Company Law Assignment: Fiduciary Duty | Advice for the Clients

Running head: COMPANY LAW
COMPANY LAW
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COMPANY LAW
Part A
Fiduciary Duty
The term fiduciary duty is defined as one party’s legal obligation of the highest degree to
act in another party’s best interest. Fiduciary duty exists only when the interest of someone else
is needed to be put before the self interest of any individual or any company. Fiduciary duties
arise between two people because of the existence of confidence and faith between two people.
The report analyzes in detail the fiduciary duties that are present in the company structure and
partnership structure of business.
Company
The fiduciary duties of a director of a company are discussed under the sections 180-183
of the Corporations Act. Section 180 of the Corporations Act1 states that a director should be
acting with a certain degree of diligence and care that could be expected to be seen in any
reasonable person. A similar duty was imposed on the directors by the provisions of common
law. The breach of this particular duty had been discussed in the case ASIC v Flugge (No2)
[2017]2. A director is provided with ‘safe harbor’ in relation to any claim that arises for the
breach of diligence and care under section 180 by the ‘business judgment rule’. Section 181 of
the Act3 states the duty of the director to act for the company’s best interest and in a good faith.
This section is seen to be including the avoidance of any type of conflict of interest, if any
conflict is seen to be arising then under the provisions of section 181 it would be the duty of a
1 Corporations Act 2001, s.180
2 ASIC v Flugge (No2) [2017] VSC 117
3 Corporations Act 2001, s.181

COMPANY LAW
director to reveal and manage the conflicts as held by the judges in the case Greenhalgh v
Arderne Cinemas Ltd [1951]4. According to the provisions of section 182 of the Act5 it is
restricted for a director to improperly use his position for accessing any personal advantage or
gain. This provision was discussed in the case Parke v Daily News Ltd [1962]6. Under section
183 of the Act7 a director can be seen as to be refrained from the misuse of the company’s
confidential information in any way that would contribute to any personal advantage or gain of
the director as was seen in MG Corrosion Consultants Pty Ltd v Gilmour [2014]8. As per section
588G of the Act9 a director’s duty is seen to be preventing insolvent trading of the company. The
provisions of this section was seen as been discussed in the case Tourprint v Bott [1999]10.
Section 588GA of the Act11 provides the directors with the protection by way of the ‘defence of
safe harbor’.
Partnership
Partnership business forms when two or more individuals carry on a common business
with the common intention to earn profit. The partners of a partnership business structure are
seen to owe some duties to each other and to the business as well. The partners are fiduciaries for
each other. For carrying on partnership business fairness, honesty, loyalty and good faith are
required. In all the matters that can be seen as pertaining a business the partners would be in a
fiduciary relationship with each other. In a partnership the partners are required to follow certain
fiduciary duties. These duties can be seen to include the duty of care, duty for full disclosure,
4 Greenhalgh v Arderne Cinemas Ltd [1951] (No 2) [1946] 1 All ER 512
5 Corporations Act 2001, s.182
6 Parke v Daily News Ltd [1962] 3 W.L.R. 566
7 Corporations Act 2001, s.183
8 MG Corrosion Consultants Pty Ltd v Gilmour [2014] FCA 990
9 Corporations Act 2001, s.588G
10 Tourprint v Bott [1999] NSWSC 581
11 Corporations Act 2001, s.588GA