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Once a Director, Always a Fiduciary?

Published online by Cambridge University Press:  11 August 2003

Pearlie Koh
Pearlie Koh*
Affiliation:
Department of Law, School of Business, Singapore Management University
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Extract

The corporate director is subject to duties of good faith and loyalty. As he stands in a fiduciary position vis-à-vis the company on whose board he sits, he is subject to strict obligations of self-denial. Indeed, ensuring adherence to an absolute rule in this regard is justified by the need to control, albeit in a necessarily imperfect and arguably ineffective manner, the exercise of discretion by the director who stands in an undoubted position of power with respect to the company. A director therefore is obliged to avoid a conflict of interests and is prohibited from profiting from his office. What then of the erstwhile director?

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Articles
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The Cambridge Law Journal , Volume 62 , Issue 2 , 01 July 2003 , pp. 403 - 443
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Copyright © Cambridge Law Journal and Contributors 2003

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Footnotes

I am grateful to Professor Andrew Phang, Dr. Low Kee Yang and Ms. Lee Pey Woan for their comments on an earlier draft of the paper. All errors remain mine alone.

References

1 The corporate director and the duties he owes are currently under intense scrutiny. The tidal wave of corporate law reform initiatives set in motion with the launch by the Department of Trade and Industry (DTI, Modern Company Law for a Competitive Economy (1998)) had, at its core, a proposed statement of directors’ duties. The reform cudgel was subsequently taken up by the independent Company Law Review Steering Group (CLRSG) formed of those with particular knowledge and expertise in company law matters. The CLRSG presented its Final Report (Modern Company Law for a Competitive Economy: Final Report (2001, URN 01/942 (vol. 1) and 01/943 (vol. 2)) (“Final Report”) to the Secretary of State in mid-2001. The Government has, in its White Paper, Modernising Company Law Cm. 5553 (“MCL”), endorsed much of what was recommended by the CLRSG, with the exception of the proposed duty in relation to creditors: see MCL Vol. I, paras. 3.8-3.10.

2 See S. Worthington, “Fiduciaries: When is Self-Denial Obligatory?” [1999] C.L.J. 500. See also Teele, R., “The Necessary Reformulation of the Classic Fiduciary Duty to Avoid a Conflict of Interest or Duties” (1994) 22 Australian Business Law Review 99Google Scholar.

3 [1998] Ch. 439.

4 Ibid., at p. 453.

5 Per Mason J. in Hospital Products V. United States Surgical Corporation (1984) 156 C.L.R. 41, 96-97.

6 Notwithstanding this, it is interesting to note that a reference to the former director has crept into the draft statement of duties in the CLRSG's Final Report (see specifically Final Report, Principle 6, Annex C) and by that route, also into Schedule 2 to the proposed Companies Bill (see MCL—Draft Clauses, Cm 5553-11). This is rather a significant manoeuvre, as the original “trial draft” proposed by the CLRSG was not meant to apply to former directors (see CLRSG, Modern Company Law for a Competitive Economy: Developing the Framework (2000, URN 00/656) para. 3.44, n. 34). The on-going efforts with respect to the statement have focussed, and it is submitted rightly, on duties that should be imposed on directors in the performance of their functions as directors, leaving the position of the former director ensconced within the embrace of general law.

7 Bray v. Ford [1896] A.C. 44, 50.

8 In a real sensible manner: per Lord Upjohn in Boardman v. Phipps [1967] 2 A.C. 46, 124.

9 Jordan, F., Select Legal Papers (Sydney 1983), 112Google Scholar.

10 Ibid., at p. 115.

11 [1988] B.C.L.C. 104.

12 His Honour referred to Tito v. Waddell No. 2 [1977] Ch. 106 and thought that the no-conflict principle should be classified as a “disability” rather than a “duty”: at pp. 119-120.

13 Ibid., at p. 125 (emphasis added).

14 [2002] EWCA Civ 370.

15 See e.g. A.J. McClean, “The Theoretical Basis of the Trustee's Duty of Loyalty” (1969) 7 Alberta Law Review 218; S.M. Beck, “The Saga of Peso Silver Mines: Corporate Opportunity Reconsidered” (1971) 51 Canadian Bar Review 80, 89-90; Austin, R.P., “Fiduciary Accountability for Business Opportunities” in Finn, P.D. (ed.), Equity and Commercial Relationships (Sydney 1987), 146Google Scholar.

16 See e.g. Lord Upjohn's statement in Phipps v. Boardman [1967] 2 A.C. 46, 123 that “a person in a fiduciary position must not make a profit out of his trust which is part of the wider rule that a trustee must not place himself in a position where his duty and his interest may conflict”; Lord Wilberforce's statement in New Zealand Netherlands Society “Oranje” Incorporated v. Kuys [1973] 2 All E.R. 1222, 1229 that “the obligation not to profit from a position of trust, or, as it is sometimes relevant to put it, not to allow a conflict to arise between duty and interest, is one of strictness”; and Gibbs J.'s opinion in Consul Development Pty. Ltd. v. DPC Estates Pty. Ltd. (1975) 5 A.L.R. 231, 248 that “the rule that a person in a fiduciary position is not entitled to make a profit without the knowledge and assent of the person to whom the fiduciary duty is owed, is not limited to cases where the profit arises from the use of the fiduciary position or of the opportunity or knowledge gained from it. The basis of the rule is that a person in a fiduciary position may not place himself in a situation where his duty and his interest conflict”.

17 Austin, note 15 above, at p. 146.

18 See examples cited in Austin, note 15 above, at p. 146, and McClean's discussion, note 15 above at pp. 223ff.

19 See note 15 above, at p. 90.

20 Chan v. Zacharia (1984) 53 A.L.R. 417.

21 Ibid., at p. 433.

22 Deane J.'s formulation was stated in terms of the liability to account. In this regard, it should be pointed out that where the conflict is fleshed out in the form of a contract entered into between the director and his company, the orthodox position in the UK is that the company's remedies do not include disgorgement, being restricted to rescission: see Erlanger v. New Sombrero Phosphate Co. (1878) 3 App. Cas. 1218. But this position is currently under siege: see S. Worthington, “Corporate Governance: Remedying and Ratifying Director's Breaches” (2000) 116 L.Q.R. 638, 665ff.

23 Arguably this would explain why there is no absolute prohibition on a director not to compete with his company: see London and Mashonaland Exploration Co. v. New Mashonaland Exploration Co. [1891] W.N. 165. See also Holder v. Holder [1968] Ch. 353 and the discussion thereof in G. Jones, “Unjust Enrichment and Fiduciary's Loyalty” (1968) 84 L.Q.R. 472, 489491, and in A.J. McClean, “The Theoretical Basis of the Trustee's Duty of Loyalty” (1969) 7 Alberta Law Review 218, 228-229.

24 [1942] 1 All E.R. 378.

25 Ibid., at p. 386.

26 (1726) 25 E.R. 223.

27 D.A. DeMott, “Beyond Metaphor: An Analysis of Fiduciary Obligation” [1988] Duke Law Journal 879, 914.

28 Or as Lord Chancellor King put it, “I must consider this as a trust for the infant; for I very well see, if a trustee, on the refusal to renew, might have a lease to himself, few trust estates would be renewed to the cestui que use”: (1726) Sei. Cas. t. King 61, 62, 25 E.R. 223.

29 Ex Parte Bennett (1805) 10 Ves. Jun. 382, 394, 32 E.R. 893, 897 (per Eldon L.C.)

30 See, e.g. G. Jones, “Unjust Enrichment and the Fiduciary's Duty of Loyalty” (1968) 84 L.Q.R. 472. See also, Gower, L.C.B., Gower's Principles of Modern Company Law, 6th edn., by Davies, P.L. (London 1997), 617Google Scholar, describing the result as “carrying equitable principles to an inequitable conclusion”.

31 See J. Lowry & R. Edmunds, “The No Conflict-No Profit Rules and The Corporate Fiduciary: Challenging the Orthodoxy of Absolutism” [2000] J.B.L. 122; but cf. S.M. Beck, “The Saga of Peso Silver Mines: Corporate Opportunity Reconsidered” (1971) 51 Canadian Bar Review 80; M. Christie, “The Director's Fiduciary Duty Not to Compete” (1992) 55 M.L.R. 506.

32 Lowry & Edmunds, ibid., at p. 142.

33 It is standard for the company's constitution to vest general managerial powers in the board. Thus, the directors “have absolute power to do all things other than those expressly to be done by the company”: per Collins M.R. in Automatic Self-Cleansing Filter Syndicate Co. v. Cuninghame [1906] 2 Ch. 34, 42.

34 L.S. Sealy, “The Director as Trustee” [1967] C.L.J. 83.

35 In re The French Protestant Hospital [1951] Ch. 567, 570.

36 Teele, note 2 above, at p. 100. See also Lowry & Edmunds, note 31 above. Also, by the same authors, “The Corporate Opportunity Doctrine: The Shifting Boundaries of the Duty and its Remedies” (1998) 61 M.L.R. 515.

37 P.K. Chew, “Competing Interests in the Corporate Opportunity Doctrine” (1989) 67 North Carolina Law Review 435, 448.

38 (1966) 56 D.L.R. (2d) 117.

39 Ibid., at p. 155.

40 Chew, note 37 above, at p. 441.

41 [1942] 1 All E.R. 378.

42 Lowry & Edmunds, notes 31 and 36 above.

43 Professors Lowry and Edwards were specifically advocating the line of business test espoused in the landmark decision of Guth v. Loft, Inc. 5 A. 2d. 503 (Del. Ch., 1939).

44 It is not proposed to consider the American doctrine save in the briefest of fashions as there are already ample readily available material written on the subject. One commentator was prompted, by the volume of literature in the general area of fiduciary duties and the appropriation of business opportunities, to suggest “not entirely facetiously that an article on this topic is a prerequisite for academic advancement”: R.G. Hammond, “Quantum Physics, Econometric Models and Property Rights to Information” (1981-1982) 27 McGill Law Journal 47, 62, n. 33.

45 In this regard, see generally V. Brudley & R.C. Clark, “A New Look at Corporate Opportunities” (1981) 94 Harvard Law Review 998; E. Talley, “Turning Servile Opportunities to Gold: A Strategic Analysis of the Corporate Opportunities Doctrine” (1998) 108 Yale Law Journal 277; D.R. Landes, “Economic Efficiency and The Corporate Opportunity Doctrine: In Defense of a Contextual Disclosure Rule” (2001) 74 Temple Law Review 837.

46 See generally, Chew, P.K., Directors’ And Officers’ Liability (New York 1994)Google Scholar, Ch. 5; see also Talley, ibid., at p. 116.

47 Lagarde v. Anniston Lime & Stone Co. (1899) 29 So. 199 (Ala.).

48 (1939) 5 A. 2d. 503 (Del. Ch.).

49 Ibid., at p. 513.

50 Ibid., at p. 514.

51 Durfee v. Durfee & Canning, Inc. (1948) 80 N.E. 2d 522 (Mass.).

52 In Miller v. Miller (1974) 222 N.W. 2d 71 (Minn.), the court adopted a two-step test which utilised, consecutively, the line-of-business test as well as the fairness test. Thus, under this test, the fact that an opportunity falls within the corporation's line of business is not per se determinative of the outcome, which depends further on whether the fiduciary's taking of the opportunity is unfair to the corporation.

53 American Law Institute, Principles of Corporate Governance: Analysis and Recommendations (1994), para. 5.05. The ALI's definition of a corporate opportunity that must first be disclosed to and rejected by the corporation includes, in addition to a line-of-business formula, a source-of-information inquiry: ibid., para. 5.05 (b).

54 See articles cited in note 45 above. See also Chew, note 37 above; H. Gelb, “The Corporate Opportunity Doctrine—Recent Cases and the Elusive Goal of Clarity” (1997) 31 University of Richmond Law Review 371, and also Northeast Harbor Golf Club, Inc. v. Nancy Harris et al. 661 A.2d 1146 (Me. 1995) in which the Supreme Judicial Court of Maine reviewed the different tests.

55 (1939) 5 A. 2d. 503 (Del. Ch).

56 The company Loft was mainly in the business of retailing soft drinks, including Coca-Cola, and the defendant Guth was its President and dominant director. While investigating alternative suppliers of soft drink syrup, the company considered Pepsi-Cola. The owner of the Pepsi-Cola syrup formula and trademark became bankrupt and Guth acquired these from the trustee in bankruptcy, formed the Pepsi-Cola Company, and became Loft's supplier. The court held that although Loft's business involved mainly the sale of a cola beverage, it nevertheless had a wholesale operation, albeit a limited one, which could be adapted to produce Pepsi-Cola syrup, and the Pepsi-Cola opportunity was therefore within Loft's line of business. The court arrived at this conclusion even though there was no evidence that it was part of Loft's corporate strategy to diversify into manufacturing cola syrup and even though there were significant differences between the wholesale and retail operations for soft drinks: see Chew, above note 54 at pp. 457-458.

57 Chew, above note 37, at p. 458.

58 661 A. 2d 1146 (Me. 1995).

59 Ibid., at p. 1149.

60 Ibid.

61 Northeast Harbor Golf Club. Inc. v. Nancy Harris et al. 661 A. 2d 1146 (Me. 1995), 1150, citing Camden Land Co. v. Lewis 101 Me. 78 (1905), 97.

62 Frederick Pollock, “Derry v. Peek in the House of Lords” (1889) 5 L.Q.R. 410, 422.

63 Dodd, E.M. Jr., “Is Effective Enforcement of The Fiduciary Duties of Corporate Managers Practicable?” (1934-1935) 2 University of Chicago Law Review 194Google Scholar.

64 It can be said that his view is vindicated by the recent spate of corporate failures in the US. Indeed, if a cynical view of the effectiveness of the law is taken, corporate law reform would be a total waste of effort! But the law has a wider, perhaps more noble, function, and that is to affect and shape the behaviour of relevant persons appropriately.

65 Dodd, note 63 above, at p. 195.

66 Ibid., at p. 207.

67 (1966) 56 D.L.R. (2d) 117, 139.

68 Northeast Harbor Golf Clob. Inc. v. Nancy Harris et al., 661 A.2d 1146 (Me. 1995), 1150.

69 See note 36 above.

70 Per Cardozo, J. in Meinhard v. Salmon 249 N.Y. 458, 164 N.E. 545, 546 (1928).

71 Ibid.

72 In Burnet v. Coronado Oil & Gas Co. 285 US 393, 406 (1932).

73 See Chew, note 37 above, in which Professor Chew recommends, in the context of the American corporate opportunity doctrine, that there be express negotiations between companies and fiduciaries on their respective rights as an alternative means of resolving corporate opportunity disputes. In the absence of such an agreement, the courts should enforce the reasonable expectations of the company and the fiduciaries.

74 661 A. 2d 1146 (Me. 1995).

75 In the CLRSG's Final Report, it was stated that a “key issue of principle” which had to be addressed is “the process for addressing directors’ conflicts of interest, and in particular which company body—the board or the shareholders—should have the authority to permit a director to exploit … a business opportunity which he has encountered as a director”: para. 3.21 (emphasis added).

76 [1967] 2 A.C. 134, 145.

77 Indeed, the rigid application of this test was relied on with great success by the directors in Peso Silver Mines Ltd. (N.P.L.) v. Cropper (1966) 58 D.L.R. (2d) 1 to escape liability.

78 [1986] B.C.L.C. 460.

79 Ibid., at p. 480.

80 [1972] 1 W.L.R. 443. See Prentice, D.D., “Directors’ Fiduciary Duties—The Corporate Opportunity Doctrine” (1972) 50 Canadian Bar Review 623Google Scholar.

81 Roskill J. found that the defendant's representation of ill health was untrue to his knowledge and therefore dishonest: [1972] 1 W.L.R. 443, 445.

82 [2001] 2 B.C.L.C. 704.

83 Ibid., at para. [90].

84 [1972] 1 W.L.R. 443, 451. See also Prentice, note 80 above, at p. 626.

85 Ibid., at p. 453.

86 Note 84 above.

87 See Prentice, note 80 above, at pp. 629-630; and also R.P. Austin, “Fiduciary Accountability for Business Opportunities” in P.D. Finn (ed.), Equity and Commercial Relationships (1987), 149, 150.

88 Per Hutchinson J. in Island Export Finance Ltd. v. Umunna [1986] B.C.L.C. 460, 478.

89 (1974) 40 D.L.R. (3d.) 371.

90 There was some question whether the defendants were properly appointed as directors. Grant J., the trial judge, with whom the Supreme Court of Canada agreed, held that they were senior managerial officers and by that reason, were in a fiduciary relationship with the plaintiff company.

91 (1974) 40 D.L.R. (3d.) 371, 382.

92 [1986] B.C.L.C. 460.

93 Ibid., at p. 479.

94 See note 151 below and accompanying text.

95 (1974) 40 D.L.R. (3d.) 371, 382.

96 J. Lowry & R. Edmunds, “The No Conflict-No Profit Rules and the Corporate Fiduciary: Challenging the Orthodoxy of Absolutism” [2000] J.B.L. 3.

97 Professor Austin referred to the no-profit rule, as opposed to the no-conflict rule, as the Commonwealth's equivalent of the US corporate opportunity doctrine: see R.P. Austin, “Fiduciary Accountability for Business Opportunities” in PD. Finn (ed.), Equity and Commercial Relationships (1987), 149. But see Orlinsky, E.G., “Corporate Opportunity Doctrine and Interested Director Transactions: A Framework for Analysis in an Attempt to Restore Predictability” (1999) 24 Delaware Journal of Corporate Law 451Google Scholar which explains the doctrine as being applicable to a conflict of interests situation.

98 Beck, S.M., “The Quickening of Fiduciary Obligation: Canadian Aero Services v. O’Malley” (1975) 53 Canadian Bar Review 771, 775Google Scholar.

99 Per Mackay J.A. in (1972) 23 D.L.R. (3d) 632, 642 (emphasis added).

100 Canadian Aero Service Ltd. v. O’Malley (1974) 40 D.L.R. (3d.) 371, 383 (emphasis added).

101 Ibid., at p. 384.

102 Ibid.

103 Ibid., at p. 390.

104 Canaero was a wholly-owned subsidiary of Aero Service Corporation, which was a United States company, which in turn, with all its subsidiaries, came under the control of another United States company, Lytton Industries Inc.: (1974) 40 D.L.R. (3d) 371, 373.

105 (1972) 23 D.L.R. (3d) 632, 648.

106 (1974) 40 D.L.R. (3d.) 371, 375.

107 (1974) 40 D.L.R. (3d.) 371, 377.

108 See issues raised in Phipps v. Boardman [1967] 2 A.C. 46 and particularly Lord Upjohn's dissent at p. 127 where his Lordship opined that “in general, information is not property at all” as “it is normally open to all who have eyes to read and ears to hear”. See also R.P. Austin, “Constructive Trusts” in Essays in Equity, ed. P.D. Finn (1985), 224-225 and Weinrib, A.S., “Information and Property” (1988) 38 University of Toronto Law Journal 117, 124 & 126Google Scholar.

109 This negative corollary has been embraced in a number of jurisdictions in the United States: see Brudley, V. & Clark, R.C., “A New Look at Corporate Opportunities” (1981) 94 Harvard Law Review 998, 1020ff.Google Scholar; and Talley, E., “Turning Servile Opportunities to Gold: A Strategic Analysis of the Corporate Opportunities Doctrine” (1998) 108 Yale Law Journal 277, 291Google Scholar.

110 Per Roberts J. in Northeast Harbor Golf Club, Inc. v. Nancy Harris et al., 661 A. 2d 1146 (Me. 1995), 1149.

111 Per Swan J. in Irving Trust v. Deutsch (1934) 73 F. 2d 121 (2nd Cir.), 124. See also Northeast Harbor Golf Club, Inc. v. Nancy Harris et al., 661 A. 2d 1146 (Me. 1995), 1149, where Roberts J. observed that the “reliance on financial inability will also act as a disincentive to corporate executives to solve corporate financing and other problems”.

112 (1974) 40 D.L.R. (3d.) 371, 382.

113 Weinrib, E.J., “The Fiduciary Obligation” (1975) 23 University of Toronto Law Journal 1, 4Google Scholar.

114 Talley, note 109 above at p. 282. See also Beck, S.M., “The Quickening of Fiduciary Obligation” (1975) 53 Canadian Bar Review 771, 782Google Scholar.

115 Beck, ibid., at p. 782.

116 See discussion on Peso Silver Mines (N.P.L.) v. Cropper (1966) 58 D.L.R. (2d) 1 below, note 122 and accompanying text.

117 See Talley, note 109 above who utilises disparate informational structures in corporations and assigns great significance to informational asymmetries in the analysis of the corporate opportunity doctrine.

118 Weinrib, note 113 above, at p. 9.

119 Subject to the discussion in the next section.

120 [1972] 1 W.L.R. 443, 445.

121 Weinrib, note 113 above, at p. 5.

122 (1966) 58 D.L.R. (2d) 1.

123 In this regard, see Beck, S.M., “The Saga of Peso Silver Mines: Corporate Opportunity Reconsidered” (1971) 51 Canadian Bar Review 80Google Scholar.

124 In this regard, Professor Beck's detailed consideration of the facts is particularly useful: ibid., at pp. 93-100.

125 Together with his colleagues and co-promoters, who with Cropper took up the claims after the rejection: ibid., at p. 96.

126 See also Wardle, P.C., “Post Employment Competition—Canaero Revisited” (1990) 69 Canadian Bar Review 233, 274Google Scholar, suggesting that Canadian authorities on the fiduciary obligations of former employees extend on average for a period of one year after resignation.

127 Austin, R.P., “Fiduciary Accountability for Business Opportunities” in Finn, P.D. (ed.), Equity and Commercial Relationships (Sydney 1987), 180Google Scholar.

128 [2002] EWCA Civ 370. Noted in [2003] C.L.J. 42.

129 [1967] 2 A.C. 46.

130 [1986] B.C.L.C. 460. See also note 151 below and accompanying text.

131 Who controlled the plaintiff company.

132 [1986] B.C.L.C. 460, 468.

133 See note 6 above.

134 At trial, Grant J. found that O’Malley and Zarzycki had not used confidential information in their pursuit of the Guyana contract. As such, since they had resigned and, on the narrow conceptualisation accorded to Regal (Hastings) by Grant J., they could not be made liable to account.

135 (1974) 40 D.L.R. (3d) 371, 388.

136 Faccenda Chicken Ltd. v. Fowler [1987] Ch. 117; A.T. Poeton (Gloucester Plating) Ltd. v. Horton [2001] F.S.R. 14.

137 [1987] Ch. 117.

138 Ibid., p. 136.

139 Ibid. The Court of Appeal went further to hold, and in this respect disagreeing with the trial judge Goulding J., that even the use of an express restrictive covenant will not be effective to protect such types of confidential information falling short of a trade secret after employment: at p. 137. But see Systems Reliability Holdings pic v. Smith [1990] I.R.L.R. 377, 384; and Balston Ltd. v. Headline Filters Ltd. [1987] F.S.R. 330, 347-348.

140 [1984] I.C.R. 589, 598.

141 Cranleigh Precision Engineering Ltd. v. Bryant [1965] 1 W.L.R. 1293; Thomas Marshall Ltd. v. Guinle [1979] Ch. 227; Dranez Anstalt v. Zamir Hayek [2002] 2 B.C.L.C. 693.

142 [2002] 2 B.C.L.C. 693.

143 Ibid., at para. [75], The decision was reversed on appeal [2002] EWCA Civ 1729, [2002] All E.R. 377 viz. claims by beneficiaries of a “side letter” which contained undertakings on the part of the defendant, and does not affect this quote.

144 Finn, P.D., Fiduciary Obligations (Sydney 1977), 150Google Scholar. This would fall within class 2 in Goulding J.'s classification in Faccenda Chicken [1984] I.C.R. 589, 599, i.e. “information which the servant must treat as confidential … but which once learned necessarily becomes part of his own skill and knowledge applied in the course of his master's business”. This class cannot be protected after termination of the employment.

145 Island Export Financing Ltd. v. Umunna [1986] B.C.L.C 460, 482.

146 FSS Travel and Leisure Systems Ltd. v. Johnson [1999] F.S.R. 505, 513.

147 [1965] R.P.C. 239.

148 Ibid., at p. 255.

149 [1986] B.C.L.C. 460.

150 (1974) 40 D.L.R. (3d) 371.

151 Hutchinson J. was qualifying Laskin J.'s statement that a director is precluded after resignation from usurping a maturing business opportunity which his company is actively pursuing if his resignation is prompted by a wish to acquire the same “or where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired”. His Honour thought that “literally construed, this last part of the formulation could justify holding former directors accountable for profits whenever information acquired by them as such led them to the source from which they subsequently, perhaps as a result of prolonged fresh initiative, acquired business. If it is intended to mean that, it is far more widely stated than the facts of the case require, but I do not believe that that is what was intended.”: [1986] B.C.L.C. 460, 481. See CMS Dolphin Lid. v. Simonet [2001] 2 B.C.L.C. 704, para [91] in which Lawrence Collins J., agreeing with Hutchinson J., observed that “there must be some relevant connection or link between the resignation and the obtaining of the business” and also Balston Ltd. v. Headline Filters Ltd. [1990] F.S.R. 385, 411-412 in which Falconer J. also agreed with Hutchinson J.

152 [1986] B.C.L.C 460, 482 (references excluded).

153 [1990] F.S.R. 385.

154 Although he remained an employee for a further two months.

155 I.e. contracts in which the company is also interested.

156 [1932] A.C. 161.

157 [1990] F.S.R. 385, 412.

158 Ibid., at p. 397.

159 It is significant that the court found him to be in breach of his duty of fidelity as an employee in actively competing with the plaintiff for the contract.

160 Specifically, he was responsible for quality control, new product development, product specifications and the writing of technical aspects of sales literature: [1990] F.S.R. 385, 389.

161 [1990] F.S.R. 385, 391.

162 [1990] F.S.R. 385, 397.

163 Ibid., at p. 398.

164 Although the converse is not necessarily the case.

165 (1974) 40 D.L.R. (3d) 371, 388.

166 Ibid., at p. 387.

167 Laskin J. quoted the following passage from the American case of Raines v. Toney 313 S.W. 2d 802 (S.C. Ark. 1958) which was relied upon by Grant J., the trial judge, to conclude that the defendants in Canaero were not in breach of their fiduciary obligations (at p. 809):

It is … a common occurrence for corporate fiduciaries to resign and form a competing enterprise. Unless restricted by contract, this may be done with complete immunity because freedom of employment and encouragement of competition generally dictate that such persons can leave their corporation at any time and go into a competing business. They cannot while still corporate fiduciaries set up a competitive enterprise … or resign and take with them the key personnel of their corporations for the purposes of operating their own competitive enterprise. But they can, while still employed, notify their corporation's customers of their intention to resign and subsequently go into business for themselves, and accept business from them when offered to them. But they can use in their own enterprise the experience and knowledge they gained while working for their corporation. They can solicit the customers of their former corporation for business unless the customer list is itself confidential.

Laskin J. was of the opinion that this passage had no relevance to the question before him. See also the discussion of the case in Downard, P., “Post-Employment Competition and the Courts: An Unfortunate Curve in the Common Law” (1985-6) 6 Advocates’ Quarterly 361, 369Google Scholar.

168 [2001] 2 B.C.L.C. 704.

169 Ibid., para. [96] (emphasis added).

170 Ibid., paras. [73], [77], [78].

171 [1916] 1 A.C. 554 (P.C.). Here, the company had over the years established very good relations with the customer with whom it had more than satisfactorily performed several construction contracts. These contracts were all negotiated in the same way and by one of the defendants. The last contract was similarly negotiated but in the final stages, the defendants appropriated the contract for themselves. The Privy Council found the defendants “guilty of a distinct breach of duty in the course they took to secure the contract, and that they cannot retain the benefit of such contract for themselves …” ibid., at p. 563.

172 (1899) 29 So. 199 (Ala.). In Lagarde, the company had a one-third interest in a limestone quarry and an option to acquire a second third. It was interested to acquire the last third but negotiations with the owner were not successful. Directors, who purchased the two-thirds, were held to have misappropriated a corporate opportunity only with respect to that third subject to the option, as the company had an existing interest in it, but with respect to the last third, “no expectancy of value springs from the alleged fact that complainant ‘has been negotiating for and endeavouring to purchase’ that interest at diverse undesignated times”: ibid., at p. 201.

173 Ibid., at 201. An example could be an expectancy of renewal which grows out of a lease: Austin, R.P., “Fiduciary Accountability for Business Opportunities” in Finn, P.D. (ed.), Equity and Commercial Relationships (Sydney 1987), 154Google Scholar.

174 Chew, P.K., Directors’ And Officers’ Liability (New York 1994), 92Google Scholar.

175 Talley, E., “Turning Servile Opportunities to Gold: A Strategic Analysis of the Corporate Opportunities Doctrine” (1998) 108 Yale Law Journal 277, 292Google Scholar.

176 Ibid., n. 42.

177 To borrow a phrase of Smith J. in RW Hamilton Ltd. v. Aeroquip (dorp. (1988) 22 C.P.R. (3d.) 135, 143 (Ont. H.C.J.).

178 Island Export Finance Ltd. v. Umunna [1986] B.C.L.C. 460, 482.

179 (1973) 47 5 F. 2d 85 (N.Y.).

180 It is not apparent from the report whether the defendant was a director, but clearly he was an officer of the company who was subject to fiduciary obligations.

181 (1973) 475 F. 2d 85, 88.

182 Ibid., at p. 87 (emphasis added). In Canaero, Laskin J. considered that the “liability of O’Malley and Zarzycki for breach of fiduciary duty does not depend upon proof by Canaero that, but for their intervention, it would have obtained the Guyana contract”: (1974) 40 D.L.R. (3d.) 371, 392. It is submitted that, on the suggested test, it would be necessary for the plaintiff company to prove this. It must be remembered that the defendants in Canaero would have been liable anyway, even without any resort to corporate opportunity analysis.

183 (1973) 475 F. 2d 85 (N.Y.), 87.

184 (1973) 475 F. 2d 85 (N.Y.), 88.

185 Ibid.

186 (1973) 475 F. 2d 85 (N.Y.), 89 (references omitted).

187 Ibid.

188 Unless, of course, there is use of confidential information. On the facts of Peso, the defendant was approached, after the company's rejection of the offer, by the consultant geologist retained by the company, a Dr. Aho, who suggested the possibility of a group being formed to acquire the claims. The offeror had originally approached Dr. Aho, who had suggested that he offer the claims to the company.

189 (1974) 40 D.L.R. (3d.) 371, 390.

190 (1974) 40 D.L.R. (3d.) 371, 390-391.

191 (1978) 79 D.L.R. (3d) 108.

192 Ibid., at p. 117-118.

193 Ibid., at p. 116.

194 Downard, P., “Post-Employment Competition and the Courts: An Unfortunate Curve in the Common Law” (1985-1986) 6 Advocates’ Quarterly 361, 370Google Scholar.

195 See discussion in Wardle, P.C., “Post Employment Competition—Canaero Revisited” (1990) 69 Canadian Bar Review 233Google Scholar, 248ff.

196 Wardle, ibid, at p. 234.

197 Downard, P., “Post-Employment Competition and the Courts: An Unfortunate Curve in the Common Law” (1985-1986) 6 Advocates’ Quarterly 361, 362Google Scholar. See also Atkinson, P.Y. & Spence, R.A., “Fiduciary Duties Owed by Departing Employees—The Emerging ‘Unfairness’ Principle” (1983-1984) 8 Canadian Business Law Journal 501Google Scholar.