Corporation Law Case Study

 

1. What common law duty and statutory duty if any has Julian breached?

In the case involved, Julian had definitely breached his common, as well as statutory duties as a Director of Property Developments Ltd when he intentionally disclosed a confidential information, the bidding prices of various interested architectural firms, to his brother Raphael. More so, his failure to disclose to the Board that Raphael who will submit a tender is an act of dishonesty and bad faith.

Common law provides that due to the fiduciary role of directors in the company, they have a duty not to abuse any confidential information that they knew or acquire as a consequence of their position. In Thomas Marshall (Exports) Ltd v Guinle [1979] Ch 227., the Court states that it is a breach of duty if a Director would be disclosing details of the company’s clients or suppliers in situations where such information would be considered to have been given in confidence.

That in the case sample, it was clear that Julian who was in charge of the tender process, intentionally discloses the bidding prices of the various interested firms so that his brother could make a better bidding price.

More so, Julian also violated Section 183 of the Corporations Act 2001 – Use of Information.

Under the said proviso, it states that: A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to: (a) gain an advantage for themselves or someone else; or (b) cause detriment to the corporation.

A person who obtains information because they are, or have been, a director of a corporation must not improperly use the information to gain an advantage for themselves or someone else, or cause detriment to the corporation.  (s 183 Corporations Act 2001 (Cth)).

Another duty that Julian breached is his failure to disclose that his brother will submit a tender whom he initially informed of the bidding prices of his brother’s counterparts.

Directors have a duty not to have a personal interest in a transaction with the company. A director will breach this duty where he or she enters into a contract with the company either directly (by personally contracting with the company) or indirectly (such as where the director is both a director and shareholder of another company which contracts with the first company of which he/she is a director).[1]

Another qualification to the duty to avoid conflicts of interest is where a director makes

fulldisclosure of the nature of his or her interest in the transaction to members of the

company at a general meeting, and the transaction is approved by ordinary resolution.[2]

Julian breached his duty to act in good faith because he leaked the information to his brother and did not disclosed his relationship with Raphael to the Board.

2. What common law or statutory duty have Sol and Daniel breached?

A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence. (Section 180-Corporations Act 2001). Directors are required to make an informed and independent judgement on decisions put to the board of directors[3], and are required to place themselves in a position to guide the company and monitor its management.[4]

As directors, Sol and Daniel should have verified or put queries to the proposed land to be acquired by the company. It is their basic duty to know the value of the land and how to finance the acquisition as the interest of the company is at stake in the situation.

In Land Credit Company of Ireland v Lord Fermoy, 771, Lord Hatherly states, “…it would be carrying the doctrine of liability too far to say that directors are liable for negligence, not because they did not ask whether [the borrowers] were solvent and respectable, but because they did not inquire what they were going to do with the money.”

Applying the afore stated doctrine, it laid that Sol and Daniel failed to observe their common and statutory duty to act with care and diligence.

 3. If the directors have breached their duties do any of them have a defence and if not what are the consequences for them?

Julian can be slapped with civil and criminal charges because of his acts. In the case sample, he breached his duties to act in good faith, not to make improper of position and not to make improper use of information. Julian can hardly have a defence on his side if his acts are discovered.

As to Sol and Daniel they can be charged with civil offense for acting without care and diligence. However, both can make a defence that they did not acted in bad faith as they are in honest belief that the deal was proper and most importantly it did not put the company into disadvantageous position.

If proven guilty, Julian, Sol, and, Daniel could be fined up to A$ 200,000.00, or ordered to be disqualified as director as their civil liabilities. As to the criminal liability of Julian he could face an imprisonment up to five (5) years or a fine of A$ 200,000.00 or both.

References

Corporations Act 2001

pwc.com.au. A guide to directors’ duties and responsibilities for non-listed public companies and proprietary companies in Australia

Ian M Ramsay 1997, Corporate Governance and the Duties of Company Directors. The Centre for Corporate Law and Securities Regulation Faculty of Law The University of Melbourne

[1] South Australia v Clark (1996) 14 ACLC 1019.

[2] Woolworths Ltd v Kelly [1991] 22 NSWLR 189

[3]AWA Ltd v Daniels (t/as Deloitte Haskins & Sells) (1992) 7 ACSR 759

[4] Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438