D I R E C T O R S`S D U T I E S

FUDICIARY DUTIES
(1) Since the company places its trust in the directors
they must display the utmost good faith towards the
company in their dealings with it or on its behalf.
There are five types of fiduciary duties owe by the
directors
!a" DUTY TO ACT #O$A FIDE I$ T%E I$TEREST OF
T%E CO&'A$Y
Re Smith v Fawcett Ltd (Directors must exercise the
discretion bona fide in what they consider is the interest of
the company and not what the company consider.)
The issue here is whose interests are to be considered the
interests of the company?
I(terest of Shareho)ders
Acting for the benefit of the company means the directors
must act in the interest of the shareholders as a whole(not
interest of indiidual share holders) .The interest of the
company as a commercial entity will come second
Greenhalgh v Arderne Cinemas Ltd.(!ompany as a
whole means" the corporators as a general body not the
company as a commercial entity.)
Percival v Wright (a shareholder wish to sell his share to
the director and the director agreed but fail to disclose that
there is a ta#eoer for a higher bid. Shareholder sued the
directors for breach of fiduciary duty. $eld% director don&t
owe fiduciary duty to indiidual shareholders.)
Mills v Mills) 'f there is a conflict between different classes
of shareholders within a company then the director must
act as according to (what is fair and e)uitable as between
the classes of shareholders&.
Aggrieed party can apply to court a relief under s. 1*1.
$o*i(ee Directors
+.D. owes a fudiciary duty to his appointor. !onflicting iew
of the court as to whose interest +D must act%
Scottish Co-operative Wholesale Soc Ltd v Meyer( 'f the
interest of the appointor and the interest of the company
conflict" +.D. must act in the interest of the company.)
Re roadcastings Station !G Pty Ltd.('ndependents
directors challenged the appointment of +.D. and their
conduct in withholding information in a negotiation. $eld%
the +.D. must act in interest of the appointor but must not
dierged from the interest of the company as a whole.)
Whiteho"se v Carlton #otel Pty Ltd. (A,A can be drafted
to to modify the fiduciary duty of +.D. so that they will act
in the interest of their appointor at the same time protect
the interest of the company as a whole)
I(terest of a +roup of Co*pa(y
Wal$er v Wim%orne
(-here many companies merged into a group The director
must act for the interest of his company.s shareholers and
creditors of the company .)
&ntraco Ltd v M"lti-Pa$ Spore Ltd'())*) ($eld% it is
permissible for directors (especially directors of $olding
!o.) to consider the interest of the group as a whole w/out
sacrifice the interest of any company within the group.)
The 'nterest of 0mployees
1.2. directors should not consider the interest of
employees ahead of the interest of the company.
Par$e v +aily'Directors sold one of its newspaper and
sitributed tha surplus to employees but was challenged by
a shareholder. $eld not alid.)
(c) DUTY TO RETAI$ DISCRETIO$
Directors cannot enter into an agreement with
each other or with a third party that he will ote
in certain way at a future board meeting.
,hor%y v Gold%er 3ut a director may enter into
contracts on behalf of the company whereby he
agrees to ote in faour of a particular course of
action if they properly consider it for the interest of
the company.
(d) DUTY TO A,OID CO$F-ICTS OF
I$TERESTS
The aim of this obligation is to aoid directors
ma#e personal profit from their office- A%erdeen
Railway Co- v lai$ie ros. 2ailway company
enter into contract with a partnership for the
supply of iron seat .,ne of the partner is the
director of the railway company "They se# to
aoid the contract. $ols% it can aoid the contract.
!ircumstances where strict fiduciary duty to
aoid conflict of interests was applied.
(1)Co(tracts with the co*pa(y
Directors are in breach of their fiduciary duty if
they enter into contracts with a company where
they hae direct or indirect interest.
They must hae a material interest in the
contract with the company% s. 141(5)
'f he owes a small share in large public company
it is insufficient.
,ransvaal Lands Co- v .ew elgi"m / +ev-
Co. S and $ were directors in Transaal 6and.S is the
director of +ew 3elgium also and $ hold +. 3. shares on
trustee at will. S instigate directors of Transaal to buy
certain shares of +.3. -hen the directors discoered that
S 7 $ has interest in +.3. the wish to rescind the
contract.3oth parties hae a conflicting interest and
breach their 8.duty eent both neer ote in the bargain.
a$er v Palm ay &sland Resort (3a#er
contracted to buy the interest of 9alm 3ay in a resort.
3a#er acted on behalf of a company he proposed to form.
$e offered 3roo#s who was the director and manager of
9alm 3ay certain percentage of shares and directorship.
3roo# did not ta#e part in nego. 9alm wanted to rescind
becox of 3roo#s breach 8.D. $eld % it must be certain
and enforceable but here 3roo# has no enforceable
agreement with 3a#er to ac)uire the share/directorship"
so there is no breach. )
Director can aoid breach of duty if they ma#e
full and fran# disclosure% s.14:(1).
(5) &isuse of Co*pa(y`s Fu(ds
-hen the directors use the !ompany.s fund
they must use it for the interest of the company if
not is a 3,D. The also cannot mixed the
company.s fund with their own funds. ,ote0-
Adon v Marco. 8ailure of a director to open a separate
account for the ;oint enture business was held 3,D.
Pa"l A +avies 'A"st) Pty Ltd v +avies
!ompany bought property with company.s fund under a
director.s name. Director consider it as a loan from the
company to him. $eld% it was not a defence.
(4) 'erso(a) 'rofits arisi(+ fro* acti(+ as director
Directors are in breach if the use their position to
ma#e personal profit. Regal'#asting)Ltd- v G"lliver
a company which owned one cinema decided to ac)uire two
more cinemas with a iew to selling the whole underta#ing as a
going concern. A subsidiary was formed to buy the lease of the 5
cinemas" but the lessor insited that the paid<up capital of the
subsidiary must at least 6:===.The company could not proide
thise amount of capital so the directors themseles and solicitor
of the company bought the 4=== at 61 in the subsidiary. 6ater
the shares in both co. were sold" the directors ma#ing profit at 64
per share in the subsidiary. The new controller brought an action
to recoer the profits from the former directors. $eld% The >
directors must pay bac# the profit they obtained becox breach
8.D. 3ut the solicitor and the chairman no need to return the
profits.
Green v esto%ell &nd"stries The state manager of
3estobell uses his position to ac)uired information which was
used to obtain profit for a comoany formed by him. 3estobell can
recoer bac# the profit.
(>) #ribes a(d other u(disc)osed be(efits
'f a director accept a bribe in consideration for acting
in a certain way in relation to the company.s affairs"
he will be held in breach of 8.D.
Similarly if he obtained undisclosed profit also 3,D.
F"rs v ,om$ies
Tom#ies as a director of 8urs nogo with a +? compoany to buy
oer the 8urs.+? !o. promised to pay him some profit and gie
some position as a result he nego a lower price. 8ur later
successfully brough an action to recoer the profit from Tom#ies
becox 3,D.
(:)Ta.i(+ up corporate opportu(ity
Coo$ v +ee$s ( A company of > directors. Dispuites arose.
Three of them nego a contract and indicated that it was for them
and not for the company. $eld% They 3,D and must pay bac#
the profit obtained
1"eensland Mines v #"dson. A managing director uses
the licence of the company to obtaine a mining pro;ect with the
consent of the company and later sold to an @SA company for
royalties. $eld% +ot 3,D becos he disclose his intention.
(A) Usi(+ Co(fide(tia) I(for*atio( !s/ 012!2"3
Ca((ot use it for ow( be(efit/
,homas Marshall '20porters)Ltd v G"inle
8or a confidential infor must hae > elements% (1) that info will
cause in;ury to 9 or benefit to D.(5) it is confidential and secret(4)
9 reasonably belief it (>) the infor is the usage and practise of
the trade.
Grover v Flave A director who #new his company is going
under insolent li)udation uses that info to protext himslef and
his other companies of that li)udation to the detriment of the
company is acting improperly.
(B) Co*peti(+ with the co*pa(y
1.r. cannot compete but it is not a settled ruled yet.
ell v Lever ros Ltd a director of a company cannot be
preented from acting as a director of a rial company so long as
he did not disclosed confidential info to the other !o.
Avel Cons"ltant Sd- hd- 3 Mohamed 4ain<
directors of a group of companyy formed up a new company of
same business and as the group and canassed the regular
client of the other.$eld% 3,D.
(e) T%E DUTIES OF CARE4 S5I--
A$D DI-I6E$CE
'n Re City 25"ita%le Fire &ns"rance Co. the court
analysed s#ill" dilligence and liabilities to others as follow%
(i) S.i)) C a director must exhibit the degree of s#ill which
may reasonably be expected from a person of his
#nowledge and experience. This is an ob;ectie standard of
s#ill in that the director must act as a 2D" but it is
sub;ectie in that the 2D is only regarded as possessing
the #nowledge and experience of the indiidual concerned.
(eg) if financial matter is more than director who has
accountancy training then of no such.
(ii) Di)i+e(ce C a director is not bound to gie continous
attention to the company.s affairs" his duties are of an
intermittent nature. Directors are not bound to attent board
meetings" but must attend when they are reasonably able
to do so. The degree of diligence ary depends of each
case. 'f the director also has a serice contract he may be
expected to wor# full time but this obligation is underta#en
as an employee and not as a director.
(iii) De)e+atio( a(d re)ia(ce o( others
Directors are permitted to delegatesresponsibilites to other
company official.'n the absence of suspicious directors are
to entitled to entrust the company officers to perform their
duties properly.
A director will not be liable for the act of co<directors or
other officers unless he participates in the wrong by
(')signing minutes approing misapplication of property (
5) signing a che)ue for an unauthoriEed payment
(4) unreasonable failure to superise the actiity" or
unreasonably failure to realiEe that the actiity was wrong.
(b) DUTY TO E7ERCISE 'O8ERS FOR
'RO'ER 'UR'OSES
'f Directors dishonestly use their powers for an
improper purpose they hae acted not in bone
fide. Their liability do not extinguished een they
hae acted honestly for the best interest of the
company(Mills v Mills)
(1) 'urpose of creati(+ or destroyi(+ a
*a9ority of voti(+ power.
#oward Smith v Ampol (The issue in this
case was issuing shares by a company in order to
enable $oward to ta#e oer the company and not
raise fund.9! held that shares must be issued to
raise sufficient capital for the interest of the
company as a whole and not for the purpose of
benefiting some shareholders " of friends oer
others in order to control the company. )
(5) 'urposes of issue of shares other tha(
raisi(+ capita). The general rule is that
shares are issued for raising capital.
$/eer in certain cases the court allows
the issuing of shares to ensure the
stability of the company.#arlowe6s
.ominees Pty Ltd- v Woodside 7il Co-
.L-
(4) 8here directors are a)so shareho)ders/
The law did not re)uire directors to ignore
their own interest as shareholders unless
the substantial interest of the director.s
action was improper. Mills v
Mills (3 holds ordinary share with oting rights
and as trustees for other members. $is nephew
holds preference share (w/out oting rights).
Disputes arose and finally A retired as trustees
and lost control oer the company. 3efore his
retirement he and a third director passed a
resolution to to distribute the company.s
accumulated profits by way of a bonus issues to
existing holders of ordinary shares.3y doing oso
he regain control oer the company.$eld%
Directors can act for his on interest as
shareholders so long as the substantial purpose
is for the benefit of the company).
(>) The :#ut For; Test Whiteho"se v
Carlton #otel Pty Ltd ( where there was
more than one purpose it was in appropriate to
loo# for the substantial or dominant purpose.The
allotment will be inalidated if the impermissimible
purpose was causatie in the sense that " but for
its presence" the power would not hae been
exercised.
(:) Directors Refusa) To re+ister a tra(sfer
Directors must exercise their discretion to
refuse register transfer of shares (by one
member to others) bona fide in the
interest of the company and not for
improper purpose. The member can see#
remedy u/s. 1*1.
STATUTORY DUTIES
s. 145 imposes seeral statutory duties on officers
and directors.
s. 145(A) officer includes any person who has been
officer at any time. S. >(1) defines officers which
includes director" secretary and employee etc.
s. 145(4) officer who commits breach of s. 145 is
liable to the !o. for profit obtained and criminal
liability.
s. 145(1) directors must at all time act honestly and
exercise reasonable diligence in discharging his
duties.3,D 8iduciary duty is also breach of s. 145(1).
s. 145(5) it is an offence to use of confidential
information for ma#ing gain to themseles.
s. 145(4) offence for officers or agents of a corp to
ma#e improper use of their position to directly or
indirectly gain benefit for themseles or for any person
to cause detriment to the corp.
STATUTORY DUTIES