Learning Corporate Law: Passing the DeathGameCyberTest



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PROLEMS
1. Under ‘identification’ theory, for a corporation to be criminally liable, the individual human being who committed the offence must be the ‘ego’ or ‘directing mind’ of the corporation. Director, senior officers and others clearly fall within this category. In what circumstances can an employee be ‘merged’ with the identity of the corporation so that corporate criminal liability will follow?
2. For strict liability offences and assuming the Crown proves the actus reus of the offence, are there any defences that a corporation can offer?
3. Can a restriction in the corporate constitution (articles of incorporation, by-laws, etc.) ever permit a corporation to argue that its corporate transaction was ultra vires?
4. What is the common law test to determine whether a corporate principal has provided ostensible authority to its agent?
5. A corporation cannot be bound by a contract entered into prior to its existence. When can an agent or representative purporting to act for an as-yet-non-existent corporation be held personally liable on a contract entered into for the benefit of the corporation?

Chapter 3
Cheaters Never Prosper
T-Bird was panicking.

“Look at these questions!” he sputtered. “Inside versus outside directors, common law and statutory fiduciary duties… I can’t answer this stuff! I haven’t done a pop quiz since my dad sued my grade eight teacher for forcing it on me!”

“Yeah, but think about what a great law suit your daddy’s going to have when you’re nothing but sand,” Molly cooed from several rows over. Next to her Henry’s fingers danced as he typed in his answers.

For the briefest second T-Bird’s fevered mind leapt on the hope in this. “Yeah… yeah he’ll sue the hell out of them and… and…”

He stopped, realizing the implication.

Molly cackled. “You are soooo screwed.”

“I am not!” T-Bird replied, sounding more like a spoiled toddler than a law student. “Besides, if I’m screwed then you’re screwed too.”

“I study,” Molly laughed back. “It’s what us regular people do when we don’t have rich daddies to load our brains with techware.”

“It’s not my fault,” T-Bird persisted, his strong neck muscles flared. “I have a final coming up and had to download five terabytes into my brain to get ready for it.” He reached back with his right hand and patted the chrome port implant beneath his hairline. “All that data is weighing me down.”

“Maybe you need to take a data dump!” laughed Molly.

“Fine,” T-Bird said, getting up from his seat. “I’ll just use your answers.”

He had almost made it to her desk when the female computer voice returned:



Warning. Proctor protocols are in force.

T-Bird was too intent on getting the answers to pay it any heed. Molly just sighed as he pushed his way to her console.

He had read two lines of her text before he noticed that the air around smelled of cinders. Small sparks of electricity seemed to be popping off of him.

He had enough time to say, “What the—”

The electricity coalesced, formed a brief barrier around him, then sent a jolt through his body that could put down a small water buffalo. He flew ten feet, coming to a very hard landing between two desks. He lay on his back, groaning. In real-world, he likely would have broken several ribs. In the simulation, he just felt like he had.

Cheating is forbidden,’ the soft computer-voice said. ‘This school’s academic dishonesty rules allow for one warning before final judgment is passed. This has been your one warning.’

T-Bird was winded and in pain, but still alive. He rolled on his side with the intent of getting up, but decided to stay planted for the moment. Molly had already shrugged and gone back to her work.

“Terrence?” Tate called from the podium. T-Bird lifted one arm high so the professor could see it above the desk. A second later he lifted the thumb.

“I’m good. I’m good,” T-Bird said. “I’m going to be dust in a couple minutes, but I’m good.”

“The clock still has over ten minutes on it. If you can’t get the answers from Ms. Millions, you really need to get back to your own console and do what you can. Do you need help?”

Henry was already on his feet. T-Bird waved him off, preferring to get back to his desk under his own power. He rolled over, got on all fours, and began a slow crawl.

“Just like Frosh week,” he said from the floor.

Moments later Tate saw the chair at T-Bird’s console turn of its own accord. T-Bird pulled himself up on it.

“You’re alright, Terrence?” Tate asked.

“Not even close,” he answered, looking at the questions in front of him.

Henry had returned to his station, but had not sat down yet. Tate turned his attention to him. “You’re not working?”

“I’ve been done for about five minutes,” Henry said. “I was hoping we could talk a moment?”

Tate nodded and signalled for Henry to make his way up to the dais.

“Professor, I wanted to talk to you about my theory, he said as he got closer. “As you know, Canada Homeland Security requires all telepaths to be registered and receive dampening drugs to inhibit their abilities.”

“I am aware,” Tate said. “The legality of such a decree is still debated. It’s a classic case of the rights of the many versus the rights of the individual.”

“Yeah, but it wasn’t just ‘the many’. When that telepath in India got into the minds of senior Pakistani personnel he almost triggered doomsday.”

As he considered his response, the Professor took off his sports coat and draped over the back of a white chair next to his podium. He rolled up the sleeves of his shirt before continuing, “Still, deeming all telepaths to be dangerous because of the actions of one man reverses the presumption of innocence. We certainly wouldn’t punish all boxers if one beat a man to death. We wouldn’t make thinking illegal if one man devised a scheme to kill everyone. It’s only the nature of the ability that allows the public to perceive it as culpable. The fact remains that techware now grants telepathic abilities to a small fraction of humanity born with latent genetic predispositions. Why is this such a bad thing? As I say, the law is one that many still oppose.”

“Granted,” Henry said. “But the legality has nothing to do with my theory of what’s happening here. If we have a telepath in the room, he or she might not even know they’re controlling all this. The VR chip could be picking up the telepath’s brain waves.”

“It could do that?”

“I think so. The system is designed to use the same sort of relay that telepaths would use if they weren’t doped. See, our brainwaves are transformed into neurotransmitters at the synapse. The V-chip was designed to overwhelm the synapse with a focused EM wave. That way the person’s own reality is kind of pushed out before they have a chance to experience it. In its place, the digitized information we project becomes their reality because they don’t have anything else in their brain. It’s total 360 immersion because all the other data is gone and the brain works with what we give it. Problem is, a strong enough telepath could do the same thing; use the EM wave to project their thought-reality directly into our brains.”

The Professor arched a grey-streaked eyebrow. “That would take a very powerful telepath indeed. Assuming your theory is correct, and assuming we can find this telepath, how do we get them to shut it down?”

“I don’t know,” Henry said. “Maybe have a nap? But even then the VR could still be broadcast from the sleeping mind of the telepath. If the theory is true, the telepath is likely unaware that he or she is acting as a kind of broadcast node. Freud said that dreams represent our secret desires. He felt that emotions buried in subconscious tend to surface in disguised ways during dreaming. So maybe, if there is a telepath in the class then he or she is projecting a secret fantasy.”

Tate cleared his throat, but was cut off by Molly.

Oh come on!” she screamed at the display. Then, noticing that everyone was now looking at her, she explained: “What? The message changed. It now says we only have five minutes. I’m running out of time.”

All the students glanced at their screens, and the class immediately erupted in panic. It seemed like every student began talking at once: “I don’t think I got them right.” “I need more time.” “This is crazy, absolute madness.” “I knew I should have taken Law and the Sea.”

Tate hit the podium hard, silencing the melee. “Focus, people. Finish your answers as best you can as quickly as you can. Computers don’t care about complaints.”

“Doesn’t matter. I’m toast,” T-Bird said loudly, a thick vein began to pulse on his forehead. “And I heard you talking to Henry—don’t forget I had my ears upgraded years ago. All of this because of some damn telepath? Who is it? We need to track this person down.”

“There’s no time,” Tate said. “Finish your answer Terrence.”

“You can’t do what you can’t do,” T-Bird explained. “I don’t know half the right answers…”

The time ran out as T-Bird spoke, he disappeared mid-sentence into a cloud of shimmering sand. Henry wasn’t sure if the effect was faster this time, or he just wasn’t as close to it. Either way, it seemed almost instant to him. One second the room had eighteen people, the next he was watching twelve white statues disintegrate into piles of sand. No last words. No cries.

“Oh God,” Henry gasped. The remaining students uttered similar sentiments; each with a dazed horrified expression. Even Molly bit her bottom lip then murmured, “Feeling worse and worse about all this.”

The disembodied voice returned, ‘You will complete all assignments in a correct and efficient manner. Failure to do so will result in your immediate death.’

“Another problem,” Henry said to no one in particular.

Several minutes passed before he looked up: there was Tate, staring as if transfixed at the screen mounted at the top of his podium and spoke again. The final review display read:

‘We have studied corporate personality: how is the baby born (by filing articles of incorporation), when is the baby born (by looking to the date on its birth certificate—the Certificate of Incorporation—or, as intended by the parties via contract), even what happens to the baby while it gestates (by examining pre-incorporation contracts).

Now we turn to the main course. What are the main legal rules that govern the interaction of the three core corporate actors: (a) the corporation/baby; (b) the directors/baby’s brain; and (c) the shareholders/parents.

We know that directors are vested with the power to manage corporations. But we also know that directors are human beings; they may be tempted to steal corporate assets, sell corporate secrets, laze about, and so on. We therefore use corporate law to bind the directors to the best interests of the corporation—we mainly do this by imposing fiduciary-like duties on them, including duties of care and loyalty. The main rules are found within corporate law statutes such as the Canada Business Corporation Act.

Returning to our baby analogy, sometimes the baby’s brain encourages things that could harm the baby; for example, by telling the baby to touch a hot stove element. Parents create rules and punishment to shape how the baby’s brain thinks. Maybe they give the baby a time out when he goes to touch the hot stove.

Like these rules, corporate rules operate in the background; they provide the rules of the game that constrain directors’ management prerogative to ensure that they act in the best interests of the corporation. But these directors and the officers they appoint still maintain sufficient flexibility to manage the corporation as long as they (a) are reasonably diligent in supervising and managing the corporation under the duty of care; and (b) abstain from self-dealing, conflicts of interests and so on under the duty of loyalty.’

Near the end of this part of the review, the script font was again raised above the other words and set out in hot-pink script: ‘See how the parent/shareholders defer to the directors who are charged with protecting the best interests of the baby/corporation. If the baby was born different, you wouldn’t throw it away would you? Of course not!’

Seeing that the Professor was preoccupied, Henry leaned over to whisper to Molly. “The question gives us fifteen minutes. We have that long to figure out who the telepath is. That’s got to be our priority.”

“Tate,” Molly said lightly as she typed.

“What?” Henry asked.

She stopped typing and reached down with her right hand to scratch her leg above the pull tab at the top of her now-white leather boots. Then she reached up to sweep aside a long black bang. “Come on… It’s obviously the professor. He’s the only one that’s not at risk. No one invents a game where they’re going to go through hell and probably die, even subconsciously. So it’s gotta be him.”

Henry nodded. “When did you figure this out?”

“Seemed kind of obvious from the start, really. But when you tossed in that bit about a telepath, only a moron could miss that it had to be Professor Tate. Oh—wait… You missed it, didn’t you?”

Tate took a step back from his podium, visibly shaken. He regained his composure to glare down at his two students, his face now twisted in anger.

“Yes, I’ve been listening to your puny minds. And I don’t like what I’m hearing.”

Problems

1. Describe agency costs in the context of directors and their efforts on behalf of shareholders and others.


2. Under s. 122(1)(b), directors and officers, in discharging their duties, must exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Have Canadian courts interpreted this provision to be an objective or subjective test of the actions of directors and officers?
3. Under s. 122(1)(a), directors and officers, in discharging their duties, must act honestly and in good faith with a view to the best interests of the corporation. Do creditors have direct recourse for a breach of this provision? Why or why not?
4. Courts generally defer to management decision-making under the business judgment rule. Is this a rule of law in Canada?
5. What is the process under the CBCA to permit certain self-dealing transactions by directors?
6. What is the role of independent directors? Are they in fact less biased and more objective than inside directors?

Chapter 4
The Witch Hunt
“This is gone far enough,” Tate said, trying to affirm an air of authority. It didn’t work.

“It was you all along!” Henry said out loud.

Molly looked up from her work toward the Professor. “I figure it’s emotional. Right before everything changed you were angry with T-Bird. From what I’ve read, emotions can put telepaths into overdrive.”

Henry shuddered. “We’ve got to do something.”

Tate interjected. “I suggest you both worry about the problem, and forget about figuring out the VR for now. These questions are easier than the last ones, so we shouldn’t have any more… problems. Remember, there are only a few minutes left.”

“Problems?!” Henry spat out. “Our lives could be at risk.”

“I don’t think this is a dire as you seem to think it is,” Tate said.

Molly was already typing. Seeing no other choice, Henry acquiesced and went back to his console.

“We have to stop this,” he said to Molly as he typed. She ignored him.

Henry was done a full five minutes before the others. As soon as he typed the last line in his answer he stood, and walked directly back to Tate at the podium.

“You are responsible for this VR world,” he said. It wasn’t a question.

“Even if I were, this isn’t my fault. You said it yourself; I’m not responsible for my subconscious. I’m not in charge of my id. If anyone shoulders responsibility here I’d say it’s you for bringing an untried, untested beta-unit into a classroom. The telepath glitch is probably why your uncle’s company hasn’t released the Ultimate Gamer yet.”

Henry’s blood boiled. “You are the one who didn’t register as a telepath. If you had been on those dampening drugs then none of this would have happened.”

Tate sneered at Henry, his eyes were hard and uncompromising. “I’ve been teaching thirty years without those drugs, and until you brought that unit into my class there was never an incident.”

Henry whirled to see the student in the orange t-shirt standing behind his desk. “I don’t think I’ve got the right answers,” the student said between labored breaths, his eyes bugged out. He looked around the room at his classmates, then toward Tate. “There’s only a minute left. Help me!” he implored.

“I ...” Tate began, then stopped and looked at the floor.

Henry shook his head then returned to his desk. He turned to look over at Molly for help, but she was amusing herself with something on her screen.

When the count-down reached zero, the student in the orange t-shirt started to jump up, but never made it. A shower of white sand poured down on the spot where his foot would have landed. Another student, dressed in a red turtleneck, gurgled loudly then slumped in her chair; a string of spittle ran from the corner of her mouth. She shimmered for a moment then disappeared.

You will complete all assignments in a correct and efficient manner. Failure to do so will result in your immediate death.’

Another set of problems appeared.

Henry gritted his teeth, and looked out toward Tate. There he was again, staring as if transfixed at the glowing review notes on the screen mounted on the lectern:
‘Another important matter we discussed was the role of shareholders. As we have seen, shareholders can be analogized with parents; they indirectly control the baby/corporation by electing members of the board of directors (who directly manage the corporation). Under general principles, a corporation is run like a democracy: shareholders who own a majority of ‘voting shares’ (typically common shares) can elect a majority of the members of the board of directors. Similarly, the holder(s) of the majority of voting shares can, if needed, call a special shareholders meeting to fire and replace directors they feel are not doing a good job (or, at least, following the needs of the majority shareholders).

The Canada Business Corporations Act has a number of provisions to ensure that shareholders can call a meeting and vote as they see fit; the power to vote, apart from a unanimous shareholder agreement, can only be exercised in meetings. These detailed procedural protections are important as they enable shareholders to exercise their most important legal power to exert control over the corporation, namely the right to vote.

If a shareholder cannot attend a shareholders meeting, then he or she can appoint a proxyholder to vote as directed by the shareholder’s proxy. Here again detailed rules govern proxies as well as the ability for shareholders to include their own proposals in management’s proxy circular.

Finally, in certain cases the shareholder/parents are entitled to exert direct influence over management decisions. For instance, a management decision to sell all or most of the property of a corporation requires approval by a special resolutions—two-thirds or more of the shareholder votes (s. 189(3) of the CBCA). Similarly, approval by shareholder special resolution is needed before a corporation can be voluntarily dissolved (s. 211(1)).’

[at the end of this chapter are examples of a directors’ resolution and a shareholders’ resolution to show how directors and shareholders can approve the sale of all or almost all of a corporation’s assets]

Then, once again, the script was raised and written in hot pink: “I like it here, I’m in control. Now I see why the normals hate me. I am strong and they are weak. I must crush them like ants.’


“This is insane,” Henry groaned. He looked to make sure the others were still with them. There were four students left plus Tate. The students were already working on the next problems. To Henry’s surprise Molly was already looking his way with a bemused look on her face.

“You’re really worried about all this, aren’t you?” she said to him.

“You don’t get it. You die in V-world, you die in reality.”

“Where’d you learn that, Star Trek?”

“It’s… physiological. The shock shuts your system down.”

“Which episode?” she said. Henry was about to dismiss her when she unexpectedly leaned toward him. She regarded him, sizing him up.

“You really do believe this, don’t you?” she said. To Henry’s astonishment her smile was warm now, her voice softer, almost intimate. She was leaning in closer than Henry ever thought he’d get to her without being punched.

“It’s… dangerous,” he said.

“I know you think it is. But not to you. You’re the Brainiac. You know you’re going to get the answers right every time. But you’re getting all upset trying to save the rest of us. You actually care. That’s kind of… sexy.”

“You. It’s. With the. I’m…”

“I like it,” she whispered in his ear before moving back to her own console.

Several minutes passed before Henry’s blood pressure dropped back to normal. When it did, he turned to the screen to work on the latest problem. He’d been working for ten minutes when Molly stopped typing and looked over at him. He was disappointed to see that she was sitting at a normal, respectable distance in the chair next to him.

“Know any way around the cheating thing?” she asked.

“The proctor protocols? No, why?”

“Cuz I think I’m going to lose, and I hate losing. I can’t make heads or tails of one of these questions.”

“You’re not going to get it done!?” Henry said, genuine fear rising in him. After swallowing hard, he continued, “I have to kill Professor Tate.”

Molly tilted her head, Henry could see she was humming softly.

“It’s the only way to save you,” Henry said. “It doesn’t matter if Tate is doing this consciously or subconsciously. If he’s dead, both sources shut down. The VR would default back to ‘off.’”

“So you’re going to kill the professor?” Molly said blankly.

“It’s the only way.”

As Henry rose to confront Tate, Molly sat back in her chair. “This is going to be worth seeing.” She began humming once again.

Tate smirked as Henry approached. Henry was always a smart one. Even if Tate could not read minds, from the way Henry was gripping the Ultimate Gamer in his hand, Tate assumed that he intended to bash his skull in with it.

“Professor Tate?” Henry said, moving close. “I need to speak to you about—”

Tate aimed well. As soon as Henry was directly in front of him, the professor blinked and the lectern shot forward, connecting solidly with the left side of Henry’s face. He went down hard, the Ultimate Gamer spun from his hand and rolled until stopped by a classroom wall. Henry quickly recovered and tried to rise from the floor but his arms and legs refused to obey his commands.

“Nice try,” Tate said, moving quickly off the dais. In moments he was beside Henry’s sprawled form, pressing the heel of his Oxford into his neck. “I always liked you, Henry. But if it comes down to you or me, it’s going to be me. You see, this VR has not only preserved my telepathic abilities, it has enhanced my telekenetic ones. I feel differently too, I’m not nervous any more. No longer terrifed that someone will figure out I’m a telepath and expose me. And I’m more powerful now. Throwing that lectern with my mind is a mere parlour trick compared to what I’m capable of in this world.”

Tate looked up to see Molly rising from her chair.

“Not so fast, Molly or should I say Steppin’ Razor as they call you back on Zion, that rebellious Rastafarian space station where your late parents came from. I’m well aware of your lethal razor-blades, and your lack of hygiene when it comes to trimming your fingernails. ”

Molly grimaced then plopped back in her chair. She strained against the desk with her arms but her legs remained stuck in the chair as if crazy-glued.

“I can’t move!” a remaining student yelled.

“Me too,” another the row behind Molly said as he pushed against the desk.

“There, there,” Tate said. “I have immobilized all of you, just as I have done to Henry. Stay put and I’ll deal with the four of you in a moment. I like this new VR world, and have plenty of experiments in mind so I’m afraid none of you will be permitted to survive. First I need to take care of something.”

Tate lifted his foot, intending to bring it back down in a crushing blow. Henry squeezed his eyes shut.



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