Commercial Law - Organsations

Directors owe to the company many duties which must be adhered to, this essay will focus on the duties that arise in relation to the “personal exploitation” of the corporate opportunities that arise which sometimes pose too much temptation for the directors of a company which could cause them to be lead astray in the sense that they could see a personal benefit and perhaps the money signs are too much for them. Then this essay will look at the different judicial approaches to the rule and if they are the correct ones or not by analysing some of the responses to past case law in the UK in contrast to other countries briefly

Fiduciary Duties

It must be remembered that directors are a separate legal personality and so is the company, they are not the same this is where most people become confused they think of the two of them as one. Directors owe the duties to the company alone and not the shareholder s, this is reflected in the Companies Act 1985 in s309. It could be said that the directors of the company are fiduciaries and they must use their power of “trust and confidence” in good faith for the best interests of the company. “ For example in relation to company assets a director as a trustee, is taken to be a steward of the company so that they must act without any additional purpose, such as self interest which would effect the main and overriding interest of the company” . It is almost essential that directors act in the best interest of the company and remember their fiduciary position and duties owed to the company and not to themselves which is what happened in the case Aberdeen Railway Co v Balkie Bros 1854 this is where the director made himself a secret profit out of his fiduciary position it was a conflict of interest and he acted for his own benefit in which he did not receive consent of his principal. “It is a well established principle that a fiduciary may not benefit from the trust property or the opportunities which come to him by virtue of his position as a fiduciary unless he has the informed consent of the persons to whom he owes his fiduciary duties” Lord Cranworth L.C in this case said that “no fiduciary shall be allowed to enter into engagements in which he has or can have a personal interest conflicting which possibly may conflict with the interests of those whom he is bound to protect”. It was the fact that the man had behaved improperly, the point of law was he has a interest to attain the railway chairs for the cheapest price but his own personal capacity as a partner in the firm that supplies was to obtain the highest price. It is evident that these two roles could not work for one director he should not be involved to such procedure. “His duty to the company imposed on him the obligation of obtaining these iron chairs at the lowest possible price. His personal interest would lead him in an entirely opposite direction would induce him to fix the price as high as possible. This is the very evil against the rule in question is directed” It is clear that his personal capacity had caused him to breach his fiduciary position and he was therefore liable and he had to pay back to the railway the unauthorised benefit he had received. In this case the principle was established and has just been altered to incorporate any “practicalities” of the certain circumstances, otherwise every single time that a transaction was to be made that the directors “have the slightest personal interest” it may be stated different in the articles.

In Regal (Hastings) Ltd v Guillver 1942 it illustrates the director’s duty not to make a secret or unauthorised profit , even though in this case the directors had acted bona fide throughout the whole procedure, the fact that it was their own money and it did not belong to Regal. It was not that the directors had took an corporate opportunity away from them in their mines because they knew of the company financial position and they could not afford the shares. It is evident also that the company did not incur any loss. This however did not seem to be the main consideration in accord to Lord Russell stated that the point of law was “The rule of equity which insists on those, who by use of a fiduciary position make a profit, in no way depends on fraud, or absence of bona fides or upon such questions or considerations as whether profit would or should otherwise have gone to the plaintiff, or whether the profiteer was under a duty to obtain the source of the profit for the plaintiff, or whether he took a risk or acted as he did for the benefits of the plaintiff has in fact damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances been made.” The directors were liable in this case because of the duty to account is that directors may be liable to the company for any secret