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Company directors may be allowed to sidestep their duty to the company by pursuing a benefit for another company

Company Law News | June 2012

A recent case has shed some further light on the limits of the duty of directors not to take up opportunities that have been rejected by their company, whether in their own capacity or in their capacity as a director of another entity. This situation emphasises the position of power held by directors in which they may learn confidential information and the need to prevent directors from misusing this power.

The recent New South Wales Supreme Court decision of Gladstone Pacific Nickel Ltd [2011] NSWSC 1235 examined a problem of this nature. In this case a shareholder brought proceedings against Clive Palmer on two bases, first that he had allowed a conflict of interest to occur in the carrying out of his duties for Gladstone Pacific Nickel Ltd (GPNL), and second that he had taken up an opportunity offered to GPNL while he was a director of the company and pursued it through another company which he controlled.

The case concerned a nickel refinery held by BHP Billiton that was offered to GPNL through Palmer, who owned 50% of the shares of that company. For various reasons, GPNL did not acquire the refinery but a second company owned by Palmer decided to purchase the refinery after his resignation from GPNL. This caused the shareholder to claim that Clive Palmer had used his position as director of GPNL to obtain a benefit for himself or his subsidiaries by obtaining the refinery. Justice Ball noted that the question, both at common law and in statute, was whether Palmer had used his position as a Director of GPNL for his own benefit, allowing a conflict of interest with his duty to the company. Further, if a conflict of duty did exist then the question then turned to whether he obtained the full consent of GPNL. Justice Ball concluded that the evidence failed to go so far as to indicate that Palmer had been in a position of conflict at the time he did engage in the conduct given th! at GPNL had been encouraged by Palmer to take up the opportunity but were not in a position to do so and had not been in the position to be able to do so.

While this case may go to appeal it does further indicate the need to look at the individual facts when looking at possible conflicts of duty by directors. Further, the case indicates that where an opportunity has lapsed it may not be improper for a director to pursue an opportunity on behalf of another company.

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