Monday, October 22, 2012


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All the directors in OI Ltd have breached their duty of care and diligence. For the breach of fiduciary duty, in accordance with the AWA Ltd v Daniels case , Frances, Harry and Indigo breached their duty of care and diligence because as directors, they owe duty of care to the company and they failed to make enquiries about the motor racing team and OI Ltd¡¯s financial position. Besides, they never keep themselves informed about all aspects of the company¡¯s business operations when deciding to accept Greg¡¯s proposal. Although Harry and Indigo are both managers from different division, however in AWA case, it was established that the degree of care to be exercised is not limited by a director¡¯s knowledge or expertise and they must do more than merely represent their particular field of experience. They failed to do so and hence breach the fiduciary duty of care and diligence.

As for James, although he is not involved in business activities and has no particular skills which benefit the operation, in accordance to AWA case, he still is required to familiarize himself with the company¡¯s business and its operations and regular attendance at board meetings is required in assisting to monitor the company¡¯s business affair. In Vrisakis v ASC , James are still required to attend all meetings also. He would have known about the company facing financial difficulties if he had went for the meeting and familiarize himself with the company¡¯s business.

Greg breached the fiduciary duty of care and diligence which was established in AWA case that directors owe a duty of care to their company. Instead of informing OI Ltd about their financial status, he proposed to the directors about the loan and induced them by mentioning to them about the benefit from the publicity they will gain. Although he is a non-executive director, but in AWA case, the court state that a non-executive director should not be entitled to rely on information and have a lower standard of care compared to executive directors.

Frances, Harry and Indigo has breached s180 (1) , because a person who is also a managing director and executive director would not have been so ignorance about checking the company¡¯s financial status before approving the proposal by Greg and also a reasonable person would have checked the financial status in the motor racing team as well as the person managing it. Here, Frances breached the statutory duty of care, s180 (1), as a reasonable managing director would have taken more steps to make more enquiries and find more information.

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As for Harry and Indigo, they breached s180 (1), statutory duty of care as well. In ASIC v Adler case, they still have to make inquiries about the company¡¯s affairs. All the directors who have breached the duty of care and diligence do not have any defences as in section 180() because they did not satisfy all the business judgment rules .

Harry, manager of the motor vehicle insurance division. The duty to avoid conflicts of interests is breached where directors fail to disclose their material personal interests in transactions with the company . According to the case Furs Ltd. v Tomkies and Queensland Mines Ltd. v Hudson , a disclosure of interest to the general meeting of members or board of directors can avoid a breach of their fiduciary duty. Since Harry did not disclose his interest to OI Ltd, hence he breached his duty to avoid conflict of interest.

Directors breach their fiduciary duty if they enter into a contract where their interest is direct or indirect. This is because directors should obtain the best deal for the company and not be seen to put themselves in a position where they may further their own interest . To prove the breach of fiduciary duty of deriving personal profits by Harry, two proves are determined in Regal (Hastings) Ltd v Gulliver . First, Harry utilized his position as the manager of motor vehicle insurance division and special knowledge held by him as a director of OI Ltd to enter into contract with ITO which presumably will result in personal profit. In accordance with South Australia v Clark , Harry breached his fiduciary duty because he, as the director of OI Ltd (first company), must not exercise his power for the benefit or gain of his second company (Shifty Insurance Pty Ltd) without clearly disclosing his second company¡¯s interest to the first and obtaining OI Ltd¡¯s consent.

Under statutory law, Section 18 will be breached if officers and employees make improper use of their position to gain advantage for others . Harry¡¯s intention can be shown by him incorporating Shifty Insurance Pty Ltd and entered in the contract with ITO. Hence, according to Chew v R case, he has breached s18

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