A major part of Item's business was the distribution of software products for Isograph Ltd. In November , Item decided to negotiate more favourable terms with the company but, when these failed, Isograph gave notice to terminate the contract, expiring in May During the course of the negotiations, Mr Fassihi who had set up his own company secretly approached Isograph and entered into a distribution agreement with them. When Item discovered what he was doing, it dismissed him summarily on 26 June Item then claimed that Mr Fassihi was in breach of duty for failing to disclose his approach to Isograph.
Mr Fassihi counterclaimed for wrongful dismissal and for arrears of salary for the 26 days prior to his dismissal. The High Court judge decided that Mr Fassihi was in breach of his duty as a director and an employee for failing to disclose his own misconduct and that Item was entitled to recover damages from him.
He rejected Mr Fassihi's counter claim for wrongful dismissal and arrears of salary. The Court of Appeal said that, as a director, Mr Fassihi was a fiduciary of the company which meant that he had to observe certain mandatory duties and obligations. The judge argued that the director owes fiduciary duties to the company for reasons given in Horcal Ltd v.
This scenario is distinguishable from the one in Bell v. Lever Bros Ltd due to the fact that Mr. Fassihi was a director of Item as well as an employee. Therefore, the non-disclosure of Mr. On appeal, L. Arden states that in relation to the disclosure issue, she considers the position of Mr.
However, she observed that this case is based on the fundamental duty a director is subject to, that is the duty to act in what he in good faith considers to be in the best interests of the company. Furthermore, the duty of loyalty is a time-honoured rule that focuses on principle rather than the particular words which have been used previously.
This principle is dynamic and it reflects the flexible quality of the doctrines of equity. The fact that the duty of loyalty has never before been applied so as to require a fiduciary to disclose his own misconduct was not a good objection to the application of the fiduciary principle.
Based on this policy doctrine, the Court of Appeal held that there is no basis on which the defendant could reasonably have come to the conclusion that it was not in the best interest of Item to know of his breach of duty and Mr. Fassihi could not fulfil his duty of loyalty except by informing Item about RAMS, and his plan to acquire the Isograph contract for himself.
In relation to the apportionment issue, the court observed that, if section 2 of the Act applies, Mr. Fassihi is free to claim that part of his June salary 1 to 26 June as his employment contract contained no provision which expressly excluded the operation of the Act. Ansell , by observing that in the Boston case there was no attempt to rely on the Act and therefore it is not an authority as to the effect of the Act. To conclude, L.
Arden allowed the appeal and held that none of the authorities cited, detracts from the interpretation to sections 2 and 3 of the Act and based on that interpretation Mr. Fassihi can make a time-apportioned claim for his salary for the period 1 to 26 June. The fiduciary duty of loyalty has been a source of debate among academics. It is argued by some that the requirement of loyalty is subjective as it requires fiduciaries to exercise their judgement in a manner, which they subjectively believe to be in the best interests of the beneficiary, while others have argued that the duty of loyalty is best understood as the summation of the various doctrines that are applied peculiarly to fiduciaries, rather than as a legal duty that is directly enforceable on its own right.
In the case of Item Software Ltd where full disclosure was seen as an extension of the fiduciary duty of loyalty; the Delaware court, in the case of Malone v.
Brincat, where it was established that absolute honesty was required from the fiduciaries; the Canadian Court, which adopted the English approach and the Scottish Court, where the question of full disclosure being a part of the fiduciary duty of loyalty was left open. The Australian Courts seem to be an outlier as they have rejected this proposition. They view the fundamental duty of loyalty as proscriptive by nature and this stance does not easily accommodate a duty of full disclosure as a primary fiduciary obligation.
In contrast to the Australian Courts, academics and legal scholars have observed the importance of this extension of the fiduciary duty of loyalty. For example: Licht argues that the common law regime of fiduciary loyalty implements a dual-pronged approach that ensures certain outcomes.
The first prong i. Academics like Lee have claimed that there is a directional element in fiduciary obligations that includes a duty to act solely for the benefit of the principal.
Furthermore, Lee explains that this duty consists of a duty to act in the sole interests of the company as the fiduciary obligations are not result-oriented and do not specify a particular standard to be attained by the fiduciary. She further argues that this positive, directional element of fiduciary obligation was seen in the case of Regal Hastings Ltd v Gulliver , where the House of Lords found the directors liable to account to the company for their profits due to the fact that the directors has made use of those fiduciary positions to make those profits.
It is argued that it was enough that the fiduciary used its fiduciary position to make a profit for itself and it did not matter that it had not been shown that the interests of the principal had been adversely affected. However, some academics are not convinced by the best interests duty applied in Item Software. These cookies do not store any personal information. Non-necessary Non-necessary. Any cookies that may not be particularly necessary for the website to function and is used specifically to collect user personal data via analytics, ads, other embedded contents are termed as non-necessary cookies.
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