Introduction - Director’s duties
Even though the law recognizes corporations as separate and distinct entities from the owners, it nevertheless recognizes that corporations act through people. Such people are referred to as directors and manage the activities of a corporation. In Lennard’s Carrying Co. v. Asiatic Petroleum Co. Ltd, the court observed that directors are the directing mind and will of the company. Accordingly, directors of a company act for and behalf of the company, and as such owe several duties to the company. These duties are at common law and also statutorily provided for. In the U.S., there is no single statute codifying these duties, and as such states are given the latitude to legislate on the issue (Clarke, 2007). Majority of other commonwealth contries however have a codified statute dealing with such issues. From a general perspective and subject to state law, director’s duties at common law apply to all states. It is imperative to note that these duties are owed to the company and not to the owners or shareholders. In Percival v. Wright, the court held that directors are not agents of the shareholders, but rather agents of the company as a whole. Importantly also, these duties also bind any person lawfully authorized by the directors, to act on behalf of their behalf. At common law, the duties of directors fall into two categories: the duty of care and skill in the conduct of the affairs of the company; and fiduciary duties of good faith and loyalty. In establishing the level of care and skill, the court in Re D’Jan of London Ltd. stated that a director only has to exercise the degree of care and skill reasonably expected of them in the circumstance. A similar criterion exists under section 174 of the UK Companies Act, 2006. The test is thus subjective, slightly differing from the common law subjective test in Re City Equitable Fire Insurance Co. A director that breaches the duty of skill and care may be liable for negligence. Fiduciary duties form the bulk of a director’s duty to a company. They generally relate to good faith, honesty, and loyalty to the company. Generally, these duties require four things from the directors: one, they must in good faith do what they consider to be in the best interest of the company; two, their authority must be exercised for the particular purpose for which such power was conferred, and not for superfluous purposes, not withstanding that such purpose is in the best interest of the company; three, they should not restrict their discretion to act for the company; and four, they should not place themselves in a conflict of interest position against the company. A director that breaches their duties is personally liable in negligence at common law. In some jurisdictions, statutory laws provide criminal penalties for such breach. Some of such statutes provide for the remedies of such breach, such as fines, rendering accounts, restitution, disqualification, and confiscation. These statutes also provide additional duties such as keeping proper books of accounts, disclosure, and financial reporting (Hicks and Goo, 2008). In summary, the duties of directors require them to act honestly, proficiently, and conscientiously (Webster, 2007).

Liability
Brian was one of the directors of Gemsales Pty Ltd. He voted at the resolution to expand the company, and to obtain a loan for the expansion. The money was used among other things to purchase a warehouse and showrooms from a company in which he was a share holder. Brian also set up a business to trade with Victor, who was unwilling to trade with Gemsales Pty Ltd because of his dislike for Andrew. He later resigned as a director of Gemsales Pty Ltd. He after words approached Gemsales Pty Ltd’s clients and took orders from them.

Issues
Did Brian breach his duties as a director? Is the contract between Brian and Victor valid?

Rule
A director is under a fiduciary duty to act in good faith and in the best interests of the company. This duty requires them to disclose any conflict of interest and not to compete or engage in activities that compete with the company. Any contract or agreement entered into between the director and a third party, in breach of these duties may be vitiated.

Application
A director as an agent of the company is required to further the company’s interests, not their own. As such, they are prohibited from placing themselves at conflict with the company’s interest; either by being in a position where their judgment may be biased or competing with the business. Brian was thus in breach of both aspects of this duty. By not disclosing to the other directors that he was a director in Traders Pty Ltd, he was placing himself in a situational conflict with the company’s interests. This is expressly prohibited by section 175 of the UK Companies Act, 2006. Section 177 further requires a director to divulge any interest in any anticipated or existing transaction, either at the board meeting or through a notice in writing. In Philip Towers v. Premier Waste Management Ltd, the court stated that it mattered not whether the director acts in good faith, so long as there is a conflict, the same amounts to a breach. Brian was thus in express breach of this duty. Owing to such breach, the transaction between Traders Pty Ltd and Gemsales Pty Ltd may be avoided. This was held in the case of Aberdeen Railway v. Blaikie. In the case, Blaikie contracted to purchase chairs from Aberdeen Railway, which was a partnership. It later turned out that one of the directors was also a partner in the partnership. The issue for determination was whether the company was entitled to avoid the transaction. The court held that a rule of universal application is that the fiduciary nature of a director’s duty precludes them from being at a personal conflict with the company’s interest, and that the rule is strictly applied regardless of fairness or unfairness of a transaction. Accordingly, the court ruled that the company could avoid the contract. This strictness was also affirmed in

the case of Philip Towers (supra). Brian was further in violation of this duty by entering into a contract with victor, for the sale of jewelry. The breach is on two levels: competing with the company; and making a secret profit. Competing with the company arises from the fact that the business he did with Victor is the same business Gemsales Pty Ltd does. The remedy for these breaches is rendering an account or recovering the profits made. This was the holding in Regal Hastings v. Gulliver. In the case, the court held that a director would be required to render an account if it can be demonstrated that they did so similar or related business as that of the company, that it can be said it was done in the line of their management and in use of the chances and special knowledge, and their undertaking resulted in a profit to them. Accordingly, Brian is liable to render an account for the profits obtained in the transaction between Victor and him, while he was still a director at the Gemsales Pty Ltd.

Conclusion
Evidently from the foregoing it is clear that Brian is liable for the breach of his duties as a director; More specifically, the breach of his fiduciary duties. It follows then that he may be liable for civil or criminal sanctions. The company may also be allowed to avoid the transaction between it and Traders Pty Ltd.

Colin
Colin was absent when the decision to expand the business was passed. At that time, he was recuperating in hospital.

Issue
Whether his absence in the meeting was a breach of his duties Whether the decision of the directors present also bind him

Rule
Under the duty of skill and care, a director is required to oversee the functions of the company. The director does not however have to give constant attention to the company’s affairs. The director is however required attend to such affairs where they can reasonably do. Application The application of skill and care in the management of a company requires a director to give their attention to the affairs of the company. This among other things mandates the director to attend board meetings, especially when key decisions are being made. However, where it is not reasonably possible for the director to attend such meetings, the director cannot be held liable for breach of their duties. This was the ruling in Re Denham & Co. Ltd. The court further stated that a director would not be liable for wrongs committed by other directors at meetings the director did not attend. Accordingly, Colin is not liable for breach of duty as a director for not attending the

meeting. This is because He is not required to attend all board meetings. Additionally, it was not reasonably possible for him to attend the meeting as he was in hospital. He is however bound by the decision of the other directors in relation to the expansion of the business.

Conclusion
Colin is not liable for breach of his duties for failing to attend the board meeting. He is however bound by the decision passed at the meeting.

Diana
Diana abstained from voting at the meeting that ratified the expansion of the business and the taking of the loan.

Issues
Whether she was in breach of the duty of skill and care Whether she is bound by the decision of the board

Rule
In discharge of the duty to apply skill and care, a director is required to, among other things, vote in the board meetings. A director is however not liable for failing to vote, if such failure is in good faith. The director would however be bound by the decision ratified by the votes.

Application
Voting during decision making is one of the key areas that a director exercises skill and care for the company. In many instances where a vote is required, the decision in question is usually a major company decision. It is especially that instance when a director is required to discharge their duties to the company to ensure the best interests of the company are protected. The failure to vote may thus connote or precipitate a presumption of negligence on the part of the director. The presumption may be rebutted if it is shown that the director’s failure was in good faith and not intended to defeat the interests of the company. Where a director abstains from voting for ulterior reasons or motives, they may be liable for breach of their duties. Accordingly, in the absence of an ulterior motive, Diana is not liable for breach of her duty of skill and care for failing to vote. The decision however, having been legally voted for, binds her irrespective of the abstinence.

Conclusion

Diana is not liable for breach of her duties as a director for not voting at the board meeting. She is however bound by the decision of the board.

Elizabeth
Even though Elizabeth did not attend the board meeting, as with other meetings, she nevertheless signed the documents approving the expansion and the loan.

Issues
Whether her failure to attend meetings is a breach of her duties Whether she is bound by the decision of the board

Rule
Even though a director is not required to attend all board meetings, they must nevertheless attend whenever it is reasonably possible.

Application
In Re Denham & Co. Ltd (supra) the court held that a director could not reasonably be expected to attend all board meetings. It however stated that it would be unreasonable for a director to miss all board meetings, especially where the director has a reasonable chance of attending. A director thus ought to attend meetings which they have a reasonable chance of attending, otherwise they would be in breach of their duties. Accordingly, Elizabeth is liable for breach of her duties as a director for failing to attend board meetings. A presumption of negligence on her part may be construed from the fact that there is no reason as to why she fails to attend the meetings. Signing the documents does not absolve her from the duty to attend board meetings.

Conclusion
The failure by Elizabeth to attend board meetings makes her liable for breach of her duties to the company. Additionally, she bound by the decision of the board, having signed the documents approving the expansion.

Andrew
Andrew voted at the meeting that ratified the expansion of the business and the taking of the loan.

Issues
Whether he liable for any breach Whether he is bound by the decision of the board

Rule

A director who exercises skill and care in the discharge of their authority and for the proper purposes cannot be liable for any breach. The decisions so made bind the director and the company.

Application
A director has a lot of discretion in the discharge of their duties. Such discretion must however be exercised for the proper purposes. In deed under section 171 of the Companies Act, 2006 a director has a duty to act within powers. If the director so exercises their discretion, they cannot be liable for breach of their duties, even if the decision is wrong. In Re Brazilian Rubber & Plantations Estates Ltd, the court ruled that as long as a director acts honestly in the discharge of their duties, they cannot be held liable even if the decision is wrong. Accordingly, as it cannot be shown that Andrew acted dishonestly or negligently, he cannot be liable for negligence in the decision, even if it is wrong. He is however bound by the decision, especially the outcome. Conclusion Andrew having exercised his authority properly in voting for the board’s decision is not liable for breach of his duty of skill and care. He is however bound by the decision of the board.

Reference List

Aberdeen Railway v. Blaikie (1854) 1 Macc. 461 Clarke, T., 2007. International Corporate Governance: A Comparative Approach. Madison Ave, NY: Routledge. Print. Hicks, A., 2008. Cases and Materials on Company Law. London: Oxford University Press. Print. Lennard’s Carrying Co. v. Asiatic Petroleum Co. Ltd. (1950) A.C. 705 Percival v. Wright (1902) 2 Ch. 421 Philip Towers v. Premier Waste Management Ltd, [2011] EWCA Civ 923 Re Brazilian Rubber & Plantations Estates Ltd. (1911) 1 Ch. 405 Re City Equitable Fire Insurance Co. (1925) Ch. D 447 Re D’Jan of London Ltd [1994] 1 BCLC 561 Re Denham & Co. Ltd (1883) 2 Ch. D 752 Regal Hastings v. Gulliver (1942) 1 All E.R. 378 The Companies Act, 2006 (c 46) Webster, M., 2007. The Director’s Handbook: Your Duties, Responsibilities, and Liabilities. 2nd ed. London: Pinsent Masons. Print.