FIDUCIARY DUTY TO AVOID

CONFLICT OF INTERESTS

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 General principles on conflict of interest
under Common law
A director MUST AVOID placing himself in a situation where his
interests may be in conflict with that of the company’s
(a) A Director MUST NOT have an interest in a transaction in which the company
has an interest no conflict
(b) A Director MUST NOT use his position as a director to obtain benefit or an
advantage for himself  no profit from position
(c) A Director MUST NOT appropriate company’s property, benefit or an
advantage for himself  no misappropriation
except with company’s informed consent

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case: REGAL HASTINGS LTD
Per Lord Russell of Killoween
The rule of equity which insists in those, who by use of fiduciary
position make a profit, being liable to account for that profit, in no
way ,
 depends on fraud , or absence of bona fide;
 Or upon such questions or considerations as whether the profit would or
should otherwise have gone to the plaintiff
 Or whether he took a risk or acted as he did for the benefit of the plaintiff
 Or whether the plaintiff has in fact been damaged or benefitted by his action

Liability arise by mere fact of profit being made.

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 REGAL HASTINGS LTD
Regal (Hastings) Ltd (Regal) owned a cinema- Regal decided to sell the cinemas but to make it attractive , took
out leases on two more cinemas, through a new subsidiary (Hastings Amalgamated Cinemas Ltd), in order to
create a viable sale package.
Landlord of the 2 cinemas wanted personal guarantees from directors as he wasn’t happy with the paid up
capital . The directors refused to do so.  The landlord then offered the lease if Hastings Amalgamated increased
its share capital to £5,000.
Regal itself put in £2,000, but could not any afford more (though it could have got a loan).
Four directors each put in £500.( they are directors of Regal and Hastings Amlagamated)
Mr Gulliver, Regal’s chairman, got outside subscribers to put in £500 and the board asked the company
solicitor, Mr Garten, to put in the last £500.
 Regal managed to sell the business of Hastings Amalgamated - the directors made a profit of nearly £3 per
share.
New shareholders brought an action against the directors, saying that this profit was in breach of their
fiduciary duty to the company. The directors had not gained fully informed consent from the shareholders.
Held: directors liable .

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 • a director is liable when the
Based on Director has made a profit out of
the breach of duty
REGAL
HASTINGS LTD, • the company does not need to prove
that company has suffered loss or that
company could not have profited or
benefited
• Plaintiff does not need to show that
directors had acted with dishonesty
or lack of good faith

 Followed in Avel Consultants Sdn Bhd [1985] 2 MLJ 209 and

Mohd Zain Yusoff v Avel consultants [2006] 4 CLJ 31.
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A situation in which a person is in a position to derive
personal benefit from actions or decisions made in their
official capacity.

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Examples of situations where a director
has conflict of interests
A director offers to sell his assets or provide his services to the company & earn
a profit=A director places himself in a transaction where he is involved in both
parties to the transaction [Aberdeen Railway Co v Blaikie Bro]
A director bids on a contract not on behalf of the company, when the company
is also bidding for it, and competes with his company
A director uses information or knowledge about the company that he receives as a
director to gain an advantage for himself
A director offers to loan money to the company at above-market interest rates or
obtain loan at below-market interest rates
A director prevents the company from pursuing a business opportunity and
exploits it himself

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 Conflict of interest and company’s
consent
A director MUST AVOID placing himself in a situation where his interests may be in
conflict with that of the company’s
…….. except with company’s informed consent
prior approval OR
Ratification by company
Cases:
Aberdeen Railway
Regal Hastings
The Board of Trustees of the Sabah Foundation v Dato Syed Kechik [2008] 5 MLJ 469
Avel Consultants Sdn Bhd v Mohd Zain Yusof [1985]

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