The Apple Watch and the Director's Fiduciary Duty of Loyalty

Some of you may wonder what the unveiling of the Apple Watch and the fiduciary duty of directors have in common. Well, it goes to the heart of the problem of many analyses that seek to identify the scope of a director's fiduciary duty of loyalty to its company. Academic commentators and the judiciary alike often attempt to define loyalty on the basis of the interests of the company. Two decisions in the Court of Appeal and High Court have done exactly that in recent years with differing degrees of effect. In Re Allied Business & Financial Consultants Ltd [2009] EWCA Civ 751 Rimer LJ held the director has an unlimited fiduciary capacity because the duty is not circumscribed by the company's constitution. Equally, in JD Wetherspoons plc v Van de Berg & Co Ltd [2009] EWHC 639, the judge held that there would be no breach of duty where a director of a company employed by JD Wetherspoons to find suitable land to build public houses diverted opportunities to purchase land to another company since the company diverted to was not competing. Both approaches are inconsistent with fiduciary law. The Apple watch demonstrates the problem with such analyses. How do we know if companies are 'competing'? What does 'competing' even mean? A wide approach says all companies are competing. But this is not to the point. The law has always been clear in respect of fiduciary jurisdiction that it is not the company's interests that circumscribe the duty but it is those interests the fiduciary takes responsibility for that does. Following the approach taken in JD Wetherspoons, there would be the danger of allowing a director to advance the argument that Apple does not make watches, therefore any opportunity to do so may be legitimately diverted away from Apple to another company. The opposite problem happens from the reasoning in Re Allied Business. The director may have limited responsibility within a company yet is required to suspend self-interest where opportunities present themselves that are of interest to the company, yet they never took responsibility for them. Anyone arguing that the court could look at company documents to see what the company is doing with the creation of wearable technology is missing the point but also that it will be met with resistance because information of that nature is quite clearly sensitive.

It is a relief that in JD Wetherspoons the director eventually passed the lease hold on to Barracuda who could be said to be competing with JD Wetherspoons. Also, in Re Allied Business the opportunity fell within the scope of those interests the director undertook responsibility for. Thus, the conclusions were right in the end but for the wrong reasons.