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Law Notes Business Associations Notes

Directors’ Duty To Avoid Conflicts Notes

Updated Directors’ Duty To Avoid Conflicts Notes

Business Associations Notes

Business Associations

Approximately 289 pages

These are comprehensive yet succinct notes. They set out the relevant legal principles, and material facts from a range of cases in order to demonstrate how those legal principles have been applied.

At the beginning of each document on each topic, there is a table of contents (hyperlinked so you can navigate easily through the document), and also an 'exam checklist', which you can use during revisions or exams to remind yourself of the key issues you have to address.

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The following is a more accessible plain text extract of the PDF sample above, taken from our Business Associations Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

BA 13 Directors’ duties when they have an interest in transactions with their company: duty to avoid conflict or disclose material personal interest, not to benefit or use position/information

BA 13 Directors’ duties when they have an interest in transactions with their company: duty to avoid conflict or disclose material personal interest, not to benefit or use position/information 1

Checklist short 3

Checklist long 3

Directors’ duty to avoid conflicts, not profit, disclose etc 4

(1) Did D breach duty or provision because of an interest in a transaction with their company? (under general law (eg Chan; Phipps) or statute s 181 6

(i) Did D breach equitable obligation to avoid conflict between duty and interest? 6

Note on other cases 12

(ii) Did D breach disclosure obligations in ss 191, 192, 195? McGellin v Mount King ; Camelot ; Asic v Adler; 13

(iii) Did D breach no fettering board discretions rule : Thorby v Goldberg 18

(iv) Did D breach by competing with company: Mashonaland 19

CB: McGellin v Mount King Mining NL – material personal interest – in a contract the company would enter into 20

CB: Camelot Resources v McDonald – quality of disclosure required - 22

(2) Did D breach duty not to profit / improperly use position or information (CL: Chan; Phipps) or statute s 182, 183 23

(i) Breach of equitable duty to not make secret profits from position? 24

(ii) Breach of statutory duty, improper use of position or information? Ss 182–4 28

Notes on fiduciary relationship 29

(3) For Public Cos - Related Party Transactions law 35

Cases 37

CB: Chan v Zaccharia 37

CB: Furs v Tomkies 38

Statute: s 182, 183 , 185 40

Statute: ss 191 – 195 disclosure obligations 41

Statute: Chapter 2E Related Party Transactions: ss 207 - 230 46

Checklist short

Rule: Directors’ fiduciary obligation to avoid situations where without consent of company the director’s personal interest (or other interests which the director is bound to protect) conflicts or may possibly conflict with their duty to the company. Two aspects of this (1) Duty to avoid conflicts: The fiduciary cannot put himself in a position of conflict of interests (duty vs interest; or duty vs duty); or A situation with a real and substantial possibility of conflict (Boardman v Phipps) – this affects directors’ interests in their company’s transactions; and (2) Duty to account for profits made from position as fiduciary (beyond an agreed retainer) (Keech; Chan; Regal v Gulliver; Boardman v Phipps )

(1) First: Is D liable because of an interest D had in a transaction with their Co?

  1. Considerboth: (1) Equitable obligation (perhaps changed by company’s constitution) and (2) statutory duty of disclosure in ss 191 and 192.

  2. Breach of equitable duty to avoid conflicts?

  3. Breached statutory duty of disclosure in ss 191 and 192? (McGellin; Camelot; Adler)?

(2) Second issue: did D profit from fiduciary position, thus breaching duty?

  1. Three sources of law to consider: (1) General law and equity (2) company’s constitution and (3) statutory duty of disclosure in ss 183 and 184.

  2. Breach of equitable duty to avoid conflicts?

    1. Duty applied?

    2. Consent?

    3. Consequences

  3. Company’s constitution?

  4. Breached statutory provisions regarding use of position (s 182) and use of information (s 183)

Checklist long

`

Directors’ duty to avoid conflicts, not profit, disclose etc

Rule: Directors’ fiduciary obligation to avoid situations where without consent of company the director’s personal interest (or other interests which the director is bound to protect) conflicts or may possibly conflict with their duty to the company. Two aspects of this (1) Duty to avoid conflicts: The fiduciary cannot put himself in a position of conflict of interests (duty vs interest; or duty vs duty); or A situation with a real and substantial possibility of conflict (Boardman v Phipps) – this affects directors’ interests in their company’s transactions; and (2) Duty to account for profits made from position as fiduciary (beyond an agreed retainer) (Keech; Chan; Regal v Gulliver; Boardman v Phipps)

  • Exam tip: S 588G and the negligence duties are probably the most important duties. But duty to avoid conflicts can trip up directors even where they believe they are acting honestly and in best interests and for proper purposes.

(1) First: breach of conflicts duty or statutory disclosure obligations: because of D’s interest in a transaction of their Co?

  1. Consider both: (1) Equitable obligation (perhaps changed by company’s constitution) and (2) statutory duty of disclosure in ss 191 and 192.

  2. Breach of equitable duty to avoid conflicts?

    1. Duty applied? (1) To persons in question (eg director?? (2) (a) Conflict? Or (b) a significant possibility of conflict? Between fiduciary duty vs personal interest.

    2. Duty continued as time of transaction/benefiting? (ie see partner/partner fiduciary relationship, good faith and honourable conduct due from each persisted for purposes of winding up affairs, under fiduciary obligation to co-operate and act consistently with agreed procedure for realization application and distribution of partnership property: Chan)

    3. Consent? Full and frank disclosure?

    4. Consequences: Any benefit or gain obtained where conflict or significant possibility of conflict between fiduciary duty vs personal interest is held as constructive trustee (Keith Henry); Chan.

  3. Breached statutory duty of disclosure in ss 191 and 192? (McGellin; Camelot; Adler). Director that has a material personal interest in a matter that relates to affairs of company must give directors notice of the interest under s 191(2) applies.

    1. Duty applied? (1) personal interest (2) personal interest material (3) relating to affairs of company.

    2. Compliance?

    3. Consequences? (1) strict liability criminal offence: s 191(1A) (2)

    4. Exceptions?

  4. Exceptions?

    1. Under general law: liability to account as a constructive trustee does not arise where (1) person under fiduciary duty has been duly authorized either by instrument...

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