1.1 Percival v Wright (1902):
Directors owe fiduciary duty
to the company as a whole.
1.2 Coleman v Myers (1977): Found a fiduciary
relationship existed between director and
shareholder. Had an obligation to disclose
material matters, and there was a
substantial likelihood that the facts would
have assumed signficance in the
deliberations of the shareholder.
1.3 Brunninghausen v Glavanics (1977): again found a duty
owed by director to a shareholder. B was dominant
director, G was minor director. B received unexpected
takeover offer, allows G to sell shares and then B sells
for much higher price. G sues B for breach of fiduciary
duty. Held: Nature of circumstances gave rise to duty.
Complete dependence on advice and info that G placed
in B. Small proprietary company w/ 2 shareholders, not
appropriate to draw distinction b/w duties to company
and duties to shareholders.
2 Duty to act in good faith for the benefit of the
company as a whole and for a proper purpose
2.1 Good faith: subjective test.
2.2 Company's best interests: objective test.
2.3 s.181: Director/officer must exercise their powers and
duties in good faith, in the best interests of the
company, for a proper purpose.
2.4 Re Smith and Fawcett (1942): F and S held 50% shares in company.
Constitution gave discretion to refuse transfer of shares at any time. F died,
son tried to register their shares, to have son on the board. S relied on
discretion in constitution, refused shares. Held: The articles of a company
obviously specify the limits of the directors' power (and their discretions) -
however, the directors' powers are also always limited by their obligation to
exercise their power in good faith and for a proper purpose. Here, article
gives D an uncontrolled and absolute discretion and the D’s refusal to issue
the shares was a bona fide consideration of the interests of the company -
2.5 Australian Metropolitan v Ure (1923): Contest for control of insurance company between 2 groups of shareholders. Mrs U
was leading member of a group, purchased parcel of shares sufficient to enable her group to command resolution at GM
and elect her husband to the board. Purchaser submitted share transfers for board resolution. Board relied on constitution
that they could refuse to register shares and give no reasons. Held: whilst they had this power, it must still be exercised
bona fide, not arbitrarily, honestly in the interests of shareholders. Directors were acting in power here, appeal dismissed.
2.6 "the company as a whole"
2.6.1 The corporators as a
general body:Ngurli v
2.6.2 Directors must consider
both present and future
members: Gaiman v National
2.6.3 As insolvency approaches,
directors have an obligation to
consider interests of creditors:
Bell Group v Westpac (2008)
2.6.4 Others (employees, customers, community)
184.108.40.206 Parke v Daily News (1962): Company making loss, D's decided
to sell, had to dispose of company assets and make employees
redundant. D's intended to use proceeds of sale for ex gratia
payments to employees. Shareholder challenged this decision.
Held: the decision was not for the benefit of the company as a
whole. Cannot favour the interests of other groups over
2.6.5 Corporate Group
220.127.116.11 Walker v Winborne (1976): court
recognised potential conflict b/w
interests of a sub its group. Held:
directors must act in the sub's
best interests and not in the
interests of the group as a whole.
BUT acknowledged sometimes
sub's concern is inextricably tied
to the continued existence of its
fellow corporate group members.
18.104.22.168 Equiticorp Finance (1993): Bank
insisted that funds of members
of the Equiticorp Group of
companies be applied to reduce
the debt of Uruz (sub). Later,
companies went into liquidation
- liquidators sued directors for
breach of fiduciary duties. Held:
no breach of duty - if debt wasn't
repaid, the company could have
collapsed. Was for benefit of the
companies that the debt was
paid. Directors honestly believed
it would protect group as a
2.7 "for a proper purpose"
2.7.1 Hogg v Cramphorn (1967): proper purpose is a separate
consideration from "bona fide." C was chairman and
MD, approached by B who wanted to takeover
company. C thought this would have negative impact on
company - took steps to frustrate the offer, issued
shares to friendly parties. Challenged as improper
purpose. Held: Power was improper - even though bona
fide belief of D was present, issuing shares to defeat a
takeover was an improper exercise of mgmt power.
Directors not to use powers to issue shares for purpose
of maintaining control or their friends control.
2.7.2 Teck Corp (1973): Court did NOT
follow Hogg. A was formed to take
over mining claims, lacked
resources so sought a contract with
another company to develop
property. T, P and C possible
suitors, directors chose P. T started
buying shares in A, directors
realised they were close to securing
control. Accelerated negotiations
and signed agrmt with C who was
allotted shares. T sued A, argued
directors were actuated by an
improper purpose - to frustrate T's
takeover. Held: D's are allowed to
consider who is seeking control and
why. IF they believe there will be
substantial damage if takeover, the
exercise of power to defeat them
will not necessarily be improper.
2.7.3 Howard Smith (1974): 2 shareholders of company A and B, which held
55% of Miller. HS involved in conflict for control of Miller. Each had
directors on the board of MIller Rival takeover offers made. HS bid more
generous, company believed HS better option from managerial view. D's
of Miller issued shares to HS to dilute A's shareholding in company. A
became minority shareholder. A argued issuing of shares was improper
use of power. Held: only purpose of issuing shares was to dilute A's
position and make them minority - improper. Two prong test: (1) analyse
the purpose for which the power may be used (2) determine on the facts
what purpose was used.
2.7.4 Whitehouse v Carlton Hotel (1987): Share
structure of company was divided into 3
classes. W goes to court arguing he
himself issued shares for improper
purpose. HC agreed: even if D's have
wide discretion under constitution, they
have no place favouring one group of
shareholders over others. W had diluted
Mrs W's shares for what he assumed
were friendly parties. But for test - but
for its presence, power would not have
2.7.5 Darvall v North Sydney Brick and Tile (1989): Company subject of hostile takeover
bid. Prudent bidders knew last price company traded was 87c. Unbeknown to
shareholders, true value was far greater. Takeover bid offered $10 share, directors
felt this was undervalued. Took actions to defeat the bid. Held: Bona fide actions
taken to defeat takeover aren't improper per se. Distinction b/w action for purpose
of defeating bid, and action prompted by bid but in the end, entered into because
D's believe in best interests of company.
2.7.6 Statute: s.181 -
exercise their powers and
duties in good faith in the
best interests of the
company AND for a proper
3 Duty to avoid conflict between duty
3.1 Directors interests in contracts w/ their own company
3.1.1 Aberdeen Railway: AR argued not bound by contract
because their chairman was also the MD of Blaikie.
Conflict of interest. Held: company not bound.
3.1.2 Transvaal (1914): constitution held no contract should be
avoided, provided D discloses nature of any interest, but no D
can vote on the matter. H failed to disclose he was trustee
shareholder of the contracting party, AND recently appointed
as their D but not yet accepted. Held: contract voidable.
3.1.3 Guinness v Saunders (1990): G appointed a committee to handle affairs during
takeover bid. One was paid 5.2m as a "fee" agreed by the committee. Held: the
power to pay remuneration should be strictly followed.
3.2 s.194: replaceable for proprietary - if D's have
personal interest and they disclose that at D's
meeting, OR its an interest they don't have to
disclose under s.191, they may vote, retain
benefits and company CANNOT void transaction.
3.3.1 s.191: Directors duty to disclose - D with material personal interest
must give other D's notice, UNLESS interest listed in (2), including D
already giving notice, or issuing standing notice under s.192.
3.3.2 s,195: A D of a public company w/ a
material interest CANNOT vote. (2) The
D may be present and vote if Ds who
do not have a material personal
interest in the matter pass a
resolution that: (a) identifies the
director, the nature and extent of the
director's interest in the matter and its
relation to the affairs of the company;
and (b) states that those directors are
satisfied that the interest should not
disqualify the director from voting or
3.4 Secret Profits: property,
info and opportunity
3.4.1 Cook v Deeks (1916): 3 Ds wanted to exclude 1D. Took contract under their
own names, then passed shareholder res stating company had no interest in
the contract. Cook argued contract did not belong to the D's. Held: 3Ds
breached their duty of loyalty to company. Shareholder ratificiation was fraud
on minority (Cook). Profits made on the contract were held on trust for the
3.4.2 Regal Hastings (1967): Owned cinema, wanted to buy more through a sub. Company couldn't afford all shares in
sub, D's provide extra money, made a substantial profit. New owners sued for breach of fid duty. Held: Person
who makes a profit by their fid position is liable. Because they had acted in good faith, the COULD have gotten
away w/ it if got a GM resolution.
3.4.3 Peso Silver Mines (1966): Company had mines, board
approached by geologist, rejected idea. MD was approached,
he accepted and made profit. Board later argued MD had
made profit in breach. Held: MD had acted in good faith at all
times. Where there is bona fide rejection of corporate
opportunity, no liability to account for profits made.
3.4.4 IDC v Cooley (1972): MD of IDC offered services
to EGB, they said no thanks, but then MD
accepted offer in his personal capacity. Said he
was unwell, requested to resign from IDC. Held:
D was acting as MD and info only came via his
fiduciary position. Duty to pass the information
on about his personal offer.
3.4.5 QLD Mines v Hudson (1978): QLDM formed by AOE and F. MD sought to personally obtain a mining licence, this
was disclosed to QLDM, board resolved he was allowed. MD resigned, acted in own name at own expense. QLDM
later claimed account of profit Held: Board had reached fully informed decision to renounce its interest, assented
to MD taking over. Board approval said to be tantamount to approval by GM.
3.5.1 s.182: improper use of position
3.5.2 s.183: improper use of information
3.6 Related Party Transactions
3.6.1 s.208: public company giving
financial benefit to related party
must obtain approval of
3.6.2 s.210: arm's length transactions
3.6.3 s.211: reasonable remuneration.
3.7 Duty not to fetter discretion
3.7.1 Exceptions: Nominee Directors.
Competing Directors (not always in
conflict, but big risk).
4 Duty of care, diligence and skill
powers and duties
with care and
diligence that a
would exercise if
they were D/officer
of company in the
4.1.1 s.180(2): Business
judgement rule: a d/officer
who makes a business
judgement is taken to
meet requirement in (1)
and their common law
duties IF: (1) made
judgement in good faith
for proper purpose (2) do
not have material personal
interest (3) inform
themselves on subject to
extent appropriate (4)
rationally believe its in
best interests of co
22.214.171.124 s.189: IF D relies on info or
professional advice given by (1)
employee of company (2) a
professional advisor (3) another D
within their authority (4) a
committee of D's within their
authority who D believes on
reasonable grounds to be reliable
and competent AND reliance made in
good faith, after independent
assessment having regard to D's
knowledge of co, the D's reliance will
126.96.36.199.1 s.190: If D delegates
under s.198D, D is
delegate's exercise of
power. But NOT
responsible if D
believed on reasonable
grounds the delegate
would exercise power
in conformity and the
D believed on
(good faith, making
proper inquiry if need
be) that delegate was
188.8.131.52.1.1 s.198D: Unless
constitution says, D's
can delegate to
184.108.40.206.1.2 ASIC v Adler: Standard of care under
statute is NOT higher than general
220.127.116.11.1.2.1 Daniels v Anderson (1995): The
responsibilities of D's require they take
reasonable steps to place themselves in
position to guide and monitor mgmt of
company. However, unreasonable to
expect every D to have equal knowledge
and experience in every aspect. D's cannot
rely on fact they are NEDS - integral part of
being D is to acquire at least rudimentary
understanding of business of the company.
18.104.22.168.22.214.171.124 Permanent Building Society v
Wheeler: MD breached DOC by
failing to inquire sufficiently into
unusual transaction and was
capable of causing harm to the
company. This was new area of
investment, no prior experience in
property development, so heavy
duty to scrutinise transaction
126.96.36.199.188.8.131.52.1 ASIC v Rich (2003): In some circumstances, chairman may have
special responsibilities above and beyond other NEDS. Now
recognised ppl holding special positions may hold special
responsibilities when discharging duty. Chairman must take
reasonable steps to ensure company has effective reporting
system to enable proper monitoring.
4.2 s.189: statutory right to delegate and
rely on others. reliance made in good
faith, after independent assessment.
5 Insolvent Trading
5.1 s.95A definition
5.2 s.588G: when D
will be liable for
5.2.1 The Stake Man Pty Ltd (2009):
court relieved D of insolvent, acted honestly
trading, had engaged advisers, followed instructions.
5.2.2 DCT v Clark (2003): the liability of "sleeping directors:"
5.2.3 s.588H: defences
6.1 s.1317J: application by ASIC for declaration, pecuniary penalty order, or compensation order. Company
can apply for compensation, any other person who suffers damage may apply for compensation.
6.2 s.1317E: if court satisfied person has contravened, must make declaration of contravention
6.3 s.1317G: pecuniary penalty orders
6.4 s.1317H: compensation to the company.
6.5 s.206C: disqualification of person from managing companies for period.
7 Liability Escape Hatches for Directors
7.1 Ratification by shareholders at a GM
7.1.1 Forge v ASIC: Authority to
suggest shareholders CAN NOT
release director from statutory
duties under s.180, 181, 182.
7.1.2 ASIC v Maxwell: Ratification does not provide defence to breach of
statutory duty but fact director got ratification is relevant to
determining whether they acted improperly.
7.2 Ratification by the Board
7.2.1 QLD Mines: Court confirmed possible for board
to ratify the decision of a Director, provided full
disclosure. May no be possible to ratify breach
of a whole board though - Regal Hastings.
7.3 Relief granted by the court
7.3.1 s.1317S: Court may relieve wholly or
partly from liability if person acted
honestly, looking at circumstances court
feels they ought to be excused.
184.108.40.206 e.g, the Stake Man Pty Ltd.
7.3.2 ASIC v Healey: there is a 'core irreducible
requirement of D's to be involved in the mgmt
of the company and take all reasonable steps to
guide and monitor. Court wouldn't allow the D's
defence of reliance on others.