, s. 80 and s. 8 l . 48 B u s i n e s s C o r p o r a t i o n A c t , R.S.O. 1 9 7 0 , c. 5 3 , s. 1 0 0 . ^9 P r o p o s a l s f o r a. New B u s i n e s s C o r p o r a t i o n Law f o r Canada ( 1 9 7 D , P a r t I I , s. 14 . 1 7 . 50 S u p r a , .footnote 24. 51 I b i d . , s. 8 l . There i s no time l i m i t on t h i s n o t i c e as l o n g as i t i s s u b m i t t e d b e f o r e the meeti n g . 5 2 I b i c L , s. 8 1 . 53 As mentioned m the comments f o l l o w i n g the s e c t i o n . 54 These p r o v i s i o n s a r e a l l i n c l u d e d i n the Model A c t , s u p r a , f o o t n o t e 24, s. 8 l . 55 Supra, f o o t n o t e 4 9 . B.C.'s p r o v i s i o n i s the o n l y one of t h e s e d i s c u s s e d a c t u a l l y t o g i v e the d i s s e n t i n g s h a r e h o l d e r the r i g h t s o f a c r e d i t o r . Nevada i s , a c c o r d i n g t o Z a b r i s k i e , A p p r a i s a l S t a t u t e , an A n a l y s i s o f Modern Trends ( 1 9 5 2 ) 38 Va. L.R. 915 the o n l y American S t a t e t o t a k e . t h i s v i e w . Other approaches t o s e c u r i n g the d i s s e n t e r ' s r i g h t t o payment are d i s -c u s s e d by him at p. 9 2 8 . 104 56 The s e c t i o n r e a d s "14.17 (4) A d i s s e n t i n g s h a r e h o l d e r may not c l a i m under t h i s s e c t i o n w i t h r e s p e c t t o l e s s t h a n a l l • the s h a r e s o f a c l a s s r e g i s t e r e d i n h i s name and h e l d on b e h a l f o f any one b e n e f i c i a l owner." 57 S u p r a , f o o t n o t e 48. 58 The c o r p o r a t e myth does not d i s t i n g u i s h i n n a t u r e , i t w i l l be r e c a l l e d , between p r i v a t e and p u b l i c , c o r p o r a t i o n s . They b o t h share the n a t u r e o f " c o r p o r a t e n e s s " . 59 F o r a d i s c u s s i o n o f the n e g a t i v e v o t e i n American j u r i s d i c t i o n s see Z a b r i s k i e , s u p r a , f o o t n o t e 55 a"t p- 922. ^ I n American j u r i s d i c t i o n s w i t h t h i s problem, e l a b o r a t e " k i c k o u t " p r o v i s i o n s are i n s e r t e d i n i n t r a - c o r p o r a t e agreements t o p r o v i d e f o r c i r c u m s t a n c e s where t h e r e a r e t o o many d i s s e n t e r s t o make the a c t i o n f e a s i b l e . . 6 l s . 228 ( 4 ) ( d ) . 62 See Chapter I V , C r i t e r i a S e l e c t e d f o r the d i s c u s s i o n o f the Committee's c r i t e r i o n o f s e l f - r e g u l a t i o n . 63 T h i s c o n t i n g e n c y was, i t w i l l be r e c a l l e d , s p e c i f i c a l l y mentioned i n the c r i t e r i a . 6 4 b V 149 (5). 6 5 s . 270 (3). ^ S e e D i c k e r s o n , Fundamentals o f L e g a l D r a f t i n g . ^ C r i t e r i a S e l e c t e d , C h a p t e r IV, i d e a s (6) and ( h ) . 68 " M e a n i n g f u l " , a t l e a s t , w i t h i n the Committee's own terms o f reference.. 105 CHAPTER VI COMPANY MANAGEMENT AND DUTY OF DIRECTORS TO DISCLOSE THEIR INTEREST IN CONTRACTS BEFORE THE BOARD THE HISTORY OF S. 1^3, l M f , AND ik^1 A r e q u i r e m e n t t h a t d i r e c t o r s d i s c l o s e any i n t e r e s t , d i r e c t or i n d i r e c t , t h a t t h e y had i n any c o n t r a c t proposed f o r 2 t h e i r company was found i n the o l d B.C. Companies A c t . D i s c l o -s u r e o f the n a t u r e o f t h i s i n t e r e s t was t o be made t o t h e boar d e i t h e r a t the f i r s t meeting a t which t he c o n t r a c t was d i s c u s s e d o r , i f he was not then i n t e r e s t e d , a t the f i r s t meeting a f t e r he became i n t e r e s t e d . A g e n e r a l n o t i c e t h a t the d i r e c t o r was a member o f any s p e c i f i e d company or f i r m and was t o be t a k e n as i n t e r e s t e d i n any o f t h e i r c o n t r a c t s , was t o be a s u f f i c i e n t k d e c l a r a t i o n of i n t e r e s t . However, t h i s d u t y was i n a d d i t i o n t o , not i n d e r o g a t i o n from, the g e n e r a l common lav; r u l e s r e g a r d i n g 5 i n t e r e s t e d d i r e c t o r s c o n t r a c t s . T h i s s e c t i o n was worded i n much the same way as the r e q u i r e m e n t f o r d i s c l o s u r e o f i n t e r e s t i n c l u -ded i n the E n g l i s h a c t of 1929. The new a c t i n s. 14-3 does l i t t l e more than c l a r i f y t h e o l d r u l e . I t p r o v i d e s t h a t the n a t u r e and e x t e n t o f the i n t e r e s t be d i s c l o s e d , not merely the n a t u r e . Whether or not t h i s a l t e r a -t i o n makes any change i n the s u b s t a n t i v e e f f e c t o f the law i s 7 d e b a t a b l e , but i t does c l a r i f y t o some e x t e n t , the q u e s t i o n o f 106 how much must be d i s c l o s e d . However, the g e n e r a l n o t i c e p r o v i s -i o n has not been s i g n i f i c a n t l y a l t e r e d by the new a c t . Thus, i n many c a s e s , s i m p l e d i s c l o s u r e of membership i n a p a r t i c u l a r com-pany v / i l l be s u f f i c i e n t t o s a t i s f y the s e c t i o n and' an i n c r e a s e i n d i s c l o s u r e r e q u i r e m e n t s from " n a t u r e " t o " n a t u r e and e x t e n t " w i l l be m e a n i n g l e s s . Other o b j e c t i o n a b l e a s p e c t s of the d i s c l o s u r e s e c t i o n t h a t have been u n f a v o u r a b l y commented upon by w r i t e r s g l i k e Gower have a l s o remained. Thus, d i s c l o s u r e i s s t i l l made t o a d i r e c t o r ' s " c r o n i e s " on the b o a r d , and not t o h i s f i d u c i a r y , the company as a whole. In two s p e c i f i c c i r c u m s t a n c e s , the new a c t d e c l a r e d - t h e d i r e c t o r t o be deemed, not to be i n t e r e s t e d , presumably because i n the two s i t u a t i o n s named, t h e r e i s no c o n f l i c t between the i n t e r -e s t s o f the tv/o p a r t i e s i n v o l v e d . Both when the company i n w h i c h he has an i n t e r e s t has g u aranteed repayment o f a l o a n made t o the company o f which he i s a d i r e c t o r and the t r a n s a c t i o n proposed r e l a t e s t o t h a t l o a n and when the company i n v/hich he has an i n t e r e s t i s a h o l d i n g company or s u b s i d i a r y of which he i s a l s o a d i r e c t o r , and the t r a n s a c t i o n proposed i s w i t h t h a t company, a c t u a l c o n f l i c t s o f i n t e r e s t w i l l be r a r e . 9 The new a c t adds s e c t i o n s m i t i g a t i n g the common l a w , r e l a t i n g both t o the a c c o u n t a b i l i t y of the d i r e c t o r s f o r p r o f i t s made i n t r a n s a c t i o n s i n w h i ch t h e y have an i n t e r e s t and t o the v a l i d i t y o f the impugned c o n t r a c t . The changes made by t h e s e s e c t i o n s w i l l be d i s c u s s e d i n the n ext s e c t i o n o f t h i s c h a p t e r . 107 T h i s c h a p t e r w i l l p r i m a r i l y d e a l w i t h an assessment o f s. 143, and not the d i r e c t o r s ' l i a b i l i t y s e c t i o n 144, and 145, the s e c -t i o n a f f e c t i n g the v a l i d i t y o f the c o n t r a c t . However, because bo t h v a l i d i t y of the c o n t r a c t and d i r e c t o r s ' a c c o u n t a b i l i t y f o r p r o f i t s a r e brought i n t o q u e s t i o n by the g e n e r a l t o p i c o f i n t e r -e s t e d d i r e c t o r s , and bot h are i n e x t r i c a b l y t i e d t o the d u t y o f d i s c l o s u r e , many r e f e r e n c e s w i l l be made t o these s e c t i o n s . " ^ . There i s no s u b s t a n t i a l d i f f e r e n c e between the s e c t i o n s 143, 144 and 145 and the c o r r e s p o n d i n g s e c t i o n s i n B i l l 66. T h i s was i n s p i t e o f o b j e c t i o n s by the Canadian. Bar A s s o c i a t i o n 12 b r i e f , r e q u e s t i n g a r e t h i n k i n g o f s. 143, and an a l t e r a t i o n o f the " f a i r and r e a s o n a b l e " p r o v i s i o n s o f s. 144 on the model o f the F e d e r a l P r o p o s a l s d i s c u s s e d below i n the s e c t i o n on F i e l d o f C h o i c e . ' S. 145 was a l s o c r i t i c i z e d by the CBA as l i k e l y - t o be p r o d u c t i v e o f l i t i g a t i o n . Once a g a i n , the Committee's r e a c t i o n t o t h e s e comments was p r e d i c t a b l e . These o b j e c t i o n s a r e d i f f e r -ent i n n a t u r e from those d i s c u s s e d i n e a r l i e r c h a p t e r s o f t h i s t h e s i s t o which the Committee responded f a v o u r a b l y . They do not d e a l w i t h o m i s s i o n s or o v e r s i g h t s o f the Committee, nor w i t h t e c h n i c a l changes, nor w i t h s l i g h t a l t e r a t i o n s i n an a c c e p t a b l e g e n e r a l scheme. They are a l l g e n e r a l c r i t i c i s m s , r e q u i r i n g , i f a c c e p t e d , an "about f a c e " by the Committee on m a t t e r s w hich t h e y had a l r e a d y d e c i d e d . G i v e n a Committee w i t h a f i x e d c r i t e r i a f o r change, major a l t e r a t i o n s i n d e c i s i o n s a l r e a d y made i n a c c o r d a n c e w i t h those c r i t e r i a are u n l i k e l y . D i r e c t i o n s w i t h p o l i c y 108 i m p l i c a t i o n s must r e a c h the Committee, i t seems, b e f o r e t h e y Ik f o r m u l a t e t h e i r own c r i t e r i a . O t h e r w i s e , u n l e s s the c r i t i c i s m s are made i n such a way as t o c o n v i n c e the Committee t h a t the new s u g g e s t i o n s are more i n a c c o r d w i t h the e s t a b l i s h e d c r i t e r i a , they may b e . r e j e c t e d . Other c r i t i c i s m s o f the Canadian Bar A s s o c i a t i o n d i s c u s s e d p r e v i o u s l y , i l l u s t r a t e one a s p e c t o f t h i s p r o p o s i t i o n . They were e x p r e s s e d i n terms o b v i o u s l y p r o m o t i n g 15 the c r i t e r i a a c c e p t e d by the Committee. The comments on t h e s e s e c t i o n s were n o t , and, p r e d i c t a b l y , t h e y were i g n o r e d . The new s e c t i o n s d e a l i n g w i t h i n t e r e s t e d d i r e c t o r s a r e f o r c o n venience o f r e f e r e n c e set- out as follows': 14-5. ( l ) E v e r y d i r e c t o r of a company who i s , i n any way, d i r e c t l y or i n d i r e c t l y i n t e r e s t e d i n a proposed c o n t r a c t or t r a n s a c t i o n w i t h the company s h a l l d i s -c l o s e the n a t u r e and e x t e n t o f h i s i n t e r e s t a t a meeting o f d i r e c t o r s . (2) The d i s c l o s u r e r e q u i r e d by s u b s e c t i o n ( l ) s h a l l . b e made (a) a t the meeting at which a proposed c o n t r a c t o r t r a n s a c t i o n i s f i r s t c o n s i d e r e d ; or (b) i f the d i r e c t o r was n o t , a t the time o r the meeting r e f e r r e d t o i n c l a u s e (a) , i n t e r e s t e d i n a proposed c o n t r a c t or t r a n s a c t i o n , a t the f i r s t m eeting a f t e r he becomes i n t e r e s t e d ; o r ( c ) a t the f i r s t meeting a f t e r the r e l e v a n t f a c t s come t o h i s knowledge. (3) F o r the purpose o f t h i s s e c t i o n , a g e n e r a l n o t i c e i n w r i t i n g g i v e n by a d i r e c t o r o f a company t o the o t h e r d i r e c t o r s o f the company t o the e f f e c t t h a t he i s a member, d i r e c t o r , or o t h e r o f f i c e r o f a s p e c i f i e d c o r p o r a t i o n , o r t h a t he i s a p a r t n e r i n , or owner o f , a s p e c i f i e d f i r m , i s a s u f f i c i e n t d i s -c l o s u r e o f i n t e r e s t t o comply w i t h t h i s s e c t i o n . 109 (k) A d i r e c t o r o f a company s h a l l be deemed not t o be i n t e r e s t e d or not t o have been i n t e r e s t e d a t any time i n a proposed c o n t r a c t or t r a n s a c t i o n by r e a s o n o n l y , (a) where the proposed c o n t r a c t or t r a n s a c t i o n r e l a t e s t o a l o a n t o the company t h a t he or a s p e c i f i e d c o r p o r a t i o n or s p e c i f i e d f i r m i n which he has an i n t e r e s t has gu a r a n t e e d or j o i n e d i n g u a r a n t e e i n g the repayment o f the l o a n or any p a r t o f the l o a n ; or (b) where the proposed c o n t r a c t o r t r a n s a c t i o n has been or w i l l be made w i t h , o r f o r the b e n e f i t o f , a h o l d i n g c o r p o r a t i o n or a s u b s i d i a r y c o r p o r a t i o n , t h a t he i s a d i r e c t o r o f t h a t c o r p o r a t i o n . (1) E v e r y d i r e c t o r r e f e r r e d t o i n s u b s e c t i o n ( l ) o f s e c t i o n 143 s h a l l a c c o u n t t o the company f o r any p r o f i t made as a consequence o f the company e n t e r -i n g i n t o or p e r f o r m i n g the proposed c o n t r a c t or t r a n s a c t i o n , u n l e s s (a) he d i s c l o s e s h i s i n t e r e s t as r e q u i r e d by s e c t i o n 1^3; (b) a f t e r h i s d i s c l o s u r e the proposed c o n t r a c t or t r a n s a c t i o n i s approved by the d i r e c t o r s ; and ( c ) he a b s t a i n s from v o t i n g on the a p p r o v a l o f the p r o -posed c o n t r a c t or t r a n s a c t i o n ; or u n l e s s (d) the c o n t r a c t o r t r a n s a c t i o n was r e a s o n a b l e and f a i r t o the company at the time i t was e n t e r e d i n t o ; and (e) a f t e r f u l l d i s c l o s u r e ' o f the n a t u r e and e x t e n t o f h i s i n t e r e s t t h e r e i n i t i s approved-by s p e c i a l r e s o l u t i o n . (2) U n l e s s the a r t i c l e s o t h e r w i s e p r o v i d e , a d i r e c t o r r e f e r r e d t o i n s u b s e c t i o n ( l ) o f s e c t i o n 143 s h a l l not be counted i n the quorum a t any meeting o f the d i r e c t o r s a t which the proposed c o n t r a c t or t r a n s -a c t i o n i s approved. 110 14-5. The circumstance that a d i r e c t o r i s , i n any way, d i r -e c t l y or i n d i r e c t l y i n t e r e s t e d i n a proposed c o n t r a c t -or t r a n s a c t i o n , or a c o n t r a c t or t r a n s a c t i o n w i t h the company s h a l l not make the c o n t r a c t or t r a n s a c t i o n i n v a l i d , but, i f the matters r e f e r r e d to i n c l a u s e s ( a ) , ( b ) , and ( c ) , or i n c l a u s e s (d) and ( e ) , of sub-s e c t i o n ( l ) of s e c t i o n lkk have not oc c u r r e d , the Court may, upon the a p p l i c a t i o n of the company or any i n t e r -ested person, e n j o i n the company from e n t e r i n g i n t o the proposed c o n t r a c t or t r a n s a c t i o n , or set a s i d e the con-t r a c t or t r a n s a c t i o n , or make any other order t h a t i t c o n s i d e r s a p p r o p r i a t e . THE BACKGROUND OF S. 1^3, lMf AND lk3 At Common law, d i r e c t o r s , i t w i l l be r e c a l l e d , had a p o s i t i o n somewhat analogous to a t r u s t e e . At l e a s t , l i k e a t r u s -t e e , they stood i n a f i d u c i a r y p o s i t i o n to t h e i r company as a l 6 t r u s t e e d i d to h i s c e s t u i que t r u s t . T h i s duty was e a r l y i n t e r p r e t e d to mean t h a t a company was e n t i t l e d t o the d i s i n t e r -ested o p i n i o n s of i t s d i r e c t o r s , and d i r e c t o r s were thereby p r o -h i b i t e d from p l a c i n g themselves i n s i t u a t i o n s where t h e i r p e r s o n a l i n t e r e s t s c o u l d or d i d c o n f l i c t w i t h those of t h e i r 17 f i d u c i a r i e s . The s i t u a t i o n s of p o s s i b l e c o n f l i c t , i n which the d i r e c t o r i s s a i d to be " i n t e r e s t e d " are many. They cover such i n t e r e s t s as " i n t e r e s t i n p r o p e r t y on the s e c u r i t y of which a company proposes to make a loan to o u t s i d e r s and an-y s h a r e h o l d e r s i n a c o r p o r a t i o n with which the company i n q u e s t i o n wishes to l 8 c o n t r a c t " as w e l l as the obvious cases where the c o n t r a c t i s 19 made d i r e c t l y with the d i r e c t o r . • The consequences of e n t e r i n g i n t o a c o n t r a c t where one or more of the c o n t r a c t i n g company's d i r e c t o r s were thus " i n t e r e s t e d " I l l were s e v e r e f o r everyone. U n l e s s t h e r e were some p r o v i s i o n s t o the c o n t r a r y i n the a r t i c l e s , the c o n t r a c t c o u l d be i n v a l i d . I f i t had been a u t h o r i z e d a t a meeting o f d i r e c t o r s where t he i n t e r -e s t e d d i r e c t o r was needed t o make up a quorum, then i t was not 20 p r o p e r l y a u t h o r i z e d and was i n v a l i d . I f i t had been approved by a m a j o r i t y o f a quorum o f d i s i n t e r e s t e d d i r e c t o r s , t h e n t h e 21 company.could, a t i t s o p t i o n , v o t e t o s e t the c o n t r a c t a s i d e . The company c o u l d , of c o u r s e , e l e c t t o a f f i r m the c o n t r a c t or i t ' 22 c o u l d be estopped from r e c i s s i o n by a c q u i e s c e n c e i n i t . An a f f i r m a t i o n o f the c o n t r a c t by m a j o r i t y v o t e was v a l i d as l o n g as 23 the a c t i o n was not o p p r e s s i v e . And, s i m p l y because the major-i t y s h a r e h o l d e r was a l s o the i n t e r e s t e d d i r e c t o r d i d not make the • 2 4 a c t i o n o p p r e s s i v e . The p o s i t i o n o f the i n t e r e s t e d ' d i r e c t o r was s i m p l e r , but t h a t was l i t t l e s o l a c e . He was a c c o u n t a b l e f o r a l l p r o f i t s made 25 by him because o f the c o n t r a c t . N e i t h e r d i s c l o s u r e o f h i s i n t e r e s t nor f a i l u r e t o vote on the q u e s t i o n o f the c o n t r a c t ' s a d o p t i o n nor even s t a y i n g away from the meeting a l t o g e t h e r 26 r e l i e v e d him o f t h i s l i a b i l i t y . And, as the P r i v y C o u n c i l h e l d 27 i n Gray v. New A u g a r i t a P o r c u p i n e M i n e s , "even i f the c o n t r a c t i s not a v o i d e d , whether because the company e l e c t s t o a f f i r m i t or because c i r c u m s t a n c e s have r e n d e r e d i t i n c a p a b l e o f r e c i s s i o n , the d i r e c t o r remains a c c o u n t a b l e t o the company f o r any p r o f i t t h a t he may have r e a l i z e d by the d e a l . " These r u l e s were abso-l u t e and d i d not depend on any c o n s i d e r a t i o n of the f a i r n e s s o f 112 the c o n t r a c t . The a b i l i t y o f the company t o make i t s own arrangements t h r o u g h p r o v i s i o n s i n i t s a r t i c l e s t o a l t e r or e l i m i n a t e t h e s e consequences has been mentioned. L o r d . B a d c l i f f e i h Gray^^ was f o l l o w i n g w e l l e s t a b l i s h e d a u t h o r i t y when he s a i d , d e s c r i b i n g t h e e f f e c t s o f an i n t e r e s t e d c o n t r a c t , t h a t " i t i s open t o companies t o make such p r o v i s i o n s as they p l e a s e f o r the purpose o f m o d i f y -31 i n g the i n c i d e n c e o f t h i s g e n e r a l p r i n c i p l e . " A r t i c l e s e x c e p t i n g d i r e c t o r s from l i a b i l i t y f o r any c o n t r a c t s i n w h i c h the y had an i n t e r e s t and v a l i d a t i n g a l l such c o n t r a c t s became w i d e s p r e a d . I n 1929M "they were so p r e v a l e n t , and t o su c h wide e f f e c t t h a t i n E n g l a n d , the government i n t r o d u c e d the r e q u i r e m e n t t h a t d i r e c t o r s d i s c l o s e any i n t e r e s t i n c o n t r a c t s b e f o r e the ^2 b o a r d . J Whatever freedom the company's a r t i c l e s a l l o w e d i t s d i r e c t o r s , a t l e a s t the board would have t o be i n f o r m e d o f t h e adverse i n t e r e s t . But the d i s c l o s u r e s e c t i o n d i d not a l t e r the 33 law any f u r t h e r . I f the company's a r t i c l e s a l l o w e d d i r e c t o r s t o e n t e r i n t o c o n t r a c t s where t h e y had an i n t e r e s t , t h e n so l o n g as t h e y d i s c l o s e d the i n t e r e s t , the a r t i c l e s s t i l l g overned. I f t h e r e were no s p e c i a l p r o v i s i o n s i n the a r t i c l e s , d i s c l o s u r e o r n o t , the e q u i t a b l e r u l e s r e q u i r i n g an a c c o u n t i n g from the d i r e c -t o r and p e r m i t t i n g a v o i d a n c e o f the c o n t r a c t by the company were brought i n t o o p e r a t i o n s i m p l y by v i r t u e oi" a d i r e c t o r ' s i n t e r e s t . T h i s was the scheme t h a t was adopted i n B.C. and c o n t i n u e d i n f o r c e u n t i l the new a c t . 113 I n the U n i t e d S t a t e s , d i s c l o s u r e a l s o became a r e q u i r e -ment. However, t h e r e the duty to d i s c l o s e d e v e l o p e d t h r o u g h the case law and was a l l o w e d t o a f f e c t t he v a l i d i t y o f the impugned c o n t r a c t . The v a r i o u s s t a t e s d e v e l o p e d the c o n c e p t s r e l a t i n g t o i n t e r e s t e d d i r e c t o r s i n s e v e r a l ways. I n New Y o r k , the c o u r t s began i n 1865 w i t h the s t r i c t E n g l i s h r u l e s . By 1886, i t was e s t a b l i s h e d t h a t a c o n t r a c t w i t h d i r e c t o r i n t e r e s t was "repugnant t o the g r e a t r u l e o f law which i n v a l i d a t e s a l l such c o n t r a c t s . . . a t the e l e c t i o n o f the p a r t y . . . r e p r e s e n t e d . " T h i s 3 7 l i n e o f cases was never r e a l l y o v e r - r u l e d . However, by l895> a competing t e s t was e s t a b l i s h e d f o r d e t e r m i n i n g the b i n d i n g n a t u r e of the c o n t r a c t based on good f a i t h . A t h i r d t e s t , an examina-t i o n o f the f a i r n e s s o f the c o n t r a c t , was proposed by Judge 7 0 Cardozo, as he then was. In C a l i f o r n i a , on the o t h e r hand, t h e r e a r o s e a d i s t i n c t i o n between c o n t r a c t s made between compan-i e s w i t h i n t e r l o c k i n g d i r e c t o r s , w h i ch were v o i d o r v o i d a b l e , and c o n t r a c t s between the d i r e c t o r and .his c o r p o r a t i o n w h i c h , i f approved by a d i s i n t e r e s t e d m a j o r i t y , were v o i d a b l e o n l y i n the 39 event o f u n f a i r n e s s , u n r e a s o n a b l e n e s s or f r a u d . G e n e r a l l y , s t a n d a r d s o f f a i r n e s s were s u p p o r t e d i n d e t e r m i n i n g the v a l i d i t y ko of c o n t r a c t s m many American j u r i s d i c t i o n s . D i s c l o s u r e was a l s o i n t r o d u c e d and c o n s i d e r e d by the American c o u r t s i n a v a r i e t y o f ways. The b r e a k i n g o f the s t r i c t r u l e s by the vague " f a i r n e s s " t e s t l e f t the c o u r t s f r e e t o con-s i d e r a v a r i e t y o f f a c t o r s . I n d e t e r m i n i n g t h i s " f a i r n e s s " , case I l k law r e f e r r e d t o m a t t e r s such as whether the d i r e c t o r who was i n t e r e s t e d was a l s o the n e g o t i a t o r f o r h i s c o r p o r a t i o n ; whether or not the c o n s i d e r a t i o n g i v e n f o r the c o n t r a c t was adequate; whether or not the t r a n s a c t i o n was n e c e s s a r y t o the c o r p o r a t i o n ; kl and whether or not f u l l d i s c l o s u r e o f i n t e r e s t was.made. The r e l a t i o n s h i p between d i s c l o s u r e o f i n t e r e s t and the f a i r n e s s t e s t was e x p r e s s e d by H. C. B a r r a g a r i n the Oregon Law Review, p r o v i d -i n g an a c c u r a t e summary of most a u t h o r i t i e s , as f o l l o w s : The f a i r n e s s t e s t i s now f o l l o w e d by most c o u r t s i n e v a l -u a t i n g the conduct o f c o r p o r a t e d i r e c t o r s i n c o n f l i c t - o f - i n t e r e s t s i t u a t i o n s . As p r e v i o u s l y noted., i t s a p p l i c a t i o n has not been u n i f o r m . I t s use a l l o w s f l e x i b i l i t y i n c o r p o r a t e d e a l i n g s but g i v e s r i s e t o u n c e r t a i n t y i n some t r a n s a c t i o n s because o f i t s i n d e f i n i t e n e s s and s u b j e c t i v e n a t u r e . 'A d i r e c t o r i s d i s c o u r a g e d from p l a c i n g h i m s e l f i n a p o s i t i o n where h i s p e r s o n a l i n t e r e s t w i l l c o n f l i c t w i t h t h a t of the c o r p o r a t i o n o n l y t o the e x t e n t t h a t d i s c l o s u r e o f i n t e r e s t d i s c o u r a g e s s e l f - d e a l i n g . Even under the f a i r n e s s t e s t , the r e q u i r e m e n t o f d i s c l o s u r e i s g e n e r a l l y g i v e n p r o p h y l a c t i c a p p l i c a t i o n w i t h n o n d i s c l o s u r e i n v a l i d a t i n g a t r a n s a c t i o n , r e g a r d l e s s o f f a i r n e s s . D e c i s i o n s under the r u l e have been made on a c a s e - t o - c a s e b a s i s , and, w i t h . t h e p o s s i b l e e x c e p t i o n of the r e q u i r e m e n t of d i s c l o s u r e , t h e r e i s l i t t l e i n the way of c r y s t a l l i z e d s t a n d a r d s t o g u i d e the i n t e r e s t e d d i r e c -k2 t o r i n h i s c o n d u c t . I n E n gland (and B.C.) and i n the j u r i s d i c t i o n s o f the 115 U n i t e d S t a t e s , then, d i s c l o s u r e assumed some importance i n the lav/. D i s c l o s u r e of i n t e r e s t , i n England, was an added duty of the d i r e c t o r , but having no f u r t h e r e f f e c t ; i n most American j u r i s d i c t i o n s , i t became important at common law as a method of e n s u r i n g the v a l i d i t y of the c o n t r a c t i n q u e s t i o n . THE FIELD OF CHOICE FOR REFORM I f some a l t e r a t i o n s were to be made i n the law r e l a t i n g to d i r e c t o r s ' d i s c l o s u r e of i n t e r e s t as i t stood i n B.C., t h e r e were many models from which to choose. B a s i c a l l y , there were two p a t t e r n s . The Committee could do as the J e n k i n s Report recom-mended i n England and simply modify the d i r e c t o r s ' duty c o n f i n i n g the need f o r d i s c l o s u r e to m a t e r i a l i n t e r e s t s o n l y and e x t e n d i n g i t to i n t e r e s t s i n a l l c o n t r a c t s entered i n t o by the company whether or not they came before the board. The other a l t e r n a -t i v e was to f o l l o w the American approach and extend the r e s u l t s of d i s c l o s u r e to some scheme f o r the m o d i f i c a t i o n of the conse-quences at law of c o n t r a c t s where a member of the board had an i n t e r e s t . In the U n i t e d S t a t e s , t h i s approach developed by t h e i r c o u r t s was being c o d i f i e d with some a l t e r a t i o n s . In Canada, both O n t a r i o and the proposed F e d e r a l act were f o l l o w i n g the American s t y l e of p r o v i s i o n . In t h i s s e c t i o n , a few of the sug-gested forms of l e g i s l a t i o n w i l l be c o n s i d e r e d . k7 The American Model Act p r o p o s a l , while i t d i f f e r s i n some r e s p e c t s , from most of the s t a t e s ' l e g i s l a t i o n , has the same 116 basic pattern as them a l l . It deals s o l e l y with the v a l i d i t y of the contract made and disclosure i s required i n that context. Neither the f i n a n c i a l interest of a director i n a contract, nor the fact that he was present at the meeting at which the contract was authorized, approved or r a t i f i e d , nor the fact that his vote was counted at such meeting i s to make the contract either void or voidable i f one of three conditions e x i s t . The section w i l l only apply i f the i n t e r e s t was known to the approving board and the contract was approved by a s u f f i c i e n t vote without counting the vote or the interested director; or i f the interest i s known or disclosed to the shareholders e n t i t l e d to vote and they approve the contract; or i f the contract was f a i r and. reasonable to the company. The interested director may be counted in the quorum of 49 the approving meeting. The Federal proposals claim to be a melange of the pro-visions of New York, Delaware, C a l i f o r n i a and England. The American acts a l l have a basic structure l i k e the model act des-51 cribed above. The influence of the United Kingdom Act i s shown by the formulation of the section i n terms of a duty of d i r e c t o r s to d i s c l o s e . This i s s t i l l the major emphasis unlike the American statutes where the stress i s placed upon ways of assur-ing the contract's v a l i d i t y . This disclosure duty i s placed only upon directors who are parties to the contract or.have c e r t a i n specified interests i n any person who i s a party to the contract. These interests include being a d i r e c t o r or o f f i c e r of any 117 c o n t r a c t i n g company or having a m a t e r i a l i n t e r e s t i n the person 52 c o n t r a c t i n g . The r e s t r i c t i o n to " m a t e r i a l i t y " of i n t e r e s t 53 comes out of the Jenkins Committee recommendations. However, used i n t h i s way, these r e s t r i c t i o n s on d i s c l o s u r e to s p e c i f i e d s i t u a t i o n s may have l e f t a wide gap i n the law. The l a t e r pro-t e c t i o n s o f f e r e d by the s e c t i o n are only extended to the d i r e c -t o r s w i t h the i n t e r e s t s named i n the s e c t i o n . But the common law d i d not r e s t r i c t the a c c o u n t a b i l i t y of d i r e c t o r s to c o n t r a c t s in" which they had such important i n t e r e s t s . In 1927, f o r example, 54 i n the case of V i c t o r s Ltd. v. Lmgard, the e q u i t a b l e p r i n c i -p les were applied to d i r e c t o r s who issued a debenture to secure the company's debt which the d i r e c t o r s had guaranteed. No i n t e r -est r e q u i r i n g d i s c l o s u r e i n the F e d e r a l proposals i s here present. More g e n e r a l l y , even a t r i v i a l i n t e r e s t i n a c o n t r a c t , i f i t were of an adverse nature, would make the contract voidable and the 55 d i r e c t o r accountable f o r any p r o f i t s . Under the proposed Federal a c t , these consequences could s t i l l f o l l o w f o r such t r i v -i a l i n t e r e s t s that do not have to be d i s c l o s e d . Only i n t e r e s t s the s e c t i o n r e q u i r e d to be d i s c l o s e d and therefore only m a t e r i a l 56 i n t e r e s t s would be protected. The circumstances under which the e q u i t a b l e r u l e s w i l l not apply are the legacy from the American acts considered by the Federal proposals. A d i r e c t o r i s l i a b l e to account f o r p r o f i t s unless he has d i s c l o s e d h i s i n t e r e s t , the c o n t r a c t has then been approved by a majority of a d i s i n t e r e s t e d quorum of d i r e c t o r s and 1 1 8 the d i r e c t o r shows t h a t the c o n t r a c t was r e a s o n a b l e and f a i r t o the c o r p o r a t i o n when e n t e r e d i n t o by i t . These a r e t h e same c i r -cumstances as are u s u a l l y p r e s e n t i n the American s t a t u t e s , but the f i r s t tv/o and the l a s t a r e u s u a l l y a l t e r n a t i v e s . T h a t i s , the consequences are a v o i d e d i f t h e r e has been d i s c l o s u r e and d i s i n t e r e s t e d a p p r o v a l or i f the c o n t r a c t i s f a i r and r e a s o n a b l e . However, commentators seem t o agree t h a t when the e f f e c t o f the o l d law i n American j u r i s d i c t i o n s and the s t a t u t e a r e c o n s i d e r e d t o g e t h e r , f a i r n e s s o f the c o n t r a c t w i l l s t i l l be a c o n s i d e r a t i o n 5 7 even i f t h e r e has been d i s c l o s u r e . An u n f a i r c o n t r a c t , i t a p p e a r s , c o u l d not be r e l i e v e d from the f u l l e f f e c t s o f the o l d law even i f the d i r e c t o r had d i s c l o s e d h i s i n t e r e s t i n i t . I n Canada, where the p r i n c i p l e s were d i f f e r e n t b e f o r e - s t a t u t o r y m o d i f i c a t i o n , the p h r a s i n g o f the s e c t i o n i n terms s u c h as a r e found i n the American s t a t u t e s would mean t h a t d i s c l o s u r e would s u f f i c e t o r e l i e v e a d i r e c t o r o f the consequences o f the e q u i t -a b l e p r i n c i p l e s even i n the case o f an u n f a i r c o n t r a c t . T h i s would, o f c o u r s e , be s u b j e c t t o an a c t i o n a g a i n s t the d i r e c t o r by the company f o r g e n e r a l b r e a c h o f h i s d uty t o a c t i n good f a i t h 5 8 and i n the b e s t i n t e r e s t s o f t h e company. T h e r e f o r e , i t was thought n e c e s s a r y t o r e q u i r e the d i r e c t o r i n Canada t o e s t a b l i s h b o t h d i s c l o s u r e and r e a s o n a b l e n e s s " t o p r e c l u d e mutual back-s c r a t c h i n g by d i r e c t o r s who might o t h e r w i s e t a c i t l y agree t o 5 9 approve one a n o t h e r ' s c o n t r a c t s w i t h the c o r p o r a t i o n . " But a l t h o u g h t h i s a l t e r n a t i v e does r e s u l t i n an e f f e c t 119 v e r y l i k e the c o m b i n a t i o n o f American common law and s t a t u t e , the burden o f p r o o f i s d i f f e r e n t . Under the u n a l t e r e d A m erican case law, t h e r e was some doubt as t o who had the burden o f e s t a b l i s h -i n g f a i r n e s s or u n f a i r n e s s o f the c o n t r a c t . The most common s o l u t i o n s appeared t o be t h a t e i t h e r the d i r e c t o r had t o e s t a b -l i s h t h a t the c o n t r a c t was f a i r or t h a t i f some e v i d e n c e was g i v e n o f u n f a i r n e s s , t hen the d i r e c t o r had t o prove t h a t i t was f a i r . ^ The f i r s t o f t h e s e s i t u a t i o n s i s l i k e t h e p r e s e n t s o l u -t i o n o f the F e d e r a l p r o p o s a l s . However, when the American S t a t u t e s were i n t r o d u c e d , a l t h o u g h the d i s c l o s u r e duty was con-s i d e r e d not t o have e x c l u d e d c o n s i d e r a t i o n s o f f a i r n e s s , i t was o n l y to the e x t e n t t h a t d i s c l o s u r e would not save an u n f a i r con-t r a c t . Once d i s c l o s u r e was made, t h e r e f o r e , the company had t o e s t a b l i s h t h a t the c o n t r a c t was u n f a i r b e f o r e the e q u i t a b l e p r i n c i p l e s a p p l i e d . A l s o d i f f e r i n g from the American p a t t e r n i s the l a c k o f emphasis p l a c e d on the e f f e c t on the c o n t r a c t . The F e d e r a l p r o -p o s a l s c o n c e n t r a t e on r e l i e v i n g the i n t e r e s t e d d i r e c t o r o f h i s duty t o account f o r p r o f i t s , l e a v i n g t h e v a l i d i t y o f a c o n t r a c t almost t o an a f t e r t h o u g h t . The o n l y r e f e r e n c e t o the c o n t r a c t a t a l l i s s u b s e c t i o n (6) which p r o v i d e s t h a t where a d i r e c t o r has not c o m p l i e d w i t h the s e c t i o n , an i n t e r e s t e d p e r s o n may a p p l y t o the c o u r t which may s e t the c o n t r a c t a s i d e . A c c o r d i n g t o the comments on the s u b s e c t i o n , the purpose o f t h i s i s t o "ensure t h a t a c o n t r a c t b e n e f i c i a l t o the c o r p o r a t i o n w i l l not be 120 62 d e c l a r e d v o i d because of the i n t e r e s t of a d i r e c t o r . " A l s o a c c o r d i n g t o the comment " s u b s e c t i o n (6) makes i t c l e a r t h a t such c o n t r a c t i s v a l i d u n t i l the c o r p o r a t i o n or some i n t e r e s t e d p e r s o n 63 o p t s t o s e t the c o n t r a c t a s i d e . " I t i s suggested t h a t sub-s e c t i o n (6) has no such c l e a r e f f e c t . No mention a t a l l i s made of what happens t o the c o n t r a c t i f the d i r e c t o r does comply w i t h the s e c t i o n . At common law, the e q u i t a b l e p r i n c i p l e o f v o i d -a b i l i t y a p p l i e d d e s p i t e d i s c l o s u r e , f a i r n e s s or a p p r o v a l by the -6k d i r e c t o r s . • Only a p p r o v a l by t h e • s h a r e h o l d e r s c o u l d save i t . N o t h i n g i n the s e c t i o n a b r o g a t e s t h i s e f f e c t . Nor i s t h e . c o u r t g i v e n the e x c l u s i v e power t o s e t such c o n t r a c t s a s i d e . Whether the d i r e c t o r has or has not c o m p l i e d w i t h the s e c t i o n , n o t h i n g p r e c l u d e s the s h a r e h o l d e r s from v o t i n g themselves t o a v o i d the c o n t r a c t . S u b s e c t i o n (6) might w e l l be i n t e r p r e t e d s i m p l y as g i v i n g a d d i t i o n a l a u t h o r i t y to a v o i d the c o n t r a c t t o the c o u r t . L i k e the E n g l i s h s e c t i o n , the F e d e r a l p r o p o s a l s a p p l y even t o c o n t r a c t s not r e q u i r i n g a p p r o v a l by the s h a r e h o l d e r s or the board and t h e r e i s a p r o v i s i o n f o r g e n e r a l d i s c l o s u r e by a g e n e r a l n o t i c e of i n t e r e s t i n a company. 65 The O n t a r i o p r o v i s i o n s borrow s i m i l a r l y from b o t h the American and E n g l i s h . L i k e the F e d e r a l p r o p o s a l s , they ar e f o r -mulated i n t o a d i s c l o s u r e s e c t i o n w i t h the e f f e c t s on the l i a b i l -i t y o f the d i r e c t o r and on the c o n t r a c t dependent upon t h a t d i s c l o s u r e . V/hat must be d i s c l o s e d i s , however, br o a d e r i n scope. E v e r y i n t e r e s t , d i r e c t or i n d i r e c t i n a c o n t r a c t or 121 t r a n s a c t i o n o t h e r t han one r e l a t i n g t o ' h i s r e m u n e r a t i o n must be d i s c l o s e d . However, i n t e r e s t s t h a t a r e not m a t e r i a l need not be d i s c l o s e d . The problems w i t h the F e d e r a l concept o f m a t e r i a l i t y are a v o i d e d by o t h e r p r o v i s i o n s i n the s e c t i o n a b r o g a t i n g the e q u i t a b l e p r i n c i p l e s i n g e n e r a l terms. I t i s not j u s t c o n t r a c t s w i t h i n t e r e s t s t h a t must be d i s c l o s e d t h a t are a f f e c t e d by the s e c t i o n , but a l l c o n t r a c t s i n w h ich the d i r e c t o r has an i n t e r -e s t . ^ There i s no g e n e r a l p r o v i s i o n f o r n o t i f i c a t i o n o f i n t e r -e s t i n a p a r t i c u l a r company. D e a l i n g w i t h the e q u i t a b l e p r i n c i p l e s, the O n t a r i o s e c -t i o n c o p i e s the American l e g i s l a t i o n i n t h a t i t s o f t e n s t h e i r 67 a p p l i c a t i o n t h r o u g h the duty of d i s c l o s u r e . I t d e a l s w i t h b o t h d i r e c t o r l i a b i l i t y and the e f f e c t on the c o n t r a c t , - but i n a more b a l a n c e d way than the F e d e r a l p r o p o s a l s do. E q u a l a t t e n t i o n i s g i v e n t o each. I n a l l c a s e s , the d i r e c t o r , t o be r e l i e v e d o f h i s l i a b i l i t y t o a c c o u n t , must have been a c t i n g h o n e s t l y and i n good f a i t h a t the time the c o n t r a c t was e n t e r e d i n t o and the c o n t r a c t , not t o be v o i d a b l e , must have been i n the b e s t i n t e r e s t o f the c o r p o r a t i o n . A p p l y i n g the " b e s t i n t e r e s t o f the c o r p o r a t i o n " t e s t a s the o v e r r i d i n g c r i t e r i o n f o r p r e s e r v i n g the v a l i d i t y o f the c o n t r a c t , i n t r o d u c e s a concept t h a t i s l i k e l y t o have the same e f f e c t as the American f a i r n e s s t e s t when combined w i t h the American s t a t u t e s . F a i r n e s s o f the c o n t r a c t w i l l u n d o u b t e d l y form p a r t of the i n q u i r y , and presumably, the burden o f p r o v i n g a c o n t r a c t not i n the b e s t i n t e r e s t s o f the c o r p o r a t i o n w i l l have 122 to-be born by the p a r t y a l l e g i n g the c o n t r a c t s h o u l d be v o i d a b l e . As f o r the d i r e c t o r , he must have been f u l f i l l i n g o n l y h i s s t a n d -a r e d u t i e s of good f a i t h , a l t h o u g h o b v i o u s u n f a i r n e s s o f the con-t r a c t c o u l d c l e a r l y become an i s s u e i n t h i s c i r c u m s t a n c e as w e l l , where i t c o u l d p o i n t t o mala f i d e s . I f these a l l - p e r v a s i v e c r i t e r i a are f u l f i l l e d , t h e n the d i r e c t o r i s not l i a b l e t o account and the c o n t r a c t i s not v o i d -a b l e i f one of two s e t s o f c i r c u m s t a n c e s has o c c u r r e d ; e i t h e r t h e r e must have been d i s c l o s u r e of i n t e r e s t and a p p r o v a l by a d i s i n t e r e s t e d m a j o r i t y a t the d i r e c t o r s ' m e e t i n g ; or t h e r e must be d i s c l o s u r e of i n t e r e s t i n an i n f o r m a t i o n c i r c u l a r t o s h a r e -h o l d e r s c a l l i n g a meeting and a t t h a t meeting the c o n t r a c t must be c o n f i r m e d or approved by a t w o - t h i r d s m a j o r i t y . T h i s l a s t p r o v i s i o n i s more s e v e r e than were the r e m e d i a l p r o v i s i o n s f o r c o n t r a c t s b e f o r e the s t a t u t e . T h e r e , the c o n t r a c t c o u l d be approved by s i m p l e m a j o r i t y . T h i s p r o v i s i o n , i n s u p p l a n t i n g the e q u i t a b l e p r i n c i p l e s , l e a v e s no doubt as t o the power o f the s h a r e h o l d e r ' s m e e t i ng, as d i d the F e d e r a l p r o p o s a l s and adds a s t r o n g i n c e n t i v e t o the d i r e c t o r t o d i s c l o s e h i s i n t e r e s t t o the board i n compliance w i t h the s e c t i o n . But once a g a i n , t h e r e i s an h i a t u s i n the law. Suppose the i n t e r e s t e d d i r e c t o r cannot muster a t w o - t h i r d s m a j o r i t y t o approve the c o n t r a c t , but has s u f f i c i e n t v o t e s t o p r e v e n t a m a j o r i t y v o t i n g t o a v o i d i t . I f the i n t e r e s t e d d i r e c t o r was not i n c l u d e d i n the quorum a t the meeting t h a t passed the c o n t r a c t , then i t i s merely v o i d a b l e , and 123 not v o i d . But t h e n , a m a j o r i t y o f s h a r e h o l d e r s ' v o t e s i s needed to a v o i d i t . Presumably, i f the i n t e r e s t e d d i r e c t o r c o n t r o l s the s i m p l e m a j o r i t y , he might s t a l l the avoidance o f the c o n t r a c t u n t i l such time as the company i s too f a r committed t o a l l o w r e c i s i o n . The r e q u i r e m e n t f o r the t w o - t h i r d s m a j o r i t y i s i n t h i s c i r c u m s t a n c e , i n e f f e c t i v e . THE CHOICE OF THE COMMITTEE Of the f o u r major a r e a s f o r change d e s i g n a t e d by the Committee i n t h e i r s t u d y r e p o r t , the a r e a they l i s t as "company 68 management" i s the o n l y one whose v e r y d e s c r i p t i o n does not i n d i c a t e some p a r t i c u l a r b i a s i n p o l i c y . The o t h e r s — s h a r e h o l d e r democracy, s h a r e h o l d e r p r o t e c t i o n , p r o t e c t i o n f o r those d e a l i n g w i t h companies, as they l i s t t h e m — a l l i n c l u d e some word w i t h p a r t i c u l a r c o n n o t a t i o n s f o r change. But the "company management" heading has n o t h i n g t o i n d i c a t e the aims o f the committee f o r the d i r e c t i o n o f i t s change. I n t h e i r d i s c u s s i o n o f the t o p i c , the Committee l i s t s f i f t e e n changes made i n t h i s a r e a . Of t h o s e , e i g h t a r e d e s c r i b e d by the Committee i t s e l f as d e a l i n g e i t h e r 69 w i t h " s i m p l i f i c a t i o n " and " c l a r i f i c a t i o n " . Two o t h e r s , t h e y 70 d e s c r i b e as " e l i m i n a t i n g most o f the c o m p l i c a t i o n " i n h e r e n t i n 71 a graduated fee s c h e d u l e and r e d u c i n g the number o f f i l i n g s . These two are a l s o o b v i o u s l y d i r e c t e d toward the g o a l s o f s i m p l i -c i t y and c l a r i t y i n the a c t . The s e c t i o n s b e i n g d i s c u s s e d i n t h i s c h a p t e r are t y p i c a l of the Committee's r e s p o n s e s i n t h e 12k company management a r e a . They ar e c l a s s i f i e d by them as b e i n g c h i e f l y f o r purposes of c l a r i f i c a t i o n . S i m p l i c i t y and c l a r i t y a r e , i t w i l l be remembered, 72 i m p o r t a n t p o r t i o n s of the c r i t e r i a s e l e c t e d t>y the committee. The o t h e r c h o i c e s of the Committee i n o t h e r a r e a s made t h e s e c r i t e r i a almost the o n l y ones t h a t c o u l d be a p p l i e d i n the com-pany management s e c t i o n s . Any major changes i n company manage-ment would mean e i t h e r s t r e n g t h e n i n g or weakening the powers o f the board t o manage the company. N e i t h e r o f t h e s e a l t e r n a t i v e s was p a l a t a b l e to the committee. S t r e n g t h e n i n g the powers o f the b o a r d , perhaps l e s s e n i n g t h e i r r e s p o n s i b i l i t i e s , would have been a blow t o s h a r e h o l d e r democracy which the committee was o b v i o u s l y 73 not p r e p a r e d to s t r i k e . I t would have meant some abandonment o f the concept o f the s h a r e h o l d e r as owner which t h e y were com-m i t t e d t o erode no f u r t h e r . Weakening the powers o f the b o a r d would have meant e i t h e r a major i n c r e a s e i n s h a r e h o l d e r democracy 7k which they were, c l e a r l y not p r e p a r e d t o u n d e r t a k e , or an i n c r e a s e i n government i n t e r f e r e n c e which was i n d i r e c t o p p o s i -75 t i o n t o t h e i r commitments as w e l l . T h e i r o n l y r e a l scope f o r change here was c l e a r l y w i t h i n the s t a t u s quo, but c l a r i f i e d and improved as much as p o s s i b l e . Too much a l t e r a t i o n i n company management i n s u b s t a n t i v e terms would have produced too many s i d e e f f e c t s i n the o t h e r a r e a s of change i n w h ich the committee had a l r e a d y t a k e n a p o l i c y s t a n d . . A l l the Canadian and American prec e d e n t was i n f a v o u r o f 125 a l t e r i n g the e q u i t a b l e p r i n c i p l e s a f f e c t i n g c o n t r a c t s w i t h d i r e c -t o r i n t e r e s t . I t was a s t e p t h a t c o u l d , i f c a r e f u l l y e f f e c t e d , i n c r e a s e b o t h the freedom o f the d i r e c t o r s and t h e a c t u a l p r o t e c -t i o n o f s h a r e h o l d e r s . I n c r e a s e d p r e s s u r e c o u l d be put on the d i r e c t o r s t o d i s c l o s e i n t e r e s t t h r o u g h e x t e n d i n g p r o t e c t i o n t o them from the r e s u l t s of t h i s i n t e r e s t i f t h e y d i s c l o s e d . The s h a r e h o l d e r s would have more o p p o r t u n i t y t o l e a r n what was hap-p e n i n g i f d i s c l o s u r e was encouraged, and d e a l s t h a t were a c t u a l l y d e s t r u c t i v e t o the company's i n t e r e s t would be more e a s i l y d i s -c o v e r e d and l e s s r e a d i l y c o n c e a l e d . The g e n e r a l p a t t e r n f o l l o w e d by the Committee was the s t a n d a r d Canadian s t r u c t u r e . The U n i t e d Kingdom d i s c l o s u r e d u t y was r e t a i n e d , i n t h i s case even u n a l t e r e d by a n a r r o w i n g o f the d uty t o m a t e r i a l i n t e r e s t s o n l y . T h i s , of c o u r s e , e l i m i n a t e d the p o s s i b l e gap l e f t i n t h e law by the F e d e r a l p r o p o s a l s where s i g -n i f i c a n t i n t e r e s t s , i f d e c l a r e d , might not a f f e c t a c o n t r a c t , but t r i v i a l ones might l e a v e the d i r e c t o r l i a b l e t o the company. Then c e r t a i n c o n d i t i o n s were s e t out i n which the e q u i t a b l e p r o -v i s i o n s w i l l be m i t i g a t e d . The c o n d i t i o n s s e l e c t e d f o r the B.C. a c t have o b v i o u s r o o t s i n the American, F e d e r a l and O n t a r i o s u g g e s t i o n s . From the American s t a t u t e s , the Committee adopted the a l t e r n a t i v e c o n d i -t i o n s o f d i s c l o s u r e o r p r o o f o f f a i r n e s s o f the c o n t r a c t . As d i s c u s s e d a t some l e n g t h , the e f f e c t of t h i s a l t e r n a t i v e i n Canada i s not the same as i n American j u r i s d i c t i o n s . However, 126 the a l t e r n a t i v e i s s t r e n g t h e n e d by the c o u p l i n g o f the r e q u i r e -ment t o show a f a i r and r e a s o n a b l e c o n t r a c t w i t h the subsequent r e q u i r e m e n t o f d i s c l o s u r e and a p p r o v a l by a s p e c i a l r e s o l u t i o n . T h i s w i l l tend s t r o n g l y t o encourage the f u l f i l l m e n t o f the f i r s t s e t o f c o n d i t i o n s , t h a t i s , d i s c l o s u r e t o the board and a p p r o v a l by a d i s i n t e r e s t e d m a j o r i t y o f d i r e c t o r s . O t h e r w i s e , d i s c l o s u r e w i l l have t o be made anyway and a t w o - t h i r d s v o t e o f a p p r o v a l may be hard t o o b t a i n . . T h i s i d e a i s c l e a r l y borrowed from O n t a r i o , but the h i a t u s t h e r e produced by f a i l u r e o f the O n t a r i o a c t t o a l t e r the common law r e q u i r e m e n t f o r a s i m p l e m a j o r i t y t o a v o i d a v o i d a b l e c o n t r a c t has been f i l l e d i n the B.C. a c t . S. 145 makes i t c l e a r t h a t even i f the p r e c e d i n g s e c t i o n s have not been com-p l i e d w i t h , o n l y a c o u r t can s e t the c o n t r a c t a s i d e . The i d e a t h a t the c o n t r a c t s h o u l d not i n any event be v o i d a b l e by the company, but o n l y by a c t i o n o f the c o u r t was ta k e n from the F e d e r a l p r o p o s a l s . Once a g a i n , however, the B.C. a c t makes improvements. I t i s c l e a r t h a t the c o u r t has the e x c l u s i v e j u r i s d i c t i o n to s e t the c o n t r a c t a s i d e . U n f o r t u n a t e l y , i t i s not c l e a r p r e c i s e l y what c i r c u m s t a n c e s w i l l p e r m i t such a c t i o n . The words " i f the m a t t e r s r e f e r r e d t o i n c l a u s e s ( a ) , ( b ) , and ( c ) or i n c l a u s e s (d) and (e) . . . have not o c c u r r e d " c o u l d be i n t e r p r e t e d t o mean " i f n e i t h e r o f t h e s e two groups o f c i r c u m s t a n c e s has o c c u r r e d " or " i f e i t h e r one of thes e two groups o f c i r c u m s t a n c e s has not o c c u r r e d " . G e n e r a l l y , however, the B.C. a c t i s c l e a r e r , s i m p l e r and more m e a n i n g f u l than the o t h e r 127 p r o p o s a l s o f the same t y p e . C r i t i c i s m s can be made o f i t s g e n e r a l i m p o r t . As was mentioned, the d i s c l o s u r e made o n l y t o 77 c r o n i e s on the board has been c r i t i c i z e d . So might the p r o v i s -i o n s f o r a g e n e r a l n o t i f i c a t i o n o f i n t e r e s t be r e g a r d e d as too l e n i e n t . They do m a i n t a i n what was the s t a t u s quo i n B r i t i s h C o l u m b i a , i n the U n i t e d Kingdom and what was b e i n g proposed f o r 78 the F e d e r a l a c t . T h i s was, as drawn from the p r e c e d i n g a n a l y -s i s , the most p r o b a b l e course t o be f o l l o w e d by the Committee i n d e a l i n g w i t h company management. B a s i c a . l l y , t h e y took the o l d d i s c l o s u r e s e c t i o n and added t o i t new consequences, making t h o s e consequences as t i g h t and s i m p l e . a s p o s s i b l e . 1 2 8 FOOTNOTES, CHAPTER VI "'"Companies Act, S t a t s . B.C. 1 9 7 3 , c. l 8 . Companies Act, R.S.B.C. I960, c. 6 7 , s. 111. ^ I b i d . , s. I l l ( 2 ) . ^ s . I l l ( 3 ) . s. I l l ( 5 ) : Nothing i n t h i s s e c t i o n s h a l l be taken to prej u d i c e the operation of any r u l e of law r e s t r i c t i n g d i r e c t o r s of a company from having any i n t e r e s t i n c o n t r a c t s w i t h the company. ^Companies Act, 1 8 & 19 Geo. 5 i c. 17. Gower, op. c i t . i n f r a footnote 8, i n i n t e r p r e t i n g the U.K. requirement f o r d i s c l o s u r e of the nature of the i n t e r e s t appears to believe that t h i s r e q u i r e s d i s c l o s u r e of the extent of t h e . i n t e r e s t as w e l l , although not a l l the m a t e r i a l f a c t s , p. 5 3 0 . At l e a s t one Canadian a u t h o r i t y , however, i s of the opinion that a requirement to d i s c l o s e the nature does not include d i s c l o s u r e of the extent of the i n t e r e s t . See Z i e g e l , Studies i n Canadian Company Law, 1 9 7 2 , c. 12, p. 3 7 7 . g L.C.B. Gower, The P r i n c i p l e s of Modern Company Law (3rd ed.) 1 9 6 9 , at p. 5 3 0 . ^Supra, footnote 1, s. 1, 144 and 145. "^This duty, as w i l l be seen, developed i n B.C. separ-a t e l y from the m i t i g a t i n g s e c t i o n s , but was made the basis f o r them when they were included. In new Canadian proposals, d i s c u s -sed below, what appears i n the B.C. act as three s e c t i o n s , u s u a l l y appears as one. Therefore, the three B.C. s e c t i o n s , f o r comparison purpose, w i l l often be tr e a t e d as a u n i t . "'""''The same numbering also appears i n B i l l 6 6 . 1 2 Report of the Committee on Corporate L e g i s l a t i o n , Canadian Bar A s s o c i a t i o n , B.C. Branch, (1972), comments on s. 143, 144, 145. 1 3 See the H i s t o r y of the pre-emptive r i g h t s e c t i o n , f o r example, i n Ch. V. 1 2 9 14 The CBA comments, and, i n d e e d , most of the s u b s t a n t i a l o u t s i d e comments d i d not r e a c h the Committee u n t i l a d r a f t b i l l ' had been produced. See Ch. I l l and IV. 15 F o r example, the p r e - e m p t i v e r i g h t , i m p r o v i n g s h a r e -h o l d e r democracy by p r o t e c t i n g t h e i r v o t e . l 6 P e r c i v a l v. W r i g h t , L*1902] 2 Ch. 421 ( C h . ) . 17 F o r example, see North-West T r a n s p o r t a t i o n Co. L t d . &  James Hugh B e a t t y v. Henry B e a t t y ( 1 8 8 ? ) , 12 App. Cas. 5&9 ( P . C . ) . l 8 Z i e g e l , S t u d i e s i n Canadian Company Law, 1 9 7 2 , c. 1 2 , p. 37k. " ^ I b i d . , a t p. 3 7 3 ; s u p r a , f o o t n o t e 8 , a t p. 5 2 6 - 5 2 7 -20 See L i n g a r d , D i r e c t o r s : The C o n f l i c t o f I n t e r e s t and Duty ( i 9 6 0 ) 24 Convey. 1 7 0 , a t p. 174 f o r a d i s c u s s i o n o f the d i r e c t o r s a p p r o v i n g the c o n t r a c t w i t h o u t a quorum of d i s i n t e r e s t e d d i r e c t o r s . A l s o , f o r the e f f e c t - o f t h i s r u l e combined w i t h the i n d o o r management p r i n c i p l e o f the R o y a l B r i t i s h Bank v. Turquand ( 1 8 5 5 ) , 5 E & B. 248. 2 1 I b i d . ; a l s o s u p r a , f o o t n o t e 1 7 , a t p. 5 9 3 - 9 ^ : "Any s u c h d e c l i n e or engagement may, however, be a f f i r m e d o r a d o p t e d by the company, p r o v i d e d such afformance . . . i s not brought about by u n f a i r or improper means." 2 2 Gray v. New A u g a r i t a P o r c u p i n e M i n e s , L~1952^] 3 D.L.R. 1 a t p. 13 (P.C.) L o r d R a d c l i f f e g i v e s a t t h i s page a b r i e f summary o f the law t o w h i c h , b i n d i n g as i t i s on Canadian c o u r t s , l i t t l e can u s e f u l l y be added. 2 3 Supra, f o o t n o t e 1 7 . I b i d . 2 5 Supra, f o o t n o t e 2 2 . A l s o Gower, op. c i t . , p. 5 2 7 , 2 6 I b i d . , a l s o , I m p e r i a l M e r c e n t i l e C r e d i t A s s c n . v. Coleman, ( l b 7 l ) L.R. 6 Ch. App. 5 5 8 at p. 5 6 7 . 27 S u p r a , f o o t n o t e 2 2 . I b i d . 130 29 F o r C a n a d i a n a u t h o r i t y , s e e A r m s t r o n g T r a d i n g C o . v . G r e n o n , 1921 1 WWR 1225 ( M a n . C . A . ) a t p . 1231 p e r F u l l e r t o n , ' J . A . T h e t r a d i t i o n a l E n g l i s h a u t h o r i t y i s A b e r d e e n R a i l w a y v . B l a c k i e , (185*0 1 M a q c . H . L . 4 6 l a t p . 471. • • 30 S u p r a , f o o t n o t e 22. 31 I b i d . a t p . 13. F o r a g e n e r a l d i s c u s s i o n o f t h e p o w e r o f t h e c o m p a n y t o c o n t r a c t a s t h e y p l e a s e d s e e L i n g a r d , s u p r a , f o o t n o t e 2 0 , a t p . 171-172; a l s o C o s t a R i c a R y . C o . L t d . v . F o r w o o d , 1901 1 C h . 746 ( C . A . ) a t p . 763 p e r V a u g h n W i l l i a m s , L . J . s e c t i o n . 32 S e e G o w e r , o p . c i t . a t p . 529 f o r a h i s t o r y o f t h e 33 • ^ I b i d . 34 ' S a i n t J a m e s C h u r c h v . C h u r c h o f T h e R e d e e m e r , (1865) , 45 B a r b . 356 ( N . Y . S u p . C t . ) . 35 ^ M u n s o n v . S y r a c u s e , G e n e v a & C o r n i n g R . R . (1886) 8 N . E . 355 ( N . Y . C . A . ) 3 6 J I b i d . , a t p . 358. 37 y G e n e s e e V a l l e y & W y o . R y . v . R e t s o f M i n i n g C o . ( 1895) , 36 N . Y . S . 896 ( S u p . C t . ) . 38 ' G l o b e W o o l e n C o . v . U t i c a G a s & E l e c t r i c C o . (1915), 121 N . E . 37o\ 39 S e e C o m m e n t , " I n t e r e s t e d D i r e c t o r s " C o n t r a c t — S e c t i o n 7 1 3 ' O f t h e New Y o r k B u s i n e s s C o r p o r a t i o n Law a n d t h e " F a i r n e s s " T e s t , (1973), 41 F o r d . L . R . 639 a t p . 645 f o r a d i s c u s s i o n o f t h e e m e r g i n g r u l e s i n C a l i f o r n i a a n d o t h e r s t a t e s . 40 S e e , f o r e x a m p l e , t h e summary o f t h e l a w i n t h e c o m -m e n t s o n s . 4 l o f t h e M o d e l C o r p o r a t i o n A c t A n n o t a t e d , 2nd e d . , V o l . 1 s . 1-47, C o m m i t t e e on C o r p o r a t e L a w s , 1971, a t p . 842-843: " T h e d e v e l o p m e n t o f s t a n d a r d s on a c a s e t o c a s e b a s i s h a s n o t l e d t o u n i f o r m i t y . T h e r e h a v e e v o l v e d a n u m b e r o f g e n e r a l t e s t s . . . t h e t r e n d i s t o g i v e g r e a t e r w e i g h t t o t h e f a i r n e s s t e s t t h a n t o t h o s e r e l a t e d t o p r o c e d u r e . " 4 l S e e K e n d r i c k , T h e I n t e r e s t e d D i r e c t o r i n T e x a s , (1967) , 21 S w . L . J . 795 a t p . 802. 131 H. C. Barragar, Note and Comment, (1962), 42 Oregon L.R. 6 l at. p. 74; a l s o , supra, f o o t n o t e 40; footnote 4 l . How- • ever, see c o n t r a , Comment, F o r d . L.R., supra, f o o t n o t e 39? at p. 668, where the author a p p a r e n t l y c o n s i d e r s d i s c l o s u r e and f a i r n e s s mutually e x c l u s i v e t e s t s . 43 Great B r i t a i n Board of Trade Committee f o r Company.Law Amendment, (1962), p. 36. 44 I b i d . , s. 99 (1). ^ B u s i n e s s C o r p o r a t i o n s A c t , R.S.O. 1970, c. 53, s. 134. 46 P r o p o s a l s f o r a New Business C o r p o r a t i o n Law f o r Canada, (1971), s. 9-17-47 Model C o r p o r a t i o n Act Annotated, 2nd ed., V o l . 1, s. 1-47, Committee on Corporate Laws, 1971, s. 4 l . 48 See the review of d i f f e r e n c e s from s t a t e l e g i s l a t i o n of the Model Act contained i n the comments on the s e c t i o n , supra, f o o t n o t e 47, at p. 84-5-846. 49 The Canadian l e g i s l a t i o n u s u a l l y r e q u i r e s t h a t the d i r e c t o r not be counted i n the quorum. However, the a r t i c l e s ' c o n t a i n e d i n Table A of both the o l d and new B.C. Companies Act a l l o w the quorum to be s e t by the d i r e c t o r s . The new a c t adds t h a t t h i s may be done "from time to time." 5 0 S u p r a , footnote 46, V o l . I at 79, para. 227-51 Supra, footnote 47. ^ 2 S u p r a , footnote 46, s. 9.17 ( l ) . 53 See above t e x t accompanying footnote 43-5 2 f["l927] 1 Ch. 323. 5 5 T o d d v. Robinson (1884) 14 Q.B.D. 739-56 s. 9-17 (3), which r e f e r s to the r e l i e f of d i r e c t o r s from the l i a b i l i t y to account f o r p r o f i t s e x p r e s s l y a p p l i e s o n l y to "A d i r e c t o r r e f e r r e d to i n s u b s e c t i o n ( l ) " , t h a t i s , o n l y a d i r e c t o r whose i n t e r e s t s come w i t h i n those r e q u i r e d to be d i s -c l o s e d . 57 See the d i s c u s s i o n i n M. A. Schlopy, The U n f a i r I n t e r e s t e d D i r e c t o r s ' C o n t r a c t under the New York Business C o r p o r a t i o n Law, (1967), 16 B u f f a l o L. Rev. 840; a l s o , supra, f o o t n o t e 39, at p. 648. 132 58 T h i s p o i n t a l s o r e c e i v e s mention i n the F e d e r a l p r o p o s -a l s , s u p r a , f o o t n o t e 46, V o l . 1, p. 79, p a r a . 228. ^ 9 I b i d . ^ S e e the comment i n the Fordham L. Rev., s u p r a , f o o t n o t e 39, a t p. 664 f o r a d i s c u s s i o n o f thes e t h r e e a l t e r n a t i v e s . 6 l I b i d . , a t p. 660: " A c c o r d i n g l y i t seems l i k e l y t h a t c o u r t s w i l l . . . a l l o w the f a i r n e s s o f the t r a n s a c t i o n t o be c h a l l e n g e d ; whether d i s c l o s u r e has been made or n o t . Under t h i s i n t e r p r e t a t i o n , u n f a i r n e s s would have t o be shown by the p a r t y s e e k i n g t o a v o i d the t r a n s a c t i o n where d i s c l o s u r e i s made." 62 S u p r a , f o o t n o t e 46, V o l . 1, p. 80, p a r a . 233-6 3 I b i d . 64 See t e x t s u p r a , The Background o f the. S e c t i o n . • 65 Supra, f o o t n o t e 4 5 . ^ I b i d . , s u b s e c t i o n ( l ) . ^ 7 I b i d . , s u b s e c t i o n (4), (5). 68 D e p a r t m e n t a l Study R e p o r t o f the Department o f the A t t o r n e y - G e n e r a l o f B r i t i s h C o l u m b i a , (1971), P a r t F o u r . 6 9 I b i d . , p. 17-18. 7°Ibid., p. 18, p a r a . ( f ) . 71 I b i d . , p. 19, p a r a . (m). 72 Study R e p o r t , s u p r a , f o o t n o t e 68, p. 7-8. 73 Some i n c r e a s e s i n s h a r e h o l d e r democracy were t o be made. See the Study R e p o r t , P a r t F o u r . 74 But t h e s e i n c r e a s e s were l i m i t e d o n l y t o a v e r y few s e c t i o n s . 75 See the Study R e p o r t , p. 7, p a r a . 3 and the d i s c u s s i o n o f s e l f - r e g u l a t i o n Ch. IV of t h i s paper. 76 See above d i s c u s s i o n , The Background o f the S e c t i o n . 77 S u p r a , f o o t n o t e 8. 78 Only the O n t a r i o a c t omi t s them. 133 CHAPTER V I I PROTECTION FOR THOSE DEALING WITH COMPANIES AND THE COMPANY RECORDS HISTORY OF S. 186 AND 187 The o l d C o m p a n i e s Act''" r e q u i r e d t h e company t o k e e p a t 2 3 i t s r e g i s t e r e d o f f i c e i t s r e g i s t e r s o f members, d i r e c t o r s , 4 5 d e b e n t u r e h o l d e r s a n d b o o k s o f a c c o u n t ; t h e m i n u t e s o f a l l 6 7 g e n e r a l m e e t i n g s , c l a s s m e e t i n g s , a n d d i r e c t o r s ' m e e t i n g s ; a n d g c o p i e s o f a l l m o r t g a g e s c r e a t e d a n d assumed by t h e company. The r e g i s t e r o f members, t h e r e g i s t e r o f d i r e c t o r s a n d m a n a g e r s , a n d 9 t h e r e g i s t e r o f m o r t g a g e s were o p e n t o i n s p e c t i o n by a l l . C o p i e s o f moi-tgages c o u l d be i n s p e c t e d i n a d d i t i o n by members, c r e d i t o r s and d e b e n t u r e h o l d e r s a n d p r o c e e d i n g s o f g e n e r a l m e e t -i n g s c o u l d be e x a m i n e d by t h e members. "^ T h e s e p r o v i s i o n s w e r e s c a t t e r e d w i d e l y t h r o u g h o u t t h e a c t . The new a c t r e q u i r e d t h e k e e p i n g o f f i f t e e n a d d i t i o n a l r e c o r d s a t t h e c o m p a n i e s r e c o r d s o f f i c e . Some o f t h e s e , i t h a s b e e n p o i n t e d o u t , p a r t i c u l a r l y t h e c e r t i f i c a t e o f i n c o r p o r a t i o n , t h e memorandum, t h e a r t i c l e s , c o p i e s o f d o c u m e n t s f i l e d w i t h t h e R e g i s t r a r , o f c e r t i f i c a t e s i s s u e d by t h e R e g i s t r a r and o f o r d e r s o f t h e m i n i s t e r o r R e g i s t r a r r e l a t i n g t o t h e company, were p r o b -a b l y a l r e a d y k e p t i n a d d i t i o n t o t h e r e q u i r e d documents."''"'" How-e v e r , i n B i l l 66, t h e s e a l l became p a r t o f t h e n e c e s s a r y r e c o r d s 134 f o r the company, as d i d some t e n f u r t h e r documents t h a t , appar-e n t l y , were not g e n e r a l l y kept by the company a t i t s r e g i s t e r e d 12 -o f f i c e . B i l l 66 i n c l u d e d i n the l i s t o f e s s e n t i a l r e c o r d s , a l l c o p i e s o f c o u r t o r d e r s , c o p i e s of p r o s p e c t u s e s and t a k e over b i d c i r c u l a r s i s s u e d by the company or any s u b s i d i a r y and c o p i e s o f a l l i n f o r m a t i o n c i r c u l a r s i s s u e d by the company or any s u b s i d -i a r y . I n B i l l 16, c o p i e s of c o u r t o r d e r s no l o n g e r appeared i n the l i s t . A l s o , i n response t o a p r o t e s t by the Canadian Bar 13 A s s o c i a t i o n as t o the volume o f m a t e r i a l t h a t would now have t o be h a n d l e d f o r e v e r y company, the c o p i e s o f p r o s p e c t u s e s , t a k e over b i d c i r c u l a r s and of a l l documents approved by the d i r e c t o r s and i n f o r m a t i o n c i r c u l a r s had to be m a i n t a i n e d o n l y f o r t e n y e a r s . The new a c t a l s o c o l l e c t e d t o g e t h e r and expanded the r i g h t s t o examine documents. I n the form of i t s f i r s t d r a f t , s. 187, then numbered s. 189, l i s t e d w i t h r e f e r e n c e t o the p r e -c e d i n g s e c t i o n , the documents t h a t each c l a s s of p e r s o n i n each k i n d o f company was t o be a l l o w e d t o see and copy. D i r e c t o r s c o u l d examine and copy a l l the r e c o r d s . Members or debenture h o l d e r s c o u l d examine a l l r e c o r d s e x c e p t the minutes o f a l l d i r e c t o r s ' meetings and the documents approved by the d i r e c t o r s and mortgages. Any p e r s o n had t h i s same r i g h t t o the documents o f a r e p o r t i n g company except t h a t he c o u l d be charged a f e e . A non r e p o r t i n g company's documents were s i m i l a r l y open t o p u b l i c view except f o r the a d d i t i o n a l w i t h h o l d i n g o f a u d i t e d f i n a n c i a l 135 s t a t e m e n t s o f the company. One type o f r e c o r d , the r e g i s t e r o f members, had a s p e c i a l r e s t r i c t i o n . No one-, o t h e r than a d i r e c -t o r , c o u l d take e x t r a c t s from t h a t r e g i s t e r u n l e s s he f u r n i s h e d a s t a t u t o r y d e c l a r a t i o n w i t h h i s name, a d d r e s s and o c c u p a t i o n and h i s a s s u r a n c e t h a t the l i s t would be used o n l y f o r purposes con-n e c t e d w i t h the company. A l l these changes, except f o r the r e s -t r i c t i o n on the t a k i n g o f e x t r a c t s from the r e g i s t e r o f members had the e f f e c t o f making a f a r g r e a t e r volume o f m a t e r i a l a v a i l -a b l e t o a f a r g r e a t e r number of p e o p l e . Some f u r t h e r changes were made i n B i l l . 1 6 . Where t h e company was not a r e p o r t i n g company, the g e n e r a l p u b l i c had no r i g h t t o be p e r m i t t e d a c c e s s t o the minutes o f g e n e r a l and c l a s s m e e t i n g s . A l s o , no s t a t u t o r y d e c l a r a t i o n , as had been proposed i n B i l l 66, was r e q u i r e d f o r t a k i n g e x t r a c t s from the r e g i s t e r o f members. T h i s d e c l a r a t i o n was however r e t a i n e d i n a l a t e r s e c -lk t i o n r e q u i r i n g i t of any person r e q u e s t i n g a l i s t o f the names and a d d r e s s e s o f e i t h e r members o r . d e b e n t u r e h o l d e r s . F o r convenience o f r e f e r e n c e , the l i s t of r e c o r d s r e q u i r e d o f the company i s s e t out below. s. 186. (1) E v e r y company s h a l l keep a t i t s r e c o r d s o f f i c e (a) i t s c e r t i f i c a t e o f i n c o r p o r a t i o n ; (b) a copy o f i t s memorandum i n c l u d i n g e v e r y amend-ment t h e r e o f ; ( c ) a copy o f i t s a r t i c l e s i n c l u d i n g e v e r y amendment t h e r e o f ; 136 i t s r e g i s t e r o f members, except as p r o v i d e d by s. 67; i t s r e g i s t e r o f t r a n s f e r s , u n l e s s the r e g i s t e r , o f members i s kept elsewhere as p r o v i d e d by s e c t i o n 67; i t s r e g i s t e r o f d i r e c t o r s ; i t s r e g i s t e r of d e b e n t u r e h o l d e r s , e x c e p t as p r o -v i d e d by s e c t i o n 86; i t s r e g i s t e r o f d e b e n t u r e s ; i t s r e g i s t e r o f i n d e b t e d n e s s ; i t s r e g i s t e r o f a l l o t m e n t s , u n l e s s the r e g i s t e r o f members i s k e p t elsewhere as p r o v i d e d by s e c t i o n 67; the minutes o f e v e r y g e n e r a l meeting and c l a s s meeting o f the company; the minutes o f e v e r y meeting of i t s d i r e c t o r s ; a copy o f every document f i l e d w i t h the R e g i s t r a r ; ' • a copy o f every c e r t i f i c a t e i s s u e d t o i t by the R e g i s t r a r ; a copy o f every o r d e r o f the m i n i s t e r or the R e g i s t r a r r e l a t i n g t o the company; a copy o f every w r i t t e n c o n t r a c t under which the company has a l l o t t e d any s h a r e s f o r a c o n s i d e r a -t i o n o t h e r than c a s h ; a copy o f every o t h e r document and i n s t r u m e n t approved w i t h i n the p r e c e d i n g t e n y e a r s by the d i r e c t o r s ; a copy o f every mortgage c r e a t e d or assumed by the company whether o r not r e q u i r e d t o be r e g i s -t e r e d ; . . a copy o f every a u d i t e d f i n a n c i a l s t a tement o f the company and i t s s u b s i d i a r i e s , whether or not c o n s o l i d a t e d w i t h the f i n a n c i a l s t a t e m e n t o f the company, i n c l u d i n g the a u d i t o r ' s r e p o r t s ; 137 ( t ) where the company i s an amalgamated company, ( i ) e v e r y r e c o r d , document or i n s t r u m e n t des-c r i b e d i n c l a u s e s (a) t o ( j ) , (ra) t o (p) and ( u ) t o ( w ) ; ( i i ) e v e r y r e c o r d , document or i n s t r u m e n t des-c r i b e d i n c l a u s e s ( 1 ) , (q) and ( r ) ; and ( i i i ) e v e r y r e c o r d , document or i n s t r u m e n t des-c r i b e d i n c l a u s e s (e) and ( s ) ; o f each of the amalgamating companies; (u) where the company i s b e i n g wound up, the minutes o f e v e r y meeting of i t s c r e d i t o r s ; ( v) a copy o f e v e r y p r o s p e c t u s and t a k e over b i d c i r c u l a r i s s u e d w i t h i n the p r e c e d i n g t e n y e a r s by the company or any s u b s i d i a r y ; and (w) a copy of every i n f o r m a t i o n c i r c u l a r i s s u e d w i t h i n the p r e c e d i n g t e n y e a r s by the company or any s u b s i d i a r y . THE BACKGROUND OF THE SECTIONS S i n c e L i m i t e d l i a b i l i t y companies were s o l e l y a c r e a t i o n o f the l e g i s l a t u r e , the r e c o r d s t h e y were r e q u i r e d by law t o keep 15 were a l s o p r e s c r i b e d by s t a t u t e . I n the Act o f 1844 , companies l6 were r e q u i r e d to keep a r e g i s t e r o f s h a r e h o l d e r s . S i n c e t h e n , the r e q u i r e m e n t s have been s t e a d i l y g r o w i n g . C e r t a i n r i g h t s o f i n s p e c t i o n may have e x i s t e d i n E n g l a n d b e f o r e t h e y were i n c o r p o r a t e d i n t o s t a t u t e s . The r i g h t o f the s h a r e h o l d e r s t o i n s p e c t the r e g i s t e r o f members has been t r a c e d back t o the law a l l o w i n g the t e n a n t s the - r i g h t o f i n s p e c t i o n o f 17 the r o l l s o f the manor. However t h a t may be, as e a r l y as the lSkk A c t , t h i s r i g h t was g i v e n the s h a r e h o l d e r by s t a t u t e . I n 1 3 8 1862, t h i s r i g h t was extended t o a l l p e r s o n s . T h i s e x t e n s i o n was t r e a t e d as a d e v i c e t o a s s i s t i n the p r o t e c t i o n o f c r e d i t o r s d e a l i n g w i t h the company. So Lo r d Cranworth s a i d i n 1867 t h a t "when the L e g i s l a t u r e e n a b l e d s h a r e h o l d e r s t o l i m i t t h e i r l i a b i l -i t y , not merely t o the amount of t h e i r s h a r e s , but t o so much of t h a t amount as s h o u l d remain u n p a i d , i t i s o b v i o u s t h a t no c r e d i t o r c o u l d s a f e l y t r u s t the company w i t h o u t h a v i n g the means o f a s c e r t a i n i n g , f i r s t , who the s h a r e h o l d e r s might be, and s e c -o n d l y , t o what e x t e n t they would be l i a b l e . T h i s i s o b v i o u s l y the r e a s o n why the new s t a t u t e opened the r e g i s t e r t o the i n s p e c -19 t i o n o f a l l the w o r l d . " I t had been s e v e r a l t i m e s h e l d by the E n g l i s h c o u r t , moreover, t h a t i n e x e r c i s i n g the r i g h t g i v e n by the a c t , the m o t i v e s o f the s h a r e h o l d e r f o r w a n t i n g the i n s p e c t i o n o f the 20 r e g i s t e r c o u l d not be i n q u i r e d i n t o . A New Z e a l a n d c a s e , I n 21 r e W e l l i n g t o n T r u s t Loan and Investment Co. L t d . , a p p l i e d t h i s p r i n c i p l e t o a l l p e r s o n s e n t i t l e d t o i n s p e c t i o n s i n c e the s t a t u t e c o n f e r r e d an a b s o l u t e r i g h t on them. The development o f the r i g h t s t o i n s p e c t i o n and the r e c o r d k e e p i n g r e q u i r e m e n t s was somewhat d i f f e r e n t i n the U n i t e d S t a t e s . One American commentator, W i l l i a m T. B l a c k b u r n g i v e s a b r i e f , but a c c u r a t e s u r v e y of t h i s h i s t o r y by s a y i n g t h a t " t h e common law r i g h t became w e l l e s t a b l i s h e d i n t h i s c o u n t r y p r i o r t o the b e g i n n i n g o f t h i s c e n t u r y . The r u l e was g e n e r a l l y s t a t e d as b e i n g t h a t the s h a r e h o l d e r had the r i g h t t o i n s p e c t the books o f 139 the c o r p o r a t i o n a t r e a s o n a b l e t i m e s , i f the i n s p e c t i o n was i n good f a i t h and f o r a p r o p e r purpose • . . Many s t a t e l e g i s l a t u r e s , e v i d e n t l y f e e l i n g t h a t the s h a r e h o l d e r s h o u l d have more power over t h a t which, he p a r t i a l l y owns, enacted s t a t u t e s t h a t u s u a l l y gave the s h a r e h o l d e r an u n q u a l i f i e d r i g h t t o i n s p e c t the c o r p o r -a t e books. The more r e c e n t h i s t o r y o f the i n s p e c t i o n r i g h t has been an e f f o r t on the p a r t o f the l e g i s l a t u r e s and the c o u r t s t o put r e a s o n a b l e l i m i t a t i o n upon i t s u s e , but s t i l l t o a l l o w the 2 2 r i g h t t o persons u s i n g i t f o r s o c i a l l y d e s i r a b l e p u r p o s e s . " These r e a s o n a b l e l i m i t a t i o n s have u s u a l l y t a k e n the form of a r e s t o r a t i o n o f the r e q u i r e m e n t f o r a pr o p e r purpose f o r the i n s p e c t i o n , a l t h o u g h o f t e n w i t h t h e burden of p r o v i n g improper 2 3 purpose s h i f t e d t o the c o r p o r a t i o n o p p o s i n g the demand. The pro p e r purpose d o c t r i n e i s q u i t e c o m p a t i b l e w i t h the i n s p e c t i o n r i g h t g i v e n t o the American s t o c k h o l d e r . I t i s a r i g h t t h a t i s g i v e n o n l y t o s h a r e h o l d e r s and t h a t i s g i v e n i t s o n l y j u s t i f i c a -t i o n i n the p r o t e c t i o n i t can a f f o r d t o the s h a r e h o l d e r ' s econ-2 4 omic i n t e r e s t i n the c o r p o r a t i o n . F o r t h i s r e a s o n , the docu-ments t h a t may be examined by the s h a r e h o l d e r are not s t r i c t l y c o n f i n e d . The g e n e r a l r u l e has been s t a t e d t o be t h a t " i f t h e s h a r e h o l d e r has a r i g h t t o the knowledge he s e e k s , he can have a c c e s s t o whatever c o r p o r a t e r e c o r d s w i l l g i v e him the i n f o r m a -t i o n , p r o v i d e d t h a t the i n s p e c t i o n w i l l not r e s u l t i n s u b s t a n t i a l 2 5 harm t o the c o r p o r a t i o n . " ^ Thus, even c e r t a i n c o r r e s p o n d e n c e o f a c o r p o r a t e p r e s i d e n t has been h e l d s u b j e c t t o i n s p e c t i o n . iko But f o r the same r e a s o n s , the r i g h t o f i n s p e c t i o n o f r e c o r d s has never been extended t o the g e n e r a l • p u b l i c . The d i f -f e r e n c e i n a t t i t u d e e v i d e n c e d by the American p r o v i s i o n s as opposed t o t h a t e x p r e s s e d by Lo r d Cranworth i n the passage quoted above i s i l l u s t r a t e d i n a v e r y r e c e n t a r t i c l e e n t i t l e d t h e " P u b l i c ' s E i g h t t o Know: D i s c l o s u r e i n the Ma j o r American 27 C o r p o r a t i o n . " I n h i s d i s c u s s i o n o f c o r p o r a t e r e c o r d s and the i n f o r m a t i o n a v a i l a b l e t h r o u g h t h e i r i n s p e c t i o n , the a u t h o r sees the f u t u r e o f i n s p e c t i o n o f documents o t h e r t han the s h a r e -h o l d e r s ' l i s t as v e r y l i m i t e d i n d e e d . F o r the l a r g e c o r p o r a t i o n , even a l i m i t e d number o f s h a r e h o l d e r s e x e r c i s i n g t h e i r i n s p e c t i o n r i g h t i s d e s c r i b e d as a s i g n i f i c a n t t h r e a t t o the e f f i c i e n t and 28 p r o p e r c a r r y i n g on o f b u s i n e s s . P a r t l y , t h i s a t t i t u d e may be the r e s u l t o f the l a r g e scope of m a t e r i a l s the s h a r e h o l d e r has the r i g h t t o i n s p e c t ; p a r t l y , i t may be due t o the c o m p l e x i t y o f the r i g h t when a " p r o p e r purpose" must i n ev e r y case be a s u b j e c t of c o n s i d e r a t i o n ; b u t , p a r t l y , t o o , i t i s u n d o u b t e d l y the r e s u l t o f the l e s s e n i n g o f the s h a r e h o l d e r as owner c o n c e p t . As t h a t concept weakens, so too do the r i g h t s t h a t s h a r e h o l d e r s have t o c o n t r o l t h e b u s i n e s s . And i n the U n i t e d S t a t e s , i n s p e c t i o n o f r e c o r d s i s so c l o s e l y t i e d t o the i n t e r e s t o f the s h a r e h o l d e r i n the c o r p o r a t i o n , i t i s p r e d i c t a b l e t h a t i t s e x t e n t w i l l d e c l i n e as the p r i n c i p l e s t h a t gave the r i g h t i t s o n l y s i g n i f i c a n c e con-t i n u e t o become more and more a f o r m a l i t y . I n s i m p l i f i e d form, t h e n , t h e r e are two major 141 p h i l o s o p h i e s o f c o r p o r a t e r e c o r d i n s p e c t i o n : i t may be a d e v i c e s o l e l y u s e f u l t o s u p p o r t the s h a r e h o l d e r , i n h i s r o l e as owner o f the economic e n t e r p r i s e ; o r i t may be a t o o l t o a s s i s t a l s o i n the p r o t e c t i o n o f tho s e persons g e n e r a l l y who. must d e a l w i t h - t h e c o r p o r a t i o n . In the f i r s t c a s e , i t i s more a n u i s a n c e as the s h a r e h o l d e r i s l e s s a f a c t o r i n d e c i s i o n - m a k i n g ; i n t h e second, i t i s p a r t o f the p r i c e the c o r p o r a t i o n must pay f o r the p r o t e c -t i o n a t law o f l i m i t e d l i a b i l i t y . THE FIELD OF CHOICE .The American p r o v i s i o n s have a l r e a d y been g e n e r a l l y des-c r i b e d w i t h r e s p e c t t o c o r p o r a t e r e c o r d s . A l t h o u g h , as u s u a l , t h e r e a r e d i f f e r e n c e s between t h e . s t a t u t e s o f the v a r i o u s s t a t e s , t h e y a l l have the s i m i l a r i t y of the b a s i c p a t t e r n . The Model A c t • • 29 p r o v i s i o n i s f a i r l y t y p i c a l o f t h i s p a t t e r n . The o n l y r e c o r d s s p e c i f i c a l l y r e q u i r e d o f a c o r p o r a t i o n are books and r e c o r d s o f a c c o u n t , minutes o f s h a r e h o l d e r s ' and d i r e c t o r s ' meetings,, and the r e c o r d o f s h a r e h o l d e r s . These r e c o r d s may be examined by h o l d e r s o f r e c o r d o f s h a r e s or of v o t i n g t r u s t c e r t i f i c a t e s , who have been h o l d e r s f o r s i x months or h o l d f i v e p e r c e n t o f the s h a r e s o r c e r t i f i c a t e s o f t h e c o r p o r a t i o n i f the demand i s made i n w r i t i n g and i s f o r a p r o p e r purpose. However, i f a h o l d e r o f s h a r e s o r v o t i n g t r u s t c e r t i f i c a t e s proves p r o p e r p u r p o s e , t h e r e i s a r e s i d u a l power i n the c o u r t t o compel the p r o d u c t i o n o f the r e c o r d s d e s p i t e the f a i l u r e t o f u l f i l l t h i s time q u a l i f i c a t i o n . 142 The Canadian p r e c e d e n t s g i v e more r e c o g n i t i o n t o t h e i r 30 h e r i t a g e from the U n i t e d Kingdom a c t . The new O n t a r i o a c t r e q u i r e s c o r p o r a t i o n s to keep c o p i e s of t h e i r a r t i c l e s , and by-l a w s , r e g i s t e r of s e c u r i t y h o l d e r s and o f d i r e c t o r s , p r o p e r a c c o u n t i n g r e c o r d s s e t t i n g out a l l f i n a n c i a l and other- t r a n s -a c t i o n s of the c o r p o r a t i o n , and the minutes of s h a r e h o l d e r s , d i r e c t o r s and e x e c u t i v e committee meetings. These r e c o r d s , except the a c c o u n t i n g r e c o r d s , r e s o l u t i o n s of d i r e c t o r s and min-u t e s o f e x e c u t i v e committee and d i r e c t o r s ' meetings are t o be a v a i l a b l e f o r i n s p e c t i o n by s h a r e h o l d e r s and c r e d i t o r s o f the c o r p o r a t i o n . There i s a r e s t r i c t i o n on t a k i n g any c o p i e s o f any p o r t i o n o f the s e c u r i t y h o l d e r s ' l i s t u n l e s s an a f f i d a v i t i s f i l e d c o n t a i n i n g an a s s u r a n c e t h a t the l i s t i s r e q u i r e d f o r " p u r -31 poses c o n n e c t e d w i t h t h e c o r p o r a t i o n . " T h i s a c t , t h e r e f o r e , a l l o w s a c c e s s t o the r e c o r d s by s h a r e h o l d e r s and c r e d i t o r s , a c k n o w l e d g i n g a d u a l purpose f o r the i n s p e c t i o n o f c o r p o r a t e r e c o r d s . However, the r e c o r d s t o w h i c h even the s h a r e h o l d e r s have a c c e s s are r e s t r i c t e d , not i n c l u d i n g , as the American p r o v i s i o n s d i d , a c c e s s t o books o f account and o t h e r f i n a n c i a l documents. Something v e r y l i k e the American p r o p e r purpose d o c t r i n e has been i n t r o d u c e d w i t h r e s p e c t t o cop-i e s o f the s e c u r i t y h o l d e r s ' l i s t , a l t h o u g h , i t w i l l be n o t e d t h a t the r i g h t t o examine the l i s t s i s an a b s o l u t e one. 32 The p r o p o s a l s f o r a new F e d e r a l A c t d i v i d e the r e c o r d s t o be kept by a c o r p o r a t i o n i n t o two c l a s s e s . In one c l a s s , a r e 143 the a r t i c l e s and b y - l a w s , the minutes o f s h a r e h o l d e r s ' m e e t i n g s , the r e g i s t e r o f d i r e c t o r s and the s e c u r i t i e s r e g i s t e r . These may be examined f r e e o f charge by s h a r e h o l d e r s and c r e d i t o r s or a c o r p o r a t i o n and upon payment o f a r e a s o n a b l e f e e by any o t h e r p e r s o n . The o t h e r c l a s s o f r e c o r d s c o m p r i s e s t h e minutes o f d i r e c t o r s and of e x e c u t i v e committees and a c c o u n t i n g r e c o r d s . These may be examined o n l y by the d i r e c t o r s . C o p i e s o f a s h a r e -h o l d e r s ' l i s t a re a l s o o b t a i n a b l e by any perso n upon payment o f a f e e , but he must s u p p l y i n a d d i t i o n an a f f i d a v i t s t a t i n g t h a t the l i s t w i l l be used o n l y t o i n f l u e n c e the v o t i n g o f the s h a r e -h o l d e r s or t o make an o f f e r t o a c q u i r e the companies s h a r e . These p r o v i s i o n s a r e , i n e f f e c t , v e r y l i k e t h o s e o f the O n t a r i o s t a t u t e , w i t h two s i g n i f i c a n t d i f f e r e n c e s . The f i r s t i s the c l o s e r r e l a t i o n s h i p w i t h the U n i t e d Kingdom s t a t u t e s where i n s p e c t i o n o f r e c o r d s was i n t e n d e d to a s s i s t a l l p e r s o n s d e a l i n g w i t h c o r p o r a t i o n s . Under the F e d e r a l p r o p o s a l s , no i n t e r e s t i n the c o r p o r a t i o n , not even t h a t o f a p r e s e n t c r e d i t o r , i s r e q u i r e d t o make i n s p e c t i o n a v a i l a b l e to the member of the p u b l i c . I n t h i s way, o f c o u r s e , p r o s p e c t i v e c r e d i t o r s may examine c e r t a i n c o r p o r a t e documents b e f o r e becoming f i n a n c i a l l y i n t e r e s t e d i n the c o r p o r a t i o n , presumably, f o r t h e i r g r e a t e r i n f o r m a t i o n and, t h e r e f o r e , f o r t h e i r g r e a t e r p r o t e c t i o n . S e c o n d l y , a l t h o u g h 33 something s i m i l a r t o a "p r o p e r purpose" d o c t r i n e has a g a i n been i n t r o d u c e d , t h i s a p p l i e s o n l y t o complete s h a r e h o l d e r s ' l i s t s , n o t t o e x t r a c t s from those l i s t s t o which any person has a r i g h t upon payment of a f e e . THE CHOICE OF THE COMMITTEE The c h o i c e o f t h e committee f o l l o w s t h e E n g l i s h p a t t e r n of l e g i s l a t i o n and i s t h e r e f o r e c l o s e r t o the F e d e r a l p r o p o s a l s i n form than t o any o f the o t h e r s c o n s i d e r e d . . As the y were i n the e a r l y companies a c t s o f the U n i t e d Kingdom, the i n s p e c t i o n p r o v i s i o n s extend not o n l y t o s h a r e h o l d e r s , but t o a l l p e r s o n s . The committee i t s e l f c l a s s e d t h e s e s e c t i o n s as among thos e p r o -v i d e d t o a f f o r d p r o t e c t i o n f o r th o s e d e a l i n g w i t h companies. Out o f t h i s purpose grows an i n c r e a s e i n the r i g h t s o f i n s p e c t i o n , d e s p i t e the s h a r e h o l d e r ' s weakening r o l e as owner of the company. S h a r e h o l d e r s , l i k e o t h e r p e r s o n s i n the community, f a l l i n t o the c l a s s o f those who d e a l w i t h c o r p o r a t i o n s and t h e i r p r o t e c t i o n needs t h e r e f o r e t o be a t l e a s t as g r e a t as t h a t p r o v i d e d f o r c r e d i t o r s , a c t u a l or p o t e n t i a l . T h i s c o n n e c t i o n was r e c o g n i z e d by the committee when i t s t a t e d i n i t s c r i t e r i a t h a t t h e r e must be mechanisms a v a i l a b l e f o r " s h a r e h o l d e r s and c r e d i t o r s t o know what i s o c c u r r i n g " i n the company. S h a r e h o l d e r s ' p o s i t i o n as owners does not d i r e c t l y a f f e c t the major p r o v i s i o n s o f the s e c -t i o n . The emphasis i s d i f f e r e n t . T h i s emphasis i s p r e c i s e l y what might have been e x p e c t e d from the committee and had e f f e c t s t h a t might a l s o have been p r e -d i c t e d . The s t u d y committee had a l r e a d y i n i t s r e p o r t r e c o g n i z e d 35 the c l o s e t i e s w i t h the U n i t e d Kingdom l e g i s l a t i o n and as j u s t 145 mentioned, the r i g h t s o f c r e d i t o r s to i n f o r m a t i o n . D e s p i t e i t s remark t h a t the demands o f u n i f o r m i t y w i t h o t h e r Canadian j u r i s -d i c t i o n s were not to be c o n s i d e r e d paramount, i t has a l r e a d y been i l l u s t r a t e d how the tendency o f the new a c t s i n a l l the major Canadian j u r i s d i c t i o n s was t o l e s s e n the d i f f e r e n c e s among them. 37 38 Both i n the O n t a r i o l e g i s l a t i o n and m the F e d e r a l p r o p o s a l s , the B r i t i s h emphasis, r a t h e r than t he American had been f o l l o w e d t o a g r e a t e r or l e s s e r degree. A l l the i n c l i n a t i o n s o f the Committee p o i n t e d i t toward t h i s p a t t e r n o f l e g i s l a t i o n . However, the l e g i s l a t i o n t h a t a c t u a l l y emerged was much more f a r r e a c h i n g t h a n e i t h e r o f the s i m i l a r p r o p o s a l s here exam-i n e d . Many more r e c o r d s have t o be kept by the- c o r p o r a t i o n and the r i g h t s o f i n s p e c t i o n a r e t h e r e f o r e c o r r e s p o n d i n g l y b r o a d e r . Moreover, i n the B.C. a c t , s h a r e h o l d e r s o f a l l companies and mem-be r s o f the p u b l i c i n r e s p e c t t o r e p o r t i n g companies are g i v e n a c c e s s t h r o u g h the r i g h t o f i n s p e c t i o n o f documents t o f i n a n c i a l r e c o r d s . Many of the documents t h a t were once k e p t by the government must now be kept by the c o r p o r a t i o n and the f a c i l i t i e s f o r i n s p e c t i o n s i m i l a r l y p r o v i d e d by them. T h i s e x t e n s i o n was p r o b a b l y due c h i e f l y t o t h r e e f a c t o r s . F i r s t , i t i s a l o g i c a l e x p a n s i o n of the p r i n c i p l e i n h e r e n t i n the B r i t i s h i n s p e c t i o n p r o v i s i o n s t h a t t h i s and the k e e p i n g o f r e c o r d s were a p a r t o f the p r i c e p a i d by.the i n c o r p o r a t o r s f o r the p r o t e c t i o n o f l i m i t e d l i a b i l i t y . The American a t t i t u d e t h a t the whole a f f a i r was l i t t l e more than a h i n d r a n c e t o e f f i c i e n c y 146 never g a i n e d ground. S i n c e the B.C. l e g i s l a t i o n was a l s o f o l -l o w i n g the B r i t i s h p a t t e r n , i t was not s u r p r i s i n g t h a t l i t t l e c o n c e r n was g i v e n t o p l a c i n g burdens on the company who i s g a i n -i n g the b e n e f i t of i n c o r p o r a t i o n and removing them from the government. Impetus f o r t h i s move was p r o v i d e d by the a d d i t i o n a l commitment o f the committee t o s e l f - r e g u l a t i o n o f companies, by which they e v i d e n t l y meant p r i m a r i l y a l e s s e n i n g o f government 4o i n v o l v e m e n t w i t h the f u n c t i o n i n g of the company. A l t h o u g h i t was p a r t o f the government's r o l e t o p r o v i d e a s a f e r e p o s i t o r y f o r documents, i t was no p a r t o f t h e i r r e s p o n s i b i l i t y t o p r o v i d e f a c i l i t i e s f o r the i n s p e c t i o n o f c o r p o r a t e documents n e c e s s a r y t o p r o t e c t the c r e d i t o r and s h a r e h o l d e r . F i n a l l y , the d e s i r e t o kl make the a c t s i m p l e r and c l e a r e r , as i t l e d t o the c o l l e c t i o n o f what r e c o r d s had t o be k ept a l l i n one s e c t i o n i n s t e a d o f s c a t t e r i n g them t h r o u g h o u t the a c t , a l s o p r o b a b l y l e d t o the i d e a t h a t s i m p l i c i t y f o r the layman would be much a s s i s t e d by the k e e p i n g of company r e c o r d s t o g e t h e r i n one p l a c e . T h i s would reduce the need f o r the s e a r c h i n g of v a r i o u s r e g i s t e r s f o r s p e c i -f i c i n f o r m a t i o n , r e g i s t e r s which the layman might not even know e x i s t e d . But the f i n a l , and perhaps the most s i g n i f i c a n t i n f l u e n c e on the committee, both t o adopt the B r i t i s h p a t t e r n and t o e x t e n d i t f u r t h e r might w e l l be found i n i t s commitment t o p u b l i c s c r u -42 t i n y as a means o f s e c u r i n g c o m p l i a n c e . None o f the f a c t o r s d i s c u s s e d i n the p r e c e d i n g p a r a g r a p h c o u l d be o p e r a t i v e w i t h o u t 147 the o v e r - r i d i n g sense t h a t d i s c l o s u r e , i n i t s e l f , i s r i g h t . The w i d e s p r e a d n a t u r e o f t h i s sense o f " r i g h t n e s s " has a l r e a d y been 43 d e s c r i b e d . U n l e s s some s t r i n g e n t r e a s o n s were g i v e n t o oppose the r e c o r d k e e p i n g p r o v i s i o n s , the t h e o r e t i c a l i n f l u e n c e s were a l l on t h e i r s i d e . These r e a s o n s have s i n c e been p r o v i d e d by many p r a c t i -t i o n e r s . I t has been found e x p e n s i v e b o t h t o e s t a b l i s h and t o m a i n t a i n the r e c o r d s o f f i c e t h a t the a c t r e q u i r e s . Most law f i r m s , i n Vancouver, a t l e a s t , have found few b e n e f i t s from the s e c t i o n s . E v i d e n t l y , t h e r e have been few s e a r c h e s by members o f 44 the p u b l i c i n the r e c o r d s o f f i c e s . There has been a g e n e r a l f e e l i n g r e p o r t e d t h a t , e s p e c i a l l y f o r the s m a l l company, t h e changes i n the r e c o r d k e e p i n g p r o v i s i o n s are u n r e a s o n a b l y expen-s i v e , i n terms of the burden on the company compared t o the 45 u t i l i t y of the r e s u l t s . However, no amendments of the p r o v i s i o n s have been f o r t h -coming. Moreover, the p r o t e s t s o f the p r o f e s s i o n have not t a k e n s u f f i c i e n t account o f the t h e o r e t i c a l arguments s u p p o r t i n g the p r o v i s i o n s . These arguments d e s c r i b e d i n t h i s s e c t i o n were almost c e r t a i n t o weigh more h e a v i l y w i t h the Committee, s e p a r -a t e d i n i t s s t r u c t u r e and i t s p r o c e d u r e , from the immersion i n economic f a c t s t h a t c h a r a c t e r i z e s the p r a c t i t i o n e r . I f a law f i r m argues t h a t i t w i l l c o s t f i f t y d o l l a r s per y e a r t o m a i n t a i n a r e c o r d s o f f i c e f o r each company, the assessment must s t i l l be made. I s t h a t " u n r e a s o n a b l y e x p e n s i v e ? " I f the Committee had 148 had no p r e v i o u s l y e s t a b l i s h e d p r e s s u r e s towards d i s c l o s u r e gener-a l l y and expanded r e c o r d s k e p t by the company i n p a r t i c u l a r , t h e answer might have been, i n the a f f i r m a t i v e . However, t h i s was not the c a s e . The p r o c e d u r e o f the committee had e s t a b l i s h e d such p r e d i s p o s i t i o n . Economic e f f e c t s u n l e s s t h e y c o u l d be shown t o be much more than m i l d l y d i s p r o p o r t i o n a t e , were not l i k e l y t o i n f l u e n c e t h e i r assessment. 1 4 9 FOOTNOTES, CHAPTER V I I "S?he Companies A c t , 2 I b i d . , s. 82. 5 I b i d . , s. 115 ( 1 ) . ^ I b i d . , s. 142 ( 1 ) . 5 I b i d . , s. 156 ( 1 ) . 6 I b i d . , s. 176 ( 1 ) . 7 I b i d . 8 I b i d . , s. 142 • 9 , s. 83 ( 1 ) , 1 0 I b i d . , s. 143 ( 1 ) , X 1 j . T . Eng l i s h , The New Companies Act and How I t A f f e c t s You, (1973), 31 The Advocate , 208. 1 2 I b i d . , p. 209. B i l l 66, 1972, s. 188. 13 Study R e p o r t o f the C o r p o r a t e L e g i s l a t i o n Committee o f the Canadian Bar A s s o c i a t i o n , B.C. Bra n c h , (1972). 1 4 Companies A c t , S t a t s . B.C. 1973, c. 18, s. 190. 1 5 J o i n t S t o c k Companies A c t 7 & 8 V i c t . c c . 110 & 111. I b i d . , s. 49. s. 50 gave t h e s h a r e h o l d e r the r i g h t t o i n s p e c t the r e c o r d s . 17 T h i s c o n n e c t i o n i s made by W i l l i a m T . B l a c k b u r n , S h a r e h o l d e r I n s p e c t i o n R i g h t s , (1958) , 12 Sw. L . J . 6 l . I t i s based on d i c t a from Dominus Rex v. The F r a t e r n i t y o f Hostmen i n Newcastle-Upon-Tyne (1745), 93 Eng. Rep. 1 1 4 4 ( K . B . ) . l 8 Companies Act 25 & 26 V i c t . c. 8 9 , s. 3 2 . 1 9 0 a k e s v. Turquand and H a r d i n g , [1867J L.R. 2 H.L.- 325, a t p. 366. 150 20, "Vor i n s t a n c e , D a v i e s v. Gas L i g h t and Coke Co. Cl909J 1 Ch. 708 ( C . A . ) . 21 [1959] N.Z.L.R. 1189 (Sup. C t . ) . 22 S u p r a , f o o t n o t e 17, a t p. 6 l . 25 S u p r a , f o o t n o t e 17, a t p. 76; Model C o r p o r a t i o n A c t Ann o t a t e d , 2nd ed., V o l . I I , s. 48 - end, Committee on C o r p o r a t e Laws., 1971, s. 52 , p. 129. 2 \ l o d e l C o r p o r a t i o n A c t A n n o t a t e d , 2nd ed., V o l . I I , s. 48 -end, Committee on C o r p o r a t e Laws, 1971, s. 52 , p. 129; P h i l l i p L. Blumberg, The P u b l i c ' s R i g h t t o Know: D i s c l o s u r e i n the M a j o r American C o r p o r a t i o n , (1973), 28 Bus. Law. 1025, p. 1 0 4 5 . 25 Supra, f o o t n o t e 17, a t p. 65 . O t i s - H i d d e n Co. v. S c h e i r i c h (1920), 219 S.W. 191 (Kentucky C.A.). 27 Supra, f o o t n o t e 2 4 . 28 See I b i d . , a t p. 1051: " I t i s e v i d e n t t h a t a r e l a t i v -e l y s m a l l number o f s t o c k h o l d e r s s e e k i n g to e n f o r c e t h e i r r i g h t o f i n s p e c t i o n o f books and r e c o r d s o f major American C o r p o r a t i o n s c o u l d c r e a t e s e r i o u s d i f f i c u l t i e s . 29 , S u p r a , f o o t n o t e 24. 3 0 B u s i n e s s C o r p o r a t i o n s A c t , R.S.O. 1970, c. 5 3 , s. I56 -s. I65. 3 " ' " I b i d . , s. 163. S e c t i o n 1 6 4 (b) d e f i n e s "purposes con-n e c t e d w i t h the c o r p o r a t i o n as i n c l u d i n g "any e f f o r t t o i n f l u e n c e the v o t i n g o f s h a r e h o l d e r s a t any meeting t h e r e o f , any o f f e r t o a c q u i r e s h a r e s i n the c o r p o r a t i o n or any e f f o r t t o e f f e c t an amalgamation or r e o r g a n i z a t i o n . " 32 P r o p o s a l s f o r a New B u s i n e s s C o r p o r a t i o n Law f o r Canada, (1971), s. 4 . 0 2 , 4 . 0 3 -3 3 No broad " p r o p e r purpose" p r o v i s i o n i s i n c l u d e d . How-e v e r , s. 4 .03 (3) (d) p r o v i d e s t h a t s h a r e h o l d e r s ' l i s t s o b t a i n e d under the s u b s e c t i o n were t o be used o n l y f o r an e f f o r t t o i n f l u -ence v o t i n g o f s h a r e h o l d e r s or an o f f e r to a c q u i r e s h a r e s i n the c o r p o r a t i o n . 34 D e p a r t m e n t a l Study Re p o r t o f the Department o f the A t t o r n e y - G e n e r a l of B r i t i s h C o l u m b i a , p. 8. 151 55 I b i d . , p. 2. See the d i s c u s s i o n o f t h i s i n f l u e n c e i n Chapter IV. 36 S u p r a , Chapter IV. 37 S u p r a , f o o t n o t e 30. S u p r a , f o o t n o t e 32. \ ko, 3 9 Supra, f o o t n o t e 2 0 . 'See the d i s c u s s i o n of who i s t o r e g u l a t e by s e l f -r e g u l a t i o n i n Chapter IV. kl Supra, f o o t n o t e 3k, p. 7« k2 I b i d . k3 See d i s c u s s i o n , Chapter IV. kk Mr. R. R. Dodd of Swin t o n & Co. r e p o r t s t h a t t h e y have had no s e a r c h e s o f the r e c o r d s o f f i c e s i n the e i g h t months i n " which the new a c t has been i n o p e r a t i o n . Ladner-Downs has r e p o r t e d two s e a r c h e s . Most f i r m s , from i n q u i r i e s made on the f l o o r o f the 197^ Vancouver Bar A s s o c i a t i o n Conference r e p o r t s i m i l a r e x p e r i e n c e s . k5 Charges f o r m a i n t a i n i n g the r e c o r d s o f f i c e seem t o v a r y from $50 - $100 per company per y e a r . 152 CHAPTER V I I I CONCLUSION The c o n c l u s i o n s o f a paper, such as t h i s cannot be o t h e r than tenuous. The background o f d e t a i l e d r e s e a r c h b u i l t up m e t h o d i c a l l y over many y e a r s has been l a c k i n g i n the s t u d y o f law r e f o r m . C e r t a i n t y o f c o n c l u s i o n w i l l a r r i v e o n l y when many t e n -t a t i v e and p a r t i a l c o n c l u s i o n s have been r e a c h e d . I t rema i n s o n l y t o summarize what has been deduced from the s t u d y here u n d e r t a k e n and t o p o i n t to some o f the g e n e r a l i t i e s t h a t may one day warrant f u r t h e r i n v e s t i g a t i o n . A p a t t e r n f o r the work o f the c o r p o r a t e l e g i s l a t i o n com-m i t t e e has emerged from the e x a m i n a t i o n o f the s e c t i o n s o f the s t a t u t e and i t s c r i t e r i a . The c r i t e r i a t h e m s e l v e s were s e l e c t e d c h i e f l y from s t u d i e s o f t h e o r y . They had l i t t l e i n p u t from the p u b l i c , or from the l e g a l community. T h i s s e t them i n the main-stream of company law r e f o r m and i s o l a t e d them from much c o n t a c t or c o n c e r n w i t h the c h a n g i n g economic r e a l i t i e s "of the c o r p o r a t e s t r u c t u r e . Once those c r i t e r i a were e s t a b l i s h e d , t h e r e d e v e l o p e d a r e m a r k a b l y t i g h t r e l a t i o n s h i p between them and the f i n a l docu-ment. Acceptance o r r e j e c t i o n o f a s u g g e s t i o n made i n o t h e r p r o -p o s a l s f o r company law r e f o r m or by o u t s i d e groups was u s u a l l y based on i t s c o n f o r m i t y to and l a c k o f c o n f l i c t w i t h the c r i t e r i a s e l e c t e d . T h i s made the r e s u l t i n g a c t c a u t i o u s i n terms o f broad c o n c e p t u a l r e f o r m , r e c k l e s s i n terms o f p r a c t i c a l economic 153 r e p e r c u s s i o n s . I t a l s o meant t h a t the r e l e v a n t time f o r meaning-f u l p u b l i c d i s c u s s i o n was b e f o r e , not a f t e r , the c r i t e r i a were s e l e c t e d . O t h e r w i s e , t h e s u c c e s s o f the p r o p o s a l s was dependent upon the a b i l i t y o f the p r o p o s e r to c o n v i n c e the Committee t h a t the change would be i n k e e p i n g w i t h i t s c r i t e r i a . T h i s p a t t e r n b e a r s the u n m i s t a k a b l e stamp o f "ad h o c e r y " - - o f a s m a l l committee w i t h t o o l i t t l e time t o make a t h o r o u g h i n v e s t i g a t i o n o f u n d e r l y i n g p r i n c i p l e s . However, i t a l s o b e a r s s u c c e s s f u l l y the burden o f p r o d u c i n g a s t a t u t e t h a t c o u l d be sup-p o r t e d and sponsored by two p o l i t i c a l p a r t i e s w i t h w i d e l y d i v e r -gent o p i n i o n s . I t i s a s t a t u t e w i t h l i m i t e d g o a l s f o r change but t h a t , i n a workman-like way, f u l f i l l s t hose g o a l s u n w a i v e r i n g l y and, f o r the most p a r t , w e l l . The.apparent f l u c t u a t i o n between o v e r - c a u t i o u s and o v e r - r e c k l e s s r e f o r m s i s p a r t o f the p r i c e p a i d f o r the i n c o n s i s t e n c i e s i n the t h e o r y o f company law i t s e l f . Had the government wanted a s t a t u t e t h a t r e s o l v e d those i n c o n s i s t e n -c i e s and s e t company law on a r e a l i s t i c economic b a s i s , "ad hoce r y " c o u l d not have s e r v e d i t s purpose a t a l l . D i f f e r e n t methods w i t h f a r w i d e r r e s e a r c h scope would have had t o be employed i n the f i r s t development o f the c r i t e r i a . The q u e s t i o n s t o which t h e s e c o n c l u s i o n s p r o v i d e some o f the answers f o r one s p e c i f i c type o f law r e f o r m body have a l r e a d y been asked e a r l i e r i n t h i s paper. And t h e i r importance has been s t r e s s e d . When thes e q u e s t i o n s a r e answered f o r many k i n d s o f 154 law r e f o r m b o d i e s some s y s t e m a t i c s t u d y of the p r o c e s s o f law r e f o r m w i l l have been begun. In the meantime, the c o n c l u s i o n s of t h i s paper may be summarized as f o l l o w s : The Committee, composed o f c i v i l s e r v a n t s , d i d not r e l y h e a v i l y on p u b l i c o p i n i o n . T h i s was t o be e x p e c t e d , e s p e c i a l l y c o n s i d e r i n g the t e c h n i c a l n a t u r e of the l e g i s l a t i o n . The Committee c o n f i n e d i t s e l f s t r i c t l y t o the p a r a m e t e r s o f the problems i t was g i v e n . F a r r e a c h i n g consequences and s o l u t i o n s were not c o n s i d e r e d . A l s o , however, c i v i l s e r v a n t s d i d not e n c o u n t e r d i f f i -c u l t i e s w i t h i n t e r f e r e n c e or h o s t i l i t y from the departments p r i m a r i l y r e s p o n s i b l e f o r a d m i n i s t r a t i o n o f company law and were a b l e t o have t h e i r p r o p o s a l s a c c e p t e d r e a d i l y by the government. The p o l i c y s e l e c t e d by the committee s t r o n g l y i n f l u e n c e d the l e g i s l a t i o n e n a c t e d . That p o l i c y f u l f i l l e d many o f the c r i t e r i a s e t out i n what i s c a l l e d by p o l i t i c a l s c i e n t i s t s , the s t r a t e g y of d i s -j o i n t e d i n c r e m e n t a l i s m . T h u s , p o l i c y c h o i c e s were made a t the margin of the s t a t u s quo, s e l e c t e d from a s m a l l number o f a l t e r -n a t i v e s and from i n c r e m e n t a l or s m a l l changes i n the s t a t u s quo. F u r t h e r , t h e s e p o l i c y c h o i c e s and the l e g i s l a t i o n t h a t f o l l o w e d were d e s i g n e d t o remedy a n e g a t i v e l y p e r c e i v e d s i t u a t i o n , r a t h e r than t o r e a c h a p r e c o n c e i v e d g o a l . The l e g i s l a t i o n produced drew h e a v i l y upon a l r e a d y . t r i e d 155 remedies i n o t h e r j u r i s d i c t i o n s b o t h because o f the c o n s e r v a t i v e n a t u r e of the p o l i c y c h o i c e s and the method o f p r o c e d u r e o f a s m a l l committee. 156 FOOTNOTES, CHAPTER V I I I """"The S t r a t e g y o f D i s j o i n t e d I n c r e m e n t a l i s r a " i s a t h e o r y of p o l i c y making proposed by Braybrooke and Lendblom i n Cha p t e r 5 o f A S t r a t e g y o f D e c i s i o n , (1963). I t s t r e s s e s a c o n t i n u o u s , g r a d u a l approach t o p o l i c y q u e s t i o n s . I t i s s e t out i n o u t l i n e i n an essay by E n i d C. B. S c h o e t t l e , The S t a t e o f .the A r t i n P o l i c y Study, The Study o f P o l i c y Making, ed. Bauer and Gerzen (1968), p. 14-9 a t p. 151. She proceed s t o d e s c r i b e some o f t h e major t h e o r i e s i n d e s c r i b i n g the p a r t i c i p a n t i n the p o l i c y making p r o c e s s , e v a l u a t i n g them i n terms o f t h i s t h e o r y . 157 BIBLIOGRAPHY BOOKS AND REPORTS Bauer and Gergen ( e d . ) , The Study o f P o l i c y F o r m a t i o n , ( 1968) . Canadian Bar A s s o c i a t i o n , C o r p o r a t e L e g i s l a t i o n Committee (B.C. B r a n c h ) , Comments on Proposed B.C. Companies A c t , B i l l 66, (1972). Cohen (C h a i r m a n ) , G r e a t B r i t a i n Board o f Trade R e p o r t o f the Committee on Company Law Amendment, (194-5). Committee on C o r p o r a t e Laws, Model C o r p o r a t i o n A c t A n n o t a t e d , 2nd ed., V o l . I and V o l . I I , (1971). C o u r t n e y , J . , Canadian R o y a l Commissions of .Inquiry 1946-1962, (1964). D e p a r t m e n t a l Committee on C o r p o r a t e L e g i s l a t i o n , D e p a r t m e n t a l Study R e p o r t o f the Department of the A t t o r n e y - G e n e r a l o f B r i t i s h C o l u m b i a , (1971). D i c k e r s o n , F., Fundamentals o f L e g a l D r a f t i n g , (1965). D i c k e r s o n ( C h a i r m a n ) , P r o p o s a l s f o r a New B u s i n e s s C o r p o r a t i o n Law f o r Canada, (1971). Doern and A u c o i n ( e d . ) , The S t r u c t u r e of P o l i c y Making i n Canada, (1971). G a l b r a i t h , J.K., The New I n d u s t r i a l S t a t e , (1967). G e t z , I s o n , Lysyk and Todd, B r i e f t o the A t t o r n e y - G e n e r a l o f B r i t i s h C olumbia R e g a r d i n g the E s t a b l i s h m e n t o f a Law Reform Commission, (1964). Gower, L.C.B., F i n a l R e p o r t o f the Commission o f E n q u i r y I n t o the Working and A d m i n i s t r a t i o n o f the P r e s e n t Company Law o f Ghana. , The P r i n c i p l e s o f Modern Company Law 3rd ed., ( 1969) . J e n k i n s ( C h a i r m a n ) , Great* B r i t a i n Board o f Trade Report o f the Committee on Company Law Amendment, (1962). 158 J o n e s , Harry M., The E f f i c a c y o f Law, (1968) R o s e n t h a l L e c t u r e s . Lawrence (Chairman), I n t e r i m R e p o r t o f the S e l e c t Committee on Company Law, ( 1 9 6 7 ) . V e a l , D o nald, The P o p u l a r Movement f o r Law Reform 1640 - 1660 , ( 1 9 7 0 ) . Z i e g e l , J . , S t u d i e s i n Canadian Company Law, ( 1 9 6 7 - 1 9 7 3 ) -ARTICLES AND PERIODICALS B a l l a n t i n e , H.W., Q u e s t i o n s o f P o l i c y i n D r a f t i n g of Modern C o r p o r a t i o n Law, ( 1 9 3 1 ) , 19 C a l i f . L. Rev. 4 6 5 . B a r r a g e r , Harvey C , Note and Comment, ( 1 9 6 2 ) , 42 Ore. L. Rev. 6 l . B e e t z , J . , R e f l e c t i o n s on C o n t i n u i t y and Change i n Law Reform, (1972) , 22 U. To r o n t o L . J . 129-B e n n e t t , H i s t o r i c a l Trends i n A u s t r a l i a n Lav/ Reform, ( 1 9 7 0 ) , 9 U. Western A u s t . L. Rev. 2 1 1 . B l a c k b u r n , W i l l i a m T., S h a r e h o l d e r I n s p e c t i o n R i g h t s , ( 1 9 5 8 ) , 12 Sw. L . J . 6 l . Blumberg, P h i l l i p L., The P u b l i c ' s " R i g h t t o Know": D i s c l o s u r e i n the Major American C o r p o r a t i o n , ( 1 9 7 3 ) , 28 Bus. Law. 1025-Bowker, A l b e r t a ' s I n s t i t u t e f o r Law R e s e a r c h and Reform, ( 1 9 6 8 ) , 11 Can. B . J . 341. Coker, F r a n c i s W., Book-Review: C l o s e C o r p o r a t i o n - Law and P r a c t i s e by F. Hodge O'Neal, ( 1 9 5 9 ) , 34 N.Y.U.L. Rev. 799 -Comment, " I n t e r e s t e d D i r e c t o r s " C o n t r a c t s - S e c t i o n 713 o f the New York B u s i n e s s C o r p o r a t i o n Law and the " F a i r n e s s " T e s t , ( 1 9 7 3 ) , F o r d . L. Rev. 639 -, V a l u a t i o n o f D i s s e n t e r s ' S t o c k Under A p p r a i s a l S t a t u t e s , ( 1 9 6 6 ) , 79 Harv. L. Rev. 1452. , C o r p o r a t i o n s - R e o r g a n i z a t i o n , ( 1 9 6 6 ) , 51 Iowa L. Rev. 1096. 159 , R i g h t o f S h a r e h o l d e r s D i s s e n t i n g from C o r p o r a t e Combinations t o Demand Cash Payment f o r T h e i r S h a r e s , (1959), 72 Harv. L. Rev. 1132. -• , P u b l i c R i g h t t o Se a r c h R e g i s t e r s , (1959), N.Z.L.J. 360. , D i s s e n t i n g S t o c k h o l d e r s - R i g h t t o Demand Purchase o f Shares - N.Y. S t o c k C o r p o r a t i o n Law, (1955), 1 N.Y.L.F. .80.. Conacher, R. D., Law Reform, (1969), 43 A u s t . L . J . 513. D a i l e y , R. R., P e r s o n a l I n t e r e s t o f D i r e c t o r s , (1953), 53 M i c h . L. Rev. 4-72. Deech, R., Law Reform: The Ch o i c e o f Method, (1969), 47 C.B. Rev. 395. Lord D e v l i n , P r o c e s s o f Law Reform, (1966), 63 L. Soc. Gaz. 453-Dorsey, G. L., J u r i s p r u d e n c e And Law Reform, (1968), 13 S t . L o u i s U.L.J. 11. D o w r i c k , F. E., Layman's V a l u e s f o r Law Reform, (1966), 82 L.Q. Rev. 497. , Lawyer's V a l u e s f o r Law Reform,'(1963), 79 L.Q. Rev. 556. D r i n k e r , H. S., The Pre-Emptiye R i g h t o f S h a r e h o l d e r s t o S u b s c r i b e t o New Sh a r e s , (1929-30), A3 Harv. L. Rev. 586. E n g l i s h , J . T., The Record K e e p i n g Requirements o f the New Companies A c t and How I t A f f e c t s You, (1973), 31 The Advocate 208. Freedman, L. M., Law Reform i n H i s t o r i c a l P e r s p e c t i v e , (1969), 13 S t . L o u i s U.L.J. 351. L o r d G a r d i n e r , M a c h i n e r y o f Law Reform i n E n g l a n d , (1953), 69 L.Q. Rev. 46. Gosse, Role o f Law Reform i n the Quest f o r J u s t i c e , (1969), 19 U.N.B.L.J. 29. Gower, L.C.B., Law Reform, (1973), 4 Can. B . J . 1. Hanan, The Honorable Mr. K., Law Reform, (1969), N.Z.L.J. 365. H e t h e r i n g t o n , F a c t and L e g a l Theory: S h a r e h o l d e r s , Managers and C o r p o r a t e S o c i a l R e s p o n s i b i l i t y , (1969), 21 S t a n . L. Rev. 248. i6o K e l l e y , S. A u s t r a l i a n Law Reform Committee, (1970), 3 A d e l a i d e L. Rev. 481. K e n d r i c k , J r . , John J . , The I n t e r e s t e d D i r e c t o r i n Texas, (1967), 21 Sw, L . J . 794. L i n d e n , C h a l l e n g e o f Law Reform, (1966), 9 Can. B . J . 268. L i n g a r d , J . R., D i r e c t o r s : The C o n f l i c t of I n t e r e s t and Dut y , (I960), 24 Convey. 170. L l e w e l y n , K., Law Observance v. Law E n f o r c e m e n t , J u r i s p r u d e n c e -R e a l i s m i n Theory and P r a c t i s e , (1962), p. 399-Macdonald, New York Law R e v i s i o n Commission, (1968), 13 S t . L o u i s U.L.J. 258. , New York Law R e v i s i o n Commission, (1965), 28 Mod. L. Rev. 1. Manne, Henry G., The " H i g h e r C r i t i c i s m " o f the Modern C o r p o r a t i o n , (1962), 62 Columbia L. Rev. 399-Manning, B a y l e s s , S h a r e h o l d e r s ' A p p r a i s a l Remedy: An E s s a y f o r Fran k Coker, (1962), 72 Y a l e L . J . 223-, C o r p o r a t e Power and I n d i v i d u a l Freedom: Some G e n e r a l A n a l y s i s and P a r t i c u l a r R e s e r v a t i o n s , (i960), 55 N.W.U. Law Rev. 38. , Review o f The American S t o c k h o l d e r by J . A. L i v i n g s t o n , (1958), 67 Y a l e L . J . 1477• McDonough, T. James, The A p p r a i s a l Remedy f o r D i s s e n t i n g S h a r e h o l d e r s i n Iowa and the De F a c t o Merger D o c t r i n e : R a t h v. R a t h P a c k i n g Co. , '(1966-68), 16-17 Drake L. Rev. 22 N o r t h e y , Mechanics o f Law Reform, (1970), N.Z.L.J. 2?8. P a r r i s h , Lee H., C o r p o r a t i o n s - S t o c k h o l d e r s A p p r a i s a l R i g h t s , (1966), 35 U. C i n . L. Rev. 704. P r e n t i c e , Case Comment, (1969)1 Can. B. Rev. 648. Sawer, G., L e g a l Theory o f Law Reform, (1970), 20 U. T o r o n t o L . J . I83. Scarman, S i r L e s l i e , B r e a t h o f Change, (1969), 55 A.B.A.J. 251. , Law Reform - Lessons from the E n g l i s h E x p e r i e n c e , (1968), 3 Man. L . J . 4?. S c h l o p y , Max C., The " U n f a i r " I n t e r e s t e d D i r e c t o r s ' C o n t r a c t Under the New York B u s i n e s s C o r p o r a t i o n Law, (1967), 16 B u f f a l o L. Rev. 84-0. S k o l e r , D a n i e l L., Some O b s e r v a t i o n s on the Scope o f A p p r a i s a l S t a t u t e s , (1958), 13 Bus. Law. 240. S l u t s k y , B. V., D i r e c t o r s and O f f i c e r s Under the New B.C. Companies A c t , (1973), 31 The Advocate 211. , The R e l a t i o n s h i p Between the Board o f D i r e c t o r s and the S h a r e h o l d e r s i n G e n e r a l M e e t i n g , (1967-68), 3 U.B.C. L. Rev. 8 l . S u t t o n , E n g l i s h Law Commission: A New P h i l o s o p h y of Law Reform, (1967), 20 Vand. L. Rev. 1009-Symposium, Law Reform: A Symposium. The M a c h i n e r y of Law Reform, (1961), 2k Mod. L. Rev. T u r n e r , S i r A l e x a n d e r Kingcome, Changing the Lav/, (1969), 3 N.Z.U.L. Rev. kOk. V p r e n b e r g , James, E x c l u s i v e n e s s o f the D i s s e n t i n g S t o c k h o l d e r s ' A p p r a i s a l R i g h t , (1964), 77 Harv. L. Rev. II89. Wedderburn, K. W., Unreformed Company Law, (1969), 32 Mod. L. Rev. 563. --, Case Comment, (1968), 31 Mod. L. Rev. 688. , Going the Whole Hogg v. Cramphorn, (1967), 30 Mod. L. Rev. 80. , Company Law Reform, (1965)» F a b i a n T r a c t #363. , The Rule i n F o s s v. H a r b o t t l e , ( 1 9 5 7 ) , C.L.J.. 194; (1958) C.L.J. 105. Wesner, C. Thomas, C o r p o r a t i o n s - I n t e r e s t e d D i r e c t o r s D e a l i n g w i t h the C o r p o r a t i o n - The F a i r n e s s D o c t r i n e , (1972), 37 Mo. L. Rev. 531. W i l l i a m s , H. Darden, C o r p o r a t i o n s - S t o c k h o l d e r ' s R i g h t t o Books and Records o f the C o r p o r a t i o n , ( I 9 5 7 ) j 10 A l a . L. Rev. 179 162 Z a b r i s k i e , F . I . , A p p r a i s a l S t a t u t e s - An A n a l y s i s o f Modern Trends, (1952), 38 Va. L. Rev. 915-i 

Cite

Citation Scheme:

        

Citations by CSL (citeproc-js)

Usage Statistics

Share

Embed

Customize your widget with the following options, then copy and paste the code below into the HTML of your page to embed this item in your website.
                        
                            <div id="ubcOpenCollectionsWidgetDisplay">
                            <script id="ubcOpenCollectionsWidget"
                            src="{[{embed.src}]}"
                            data-item="{[{embed.item}]}"
                            data-collection="{[{embed.collection}]}"
                            data-metadata="{[{embed.showMetadata}]}"
                            data-width="{[{embed.width}]}"
                            async >
                            </script>
                            </div>
                        
                    
IIIF logo Our image viewer uses the IIIF 2.0 standard. To load this item in other compatible viewers, use this url:
http://iiif.library.ubc.ca/presentation/dsp.831.1-0077621/manifest

Comment

Related Items