Does the decision in Island Export Finance Ltd v Umunna represent the law in Singapore?

To determine whether the decision in Island Export Finance Ltd (IEF Ltd) v Umunna represent the law in Singapore, the application of the common and statutory law will be used. Upon applying the right principles, the decision will represent Singapore law.

Resignation to take up a corporate opportunity Singapore law states that the court held a director breached of his duty by taking up the opportunity if he resigns from a company to take up a corporate opportunity without the company’s permission where (i) the resignation was prompted or influenced by a desire to acquire the opportunity sought by the company or (ii) it was the director’s position with the company rather than a new initiative that led the director to the opportunity which the director later acquired.

Intention for resignation A director will be held in breach of duty if his main intention of resignation is to take up the opportunity. Based on the facts, Umunna resigned due to his dissatisfaction with IEF. Hence, U was held not in breach of his fiduciary duty. This aligned with Singapore law as seen from Personal Automation Mart [PAM] v Tan Swe Sang where Tan resigns to take advantage of the contract sought by PAM and the court held that Tan had breached her fiduciary duties.

Definition of corporate opportunity and source of information Singapore law defines a corporate opportunity as a business opportunity which the company is considering or one which the company might reasonably be expected to be interested, given its current line of business. In PMA, it clearly shows that it was through Tan’s directorship where she had great involvement with a mature business opportunity in PMA that led her to acquire the contract thus, held her for breach of duty. However, IEF was hopeful for further orders implied that it is not actively pursuing the opportunity, hence Umunna was held not breach of his duty as it was a new initiative that led him to the opportunity. This does not represent Singapore law because since IEF is hopeful for further orders shows that it is interested and hence, falls under the definition of corporate opportunity. Furthermore, it is through his directorship that led him to know of such opportunity. Thus, U may be held in breach of his duty under Singapore Law based on the definition of corporate opportunity and his directorship that led him to acquire the opportunity.

Improper use of information Under Companies Act, Section 157(2) prohibits officers or agents of the company from making use of improper information that by virtue of their position to gain, either directly or indirectly a benefit for themselves or other person. Generally, the definition of ‘improper use of information’ refers to the use of trade secrets or confidential information without company’s approval.

In Umunna case, he was not held liable for the information which he acquired as managing director. This decision does not represent Singapore law because Umunna’s knowledge of the potential market is confidential information and he had used it without the company’s permission to gain the contracts which could belong to IEF Ltd. Thus, following Singapore Law, Umunna would have been held liable for the improper use of information.

In contrast, in Umunna case, Hutchinson J held that the knowledge of potential market forms part of his general fund of knowledge and expertise, thus Umunna was not held liable. I agree with Hutchinson that if the information forms part of his general knowledge, it would be unreasonable to hold the directors accountable for the exploitation of the knowledge. However, a potential market discovered by the company itself should be classified as confidential information otherwise it is easy for an employee to gain benefits from insider information anytime.

In my opinion, the decision in Umunna case does not represent the Singapore law to a large extent. It shows a more flexible approach as compared to PMA which represented the law in Singapore. In conclusion, Singapore law is very strict and makes it difficult for a director to escape from breach of fiduciary duties.

Discuss when (if ever) a director can or should be able to appropriate to himself a business opportunity under the statutory and common law regime for the directors’ duties in Singapore.

In the following, we will discuss the common law regime followed by statutory when a director can or should be able to appropriate to himself a business opportunity in Singapore.

Common law
1) General Law – Conflict of duty and interest The general rule in Singapore is that a director must not place himself in a position where there is possibility of a conflict between duty and interest of the company without company’s permission. Upon approval granted through a resolution of the shareholders in general meeting, a director can usurp the business opportunity.

2) Usurp business opportunity 2a) Company rejects the opportunity in good faith, Under Singapore’s common law, a director can exploit a business opportunity if the company had in good faith rejects the business opportunity. [Peso Silver Mines Ltd V Cropper] Cropper was not held liable for taking up the opportunity because Peso had in good faith rejected the opportunity. The common law stated above is reasonable provided that the director has not gain the advantage by virtue of his position, he should be able to seize the business opportunity. Since the rejection was acted in bona fide solely in the interest of the company, this opportunity no longer belongs to the company and should be available to anyone.

2b) Company not in the position to take up the opportunity Conversely, directors are not allowed to usurp the business opportunity even though the company does not have the capability to take it up. [Regal (Hastings) Ltd v Gulliver] Alongside with the no-profit rule, the directors are not allowed to take up corporate opportunity even though Regal has insufficient financial resources. Hence, the directors are in breached of their duties. A similar verdict was reached in a Singapore case [Hytech Builders Ptd Ltd v Tan Eng Leong] where Tan was held for breach of fiduciary duties because he diverted the business opportunity to himself when Hytech was not qualified to take advantage of the opportunity. Both decisions were on the rationale to prevent directors from not putting their best in obtaining the opportunity for the company

From my standpoint, I agree with the rationale and decision made in both cases to hold the directors in breach of duties. Nonetheless, had the directors made a disclosure of conflict of interest and obtain approval from the board, it would be sufficient for them to retain the benefits. Adhere to the general rule; it should extend to prohibiting directors from indirectly taking up the opportunity when the company has insufficient capabilities. Otherwise, it would be unfair to the directors who were directly involved and allowing the others to gain from usurping the opportunity. Thus, Gulliver and Garton should not be allowed to avoid liability. The court should consider the deemed interest Gulliver had, being a shareholder in the two companies and the ability of Garton’s to make his own decision not to purchase the shares even though he was requested to. Upon consideration, the court should hold both Gulliver and Garton liable. Another criticism is the unfairness of the consequences. The purchasers gained an unjust windfall despite knowing the original arrangement made. Had it occurred to the directors, they could have obtained the approval needed which would have merely been a formality.

3) Resignation to take up business opportunity Lastly, as discussed above in Personal Automation Mart case, the intention of resignation is important. This is also shown in Canadian Aero Service where the court held the directors breached of their duty because it was their directorship with Canadian Aero that led them to the corporate opportunity which they later acquired. Hence, only by getting permission from the company, the director can resign to usurp the opportunity. Otherwise, a director should be able to take up the opportunity if it was by a new initiative or where the initiative has come from the client.

Statutory In order to appropriate a business opportunity, the director has to comply with the following statutory provisions. S156(1) requires director to disclose the nature of his interest at the meeting of the directors of the company if he is interested in a transaction or proposed transaction with the company where his interest is material interest. For example, a director transacts with the company in personal capacity. After proper disclosure and sought approval from company, he can take up the corporate opportunity. In addition, a director who holds any office or possesses any property where there is a potential conflict of interest and duties, must disclose at board meeting under S156(5).

Following S157(2) stated above, a director can take up corporate opportunities only when they did not make use of confidential information acquired through their directorship and the action taken will not detriment the company.

In conclusion, a director can or should be able to appropriate to himself a business opportunity in three instances under the common law. Firstly, it is appropriate when there’s full disclosure and company’s approval is obtained where a director is in a position where duty and interest may possibly conflict. Secondly, it is appropriate when the company in good faith rejected the opportunity. Also, approval must be sought if the company is not in the position to take up the opportunity. Lastly, where the director resigns to take up a corporate opportunity, he can only do so if it is a new initiative or when being offered. Under the statutory provision, a director has to comply with both S156(1), S156(5) and S157(2) to usurp the opportunity. Overall, Singapore law is rigid and makes a director difficult to usurp business opportunity.

References http://www.law-essays-uk.com/essaysamples/equity-trustslawessay/fiduciary-relationship.htm http://www.flmemo.co.uk/downloads/employment/employment_extract.pdf http://www.lawteacher.net/cases/comp12.htm/file-92.php http://www.carson-mcdowell.com/viewnews.php?id=63
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