Whitehouse v Carlton Hotel Proprietary Limited: Breach of Director's Duties

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Business and Corporations Law
Group Assignment
24-Apr-18
(Student Details: )

Business and Corporations Law
Table of Contents
Introduction......................................................................................................................................3
Background of the case....................................................................................................................3
Duties/ responsibilities breached and the reasons for such breach..................................................4
Discussion and critical analysis of decision of court and reasons for it based on Corporations Act
.........................................................................................................................................................6
Relevance of decision/ impact of this decision................................................................................7
Conclusion.......................................................................................................................................8
References......................................................................................................................................10
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Business and Corporations Law
Introduction
The Corporations Act, 2001 (Cth) is a comprehensive legislation, which is applicable on the
corporations working in the nation. This statute is significant and has to be followed to the T, as
it brings forth the manner in which a company can conduct its business and operations. It also
acts as guidance on what would be deemed as legal or illegal conduct by any company. In
context of the director’s/ officer’s duties, this legislation is important. There is specifically a part
covered under this legislation, which presents the duties and obligations of the officers and
directors of the companies (Latimer, 2016).
Whitehouse v. Carlton Hotel Proprietary Limited (1987) 162 CLR 285 is a leading case which
presents an example of how a director would be deemed to have contravened the duties, which
are covered under the Corporations Act. This report is focused on provided a brief background to
this case, the duties which were breached, the reasons for their breach, the reason behind court
decision, and the significance of this case in the present scenario. This would help in gaining an
insight on how the Corporations Act works in disciplining the directors, where they are made to
work towards the best interest of the company, instead of being focused on personal interests.
Background of the case
Before going in on the law aspect of the case of Whitehouse v. Carlton Hotel Proprietary
Limited, there is a need to understand what actually happened in this case. In this case, Charles
Whitehouse had been the governing director of a hotel known as the Carlton Hotel. Charles held
full voting shares, which were known as the A class shares. Mrs. Whitehouse, the wife of
Charles Whitehouse, owned B class shares, which only carried partial voting rights. The sons
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Business and Corporations Law
and the daughter of the couple held C class shares and this class of shares did not hold any voting
right. After some time, the couple got divorced. As a result of it, the sons aligned themselves to
the father and the daughter aligned themselves to the mother (Barker, 2018).
Charles Whitehouse began to worry that once he died his ex-wife and his daughters would get
the complete control of the company as his sons did not have shares with voting rights. This led
him to issue B class shares to his sons as well, as this class of shares held voting rights. With
regards to his shares, he had fallout with his sons, which led Charles Whitehouse to resolve that
his sons had never been given with B class shares, and also directed that there was a need of
amending the share register. This led to the sons of Charles Whitehouse brining a suit against
him. Not only questions were raised on allotment of shares, which is not the focus of this
discussion, but also questions were raised on the breach of fiduciary duties by Charles
Whitehouse based on the shares he issued to his sons (Barker, 2018).
Duties/ responsibilities breached and the reasons for such breach
This case was decided even before the present legislation of Corporations Act, came into force.
However, based on the theme of this discussion, the breach of director duties by Charles
Whitehouse have been discussed in context of provisions of Corporations Act.
As has been touched upon in the very start of this discussion, the Corporations Act imposes some
important obligations/ duties on the directors and officers of the companies. One of the
prominent sections under this legislation is section 181. Section 181(1) of the Corporations Act,
2001 provides that the directors or the other officers of the companies have to discharge their
duties and have to exercise their powers for proper purpose, and further, this has to be done in
good faith, which is in the best interest of the company. This section also provides that where
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