Case Study: Canadian Aero Services Ltd v O’Malley, Fiduciary Duty

This case study examines the legal principles and implications of the Canadian Aero Services Ltd v O'Malley case, focusing on the concept of fiduciary duty. The assignment analyzes the facts, including how two company officials, Zarzyncki and O’Malley, used their positions to exploit a business opportunity at the company's expense before resigning. It addresses the central issue of whether a fiduciary duty existed and was breached, referencing relevant case law from multiple jurisdictions. The analysis includes the arguments presented by both the plaintiffs and defendants, the court's reasoning, and the ultimate conclusion that a fiduciary duty did exist, extending even after resignation. The study highlights the liabilities of directors who fail to disclose business opportunities and summarizes the key takeaways regarding the responsibilities of company directors. The case study also references important legal precedents such as Industrial Development Consultants Ltd v Cooley, Keech v Sandford, and Regal (Hastings) Ltd v Gulliver, providing a comprehensive legal analysis.

Canadian Aero Services Ltd v
O’Malley
Legal Research and Study

Issues and Facts
• Facts – Two top company officials, Zarzyncki
and O’Malley, used their positions to obtain a
business opportunity at the expense of the
company and resigned afterwards.

Issue
• Whether they owed the company a fiduciary
duty
• Whether, if there was a fiduciary duty, it was
breached

Rule, Law and Principle
• Equitable principles of loyalty, good faith and
avoidance of conflict of duty and self interest
(Industrial Development Consultants Ltd v
Cooley (1972); Keech v Sandford (1726); Phipps
v Boardman (1967); Regal (Hastings) Ltd v
Gulliver (1942); Smith v Harrison (1872)
• Equitable principle of accountability and
disclosure of business opportunities (Burg v
Horn (1967))

Rule, Law and Principle
• Liability for non-disclosure
• Availability of remedies where directors failed
to disclose business opportunity ((G.E. Smith
1952; Aberdeen 1854))
• Fiduciary duty survives the director even after
resignation (Regal (Hastings) Ltd v Gulliver
(1942))

Arguments Reasoning
• Plaintiffs/Appellants argued that a fiduciary
duty existed between the directors and the
company
• The Defendants/Respondents argued that
fiduciary duty did not exist and even if it
existed, would not be applicable in their
context

Arguments Reasoning
• The court applied case law of several
jurisdictions including of Australia, New
Zealand, and United States in finding that a
fiduciary duty existed even post resignation.
• Directors are precluded from gaining an
advantage over the company while acting in
their capacity as such and while executing their
functions unless a special resolution is passed
to that effect.

Conclusion
• There was a fiduciary duty that existed and
was owed to the company by the directors
• Such fiduciary duty was owed even after
resignation
• Zarzycki and O’Malley were liable for breach
of fiduciary duty

Conclusion
• Directors are precluded from obtaining a
business opportunity at the expense of the
company without disclosing their interests and
are liable for the same.

References
• G.E. Smith Ltd v Smith (1952) NZLR 470
• Aberdeen Railway Co. v Blakie Bros (1854) 1 Macq 461
• Regal (Hastings) Ltd v Gulliver (1942) 1 ALL ER 378
• Industrial Development Consultants Ltd v Cooley
(1972) 2 ALL ER 162
• Keech v Sandford (1726) All ER Rep 230
• Phipps v Boardman (1967) 2 AC 46
• Smith v Harrison (1872) 27 LTR 188
• Burg v Horn (1967) 380 F 2d 897