D was director of C. C was in a distribution agreement with Isograph. When C tried to renegotiate its terms with Isograph on more favourable terms, D approached Isograph with idea of establishing new company to take over distribution agreement; however at same time, D encouraged C to take aggressive stance in negotiations. Negotiations fell through, and Isograph entered new agreement with D. When C heard this, alleged D had not complied with duty to act bona fide in interests of company (pre-2006 law) by failing to disclose his misconduct to C. Held:
· Fiduciary duty to act bona fide in interests of company require D to disclose his own or others’ misconduct to company.
· Policy reasons support this extension of duty of loyalty:
Ø Is economically efficient, as it means that company does not have to expend resources investigating directors’ conduct
Ø Helps shareholders monitor activities of directors
Ø Helps directors comply with their duty of oversight (e.g. Re Barings)
Ø All directors’ duties are essentially extension of duty of directors not to benefit themselves at expense of corporation
– Thus not unnatural to extend duty of loyalty in this way
· D had breached rule against diversion of corporate opportunity.
· Thus on facts, is no way D could have complied with his duty top act in best interests of company without telling C of his plans to steal the contract from them.