Introduction

Common law has been pivotal in laying down principle of the duties of the directors.

Directors therefore have been recognized to have a fiduciary relationship with their

companies. As held in Regal Hastings v Gullier (1942), a director though not a trustee of the

company occupies a fiduciary position as a member of a board they comprise within a

company. Common law duties of directors are further are divided into two segments, one, the

duty of skill and care and two the fiduciary duties. These duties originate from equity. The

author shall assess the case study supported by case law and statutory law to exhibit

violations of these laws by Julian, Daniel and Sol.

Duties violated

Julian’s recommendation for the purchase of his uncle’s land attracts several

provisions both in common law and statutory law. A basic common law duty is the duty to

act bona fide in the interest of the firm. This a test of good faith or honesty as held in

Whitehouse v Carlton Hotel Pty Ltd1. The violation of this duty would occur where a director

fails subjectively to take into consideration the company’s interests. For example if a director

presumes that the interest of the company corresponds with their own interest thereby not

bearing in mind its interests as a separate legal entity. The rule has been reinforced in

Charterbridge Corporation Ltd v Lloyds Bank Ltd and Farrow Finance Company Ltd (in liq)

v Farrow Properties Pty Ltd (in liq)2 in which it were held that; in the eyes of an innocent

bystander a person in a position of a company director in light of the relevant circumstance

should reasonably believe that benefit accrued is for the benefit of the company. Julian

however in his defense can claim that no loss occurred since the directors were for purchase

of land as an added advantage in the future for the firm.

1
(1987) 162 CLR 285.
2
(1997) 26 ACSR 544.
To further reinforce the common Law duty Julian violates through purchase of the land is

section 180 (2) of the corporations Act3. The section incorporates the business judgment rule

in which a director ought to make bona fide decisions and for proper purposes, the decision

must not be influenced by personal motives, the director should inform himself of the content

of judgment to an extent they so believe the matter is appropriate and should believe

rationally that judgment made is for the benefit of the company.

Another core issue to be addressed under common law is the need to offer full

disclosure of all material and personal interests to the members of the company in a particular

transaction. Julian feels he need not explain the source of the land to be purchased. This is in

violation of the law as held in Woolworths Ltd v Kelly4 in which it were held that such a

transaction should be approved by ordinary resolution by the members of the company.

Further sections 191-195 of the Corporations act mandate the directors to make full

disclosure of interests that are of material nature except where a company is a sole director

proprietorship company5. The notice given should state the extent and nature to which the

interest extends soon as possible when a director takes note of the interest. Voting may be

allowed for such a director where full disclosure is made and they have appraised themselves

of the interest thereof.

Daniel and sol fail to take due diligence on information given by Julian as they do not

enquire on the viability of the transaction or inform themselves through valuation of the

property. The violations are direct contravention of the common law and statutory duties. The

common law duty of diligence and care require a director to make independent and informed

decisions on any matter brought before the board of directors as held in AWA Ltd v Daniels

(t/as Deloitte Haskins & Sells)6. Further in Daniels (formerly practising as Deloitte Haskins
3
S 180 Corporations Act 2001 (Cth).
4
[1991] 22 NSWLR 189.
5
S 191-195 Corporations Act 2001 (Cth).
6
(1992) 7 ACSR 759.
& Sells) v Anderson7 it was held that a director must place themselves in a position of

monitoring and guiding the company. Statutory provisions under sections 189, 190 and

198D8 provides for circumstances where a director can reasonably rely on advice or

information given of other persons and for the corporate actions of a delegate. Information or

advice given should have been done in good faith and should be evaluated through an

independent assessment of information given taking into tandem the knowledge of a

director’s knowledge and complexity of the operations and structures of the company. Daniel

and Sol invariably fails to take this into consideration even though they received the

information from a fellow director and leaves the accountants to deal with the financial

aspects of the deals. Daniel and Sol may take defense that they entrusted the company

accountants to deal with the financial aspects of the transaction.

On contracting Raphael through issue of information on bids by Julian, Julian violates

the duty not to disclose confidential information as per the tenets of common law duties. A

director is bound not to disclose confidential information they acquire in lieu of their

position. Confidential information is which the owner believes reasonably that information

given would be detrimental to the firm or offer advantage to others, the information does not

exist in the public domain and is confidential or in the common usages and business

transactions in a particular industry, the information would be regarded as protected. The

information given to Raphael falls under this category. Decision in Thomas Marshall

(Exports) Ltd v Guinle9 is testament to the duty in which the court evaluated that the breach

of duty would be where a director discloses details of the firm’s suppliers or clients in a

situation where such information is considered to have been issued in confidence.

7
(1995) 37 NSWLR 438.
8
Corporations Act 2001 (Cth)
9
[1979] Ch 227 per Megarry VC.
 Further section 183 of the corporations act prohibit improper use of information to

benefit themselves or for an advantage of others. A director will be held in violation where

they engage in conduct with the purpose or intention to confer advantage to themselves or to

others whether such advantage occurs or not. Julian violates this provision through issue of

information to Raphael who ends up winning the tender.

For the above violation civil penalties apply, these are the form of fines or compensation to

the corporation for the accrued damage. The court in the above instances can issue a fine of

$200, 000 as stipulated under section 1317G10. Any damage occurring through such decisions

can be imposed on the directors in lieu of section 1317H11.

10
supra @ 8
11
ibid
 Bibliography

A Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR

438.

Charterbridge Corporation Ltd v Lloyds Bank Ltd [1970] Ch 62; Farrow Finance Company

Ltd (in liq) v Farrow Properties Pty Ltd (in liq) (1997) 26 ACSR 544.

Corporations Act 2001 (Cth).

Thomas Marshall (Exports) Ltd v Guinle [1979] Ch 227 per Megarry VC.

WA Ltd v Daniels (t/as Deloitte Haskins & Sells) (1992) 7 ACSR 759.

Whitehouse v Carlton Hotel Pty Ltd (1987) 162 CLR 285.

Woolworths Ltd v Kelly [1991] 22 NSWLR 189.