Litig8: Director’s duties

July, 2016

By Justin Liang, Law Clerk

Each month as a part of Mills Oakley’s Litig8, we bring to you snapshots of eight key cases, legislative changes or other legal events. The summaries are not comprehensive and do not constitute legal advice. You should seek professional advice before taking any action based on the content of this email.

Part 7 of Litig8 Edition 3

A recent decision in the NSW Court of Appeal has found that a managing director’s failure to disclose a personal interest when negotiating on behalf of the company was a breach of his fiduciary duty, thereby being a ground for summary dismissal by way of serious misconduct.

Following the conclusion of a joint venture between litigation funders LCM Litigation Fund Pty Ltd (LCM) and Vanin Capital PCC PLC (Vanin), Mr Coope was tasked with negotiating a Wind Down Proposal on behalf of his employer, LCM. As a result of a strained relationship between Mr Coope and a fellow director on LCM’s Board, both directors were subsequently asked to submit a proposal to the LCM Board on the terms on which each would be prepared to leave LCM (Separation Proposal).

Mr Coope proceeded to recommend a course of action in the Separation Proposal, but failed to disclose to the LCM Board that he would acquire a 20 per cent equity stake in Vanin as part of the Separation Proposal.

Further, Mr Coope had failed to disclose in the Separation Proposal that following his resignation as a director of LCM, he would commence as managing director of Vanin in Australia and Asia. Accordingly, if released from the restraint of trade obligations in his employment contract as per his Separation Proposal, Mr Coope would be competing directly with LCM.

The court found that by pursuing a personal interest in circumstances where there was a conflict and Mr Coope had breached his fiduciary duty to LCM.

The court also found that whilst the fiduciary obligation did not include a positive obligation of disclosure, disclosure to obtain the informed consent of LCM was the only defence available for the breach of fiduciary duty.

Accordingly, due to Mr Coope’s breach of his fiduciary duties, LCM was justified to summarily dismiss Mr Coope for serious misconduct.

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