Understanding Conflicts of Interests

OK! So I am about to re-write my chapter on a director's duty of loyalty and his duty to avoid a conflict.

The main point of the work is to get across how we understand the duty of loyalty in a fiduciary relationship between director and shareholder. A lot of work seems to focus either on fiduciary duties generally or attempts to categorise them.

This chapter will look specifically at the director's duty. The main focus is pointing out the law relating to a director's fiduciary duties developed not out of company law but out of notably trusts and partnership law. Where both fiduciaries in those relationships are distinct from that of shareholder/director. It may be seen as a little naive by some judges and academics to just assume the duty applies the same to this fiduciary relationship as it does to the others.

Developing the law based on principles from other doctrines such as trusts leads to unnecessary and restrictive rules on the director who is fundamentally a different character from a trustee.

Trusts law relating to the relationships of the parties developed not on principles of economics but more on those of religion, morality and social.

The confusion of the exact nature of a fiduciary's duty of loyalty has lead people to believe there are two distinct rules inherent in this duty. That of no-conflict and no-profit. This chapter aims to show that two distinct rules in a director/shareholder relationship are restrictive and unnecessary let alone doctrinally flawed.

Many reasons for this approach have been unearthed including those of shareholder protection, disclosure, requirements, multiple directorships and so on.

I also plan to do some empirical work in relation to this chapter to gather evidence of directors (exec and non-exec) serving on more than one board, either concurrently or consecutively and look for correlations in market value of those firms.

I am presenting this work internally at UEA tomorrow in our research seminar group.

New LL.B Microsite

UEA has just published its new LL.B microsite for those considering studying law.

The website is very informative and beneficial to anyone considering studying law at UEA. It contains a degree planner, details about what life is like as a law student as well as first hand accounts from past and presents students and staff about the different law courses provided by UEA.

Research to be presented to Law in Society Research Group

On the 18th November I will be presenting my research to a Law in Society Research Group in Derby at the University of Derby.

The talk will be on my papers that are being published in the Company Lawyer next year.

Revitalised UEA Law Research Site

UEA has recently updated its research site allowing for easier access to research conducted at the UEA Law School. It is now easy to navigate with links to other areas of the UEA site.

Sections on the site include details of publications of UEA researchers; information about activities of research students such as myself; details on academic visitors; as well as external activities of our researchers. There are even details of other blogs created by the researchers at UEA.

So, why not take a look to find out what academics at UEA are researching.

Aberdeen Rail Co v Blaikie [1843-1860] All ER Rep 249: Lord Upjohn, was it really "so well settled"?

For those not in the know, Aberdeen Rail is seen by most as accepting that the director's duty of loyalty is made up of one rule, the no-conflict rule, and the no-profit rule is merely ancillary to it. Other academics argue that the two rules are separate.

I must agree that the former stance is the truth - not merely because this case and the case of Boardman v Phipps in the House of Lords confirmed it. As stated in the title, Lord Upjohn stated that the principle laid down in Aberdeen Rail by Lord Cranworth was "so well settled" - as it is theoretically likely that two rules would be detrimental to the economy but also increase shareholder litigation.

If directors believe they cannot make any profit out of information that comes there way by virtue of their position, they would become reluctant to serve on any other board in the same industry and with more industries becoming intertwined may be even reluctant to serve on more than one board in general. As to opening up the doors to shareholder litigation, if a shareholder can sue for profits made out of any information received by virtue of their capacity as a director is would be difficult to say when and when not he is acting as a director.

With that said, on recent historical reading regarding the development of a fiduciaries' (a basic definition being someone in a position of trust charged with handling another's property e.g. a director/solicitor/trustee) duty of loyalty, it is hard to believe that Lord Cranworth would reject a separate no-profit rule, and a recent Court of Appeal case of Re Allied Business has also confirmed the existence of a separate rule.

Lord Cranworth stated that 'And it is a rule of universal application, that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect.’

From this it has been implied that the case rejects a no-profit rule as separate from the no-conflict rule.

Lord Cranworth however, was a strong supporter of the utmost strict nature of the duty of loyalty. If he were to be asked at the time on his view one may assume - as easily as other have done that his judgment confirms one rule - that he would approve two rules.

This could cast a shadow of the legitimacy of a lot of supporters of the single rule, but it is still supported that the correct approach is a single rule as outlined above. Cases that a 2005 article written by David Kershaw (In Legal Studies 'Does it matter how the law thinks about corporate opportunities) cites as confirming one rule would then all lack the necessary emphasis to support one rule. Since Boardman hangs off the Aberdeen Rail judgment both cases would be thrown in to questionable legitimacy as to their support. The other case of Item Software v Fassihi is by Kershaw's own omission doubtful as to whether it actually supports one rule. 

Further historical reading needs to be done to verify Lord Cranworth's approach, but with the recent decision of Re Allied Business it is likely that is story is far from over. 

I am presenting research on this topic at the UEA research seminar series in November 'The Never Ending Story: A Fiduciaries No-Profit Analysis' and am also working on a publication based on this research.

Company Law Publications

I recently completed two papers on the new statutory derivative claim. I am pleased to announce that both are going to be published in a leading company law journal known as the Company Lawyer in Feburary and March 2011.

The first paper is titled The Statutory Derivative Claim: A Prima Facie Case and the Mandatory Bar, which will be published in Feburary. In March the paper 'The Statutory Derivative Claim: The Second Stage and CSR' will be published.

The papers are a case based analysis from the first six English derivative claims brought before the courts.

Interesting discoveries have been made including the courts approach to Corporate Social Responsibility in a derivative claims context, elements relating to the need to establish a prima facie case, what exactly is a hypothetical director, and the standard of proof required for a claim to be allowed.

Case Study

The University of Derby contacted me the other day asking to do a case study on my time at University and what I am doing now.

It has just been published on their website.

Having this sort of advertisement or publicity for the University appears to me very beneficial, especially other case studies that have been done in video format. It caters to the needs of all potential students when they are assessing which University to attend and which course to undertake. Having a clear message from previous students about what life is like on the course given to them in a variety of manners can only have a positive effect on recruitment.

I am in the process of writing a slightly lengthier blog on my work regarding my research on a fiduciary's duty of loyalty and the debate surrounding the no-profit and no-conflict rules. WATCH THIS SPACE.