Directors’ Conflicts: Must a Conflict Be Pursued for There to Be a Breach of Duty?

Abstract

The issue of how to regulate conflicts of interest in the company law context has always been challenging. Applying traditional fiduciary standards to modern commercial relationships can be conceptually difficult. This can be seen by the fact that divergent approaches to the application of the fiduciary duty to avoid conflicts were taken in two recent cases concerning directors. In one case the traditional approach of imposing liability upon proof of the existence of a ‘real sensible possibility of conflict’ was applied. In the other it was found that pursuit of such a conflict is required in order to found a breach. This note outlines and critically analyses the two approaches against a background of the sources of requirements in relation to directors’ conflicts. A key issue is the meaning of the concept of pursuit, which has been interpreted in different ways. It is concluded that an approach based on the existence of a real sensible possibility of conflict is appropriate. Although litigation is generally brought where there is a gain made due to the pursuit of a conflict, there are situations, as discussed in this note, in which a requirement of pursuit is inappropriate.

Keywords: directors' duties, conflict of interest, corporate law