Business Entities

TUTORIAL 8 (CLASS 9) Directors Duties: Content and Enforcement

Natasha Grasso

Z3375265

Advise Sports Ltd whether the company can sue Games Pty Ltd and recover the profit of $300,000 made by Games Pty Ltd. Your answer must be supported by relevant precedents;

Directors cannot use their position to take away business opportunities that belong to the company. Due to Alex’s fiduciary position thus his resulting responsibilities, of avoiding conflicts of interest, Sports Ltd have a very large chance of success in recovering profits of $300,000 made in the London Olympic games contract won by competitor Games Pty Ltd.

The legal issue identified here is that did Alex’s capacity as a director of Sports Ltd give rise to Games Pty Ltd’s winning tender. The second legal issue it that does Games Pty LTd need to give an account of profits for the benefit they received from winning the tender over Sports Ltd.

Set out in Aberdeen Railway Company v Blaikie Bros (1854) 1 Macq 461 it was described “that no one, having fiduciary duty to discharge, shall be allowed to enter into engagements in which he had, or can have, a personal interest conflicting”. This is in breach through Alex’s expert position in preparing tender bids for Sports Ltd and sole shareholder of Games Pty Ltd, which he encouraged to prepare a bid.

According to common law a director is denied the ability to use insider information for their own purpose. Alex is assumed to be in breach as he informed Bob to prepare a bid better then what he prepared for Sports Ltd hence assuming disclosed confidential information as the tender won. Thus Alex is both diverging a large business opportunity from Sports Ltd and is breaching loyalty and good faith to Sports Ltd as outlined in the Corporations Act 2001 Section 181 and 182. Hence it is advised that Sports Ltd should sue Alex for his breach.

Conflict of interest test can be discerned from Phipps v Boardman [1967] 2 AC 46. It questions if an officer...