Raphael John-Lall
A former deputy governor of the Central Bank, Dr Terrence Farrell, believes that corporate governance in state enterprises is flawed and those enterprises exist simply for “political patronage” in T&T.
In August, Farrell spoke at a Caribbean Corporate Governance Institute (CCGI) webinar entitled “Spotlight on directors duties: The SportTT and LifeSport judgment.”
In July, former board members of the Sports Company of Trinidad and Tobago Limited (SporTT) were found in breach of their fiduciary duties for approving a $34 million contract for the now-defunct Life Sport programme.
High Court Judge Ricky Rahim, who delivered his ruling at the Waterfront Judicial Centre, upheld SporTT’s lawsuit against former CEO John Mollenthiel, former chairman Sebastian Paddington and 12 other former directors.
Justice Rahim ruled the board failed to act in SporTT’s best interest when, in December 2012, they approved a contract with eBeam Interact on the instructions of the Ministry of Sport.
Farrell, who is also a lawyer, said that at a State Enterprise Review committee meeting in 2016, he had suggested to the Government that the governance of its state enterprises was flawed.
“It is not going to work. I think SporTT has now demonstrated clearly to directors that they are going to find themselves, and can find themselves, in trouble. And Rahim was very lenient as he said in the judgment he was only going to fine them $40,000. But it could have been more. What is your personal liability in that situation? So, what we recommended in 2016 to the government… which they ignored because state enterprises are there for political patronage. That is what they are there for.”
He also shared the opinion that while the judgment is important, it is not necessarily a “landmark judgement.”
“As far as the judgment is concerned, it is not a landmark judgement. A couple attorneys have called it that. It is not a landmark judgment as it does not produce any novel issues with respect to the law. What Justice Rahim does is apply the law in the context of the Companies Act. In the context of private limited liability companies, he applies that to the particular case.
“Secondly, this SporTT case is not novel. Over the course of the last several years, we have had several cases, some of which had reached the Privy Council. For example, there is the eTecK matter.”
Farrell pointed out that over the last 15 years in T&T, with changes in government, there has been a trend where incoming directors and boards have charged the former boards with breaches of fiduciary duty.
“This is what we have seen with SporTT and with eTecK. Then there is the University of T&T (UTT) and Ken Julien. So, it is not novel. What is different about this one is that people got charged and they got fined and that is what got people’s attention.”
He gave the opinion that State enterprise governance is a complete “different animal” from the governance of private companies.
“They take these enterprises when a new government comes in and they farm them out to the different types of ministries they have and ministers get to decide who is a director and who is this and who is that. They then get to decide who to employ and they can call up the CEO on the phone and tell them that they want to employ this one and want to employ that one and that is how the system works.”
While this has been the culture in T&T for decades, Farrell said that is not the way public companies are managed in First World countries.
“However, the system does not work that way in proper countries. What we said to the government is look at the New Zealand model, or if you like, look at the Norwegian model, two smaller countries and what they have done is on top of the Companies Act. you have a separate piece of legislation, a state-owned enterprises Act that tells and creates a regime for state-owned enterprises.”
Chairman of the CCGI Nigel Romano, who hosted the webinar on August 6, said: “While the monetary awards were modest, I think the ruling serves as a significant deterrent by establishing personal liability for directors who fail to exercise proper oversight. This is a significant case and it ensures that directors do not hide behind ‘well the ministry told me so.’ They cannot rely on that anymore.”
Directors’ responsibilities
Attorney Colin Kangaloo, who also spoke at the webinar, argued that the judgement was all about the duties of directors under section 99 of the Companies Act.
“For me, the most important finding was that directors were not duty bound to follow the directive of the Ministry or shareholder in this case who was the Corporation Sole. The ruling is of general application to all companies incorporated under the Companies Act.”
He listed actions that directors can and should do in the best interest of a company to show a certain level of due diligence and skill.
“Depending on the nature of the company and the business of the company, these are some of the duties of a company that would go a long way in helping them to act in accordance with section 99.
“Firstly, they have to attend meetings and if they can’t attend directors’ meetings, they must have a good reason for not attending directors’ meetings.
“Secondly, the minutes from the meetings, you have to acquaint yourselves as directors with the minutes of the meetings and you have to know those minutes intimately.”
He encouraged directors to understand the industries in which their companies operate in.
“You must understand the business of your company and not only understand the business of the company but you also have to stay informed about the developments of the business of that company.
“Fourthly, it is the director’s duty to review and understand financial information and statements that come to you as a director of a company.
“The fifth thing is that the director is mandated to safeguard a company’s assets.”
He also advised directors to avoid conflicts of interest.
“Especially in relation to contracts. You cannot benefit or should not benefit from contracts in relation to the company, unless of course there is full disclosure.
“Finally, and this may seem unimportant, but actually it is one of the most important things, it is your duty as a director to ask questions because you just can’t sit back, remain silent and not ask questions. Those are some practical aspects of acting in the best interest of the company.”
