Fiduciary Duties

Question 1

Section 228(1)(a)

Answer 1

Director of a company shall act in good faith in what the director considers to be the best interests of the company.

Question 2

Who is the duty to?

Answer 2

This duty is, for the most part, associated with the interests of the general body of shareholders (Parke v Daily News Ltd)

Question 3

What happened in R W and M Roith Ltd?

Answer 3

An agreement which was for the benefit of the widow of the deceased director was not binding on the company. No thought given to the interests of the company.

Question 4

What test will the court apply?

Answer 4

Subjective (Re Smith & Fawcett Ltd)

Question 5

Who bears the onus of proof?

Answer 5

The person claiming the directors have acted in bad faith

Question 6

Why is the burden hard to overcome?

Answer 6

Directors do not have to give reasons for their decisions (Re Dublin City Milling Co Ltd)

Question 7

What happens if the director stays silent?

Answer 7

A failure to refute an assertion of bad faith can allow for inferences to be made (Clark v Workman)

Question 7

Section 228(1)(d)

Answer 7

Directors may not use the company’s property, information or opportunities for their own or any person’s benefit, unless this is expressly permitted by the company’s constitution or by the general meeting.

Question 7

What happened in the Canadian case of Peso Silver Mines Ltd v Cropper?

Answer 7

The court allowed the directors to use opportunities where the company had no interest in the prospect.

Question 8

Was the approach in Peso favoured in Ireland?

Answer 8

No

Question 9

What happened in O’Donnell v Shanahan?

Answer 9

The Court of Appeal found that the actions of the two directors - buying a property without seeking approval - was a breach of duty as it denied the company the opportunity. The court rejected the ‘scope of business’ argument as having no place in Irish law.

Question 10

Does the CA2014 endorse O’Donnell?

Answer 10

Section 228(1)(d) endorses this approach unless the director receives the aforementioned authorisation.

Question 11

Section 228(1)(f)

Answer 11

Director has a duty to avoid any conflict between their duties to the company and their own personal interests.

Question 12

Does there need to be males fides on the part of the director?

Answer 12

No, the fact that a profit is to be made is enough to warrant liability (Regal Hastings Ltd v Gulliver)

Question 13

Who decides if a director has a conflict of interest?

Answer 13

The court has the discretion to determine this matter (Boardman v Phipps)

Question 14

What happened in Regal Hastings?

Answer 14

Regal (Hastings) Ltd (Regal) owned a cinema.
Regal took out leases on two more cinemas, through a new subsidiary (Hastings Amalgamated Cinemas Ltd), in order to create a viable sale package.
The landlord wanted personal guarantees from the directors. The directors refused to do so. The landlord then offered to up the 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.
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. The directors sold the business and made a profit of nearly £3 per share.
Shortly after, the buyers 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.

Question 15

What happened in Bhullar v Bhullar?

Answer 15

One of the company’s directors, in the course of carrying out his duties, noticed an adjacent site for sale and purchased the site with his brother who was also a director.
The Court considered it to be irrelevant that the dealings were made outside of office hours and in their own personal capacity. The directors had one capacity and one capacity alone.

Question 16

Can a board of directors ratify a director’s breach?

Answer 16

No, a breach can only be ratified by the company’s constitution, or the general meeting. (Or as a last resort, the assent of all shareholders)

Question 17

Should a director declare a conflict of interest to the board of directors?

Answer 17

Section 231 sets out that a director should disclose such a conflict of interest at the first available opportunity.

Question 18

What is the principal remedy for a breach of fiduciary duties?

Answer 18

The director should account for any profits (Disgorgement). - Section 232(1)

Question 19

Does it matter if the director acted in good faith, or if the company could not have benefitted?

Answer 19

No (Regal (Hastings) Ltd v Gulliver)

Question 20

Can the court relieve a director of this duty to account?

Answer 20

Yes, as the remedy is equitable the court do have a discretion.

Question 21

What happened in Gamatronic (UK) Ltd v Hamilton?

Answer 21

The directors spent limited time on their work and continued to work diligently and the court felt that it would be inequitable to require them to account for any gain

Question 22

What might occur if all shareholders have agreed to the director’s breach? (No constitutional provision or general meeting taken place)

Answer 22

In certain circumstances, where all shareholders agree or acquiesce to the breach, the principle laid down in Re Duomatic may apply. (Assent Principle)