The Supreme Court decision in Brilliant Investments Limited v Jennifer Messado, Jennifer Braham and Rory Chinn [2019] JMCC COMM. 26 placed an important thumbprint on the development of commercial and company law in Jamaica. Though case addressed varied issues such as the question of agency, the nature of contract and fraud, this article focuses on the question of the duty of care owed by nominee directors and breach of trust.
THE FACTS OF THE CASE
Brilliant Investments Limited (“Brilliant”) was incorporated in 2005 by former Attorney-at-law Mrs Jennifer Messado (“Messado”) on the instructions of her client Mr. Paul Morrison (“Morrison”). For reasons not clearly outlined, Messado and Morrison agreed to appoint Mrs Jennifer Braham (“Braham”) as Brilliant’s sole shareholder and director. All parties understood that Braham would be acting solely as the nominee of Morrison.
Braham was at all material times an employee of the former law firm of Jennifer Messado & Co of which Messado was a Partner. Braham had been employed for approximately 40 years in different capacities, but at the time of incorporation of Brilliant, she was Messados’ personal assistant.
In July 2016, further to Morrison’s instructions an additional three shares were issued. These were also held by Braham who on the same day, executed a declaration of trust confirming that she held all four shares in Brilliant on trust for Morrison.
Over time, several properties were acquired on behalf on Brilliant by Messado transacting as Attorney and with Braham, signing whatever document that she was told to sign. The properties subject to the lawsuit were two lots in Forest Hill and one in Grove Park Avenue. Seemingly having fallen on hard times, Messado, by her own account, agreed with the third defendant, Mr. Rory Chinn, to transfer the lots in question to him for a loan he had advanced. The shift of ownership of the properties in question, away from Brilliant to Mr. Chinn, were signed for by Braham as sole director, without the knowledge and consent of Morrison. It was these transfers that provided the genesis of the claim.
BRAHAM’S DEFENCE
Braham contended that Messado had the necessary authority, expressed or ostensibly so, to instruct her to sign the transfers in question. Braham argued that she genuinely believed Messado was authorized to provide her with instructions to exercise her powers on behalf of Brilliant and to cause her to believe that the instructions were given in accordance with the best interest of Brilliant.
Braham insisted through counsel, that she was a lay person with no legal understanding and possessed no special knowledge or experience which would have assisted her in relying on the instructions she received. It was further argued that having regard to the general relaxed nature in which Brilliant’s business was conducted and the admission by Brilliant that Messado was indeed its Attorney-at-Law, Braham exercised the requisite duty of care in executing the relevant documents as Brilliant’s director.
NOMINEE DIRECTORS AND DUTY OF CARE
Though no claim had been made against Braham for breach of fiduciary duty, the Court felt that an analysis of her conduct would serve as a “backdrop and barometer” to assess whether Braham committed breach of trust and offer guidance on this area of the law relating to nominees.
In the judgment, Justice Laing discredited Braham’s claim that her lack of experience and skill, and the usual practice of instructions to her flowing from Messado, justified her concluding that the instructions originally emanated from Morrison. According to Justice Laing, this defence appeared to be the same as “giving effect, blindly and ignorantly, to others’ instructions”. Having such an approach was criticised in the Privy Council case of Central Bank of Ecuador and others v Conticorp SA and others [2016] 1 BCLC 26 (“Bank of Ecuador case”) where it was found to be a poor defence to any breach of duty claim.
DIRECTOR’S DUTIES IN JAMAICA
The law relating to the duties of company directors is well established in section 174 of the Companies Act. The question arises however as to whether nominee directors are subject to the same duty of care?
The cases of Boulting v Association of Cinematograph Television and Allied Technicians [1963] 1 All ER 716 and Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 2 All ER 1073 referred to by the first instance Judge in Central Bank of Ecuador case, demonstrate that “nominee directors do not constitute a separate class of directors”. They owe the same duty of care to the company and are held to the same standard as other directors to act in the best interests of the company.
In determining what are the best interests of the company, there must be some consideration given and cannot merely be an artificial rubber-stamping exercise. Therefore, even if
the instructions to enter into the transaction with Mr. Chinn had been received by Braham directly from Morrison as beneficial shareholder, she was still under a duty as Director to assess the transaction and to not blindly enter it.
What then about receiving instructions from Messado?
Justice Laing accepted that Messado, as an Attorney-at-law, had considerable influence over Braham. He noted that Messado admitted during cross examination that she had control over most of Braham’s actions in the office and certainly as it related to Brilliant. Braham had worked with Messado since the age of 18 and for over 40 years. It was evident from Braham’s demeanour during the trial and the manner of her responses to questions in cross examination that Messado clearly had a strong, assertive bordering on domineering, personality. The relationship between Messado and Braham was also clearly reflected in the evidence of Braham that in respect of the documents relating to the relevant properties and the transaction with Mr Chinn, she simply signed documents presented to her and made no attempt to understand what the transaction was about, on even the most basic level.
The judge was highly critical of this naïve approach. In the words of Justice Laing:
“I do appreciate that having regard to her skill sets, she may not have been able to understand the intricacies of the transaction but that is not an excuse not to make a reasonable enquiry.”
He added:
“I find that Ms Braham unwittingly became caught up in Mrs Messado’s scheme in which the Relevant Properties of Brilliant were misused. However, the authorities make it clear that her lack of intention is not a defence to a claim for breach of duty of care in circumstances such as these. Ms Braham is the author of her own misfortune. She willingly consented to become a nominee director and nominee shareholder of Brilliant and it is not an adequate response for her as a director to say I did not know what I was doing, I was simply blindly following instructions of the Company’s lawyer. Accordingly, on the facts of this case, Ms Braham would be guilty of a breach of fiduciary duty to Brilliant.”
As to whether Braham was liable for the claim of breach of trust, Justice Laing noted that what was clear from an examination of the authorities was that although it is widely accepted that directors are not trustees in the strictest of senses, they can nevertheless be held liable for breach of trust.
Halsbury’s Laws of England/Companies (Volume 14 (2016) Liabilities of Directors states:
“Although the directors of a company are not properly speaking trustees, they have always been considered and treated as trustees of company money or property which comes into their hands or which is under their control. A director who has misapplied or retained or become liable or accountable for any money or property of the company is treated as having committed a breach of trust and must make good the money or property so misapplied and account for any gains made by him.”
CONCLUSION
Justice Laing concluded that Braham, in addition to breaching her fiduciary duties as a director to Brilliant, was also on a balance of probabilities guilty of breach of trust, even though he did not find that she had acted fraudulently.
The lessons for nominee directors from the case are clear. If you are named as a director or are a nominee director, you become responsible for all actions and consequences. You cannot enter blindly into transactions. It is no defence to state you were unaware of the meaning or legalities of your actions or that you were influenced by someone else pulling the strings. It is also irrelevant whether you benefit economically or not or whether your actions were fraudulent.
To understand fully the role and responsibilities of Directors (nominated or not) and what fiduciary duties are and how they link to breach of trust, contact us and ask to speak with an attorney.
