The indemnity that the government has agreed to grant the Board of Directors of the National Gas Company may not be worth the paper it is written on according to three Senior Counsels one of whom is a former Attorney General.
The Senior Counsels insist that under law Corporation Sole has no such power and that the matter is open to judicial review.
They also say that the Keith Rowley Administration is setting a dangerous precedence in granting an indemnity to the Board of Directors of the National Gas Company for spending hundreds of millions of dollars in an ill fated attempted to keep Atlantic LNG Trail 1 operational.
Ramesh Lawrence Maharaj who was part of the debate that brought into being the Companies Act of 1995 told the Business Guardian that it is clear only the company can indemnify the Directors and not the shareholder.
He argued that the shareholder cannot make decisions for the company. This is the sole purview of the directors who are required to act honestly and prudently in the best interest of the company (section 99 (1) of the Companies Act Chap 81:01).
He said, “The effect of all of this is that Corporation Sole may be susceptible to an application for judicial review of his (previous or future decision) to grant an indemnity to NGC directors which has the effect of creating a future liability which rewards wrongdoing. This is because a director does not require an indemnity if he is acting prudently in the company’s best interest (section 99(2)) and, in any event, such an indemnity is given by the company and not the shareholder. Moreover, having regard to the dicta of Bereaux JA in ETECK supra, the indemnity is really to protect NGC directors from future claims by an incoming administration.”
Maharaj noted that in the ETECK matter Justice of Appeal Bereaux made the point that Corporation Sole as a shareholder is not likely to bring a derivative claim under section 240 (1) of the Companies Act against directors appointed by the same government.
He said, “In any event, in light of the political patronage that besets the appointment of directors to the board of state enterprises, it is hardly likely that any derivative action will be taken against directors appointed by a subsisting government.”
Another Senior Counsel who was prepared to speak off the record also supported Maharaj’s point about the inability of Corporation Sole to grant the indemnity. He said, “I have doubts about that, whether his power as Corporation Sole would extend to the giving of an indemnity. I think his corporate powers are restricted to dealing with the assets, for example in the case of shares, voting shares, in the case of other assets doing whatever is directly related to the safe keeping, investment and so on of those assets. I think giving an indemnity is more like a management act and I don’t think extend that way. I think that is the real question we have to grapple with and it would be very interesting to see who is ultimately is the issuer of the indemnity”
He said in a normal setting a shareholder could pass a resolution ratifying the actions, but then that creates a bad precedence in the State enterprise sector.”
“It is a vicious circle, because if someone wanted to take action against the corporation sole for giving giving an indemnity as corporation sole, or indeed for the company giving such indemnity you will be suing yourself because if you get an award of damages or something who you enforcing it against? You enforcing it against the state? We are the state because these asets are held for us. So its a vicious circle because you suing yourself and that is why it is a bad thing to do.” noted the Senior Counsel.
Maharaj insisted that an indemnification cannot be reconciled with Corporation Sole’s responsibility to look after the public’s interest and punish not reward directors who contravene section 99 (1), (2).
He explained that Section 101 (1) of the Companies Act permits a company to indemnify a director against costs, charges and expenses reasonably incurred by him in defending a claim brought against him as a director. This indemnity, however, by section 101 (2) will not apply if the director is guilty of a breach of section 99 (1) and (2).
“Section 3 (1) of the Minister of Finance (Incorporation) Act Chap 69:03 (Tab C) says that all NGC shares are held by Corporation Sole in trust for the State but at section 3 (3), he may be sued in his corporate capacity but only in respect of any real or personal property vested in him. The NGC shares are vested in Corporation Sole as real or personal property.” Maharaj posited.
He pointed to the Cord of Appeal matter between CEPEP and Oropouche MP Dr. Roodal Moonilal and the judgement of Justice of Appeal Mendonca who said, “it cannot be disputed that the central government has a level of control over the Appellant. The Appellant is owned by the State and the Minister of Finance in his capacity as corporation sole is the sole shareholder…However, the board of directors is responsible for the management of the company and it is within the board’s powers, duties and discretion to make a number of decisions that would impact on the business of the company. I accept that the sole shareholder of the company is in a position to exercise control over the directors. But what is the evidence of the shareholder exercising such control? This is not really addressed in any way in the affidavits before the court.”
Another Senior Counsel who also wanted to speak on condition of anonymity said the issue of intent will be a major concern should the government give an indemnity.
He said, “If a Board has to seek an indemnity, then it must raise a red flag as to whether they are exercising their independent, professional judgement and discretion and acting in the best interest of the company which is their primary duty. If i am asking for an indemnity it also raises red flags as to whether I was forced or coerced into doing something that was against my better judgement and knowledge and expertise. If a board takes a decision in their collective wisdom they do no ask for an indemnity”
Karen Nunez-Tesheira who is a former Law Lecturer at the Hugh Wooding Law School and a Former Minister of Finance and Corporation Sole agreed with that point saying it appears the Directors were trying to avoid the Malcolm Jones fate but insisted it was likely the Indemnity could not hold in court.
“Clearly a Director, especially if it is a large company, a national company with importance to T&T your fiduciary responsibilities are enormous, and you expose yourself to legal action being taken by one of the other shareholders, in this case it could be bpTT of Shell or in change of government as we saw with UTT and Professor (Ken) Julien and Malcolm Jones and Petrotrin when the UNC government was in power, so clearly the request for indemnification goes beyond their concern with the current shareholders in Atlantic Trains 1 to 4 but also any successor government should they decide to do what the UNC did.”
The former Corporation Sole added, “I think the indemnity must stand the test of good faith, acting honestly or having reasonable grounds to believe that your conduct was lawful and I am not quite sure given the information that has been disclosed that they may find themselves being able to reach that standard of acting honestly or acting in good faith. So the indemnity may not help them under the statute.”
For Nunez-Tesheira there is a major difference between State owned enterprises and Statutory bodies like WASA.
“Dr Claude Denbow had written an article about the question of State Enterprises being under a separate piece of legislation than the companies Act of 1995, but the fact is the Companies Act says that State Enterprises, which are really state owned companies are governed by the companies Act which provides for indemnification, liability of directors, which was always part of the common law and which had been codified, so having said that State Owned Enterprises fall under the companies Act who is to give indemnification to directors it must be the company.”
Senior Counsel A calls it dodgy in the first and a cross examiner’s dream.
He said , “I do not believe that corporation sole can give an indemnity as corporation sole. He may be party to a resolution that ratifies the act. He can’t put us as taxpayers in the line of fire for directors who are in default.
In what could has turned out to be a major scandal for the government and state-owned National Gas Company, (NGC) confidential correspondence between Finance Minister Colm Imbert and the Board of the NGC showed the Board seeking, and Imbert agreeing, to grant them personal protection against being held to account should the company lose over $440 million in an ill-fated attempt to save Atlantic LNG Train 1.
Thanks to a whistle-blower the Business Guardian obtained letters between Imbert and the Board of the NGC, correspondence among Atlantic LNG shareholders, correspondence between Atlantic LNG’s President and NGC’s President Mark Loquan that all paint a picture of the Train 1 rescue effort being in deep trouble and hundreds of millions of taxpayers dollars at risk.
At the centre of the issue is the NGC and Keith Rowley administration trying to keep Atlantic LNG Train 1 operating in the face of bpTT and Royal Dutch Shell, both the largest shareholders of Atlantic Train 1 and the largest natural gas producers, saying they do not have natural gas to operate Train 1 and it should be shut down.
It must be remembered this was initially happening in December last year and followed several other plants closing under the government’s watch. The NGC said it wanted to keep Train 1 operational even though it has little natural gas of its own, pay for the turnaround (upgrade) and a monthly maintenance fee to keep the plant ready for eventual production if the natural gas could be located.
Highly placed NGC sources say it was a risky strategy led by the NGC’s CEO Mark Loquan and the projected loss to the company was US $64.7 million or TT $440 million.
In a letter dated February 25th 2021 and addressed to Finance Minister Colm Imbert, the Board of the NGC said it had invested, with Imbert’s agreement, US $24.7 million (TT $168M) in what it calls the “ALNG Train 1 rescue package” and wanted permission to spend another US$40 million ($272M) to the end of the year.
The letter read, “Reference is made to our previous discussions on the ALNG Train 1 rescue Package and your previous non-objection to the NGC Funding Agreement with ALNG up to the period March 31, 2021 whereby the sum of US $24.7 million was advanced. I wish to confirm that the Board of Management of NGC met yesterday and approved the further funding agreement with ALNG for the period April 1, 2021 to December 31, 2021 in the sum of US $40 million.”
The letter to Imbert added that the decision was made ‘after review of the various risks including the availability of gas and cash flow and also authorised NGC LNG to sign-off with members of ALNG on the Funding Agreement resolution today’.
As previously indicated both Shell and bpTT, the largest natural gas producers in the country and largest shareholders in Shell, had told the NGC and government since 2020 they did not have gas to keep Train 1 running and with a shortfall in natural gas in the country, including for the Point Lisas Industrial Estate, this was a major risk to the NGC’s plan to keep Train 1 going.
Aware of this and other risks the NGC in the same letter dated February 25th 2021 asked the Minister of Finance to indemnify it, its subsidiary company NGC LNG and the directors personally.
The Chairman of the Board Conrad Enill who signed to the letter and copied in the President of the NGC Mark Loquan wrote to Imbert and said, “We also previously discussed your commitment to indemnify the NGC company and Directors for any claims or losses stemming from the Train 1 rescue package ($168M). Our request is to extend that indemnity to cover ALNG funding for the April 1, 2021 to December 31, 2021. NGC is also required to indemnify its subsidiary NGC LNG which holds the 10 percent interest in Train 1.”
It must be remembered that both Enill and Loquan sit on both Boards and were seeking to be protected on both counts. In addition the late Malcolm Jones was taken to court by the UNC government who sought to hold him personally accountable for decisions he made as Chairman of the Board of Petrotrin and the matter was only discontinued when the PNM got back into power. An indemnity would protect the NGC Board from such a fate.
By letter dated February 8th 2021, two weeks before the February 25th letter referred to earlier, the NGC sent a copy to Imbert of the Indemnity document ‘with the required watermarks’ for the Board and company not to be held liable should the first US24.7 million be lost while the second letter was to indemnify for the US $40 million therefore ensuring they could not be made to pay from their pockets if the deal failed and the entire $440 million was lost.