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Company PQ Minsh FD (Breach of 175 (A not in breach if (situation which…
Company PQ Minsh FD
Breach of 175
A's contract w D breached s175 CA: the duty to avoid conflicts of interest
- Upjohn lj in Boardmann v Phipps: a possibility of conflict arises where a reasonable man by the whole of the circumstances would sense a possibility of conflict
- Bhullar, Cooks: d had exploited an opportunity that the cy would have exploited (Glencor v Dalby) by diverting it to themselves to benefit personally
- on the facts, it is argued that a situation of conflict of interest have arisen as D used to engage T for contracting to administer its carparks
- the opportunity is clearly one that the cy could have exploited and it is contended if A is in a position of conflict of interest
- exploitation refers to any property, info or opportunity and it is immaterial if cy takes adv of it s175(2)
- immaterial if cy benefits (Regal Hastings Ltd), or if cy would have entered into the contract (Commonwealth Oil + Gas v Baxter)
- the contract is an opportunity which the cy would have exploited, immaterial if they benefitted
A not in breach if
- situation which cannot be reagarded as likely to give rise to conflict of interest a175(4)(a), or if matter had been auth by directors s175(4)(b)
- in a private cy, auth is valid so long as nothing in the consti invalidates the auth (s175(5)(a) and that the interested director (A) does not participate in the ?? (s175 6 a
- A did not disclose interest (Montext v Bulfrid) as B,C are unaware
- accordingly, submitted that it could not have been an auth, A is in breach of 175
- A may not be in breach if it is ratifiable: ie negligible (Pavliades) or incidental profit (Regal Hastings)
- non ratifiable if it is fraud on minority = misappropriation of property (cook n deeks)
- appears unratifiable bc A has benefitted
then liable under eq principles of 178. A (director) held accountable for profits and losses suffered
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breach of s174
- duty to exercise reasonable c, s, dilligence
test:
- defining what is te objective minimum standard of the directors w calibrating that standard according to the subjective standard of director (Re D'Jan)
- this standard can only be raised, now lowered (s174(2)
- parker J in Re Barings: a director is req to show suff knowledge, understanding of the biz and may delegate but not abdicate responsibility
- this standard of suff k, u must be set in the context of the function that the d is carrying out (Re AG Manchester) such that a higher standard may be req of an executive director (Dorchester Finance) while a lower standard is expected for non exec directors (Secretary of State v Swam)
- apply: ABC not exercised reasonable c,s,d as they failed to check if planning permission can be obtained, thereby increasing value of property
- set in context of their function as directors, Re Queens Moat: it is reasonable to expect them to at least check what is the true market value of property
- while they might arge that they are directors of a computer software firm and not property developers, their standard cannot be lowered s174(2) CA
- thus they would most likely be in breach of s174 but this is a rat breach since it is mere negligenc
- since they have caused cy to lose a substantial amount,they might be required to compensate cy s178
breach of s177
- duty to disclose interest in proposed transactions
- T is selling the property to S, a conflict of interest has arisen (Aberdeen Rwy v Blakie) and a full and frank disclosure (Mowtext v Bulfreid) is required of C in a meeting to directors s177(2)(a)
- on the facts, C has declined to T's bond before sale s1774(4) and that d are aware of 25% interest in S (s177 6 b).
- on the facts, S may not be in breach of s177
intro:
- re issues regarding DD and by directors to the cy under CA 2006 and whether any of the directors in qn are in breach
- raises qn about minSH protection
- consider if ABC are in breach of any duties, before considering if breaches are ratifiable or if they have been auth or ratified. where breach is est, the appropriate remedies will be considered
- Zenon is a minSH, it wil consider if he wants a remedy on behalf of cy or personal remedy (s994 CA) if he does not want to stay in cy
- if it is submitted Z wants a personal remedy, should he apply for one under s994 or a buy out order under s996 which may be likely since breaches of his FD by ABC may be UPC
conclusion
- it is submitted that A is most likely in breach of s175 (unratifiable breach), he is liable to compensate the cy and account for profits
- ABC would most likely be in breach of s174
- thus, since d are the ones in breach, unlikely they will bring a claim
- Z as min SH may bring a claim under s260,s994. if Z wants personal remedy, can bring under s994 for buyout under s996 and most likely be successful under s994 for breaches of fiduciary duties by ABC as unfairly prejudiced his interests qua render inter alia from the value of his shares