Nature of directors Duty
1. Misappropriation of corporate property-Secret Profits, Use of
Corporate Property, Information or Opportunity
Directors are precluded from making any secret profit and from misusing
corporate information and opportunity.
Barbados Companies Act
S 95 (1) Duty of Directors and Officers
Duty of care.95. (1) Every director and officer of a company in exercising
his powers and discharging his duties must
(a) act honestly and in good faith with a view to the best interests of the
company; and
(b) exercise the care, diligence and skill that a reasonably prudent person
would exercise in comparable circumstances.
(2) In determining what are the best interests of a company, a director
must have regard to the interests of the company's employees in general
as well as to the interests of its shareholder.
(3) The duty imposed by subsection (2) on the directors of a company is
owned by them to the company alone; and the duty is enforceable in the
same way as any other fiduciary duty owned to a company by its
directors.
(4) Every director and officer of a company must comply with this Act
and the regulations, and with the articles and by-laws of the company,
and any unanimous shareholder agreement relating to the company.
(5) Subject to subsection (2) of section 133, no provision in a contract, the
articles of a company, its by-laws or any resolution, relieves a director or
officer of the company from the duty to act in accordance with this Act or
the regulations, or relieves him from liability for a breach of this Act or
the regulation.
(c) a person who acts or acted at the company's request as a director or
officer of a body corporate of which the company is or was a shareholder
or creditor, and his legal representatives, against all costs, charges and
expenses (including an amount paid to settle an action or satisfy a
judgment) reasonably incurred by him in respect of any civil, criminal or
administrative action or proceeding to which he is made a party by reason
of being, or having been, a director or officer of that company or body
corporate.
(2) Subsection (1) does not apply unless the director or officer to be so
indemnified
(a) acted honestly and in good faith with a view to the best interests of the
company, and
(b) in the case of a criminal or administrative action or proceeding that is
enforced by a monetary penalty, had reasonable grounds for believing
that his conduct was lawful.
For derivative action.98. A company may with the approval of the court
indemnify a person referred to in section 97 in respect of an action
(a) by or on behalf of the company or body corporate to obtain a
judgment in its favour, and
(b) to which he is made a party by reason of being or having been a
director or an officer of the company or body corporate, against all costs,
charges and expenses reasonably incurred by him in connection with the
action, if he fulfills the conditions set out in subsection (2) of section 97.
Jamaica Companies Act 2004
S 172 Directors and other Officers
Number of directors and secretary
(1) A private company shall have at least one director, but a public
company shall have at least three directors, at least two of whom
are not employees of the company or any of its affiliates.
(2) Every company shall have a secretary.
S 97 Indemnities
(3) A sole director of a company shall not also be secretary thereof
Indemnifying directors, etc.97. (1) Except in respect of an action by or on
and no company shallbehalf of a company or body corporate to obtain a judgment in its favour,
(a) have as secretary to the company, a corporation the sole
a company may indemnify (a) a director or officer of the company,
director of which is a sole director of the company; or
(b) a former director or officer of the company, or
(b) have as sole director of the company, a corporation the
sole director of which is to the company
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(4) It is the duty of the directors of a public company to take all
reasonable steps to ensure that the secretary or each joint secretary
of the company is a person who appears to them to have the
requisite knowledge and experience to discharge the functions of
secretary the company.
(5) Anything required or authorised to be done by or to the secretary
of a company may, if the office is vacant or there is for any other
reason no secretary capable of acting, be done by or to any
assistant or deputy secretary, or, if there is no assistant or deputy
secretary capable of acting, by or to any officer of the company
authorised generally or specifically in that behalf by the directors.
(6) Notice of the appointment of a secretary to a company shall be
given to the Registrar in the prescribed form within fifteen days
after the date of that appointment.
Cook v. Deeks
The Privy council Held that the contract had come to the profiteers in
their capacity and by virtue of their position as directors and as such it
belonged in equity to the company. The directors profit making
represented a misappropriation of the company property and was
therefore not ratifiable by the wrongdoers.
Directors standing in a fiduciary relationship who in exercise of their
powers receive a benefit by virtue of their office are accountable for their
profit.
Canadian Aero Service Ltd v. O’Malley
The president and vice president of Canero had been engaged on behalf
of the company in negotiations for a large aerial surveying and mapping
contract with the government of Guyana. Instead of securing the contract
for Canero they resigned and formed there own company and
successfully diverted the contract.
The Supreme Court of Canada held:
That their fiduciary duty had survived their resignation and that the duty
was enforceable against the directors.
Laskin J identified the relevant factors in determining standards of
loyalty, good faith and avoidance of duty.
1. Position or office held
2. Nature of corporate opportunity, its rightness, specificity and the
directors or officers relationship to it.
3. Amount of knowledge possessed
4. Circumstances in which the knowledge was obtained.
5. Was the knowledge special or private
6. Circumstances under which the relationship was terminated eg.
Retirement, resignation, extended leave or termination
Regal Hastings v. Gulliver
Four Directors who made incidental profits by reason and of in the course
of the execution of their office as directors were required to account for
the profits notwithstanding that they had acted bone fide throughout. The
director’s liability did not depend on fraud or lack of good faith.
Industrial Development Consultants v. Cooley
The managing director of the company, Cooley, Took part in negotiations
with the gas board. The gas board indicated that they did not want to do
business with the company but were prepared to deal with Cooley in his
private and individual capacity. Cooley thereafter resigned.
Viscount Sankey:
The Court found Cooley to be in breach of his fiduciary duty.
As a general rule of equity, no one who has duties of a fiduciary nature to Roskill J
perform is allowed to enter into agreements in which he has or can have a Held that Cooley was accountable to the company for the whole of his
personal interest conflicting with the interest of those he is bound to benefits under the contract or alternatively he was liable in dames for the
protect.
breach of his service contracts.
Lord Russel
New Zealand Netherlands Society “Orange” Inc v. Keys
A director may secure a release or immunity from potential liability by
proper negotiations with a competent organ of the company.
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Pesco Silver Mines v. Cropper
The strict rule was relaxed because there was a bona fide vote of the
board of directors.
The court held that the directors did not violate the conflict rule,
therefore, a director was free to make an investment on his own account
after the company has considered the proposition and bone fide decided
against it.
This principle is based on informed consent.
Gencor v. Dalby
The court found a director liable to account for the benefit or gain
obtained or received as a result of the transactions including the diversion
of corporate property, arranged in order to be fulfilled by his company.
The duty imposed is of a strict nature.
Belmont Finance Corporation Limited v. Williams Furniture
A third party who receives company property with the knowledge that it
has been applied for an improper purpose or in breach of directors
fiduciary duties is liable to account for it to the company.
2. Conflict of Duty and Interest
JA S 188 Duty of director to disclose payment for loss of office, etc. made
in connection with transfer of shares in company
(1) Where, in connection with the transfer to any person of all or any
of the shares in a company, being a transfer resulting from –
(a) an offer made to the general body of the shareholders;
(b) an offer made by or on behalf of some other body
corporate with a view to the company becoming its
subsidiary or a subsidiary of its holding company;
(c) an offer made by or on behalf of an individual with a view
to his obtaining the right to exercise or control the exercise
of not less than one-third of the voting power at any
general meeting of the company; or
(d) any other offer which is conditional on acceptance to a
given extent,
a payment is to be made to a director of the company by way of
compensation for loss of office, or as consideration for or in connection
with his retirement from office, it shall be the duty of that director to take
all reasonable steps to secure that particulars with respect to the proposed
payment (including the amount thereof) shall be included in or sent with
any notice of the offer made for their shares which is given to any
shareholders.
(2) If –
(a) any such director fails to take reasonable steps as
aforesaid; or
(b) any person who has been properly required by any such
director to include the said particulars in or send them with
any such notice as aforesaid fails so to do,
he shall be liable to a fine not exceeding fifty thousand dollars.
(3) If –
(a) the requirements of subsection (1) are not complied with in
relation to any such payment as is therein mentioned; or
(b) the making of the proposed payment is not, before the
transfer of any shares in pursuance of the offer, approved
by a meeting summoned for the purpose of the holders of
the shares to which the offer relates and of other holders of
shares of the same class as any of those shares,
any sum received by the director on account of the payment shall be
deemed to have been received by him in trust for any persons who have
sold their shares as a result of the offer made, and the expenses incurred
by him in distributing that sum amongst those persons shall be borne by
him and not retained out of that sum.
(4) where the shareholders referred to in paragraph (b) of subsection
(3) are not all the members of the company and no provision is
made by the articles for summoning or regulating such a meeting
as is mentioned in that paragraph, the provisions of this Act and of
the company’s articles relating to general meetings of the
company shall, for that purpose, apply to the meeting either
without modification or with such modifications as the Minister
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on the application of any person concerned may direct for the
purpose of adapting them to the circumstances of the meeting.
(5) If at a meeting summoned for the purpose of approving any
payment as required by paragraph (b) of subsection (3) a quorum
is not present and, after the meeting had been adjourned to a later
date, a quorum is again not present, the payment shall be deemed
for the purposes of that subsection to have been approved.
Barbados S89-92 Interests in contracts.89. (1) A director or officer of a
company
(a) who is a party to a material contract or proposed material
contract with the company, or
(b) who is a director or an officer of any body, or has a material interest in
any body, that is a party to a material contract or proposed material
contract with the company, must disclose in writing to the company or
request to have entered in the minutes of meetings of directors the nature
and extent of his interest.
(2) The disclosure required by subsection (1) must be made, in the case of
a director of a company
(a) at the meeting at which a proposed contract is first considered;
(b) if the director was not then interested in a proposed contract, at the
first meeting after he becomes so interested;
(c) if the director becomes interested after a contract is made, at the first
meeting after he becomes so interested; or
(d) if a person who is interested in a contract later becomes a director of
the company, at the first meeting after he becomes a director.
(3) The disclosure required by subsection (1) must be made, in the case of
an officer of a company who is not a director
(a) forthwith after he becomes aware that the contract or proposed
contract is to be considered, or has been considered, at a meeting of
directors of the company;
(b) if the officer becomes interested after a contract is made, forthwith
after he becomes so interested; or
(c) if a person who is interested in a contract later becomes an officer of
the company, forthwith after he becomes an officer.
(4) If a material contract or a proposed material contract is one that, in the
ordinary course of the company's business, would not require approval by
the directors or shareholders of the company, a director or officer of the
company must disclose in writing to the company, or request to have
entered in the minutes of meetings of directors, the nature and extent of
his interest forthwith after the director or officer becomes aware of the
contract or proposed contract.
(5) A director of a company who is referred to in subsection (1) may vote
on any resolution to approve a contract that he has an interest in, if the
contract
(a) is an arrangement by way of security for money loaned to, or
obligations undertaken by him, for the benefit of the company or an
affiliate of the company;
(b) is a contract that relates primarily to his remuneration as a director,
officer, employee or agent of the company or affiliate of the company;
(c) is a contract for indemnity or insurance under sections 97 to 101;
(d) is a contract with an affiliate of the company; or
(e) is a contract other than one referred to in paragraphs (a) to (d), but, in
the case of a contract described in paragraph (e), no resolution is valid
unless it is approved by not less than two-thirds of the votes of the
shareholders of the company to whom notice of the nature and extent of
the director's interest in the contract is declared and disclosed in
reasonable detail.
Interest declaration.90. For the purposes of section 89, a general notice to
the directors of a company by a director or an officer of the company
declaring that he is a director or officer of, or has a material interest in,
another body, and is to be regarded as interested in any contract with that
body is a sufficient declaration of interest in relation to any such contract.
Avoidance of nullity.91. A material contract between a company and one
or more of its directors or officers, or between a company and another
body of which a director or officer of the company is a director or officer,
or in which he has a material interest, is neither void nor voidable
(a) by reason only of that relationship, or
(b) by reason only that a director with an interest in the contract is present
at, or is counted to determine the presence of a quorum at, a meeting of
directors or a committee of directors that authorised the contract, if the
director or officer disclosed his interest in accordance with subsection (2),
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(3) or (4) of section 89 or section 90, as the case may be, and the contract employees. He connived with one M in the purchase by M of certain land
was approved by the directors or the shareholders and was reasonable and in Penang and its resale to the society. M passed to the appellant as a
fair to the company at the time it was approved.
bribe for his connivance ¼ of the gross profits on the sale to the society.
M escaped to India before the society discovered the facts. The society
brought proceeding against him to recover the amount of the bribe and
Setting aside contract.92. When a director or officer of a company fails to damages for the fraudulent breach of his duties.
disclose, in accordance with section 89 or 90, his interest in a material Held:
contract made by the company, the court may, upon the application of the At common law the principal ( company) of a bribed agent had as against
company or a shareholder of the company set aside the contract on such both the bribed agent and the briber the alternative remedies:
terms as the court thinks fit.
a) claiming the amount of the bribe as money had and received and
b) claiming the damages for fraud in the amount of the actual loss
Trinidad and Tobago S93-100
sustained.
In consequence of entering into the transaction in respect of which the
bribe had been given, but he could not recover both and had to elect
A contract made by a company with one of its directors or with a between the remedies, although he was not required to make an election
company or firm in which he has an interest is voidable at the instance of until the time of entry into judgement in his favour on one or the other of
the company.
the alternative causes of action.
The appeal was allowed.
Duty to Act Bona Fides and Improper Purpose
Arberdeen Railway Company v. Blaikie
An arrangement to manufacture iron chairs was set aside on the ground
that the chairman of its board of directors was the managing partner of A director when exercising their directorial power must act bona fide in
that company.
what they consider, not what the court considers is in the best interest of
the company. Directors must not act for any collateral purpose, the duty
N.B
to exercise powers for a proper purpose requires that those powers must
In the discharge of the duties one must not place oneself in a situation be exercised for the purpose for which hey were granted. Before the court
where your interest and duty conflict and in accordance with equity a will intervene it must be established that the director acted from an
director is prohibited from dealings unless he can point to full and frank improper motive or arbitrarily or capriciously.
disclosure.
Mills v Mills (1938)
S 93 T&T
As a result of tension between the managing director of the company who
S 89 & 90 B’dos. supra
was also a large ordinary shareholder and his nephew who was a director
and the holder of a large amount of preference shares, the managing
director utilised his votes and those of other family members and resolved
Bribes
that certain accumulated profits he capitalised and distributed to ordinary
shareholders in the form of bonus shares. This was designed to ensure
Mahesan v. Malaysian Housing Society
The appellant was a director and employee of the respondent company in that the managing director controlled the company.
Malaysia whose object it was to provide housing for government Lathan LJ
5
Noted that difficulty of applying the test of acting in the interest of the
company where there are different classes of shares for the character of
the act must necessarily adversely affect the interest of one class of
shareholders while benefiting another. In such circumstances the question
becomes what is fair between different classes of shareholders. The
exercise of the power here in this case was proper.
Hogg v. Cramphorn (1967)
Directors attach special voting rights to preference shares to twart a
hostile take over bid. The director believed that acquisition of control by a
prospective take over bid would not be in the best interest of the company
of its staff. Nevertheless the Court held it was an improper use of the
directors’ power and while accepting that the board acted in good faith,
they noted that the primary purpose of the scheme was to ensure control
of the company.
Although the companies act 1981 of Bermuda prohibits the giving of
financial assistance by a company to any person in connection with the
purchase of its shares, neither it nor the rule in Trevor v. Whittworth
precluded a subsidiary from purchasing shares in a parent company. The
distribution of rights to existing shareholders in anticipation of a possible
hostile take over is not lawful provided that the directors have the
requisite powers under the company’s bye laws to issue such rights, that
they exercise the powers bona fide and fairly as between shareholders.
Where a plaintiff has personal claims against defendants he can also
pursue in the same action representative claims where there is common
interest, a common grievance and the relief sought could be beneficial to
all even though not in equal degree.
Duty of Care Diligence and Skill
Howard Smith Ltd. Ampol Petroleum Ltd. (1974)
The Plaintiff and the defendant were making competing takeover bids for
Miller. The directors of Miller favoured the plaintiff’s bid but there was
no prospect of this bid succeeding because the defendant would not
accept their offer. Miller’s directors allotted new shares to the plaintiff in
order to raise capital and to reduce the holding of the defendant. The
defendant challenged the validity of the allotment.
Lord Wilberforce held
That the directors’ power under the articles is a fiduciary power and it
remains the case that an exercise of such a power though formally valid
may be attacked on the ground that it was not exercised for the purpose
for which it was granted. An issue of shares for the purpose of creating
voting power has been repeatedly been condemned.
Re Cardiff Savings Bank, Marquis of Bute
The defendant Marquis of Bute was the president of the company from
when he was a baby. He attended only one board meeting.
It was held that his duties were of an intermittent nature, however, he was
not so involved to be held liable because omission to attend the meeting
of the bank was not the same neglect or omission of duties to be
performed at the meetings.
Re Brazilian Rubber Plantations and Estates
Directors of the rubber company had no expertise in the business and
were sued in the grounds of negligence when the company made financial
losses.
Neville J in the court of appeal applied a reasonable care test i.e what an
Teck Corporation v. Millar (1972)
This goes against Howard Smith, Mills and Hogg.
ordinary man might be expected to take in the circumstances. He went on
This case says that even if the effect of an allotment was to maintain to say that if a director had special knowledge relevant to the companies
voting power the allotment was valid as long as the directors has acted business he is bound to give the company that advantage.
bona fide in the interest of the company making the allotment.
Re City Equitable Fire Insurance.
Stena Finance BV v. Sea Containers Limited. (1989)
6
The liquidators brought an action against other directors for negligently
failing to detect fraud.
Romer J used a degree of objectivity as a basic standard of reasonable
care as might be expected of an ordinary person acting on his own behalf.
And a subjective standard that the director need not exhibit greater skill
than can be expected of a person of his or her knowledge and expertise. A
director must act honestly but must also exercise some degree of both
skill and diligence.
Pavlides v. Jensen
Mere negligence is insufficient to constitute a breach of care, skill and
diligence. The sake of an asset will not always without more be a breach
of care diligence and skill. There must be mala fides on the part of the
director .He must have benefited form the sale at an under value to
establish a breach.
Insider Trading
This phrase comes from the securities industry where it is taken to mean
the purchase or sale of securities by one who has access to sensitive
information that has not been disclosed to the public.
Percival and Wright
The directors purchased some shares form existing shareholders without
disclosing that hey were in the process of negotiating a take over bid at a
higher price.
Held:
That since the directors owed no fiduciary duty to the shareholders they
could not be liable for non disclosure.
This decision has been criticised and is limited to its facts.
Principle:
Directors owe their duties to the company and the company alone and not
individual share holders.
S 308 a-e Barbados
Kuwait Asia bank v. National Mutual Life.
The respondent company was appointed trustees for the depositors to the
company. When the company went into liquidation one of the depositors Limitation Period
brought an action against the respondent for breach of trust alleging that it Barbados 310. An insider who, in connection with a transaction in a
failed to perform its duties especially the duty of care owed to them and share of
that the bank as employer was vicariously liable for the actions of its
the company or any of its affiliates, makes use of any specific
directors.
confidential
Held:
information for his own benefit or advantage that, if generally
The directors duties extended to perform with gross negligence. That they
known, might reasonably be expected to affect materially the value of
owed a duty to the respondent to use reasonable care to see that the
the share
certificates complied with the requirement of the trust. They also owed a
(a ) is liable to compensate any person for any direct loss incurred
duty to their employer to exercise reasonable diligence and skill in the
by that person as a result of the transaction
performance of their duties as directors.
and
( b) is accountable to the company for any direct benefit or advantage
received or receivable by the insider as a result of the transaction
Dovey v. Corey.
The director was held not liable for relying on the advice of the chairman
and general manager of the company in assenting to payments of 311. An action to enforce a right created by section 310 may not be
dividends out of capital and to advance eon improper security.
commenced except within 2 years after the discovery of the facts that
gave rise to the cause of action.
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Remedies for Breach of Directors Duties
(a) was substantially successful on the merits in his defence of the action
1. Aggrieved parties can claim :
or proceeding,
2. Injunction or declaration
(b) qualified in accordance with the standards set out in section 97 or 98,
3. Damages or compensation
and
4. Restoration of the companies property ( this is dependent on (c) is fairly and reasonably entitled to indemnity.
whether the property is traceable).
5. Account of profits
100. A company may purchase and maintain insurance for the benefit of
6. Decision of the court
any person referred to in section 97 against any liability incurred by him
7. Summary dismissal
under paragraph (b) of subsection (1) of section 95 in his capacity as a
director or officer of the company.
Avoidance of Responsibility
Statute
S 101 Trinidad and Tobago
101. (1) A company or person referred to in section 97 may apply to the
court for an order approving an indemnity under section 98; and the court
may so order and make any further order it thinks fit.
(2) An applicant under subsection (1) must give the Registrar notice of
the application; and the Registrar may appear and be heard in person or
by an attorney-at-law.
S191 of the Jamaica’s companies act which is limited to the ambit and (3) Upon an application under subsection (1), the court may order notice
which renders contracts relieving ratification, statute of limitations, to be given to any interested person; and that person may appear and be
indemnity and insurance
heard in person or by an attorney-at-law.
For derivative action.98. A company may with the approval of the court
indemnify a person referred to in section 97 in respect of an action
(a) by or on behalf of the company or body corporate to obtain a
judgment in its favour, and
(b) to which he is made a party by reason of being or having been a
director or an officer of the company or body corporate, against all costs,
charges and expenses reasonably incurred by him in connection with the
action, if he fulfills the conditions set out in subsection (2) of section 97.
Right to indemnity.99. Notwithstanding anything in section 97 or 98, a
person described in section 97 is entitled to indemnity from the company
in respect of all costs, charges and expenses reasonably incurred by him
in connection with the defence of any civil, criminal or administrative
action or proceeding to which he is made a party by reason of being, or
having been, a director or officer of the company or body corporate, if the
person seeking indemnity
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