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Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378

Facts Regalownedaci nemai nHast i ngs.Theyt ookoutl easesont womor e,t hr oughanew subsi di ar y ,t omak et hewhol el otanat t r ac t i v esal epack age.Howev er ,t hel andl or dfi r s t want edt hem t ogi veper sonalguar ant ees.Theydi dnotwantt odot hat .I ns t eadt he l andl or dsai dt heycoul dups har ecapi t alt o£5, 000.Regal i t sel fputi n£2, 000,butcoul d notaffor dmor e( t houghi tcoul dhav egotal oan) .Fourdi r ect or seachputi n£500,t he Chai r man,MrGul l i v er ,gotout si des ubscr i ber st oputi n£500andt heboar das kedt he companysol i ci t or ,MrGar t en,t oputi nt hel ast£500.Theysol dt hebusi nessandmadea pr ofitofnear l y£3pershar e.Butt hent hebuy er sbr oughtanact i onagai ns tt hedi r ec t or s , s ayi ngt hatt hi spr ofitwasi nbr eachoft hei rfiduc i ar ydut yt ot hecompany .Theyhadnot gai nedf ul l yi nf or medcons entf r om t heshar ehol der s.

Judgment TheHouseofLor ds,r ev er si ngt heHi ghCour tandt heCour tofAppeal ,hel dt hatt he def endant shadmadet hei rpr ofit s“ byr easonoft hef actt hatt heywer edi r ect or sofRegal andi nt hecour s eoft heex ecut i onoft hatoffice” .Theyt her ef or ehadt oaccountf ort hei r pr ofit st ot hec ompany .Thegov er ni ngpr i nci pl ewassucci nct l yst at edbyLor dRussel lof Ki l l owen, “ Ther ul eofequi t ywhi chi nsi st sont hosewhobyuseofafiduci ar yposi t i on mak eapr ofit ,bei ngl i abl et oaccountf ort hatpr ofit ,i nnowaydependson f r aud,orabsenceofbonafides;oruponquest i onsorconsi der at i onsas whet hert hepr oper t ywoul dorshoul dot her wi sehav egonet ot hepl ai nt i ff,or whet herhet ookar i skorac t edashedi df ort hebenefitoft hepl ai nt i ff,or whet hert hepl ai nt i ffhasi nf actbeendamagedorbenefit edbyhi sact i on.The l i abi l i t yar i sesf r om t hemer ef actofapr ofithavi ng,i nt hest at ed ci r cums t anc es,beenmade. ” Lor dWr i ghtsai d( at157) , " TheCour tofAppealhel dt hat ,i nt hepr esenceofanydi shonesti nt ent i on,or negl i genc e,orbr eachofaspeci ficdut yt oacqui r et heshar esf ort he appel l antcompany ,t her espondent sasdi r ect or swer eent i t l edt obuyt he shar est hemsel v es .Once,i twass ai d,t heycamet oabonafi dedeci si ont hat t heappel l antcompanycoul dnotpr ovi det hemoneyt ot ak eupt hes har es , t hei robl i gat i ont or ef r ai nf r om acqui r i ngt hoseshar esf ort hems el v escamet o anend.Wi t ht hegr eat estr espec t ,If eelboundt or egar dsuchaconcl usi on asdeadi nt het eet hoft hewi seandsal ut ar yr ul esost r i ngent l yenf or cedi n t heaut hor i t i es .I ti ssugges t edt hati twoul dhav ebeenmer equi x ot i cf ol l yf or t hef ourr espondent st ol etsuchanoccasi onpasswhent heappel l ant dKi ng,L. C. ,f acedt hatv er yposi t i on companycoul dnotav ai li t sel fofi t ;Lor whenheaccept edt hatt heper soni nt hefi duci ar yposi t i onmi ghtbet heonl y per soni nt hewor l dwhocoul dnotav ai lhi ms el foft heoppor t uni t y . "

Bamford v Bamford [1970] Ch 212 Fact s;Thedi r ect or sofacompanywi shedt ofightat ak eov erbi d.Theyal l ot t ed500, 000 shar est oacompanywhi chdi s t r i but edt hei rpr oduct sbecauset hedi st r i but or sagr eednot t oacceptt het ak eov erbi d.Ashar ehol derbr oughtanact i oncl ai mi ngt hatt heal l ot ment wasi nv al i d,asi twasnotbonafidei nt hebes ti nt er es toft hecompany .

Hel d:t heal l ot mentofshar eswasv al i d.I twasam i mpr operuseoft hedi r ect or s ’power s , butwasnotul t r av i r es ,t her ef or et hemember scoul dr at i f yt hedi r ect or s ’ act i onsby or di nar yr esol ut i oni ngener al meet i ng.

Hogg v Cramphorn Ltd [1967] Ch 254

Facts MrBaxt erappr oac hedt heboar dofdi r ec t or sofCr amphor nLt d.t omak eat ak eoveroffer f ort hecompany .Thedi r ect or s( i ncl udi ngCol onelCr amphor nwhowasmanagi ngdi r ect or andchai r man)bel i ev edt hatt het ak eov erwoul dbebadf ort hecompany .Sot heyi ss ued 5707shar eswi t ht envot eseac ht ot het r us t eesoft heempl oy ee’ swel f ar escheme ( Cr amphor n,anempl oy eeandt heaudi t or ) .Thi smeantt heycoul dout vot eBaxt er ' sbi d f ormaj or i t ycont r ol .Ashar ehol der ,MrHogg,sued,al l egi ngt hei ssueoft heshar es wasul t r avi r es.Cr amphor nar guedt hatt hedi r ect or s' act i onswer eal li ngoodf ai t h.I twas f ear edt hatMrBaxt erwoul dsackmanyoft hewor ker s .

Judgment Buckl eyJ,wr i t i ngf ort heCour t ,hel dt hatt henewshar esi ssuedbyt hedi r ect or sar e i nv al i d.Thedi r ect or svi ol at edt hei rdut i esasdi r ect or sbyi ss ui ngshar esf ort hepur poseof pr ev ent i ngt het ak eov er .Thepowert oi ss ueshar escr eat esafiduc i ar ydut yandmus tonl y beex er c i sedi nor dert or ai secapi t alandnotf oranyot herpur pos essuc hast opr ev enta t ak eov er .Theac tcoul dnotbej us t i fiedont hebasi st hatt hedi r ect or shonest l ybel i ev ed t hati twoul dbei nt hebes ti nt er es toft hecompany .Thei mpr operi ssuanceofshar escan at i fiedbyt heshar ehol der satagener almeet i ng, onl ybemadev al i di ft hedeci si oni sr wi t hnovot esal l owedt ot henewl yi ssuedshar es .

Winthrop Investments Ltd v Winns Ltd [1975] 2 NSWLR 666 [Need full disclosure]  Facts: o WI (SH in W) sought to prevent share allotment on basis that it was for improper purpose of preventing takeover. o WI argued that the GM cannot ratify actions of board if they are in breach of FO such as when acting for improper purpose.  Held: Ratification invalid due to lack of full disclosure. o Directors should give meaningful disclosure to shareholders. o Higher disclosure requirements need to be met for retrospective ratification? o Mahoney J:  Director power couple with power of ratification by majority can lead to egregious abuse of power. Majority power must be curbed by equitable limitations

ASIC v Plymin, Elliott & Harrison [2003] Facts: Plymin (MD), Elliott (non-executive director) & Harrison (chairman) were directors of Water Wheel Mills Pty Ltd. In 2000, the Water Wheel Mills companies were placed into voluntary administration by the board. However, the ASIC took action for insolvent trading prior to the date. The Mill suffered losses for 3 years and was allowed to trade in spite of solvency. ASIC argued that the directors breached S588G and sought damages. Elliott claimed that he was unaware of it as he was just a non-executive director. Decision: the directors failed their defences and were liable under S588G. This is because the directors did not make any efforts to stop the companies incurring debts while insolvent.

QUARANTE PTY LTD V THE OWNERS STRATA PLAN NO 67212 [2008] NSWCA 258 Facts:

ASIC v Vines [2005] NSWSC 1349 Austin J at 50 Facts: The Australian Securities and Investments Commission (ASIC) originally commenced civil penalty proceedings against Mr Vines and two other executives (Mr Robertson and Mr Fox) in 2001 in connection with a Part B Statement published by GIO during the takeover bid. The Part B Statement included an $80 million profit forecast from GIO's reinsurance division (GIO Re). GIO Re, however, was exposed to significant claims as a result of Hurricane Georges, which struck Puerto Rico and the Virgin Islands in September 1998. ASIC alleged breaches of section 232(4) of the Corporations Law (the precursor to s181(1) of the Corporations Act) by Mr Vines and the two other executives. The case was largely concerned with the reasonableness of including GIO Re's $80 million profit forecast in light of the claims exposure following Hurricane Georges. Decision: Liability Case: The Court of Appeal confirmed that the standard of care applicable to the statutory duty set out in s232(4) of the Corporations Law does not call for a higher order of negligence to be established than the equivalent duty under the

general law. The court found that the standard of care and diligence applicable to Mr Vines extended to the contents of the Part B Statement and was influenced by the fact that 'the information was provided within the framework of a due diligence process that was designed to ensure adequate and materially complete disclosure to GIO shareholders in compliance with the law and in a fashion that would protect those involved in the process from liability should a defect later be discovered in the document'. The Court of Appeal upheld, in part, Justice Austin's earlier findings. In particular, it found that Mr Vines had contravened his duty of care on three occasions when he: 

signed a management sign-off on a due diligence report without taking positive steps to advise GIO's due diligence committee of the basis of the assumptions underlying the $80 million profit forecast;



informed the due diligence committee that he was comfortable with the integrity of the GIO profit forecast; and



failed to give attention to whether the GIO Re profit forecast would be achieved in the period after the Part B Statement was issued, but before the

takeover process ended. The court did, however, overturn four other contraventions contended by ASIC, reversing, in part, Justice Austin's decision. The court said that Mr Vines did not contravene his duty of care when he: 

made an unqualified statement of management confidence in the GIO Re profit forecast to the board on 9 November 1998; and



failed to provide information about the basis on which the profit forecast was calculated in: 

an email sent to the due diligence committee on 22 November 1998; and



a report that was the basis of a media release on 17 November 1998 reporting on the company's profit.

Relief from Liability Case: In its review of Justice Austin's decision not to relieve Mr Vines from liability (in accordance with ss 1317JA(2) and 1318(1) of the Corporations Law), the court accepted his Honour's finding that Mr Vines had acted honestly. However, relief from liability requires an examination of the nature and seriousness of the contraventions. The court accepted Justice Austin's reasoning that the profit forecast in the Part B Statement was of 'considerable significance for a fully informed market' in the 'special context of defending a hostile takeover'. Moreover, the law seeks to protect investors, and in particular target shareholders, by endeavouring to ensure that the information on which they make

their decisions is materially accurate and complete. Accordingly, the court upheld Justice Austin's decision to deny Mr Vines relief from liability. The court will consider an appropriate penalty for Mr Vines' contraventions later this year....