Director's Duties - Key cases and Legislation

Question 1

Bristol and West Building Society v Mothew

Answer 1

Millet LJ - Fiduciary = loyalty

Question 2

Percivil v Wright [1902] (Chancery Division)

Answer 2

Swinfen Eady J:
- Great Eastern Ry Co v Turner (Lord Selborne) and In Re Forest of Dean Mining Co (Jessel MR) – Directors are trustees of company and company property/assets
- Endorsed in York and North Midland Ry Co v Hudson and Parker v McKenna - Act bona fide and dispose of shares in the best interests of the company. Not allot shares to themselves or friends at a lower price for personal benefit.
- Contention - No legal authority and unworkable implications
- Present case

Question 3

Section 227

Answer 3

Directors owe their duties to the company

Question 4

Section 228

Answer 4

Principal fiduciary duties of directors

Question 5

Dawson International plc v. Coats Paton plc

Answer 5

Lord Cullen stated “What is in the interests of current shareholders who are sellers of their shares may not necessarily coincide with what is in the interests of the company. The creation of parallel duties could lead to conflict. Directors have but one master, the company

Question 6

Walker v Wimborne

Answer 6

Mason J - SH and creditors - Consequences for the company

Question 7

Re Frederick Inns [1993] (SC)

Answer 7

Blayney J:
- Lecture quotes
- Ayerst v. C & K (Construction) Ltd. – Templeman J cited James LJ in Re Oriental Inland Stream Co = English Act – Winding up company, preserve assets
- Street CJ’s judgment in Kinsela v Russell Kinsela

Question 8

Section 224

Answer 8

Directors’ duties to employees - Regard to their interests but company only enforce a breach of this fiduciary duty

Question 9

Allen v Hyatt

Answer 9

Privy Council - Fiduciary duty where they have expressly undertaken certain obligations as finding of agency

Question 10

Coleman v Myers (NZ CoA)

Answer 10

Woodhouse J:
- Circumstances and nature of responsibility
- Factors:
i) Dependence upon information and advice,
ii) Relationship of confidence
iii) Significance of some particular transaction for the partie
iv) Extent of any positive action taken by or on behalf of the director or directors to promote it.
- Expressly adopted in Ireland by both the High and Supreme Court in Crindle Investments v. Wymes

Question 11

Re W&M Roith Ltd

Answer 11

Plowman K:
- Eve J in In Re Lee, Behrens and Co Ltd (also concerning the grant of a pension by a company) – Company’s money can only be spent for purposes reasonably incidental to the carrying on of the company’s business; Ask three questions
(i) Is the transaction reasonably incidental to the carrying on of the company’s business? – Yes as standard method of director remuneration
(ii) Is it a bona fide transaction? – No evidence to the contrary
(iii) Is it done for the benefit and to promote the prosperity of the company?”
- Current case - Not to the benefit of the company

Question 12

Nash v Lancegaye (Ireland) Ltd

Answer 12

Dixon J set aside an issue of shares which he found had been made by the majority of the directors with the ulterior motive of ensuring the continued control of the company by a particular family.

The resolution authorising the distribution was held to be invalid, and an abuse of the directors’ fiduciary powers.

Question 13

Clark v Workman

Answer 13

Board approval for share transfer; Can’t fetter ability to act in the best interests of the company

Question 14

G & S Doherty Ltd v. Doherty [1968] (HC)

Answer 14

Henchy J - Decision of 3 directors to remove the majority shareholder from his position as MD was valid, but their further action to make an allotment of shares in which he was unable to participate, and which reduced him to the status of a minority shareholder was an improper use of their fiduciary powers, and was not bona fide for the benefit of the company as a whole.

Question 15

Keech v Sandford [1726] (The Romford Market Case)

Answer 15

Lord Chancellor - Account of profits as negative consequences for the cest-qui-use if otherwise

Question 16

Regal (Hastings) Ltd v. Gulliver [1942] (HoL)

Answer 16

Viscount Sankey:
- Keech v Sandford
- Aberdeen Ry Co v Blocky Brothers – Lord Cransworth – Corporate bodies act by agents
- Imperial Hydropathic Hotel Co., Blackpool v. Hampson - Even if full knowledge
- Present case
Lord Russell:
- Parker v McKenna - Bought remaining shares profit
- Imperial Mercantile Credit Association (Liquidators) v Coleman - Commission
- Resolution
Lord McMillan:
- Principles of Equity by Kames
- Two criteria

Question 17

AIB v Diamond (HC) [2011]

Answer 17

Regal (Hastings) approved in Ireland where Clarke J. cited Lord Russell when he stated that:

“ the liability arises from the mere fact of a profit having…been made. The profiteer, however honest and well intentioned, cannot escape the risk of being called to account.”

Question 18

Industrial Development Consultants v Cooley [1971]

Answer 18

Roskill J:
- Bell case – Lord Blanesburgh – Need to have used company property or confidential information learned as company director
- Buckley on the Companies Acts
- Lord Upjohn in Phipps v Boardman - Four propositions
- Liquidators of Imperial Mercantile Credit Association v. Coleman – Malins VC – Duty of directors to conduct themselves for the benefit of their companies and disregard own private interests where conflict of interest
- Parker v McKenna – James LJ – No profit without consent – No injury requirement as duty not to cause such an injury
- Present case – Fiduciary relationship, put himself into conflicted duty position, duty to pass on information; Substitute of himself instead of he company

Question 19

Canadian Aero Services v O’Malley and Zarzycki [1973] (SC)

Answer 19

Laskin J:
- Gower, Principles of Modern Company Law = “ Duties apply equally to any officials of the company who are authorized to act on its behalf, and in particular to those acting in a managerial capacity”.
- Endorsed Regal Hastings Ltd in Zwicker v Stanbury
- Director can’t make profit even where not open to company for example by reason of legal disability – Phipps v Boardman; IDC v Cooley – Where resignation is prompted for business opportunity and this is not disclosed
- HC Australia in Furs Ltd v Tomkies
- Albert A Volk Inc v Fleschner Bros – Can seek BO after severing ties with employer; Liability established where comes upon BO in the course of DD because of fiduciary position; No use of confidential information
- Factors to consider:
i) Position or office held
ii) Nature of the corporate opportunity - its ripeness, its specificness and the director’s or managerial officer’s relation to it,
iii) Amount of knowledge possessed
iv) Circumstances in which it was obtained and whether it was special or, indeed, even private, v) Time in the continuation of fiduciary duty where the alleged breach occurs after termination of the relationship with the company
vi) Circumstances under which the relationship was terminated, that is whether by retirement or resignation or discharge.

Question 20

Peso Silver Mines Ltd v. Cropper [1966] (Canada SC)

Answer 20

Cartwright J:
- Regal endorsed by Canada SC in Zwicker v Stanbury and Midcon Oil & Gas Ltd. v. New British Dominion Oil
- Midcon case – Locke J endorsed Russell J in Regal; Lord MacMillian = The plaintiff company has to establish two things, (i) that what the directors did was so related to the affairs of the company that it can properly be said to have been done in the course of their management and in utilisation of their opportunities and special knowledge as directors; and (ii) that what they did resulted in a profit to themselves.
- - Regal CoA – Greene MR = Where company rejects and director after resolution goes ahead and makes profit, should not be liable to the company as no legal authority to support that claim
- Bull J – Russell J’s comment about Greene MR’s hypothetical endorsed in that hypothetical; differing on applicability to Regal; Same view by Lord Denning MR in Phipps v Boardman – Apply to this case

Question 21

Glencor ACP Ltd v Dalby (Chancery)

Answer 21

Rimer J:
- Lord Russell and Lord MacMillan in Regal
- Don King Productions Inc v Warren (CoA) – Endorsement by Morritt LJ of Deane J (HC Aus) in Chan v Zacharia
- Company wouldn’t have taken business opportunity or director’s own skill and property used irrelevant; Only escape is obtaining of the prior approval of the company’s shareholders after full disclosure of all the facts and circumstances.

Question 22

Re City Equitable Fire Insurance Ltd

Question 23

Re Brazilian Rubber Plantations and Estates Ltd

Answer 23

Neville J:
- Lecture quotes
- Duty
- Overend v Gibb
- Directors believed contract beneficial – Right entered into – Issue of sound judgment rather than negligence
- Molineaux v London, Birmingham and Manchester Insurance Co – Cozens Hardy LJ – Articles for terms of directors contract indication – No liability unless dishonesty

Question 24

Re Miitek Holdings (SC)

Answer 24

Fennelly J:
- Director must inform themselves about the affairs of the company and the nature and extent of their duties as a director
- Excutive vs non-executive directors

Question 25

Re Cardiff Savings Bank (The Marquis of Bute’s Case)

Answer 25

Stirling J - Regular notice of meetings - Assume business being transacted as usual

Question 26

Dovey v Corey

Answer 26

Lord Halsbury LC stated in Dovey v. Cory [1901] AC 477 that “The business of life could not go on if people could not trust those who are put into a position of trust for the express purpose of attending to details of management

Question 27

What are the two principle remedies for breach of directors’ fiduciary duties?

Answer 27

Profit made = Account of profits
Loss - Damages/Directors personally liable for losses caused to the company