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Law of Agency

Law of Agency. Corporate Officers. Fiduciary Obligations. General standards of loyalty, good faith & avoidance of conflict of duty & interest. Director’s duty to exercise care & skill Duty to exercise independent discretion Duty to account for secret profits. Defining Corporate Opportunity.

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Law of Agency

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  1. Law of Agency Corporate Officers

  2. Fiduciary Obligations • General standards of loyalty, good faith & avoidance of conflict of duty & interest. • Director’s duty to exercise care & skill • Duty to exercise independent discretion • Duty to account for secret profits

  3. Defining Corporate Opportunity • Business opportunity which a company has claim.

  4. Situations in which duty not usurp corporate opportunity • If director has been given specific mandate to acquire a particular opportunity. • If director(s) is general mandate to acquire opportunities for the Co • If she usurps an opportunity which the Co is actively pursuing

  5. Case on Misappropriation of corporate opportunities • English approach: Menier v Hooper’s Telegraph Works (1874) • Co obtained a licence to lay cables. One of the directors obtained a licence in his own name & formed another Co to exploit the contract. • Minority shareholders sued for damages.

  6. Cook v Deeks (1916) • Four directors who has negotiated a contract ob behalf of the Co, later obtained contract in their own name. • They called a gen meeting & passed a resolution that the Co had no interest in the contract.

  7. Privy Council found that the directors in so doing misappropriated a corporate opportunity.

  8. Industrial Dev Consultants Ltd v Cooley (1972) • MD attempted to negotiate contracts on behalf of his Co, was unsuccessful because the third party disliked the corporate set-up. • He resigned & contracted personally with the third party. • Held that he was accountable for breach of fiduciary duty.

  9. Canadian Approach • Canada Aero Services v O’Malley (1975) – the Co had submitted tenders for aerial mapping project. • Prior to tenders being considered defendant directors resigned their position & formed their own Co.

  10. Canada Aero Services v O’Malley (1975 • They submitted almost identical tender as that was which they had prepared for the former employer. • Tender was awarded to their own Co. • They found liable for depriving their former Co of the corporate opportunity which it had been developing.

  11. South African Approach • Robinson - Co was given an opportunity to acquire a farm, but the chairperson acquired it and subsequently sold it to the Co at higher price. • Held fiduciary is prohibited from appropriating to himself business opportunity which in fairness belong to the Co.

  12. Bellairs v Hodnett1978 (1) SA 1109 (D) • B an experienced property developer acquired right of property to N20 for which he had opted not to bring it to the attention of the Co, while the Co was developing adjacent land. • Held B had place himself in a position of conflict between interest and duty.

  13. The problem of departing entrepreneurial fiduciaries • Phillips v Fieldstone Africa (Pty) Ltd & another 2004 (3) SA 465 (SCA) dealt with director’s liability to account to his employer for secret profits made out corporate opportunity arising out of empowerment transaction.

  14. The problem of corporate incapacity • Financial inability and rejection of the opportunity by the corporation • Does a proof of commercial impossibility provide a defence to directors who appropriate to their own use a maturing corporate opportunity?

  15. Peso Liver Mines v Cropper (1966) 58 DLR (2d) 1 • C & his associates purchased claims which were rejected by Peso Co because of financial inability. • Subsequent acquisition, albeit without seeking shareholder approval was held to be proper because the Co’s interest in them ceased.

  16. Ratification • Gen meeting of shareholders may ratify wrongs committed by a director after full disclosure provided the breach is ratifiable. • Gen meeting cannot ratify breaches where the director didn’t act in the best interest of the Co.

  17. Wrong is unratifiable if ratification will result in the wrongdoer receiving benefit at the expense of the Co & the Co suffer prejudice as it places its assets in the hands of the wrongdoer. • Misappropriation of corporate opportunity is deemed to be at the expense of the Co, it is therefore unratifiable.

  18. The making of secret profit by a director can be condoned by gen meeting.

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