Does the Business Judgement Rule protect decision based on AI?

The Business Judgement Rule is a legal principle that protects directors of a company from personal liability to the company for loss incurred in business transactions that are within their authority and power to make when sufficient evidence demonstrates that the transactions were made in good faith.

The rule consists of a rebuttable presumption that a director, when making a business decision, has acted on an informed basis, in good faith, in the honest belief that the action taken was in the best interests of the company and either had no conflict of interest in relation to the matter or complied with the rules on conflict of interest.

Is the requirement that the director “has acted on an informed basis” satisfied when the decision taken is based on enquiries made, and answers given, utilising Artificial Intelligence?

In order to ascertain whether a director would be meeting the requirement of being “reasonably informed” I asked ChatGBT what reasonable steps I should take to see if the answers that it gives me are correct??ChatGBT responded:

“As an AI language model, ChatGPT generates its responses based on patterns and correlations found in large amounts of text data. While its responses are often informative and accurate, it is always a good idea to verify its answers to ensure that the information is correct and applicable to your specific situation. Here are some reasonable steps you can take to verify the accuracy of ChatGPT's responses:

Check the sources: ChatGPT provides sources for some of its answers. You can click on the link to verify the information and ensure that it comes from a reputable source.

Cross-check the information: You can cross-check the information provided by ChatGPT with other sources, such as books, articles, or other reputable websites. If the information is consistent across multiple sources, it is more likely to be accurate.

Ask an expert: If the information is critical, you can ask an expert in the field to confirm the accuracy of the information provided by ChatGPT. Experts can provide more nuanced information that might not be captured in ChatGPT's response.

Use common sense: Use your common sense to evaluate the information provided by ChatGPT. If it seems implausible or inconsistent with what you already know, it might be worth verifying with other sources or an expert.

By following these steps, you can ensure that the information provided by ChatGPT is accurate and applicable to your specific situation.”

ChatGBT correctly, in my opinion, responded that the sources are to be checked, the information to be cross-checked, experts are to be consulted and common sense to be used.

This article should serve as a warning that the requirements of the Business Judgement Rule will not be satisfied if it transpires that a director’s response is based upon an answer given by Artificial Intelligence without having followed the steps recommended by ChatGBT having been taken, at the very least.

Bearing in mind that essentially the rule operates a mechanism that shields directors from civil liability originating from corporate transactions concluded in good faith and upon an informed basis, for the best interest of the company, in circumstances where the decision-maker had no personal interest in the outcome, it would be extremely foolish not to follow the recommended steps set out above and lose the shield which the Business Judgement Rule gives from civil liability provided that all of the other requirements are met.?

May 2023