Directors Duties Flashcards
*Percival v Wright [1902] 2 Ch 421
Held that directors owed no fiduciary duties (duty of loyalty) to the shareholders to disclose negotiations with a 3rd party who wanted to buy all the company’s shares to certain shareholders who wished to sell their shares.
R (on the application of People & Planet) v HM Treasury [2009] EWHC 3020 (Admin)
Related to the lending policies of the RBS.
There was a body set up to oversee the RBS
People & Planet brought an application claiming there had been a breach of s.172 because RBS was a company that lent to some of the most uninvironmentaly friendly companies around which was something they shouldn’t do.
However, ultimately the directors have to take decisions that they think are in the best interest of the company (which will guarantee the long term success of the company).
The claim was rejected as “promoting the long term interests of the company” override the sections set out in s.172(1((a-f).
**Aberdeen Rly v Blaikie Bros (1854) 1 Macq 461
**Aberdeen Rly v Blaikie Bros (1854) 1 Macq 461
Mr Blakie was a partner in the firm of Blackie Bros and was the director, and later chairman of the Aberdeen Railway board.
This would not be a problem until the two companies deal with each other.
The company entered into a contract with Baikie Bros to provide them with seats by instalments over a period of 18 months.
At the time Blaikie was a director for the company the company accepted nearly 2/3rds but declined to take the rest because they claimed that Blaikie had a conflict of interest.
Blaikie bros sued for specific implement or damages.
Aberdeen Railway sought reduction and their money back of the contract on the grounds of conflict of interest.
HELD, that there was a conflict and that fiduciaries should not be allowed a conflict of interest.
So the contract was VOIDABLE.
(Conflicting interest = HE should have been trying to get the highest price for the sellers and the lowest price for the buyers.)
IDC v Cooley [1972] 1 WLR 443
Mr Cooley was naughty
Managing director of IDC who were a member of a group of companies that provided work for big companies
Was negotiating work with EGB but EGB pulled out saying they did not wish to do business with IDC
EGB met privately with Mr Cooley and asked him to do the project himself, even though he was still employed by IDC
Mr Cooley realised he would need to be released by IDC.
Obtained a release form from IDC by CLAIMING TO BE SICK
Produced documents for EGB the day after being released and was given the job
IDC found out and sued for breach of fiduciary duty and for accounts of profit.
HELD, clear breach of fiduciary duty as he allowed his personal interests to compromise his existing obligation of loyalty to the company. He was ordered to pay an account of profit**.
(He should have gone to IDC and told them that EGB had approached him)
*He basically switched himself for IDC
Example
- Director of a garage company goes to a meeting with customers
- Director speaks in private to the customers saying that if he gets the work privately he can do it cheaper than what the company could do it for.
- This means he could be liable for breach of duty.
- Could be liable for the loss of profits or damages that the employer company endured.
*Commonwealth Oil and Gas Co Ltd v Baxter [2009] CSIH 75, 2010 SC 156.
Baxter was the director of a company called Eurasia Energy Ltd (EE).
He was also a director of Commonwealth Oil and Gas.
EE entered into a memorandum of understanding with The state Oil Company of the Azerbaijan Republic (SOCAR)
This memorandum of understanding gave EE the sole right to negotiate with SOCAR regarding what was termed Oil exploration and development of Azerbaijan.
This right was going to be for a year but no agreement was reached.
Commonwealth Oil and Gas was also in the Oil business , it argued that Baxter had diverted a valuable commercial opportunity to EE when he should have been obtaining it for Commonwealth Oil
They sought an account of profit against Baxter and damages.
They subsequently dropped the account of profit charges when they realised that the deal had not been reached.
They continued to seek damages.
HELD, that B had conflicting interest between his obligations to EE as a director and his obligations to Commonwealth Oil and Gas as a director.
Whilst B had proscriptive and not prescriptive fiduciary duties (proscriptive tells you what you can do, prescriptive what you can’t do) his obligations to COAG meant that he could not go out and get business for a rival. (even though nothing happened)
Regal (Hastings) Ltd v Gulliver [1942]
s.177 of CA 2006
The action was based upon the allegation that the directors and the solicitor had used their position as such to acquire the shares in Amalgamated for themselves with a view to enabling them at once to sell them at a very substantial profit, that they had obtained that profit by using their offices as directors and solicitor and were therefore accountable for it to Regal, and also that in so acting they had placed *135 themselves in a position in which their private interests were likely to be in conflict with their duty to Regal.
(the new board that were put in place by the new owners sought damages of breach of fiduciary duty against the old board members who had bought shares of the company and made a profit when selling them)
VERY HARSH
The decision seems to have been modified slightly in the companies Act to make it less harsh,
Dorchester Finance Co Ltd v Stebbing [1989] 1 BCLC 498
Duties of Care, Skill and Diligence s.174
- DFC sued 3 directors S, P, H, for breach of the duty of Skill and Care
- DFC was involved in money lending.
- S and P were charted accountants and H had a great deal of accounting experience.
- P and H were non-executive directors, S was an executive Director.
- P and H did not give the company an great deal of time
- The company did not hold any Direcotrs meetings (contrary to the companies Act).
- Problems arose out of P and H signing Blank cheques and S was using them to grant unsecured loans to various persons which was in breach of the money lending Act 1900.
- This lead to an issue of the company being out of pocket so they sued the source of the loss, the directors.
- HELD that all the directors had been negligent and had breached their duty of Skill and Care.
- No distinction was made between executive and non-executive directors in terms of liability here because they were all financially experienced.
- It was said P and H were negligent in signing the blank cheques.
- Said S did not execute any Skill and Care.
- (there does tend to be a distinction however)
Re Westmid Packaging Services Ltd v Griffiths [1998] 2 All ER 124, p 130 (delegation)
(s.174 - caselaw)
Understands that there must be delegation.
It doesn’t accept that there is a total abrogation of responsibility, you cannot allow someone to take the blame just because you have delegated the responsibility to them.
It is perfectly reasonable for a director to delegate a task to someone. If that task is not done properly and as a result the company suffers a loss then people will look at the director and say that they did not supervise them properly.
The director is still responsible for the acts of the people to whom he/she delegates the task.
Re D’Jan of London Ltd [1994] 1 BCLC 561
D’Jan negligently failed to read an insurance form, filled in by his insurance broker; mistake in form meant insurers did not pay out for fire damage to company’s premises.
