WDSL Directors' Legal Obligations: A Case Study Under NZ Law

This case study provides legal advice to the directors of Waikato Drainage Systems Limited (WDSL) concerning potential breaches of the Companies Act 1993 by two of its directors, Felicity and Harriet, who formed a competing company (DDCL) and secured contracts that WDSL was interested in. The analysis covers potential breaches of director duties, including misuse of information and conflicts of interest, with reference to relevant case law such as Industrial Development Consultants Ltd v Cooley and Holden v Architectural Finishes Ltd. It explores potential defenses available to Felicity and Harriet, remedies for WDSL in case of a breach, including compensatory and punitive damages, and considerations if the accused were not board members. The study concludes by emphasizing the importance of maintaining business records and seeking appropriate legal remedies to protect WDSL's interests.

New Zealand jurisdiction and legislation
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Table of Contents
Introduction.................................................................................................................................................2
Advice to the directors of WSDL................................................................................................................2
If any kind of breaches are present..........................................................................................................2
If the potential defense is available..........................................................................................................3
If the accused are in breach.....................................................................................................................4
If the accused were not board of directors...............................................................................................5
Conclusion...................................................................................................................................................7
References...................................................................................................................................................8
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Introduction
The organization Waikato Drainage Systems Limited (WDSL) is the company that follows
Companies Act 1993 thoroughly. They have five directors with equal shares of 20%. Two of the
directors Felicity and Harriet formed new organization DDCL and got the tender that WDSL was
interested in bidding for the three contracts. The purpose of this paper is to provide a suitable
view on the legal advice that could be presented to the organization WDSL directors as they have
been cheated by two of their members regarding the contract of HCC. Maintenance of the
Companies Act 1993 for the various activities in the organization is essential, and this will be
discussed thoroughly with the paper. Valuable law cases are also considered to understand the
effectiveness of the fact within the market.
Advice to the directors of WSDL
If any kind of breaches are present
The situation contains some of the violations regarding the information and the activities that
have been performed within WSDL. As the accused Felicity along with Harriet is the board of
director in WSDL they are not liable for any kind of data breach1Within the organization at the
management level. This is due to the facts that they did not try to make a new company in the
market, but once they face the issue in the business and the other three director are leaving the
company, they tend to maintain their position within the market. According to the case law of
Industrial Development2 Consultants Ltd v Cooley [1972] 2 All ER 16 show that the director of
the firm needs to provide suitable information to the team for performing their activity. In this
scenario, it can be seen that resigning of three board member from WSDL was acknowledged by
Felicity and Harriet while conversing with the wife of board members. In this process, the
primary activity that could be performed by the accused is to move on from the organization and
perform their action. Section 131 of companies act 1993 show that Director has the entire
power3To perform the various activity in the organization. This is the power that Felicity and
1 François Neville and Ryan Currie, 'Toward A Psychological Contract Framework Of Director Effectiveness: The Role
Of CEO Expectations.' (2015) 2015.
2 Ömer Okan FETTAHLIOĞLU and Alican AFŞAR, 'The Effects On The Perception Of Alienation Of Breach Of
Psychological Contract Occurred Due To The Emotional Witlessness' (2016) 6.
3 R Baxt, Duties And Responsibilities Of Directors And Officers (2018).
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Harriet have misused for their benefits. They have a valuable position4In the market and could
maintain suitable and useful working function.
From this case, it can be clearly understood that Felicity and Harriet have provided the news of
HCC drainage contract and all the information that they received from their friend. But rest of
the board members did not accept the advice for bidding in this tender. This one of the best and
the biggest contract for the firm but as per the board of director it might reduce the business cost.
If any breaches that are held within the organization in which Felicity and Harriet are liable then
some steps could be eventually taken to provide stay order for the contract. If this case occurs
when the first step is to complain about the accused person and seized all the information of their
new organization. The fact of Holden v Architectural Finishes Ltd (1996) 7 NZCLC 260,976
provides the view that the director5Of the firm for their interest has taken the opportunity from
their previous business. Being a director that they can perform this kind of activity, if Felicity
and Harriet have performed this activity and with the opportunity of WSDL they have formed
DDCL, then it is a punishable offense as the old company might get insolvent. Section 143 of
Companies Act 19936 provides the clear view that board of director needs to maintain the
information within the organization or they can be lead to court.
If the potential defense is available
It can be quite sure that Felicity and Harriet will have their possible defense regarding the case.
In this, the most important fact is to understand what kind of information they have accessed and
from where. The example of Baigent v D McL Wallace Ltd (1984) 2 NZCLC 99,122 it can be
seen that the issue is regarding the bidding process. Here the problem also started with the
bidding information that Felicity and Harriet received from their friends regarding the contract.
This is one of the beneficial7Activity for the rest of the board of members of WDSL to claim
compensation8From DDCL regarding their project and the information. The fact is that Felicity
and Harriet have clear information regarding the contract and also regarding the situation of
4 David E. Guest, 'Trust And The Role Of The Psychological Contract In Contemporary Employment Relations.'
5 Sergio Lopez Bohle and others, 'How Mass Layoffs Are Related To Lower Job Performance And OCB Among
Surviving Employees In Chile: An Investigation Of The Essential Role Of Psychological Contract.'
6 Companies Act 1993, 'Company Law' (Lawskool.co.nz, 2018)
http://www.lawskool.co.nz/content/nz_company_law_-_summary_sample.pdf
7 Sjoerd Van den Heuvel, René Schalk and Marcel ALM van Assen, 'Does A Well-Informed Employee Have A More
Positive Attitude Toward Change? The Mediating Role Of Psychological Contract Fulfillment, Trust, And Perceived
Need For Change' (2015) 51.
8 Peter G Watts, 'Recouping Liquidation Costs Through Litigation Against Directors—A Dubious Practice.'.
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WSDL that they eventually used to get HCC contracts9In the market. In this case, the
information and all the documents that are essential for WDSL and which is being used by
DDCL need to be presented to the court and the legal authorities. Creating insolvent for an
organization is the offensive activity, and for that, they cannot get spare. The accused might
depend on the potential defenses regarding the case which can create a significant impact on the
matter of WSDL.
In the contract process of HCC, it can be seen that the accused have eventually used the
information and provided substantial evidence to the jurisdiction10. In this kind of situation, the
board of director of WSDL needs to maintain their business record and also all the information
that is associated with Felicity and Harriet. In this case, the most important fact is regarding the
information of being the director of the firm and also resigning from the firm without any kind of
previous notice. Maybe the accused have some of the defensive possibility regarding their
situation, but they have to provide proper notice to break the business share11As well as they
cannot use the information of the previous organization. In this situation, the other three
directors12Of WSDL did not have any idea regarding the formation of DDCL and also regarding
the tender for three contracts. In this situation, it can be seen that Felicity and Harriet have
misused their position to gain the agreement which will help WSDL to win over DDCL. In this
case, WSDL could apply to have another tender bidding with the new process. Written
application regarding the situation can also be provided to the jurisdiction to take a vital step for
the organization DDCL.
If the accused are in breach
If any of the accused or the both the accused is in the violation, then it is essential for the
organization to get several remedies for their breach of contract. It can be seen that in the breach
of contract the vital resource is award of the damages, then the specific performance and so on.
In this case, WSDL could insist on the distinction of damage from the accused organization that
is DDCL and their director. In this case, the organization WSDL have to claim for the
9 Lixin Jiang, Tahira M Probst and Wendi L Benson, 'Organizational Context And Employee Reactions To
Psychological Contract Breach: A Multilevel Test Of Competing Theories' (2017) 38.
10, Tarun Jain, 'Effect Of Breach Of Contract On Supplier's VAT Liability: Reflections From The European Court Of
Justice.'
11 Richard Stevens, 'The Legal Nature Of The Duty Of Care And Skill: Contract Or Delict?'.
12 LAWRENCE J. TRAUTMAN and PETER C. ORMEROD, 'CORPORATE DIRECTORS' AND OFFICERS' CYBERSECURITY
STANDARD OF CARE: THE YAHOO DATA BREACH.'
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compensatory damages or the punitive damages. In the compensatory damages, the organization
DDCL need to pay the compensation or any losses that are incurred by WSDL due to their
activity13. This is highly applicable as the director of DDCL was the previous director of WSDL.
Compensation is one of the ways that could be performed when both of the accused are in the
breach, and this would help the organization to maintain their operation in the field and also it
will help to get tender of numerous contract within the market. Another remedy that could be
used in this situation is the punitive damage.
In this situation, punishment is provided to the party who have breached the data. This is quite a
rare steps that are being taken in the organization, but in this case, the accused have used
information from both the parties and formed their organization to get the contract which is a
criminal offense. The subsection 146-149 from the Companies Act 1993 provides the view that
relevant interest14 is being provided to the directors of the firm. Therefore, it can be seen that it is
one of the best processes for the firm to get a remedy for their damage in the market. It is
essential for the board of directors of WSDL to perform various actions in the field and maintain
their information15To get the bidding in the market. These two process of remedy is the best for
the firm to get their loss of tender16Within the market and also to maintain their position. It is
essential to have a suitable remedy for retaining the situation within the market to preserve their
process. From the section 16 of Companies Act, 1993 gives the organization WSDL full capacity
to undertake the business of the DDCL or their transaction for the tender bidding that took place
within the market. For the firm, it is essential to gain effective working process for the firm to
maintain their activity in the field for performing various operations. The companies act show
that suitable remedy is required as Felicity and Harriet have performed breach in their
information for the firm.
If the accused were not board of directors
For the data breach in the organization, the advice would be the same as it is provided for the
director. It can be seen that using the information of organization for wrong deed and breach of
contract along with the data in the market is one of the criminal offense as per the companies’ act
13 Arlene Walker, Rebecca Acadia and Beth M. Costa, 'VOLUNTEER RETENTION: THE IMPORTANCE OF
ORGANISATIONAL SUPPORT AND PSYCHOLOGICAL CONTRACT BREACH' (2016) 44.
14 Lord Scarman, 'CCH Iknow | Australian Tax & Accounting' (Iknow.cch.com.au, 2018)
https://iknow.cch.com.au/document/atagUio389064sl10563156/queensland-mines-ltd-v-hudson-ors
15 Wai Yee Wan, 'The Illegality Defence In Corporate Law Claims Against Directors And Officers'.
16 Holger Spamann, 'Monetary Liability For Breach Of The Duty Of Care?.' [2016] Journal of Legal Analysis.
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1993 under the subsection 142. It can be seen from the case of Thorrington & Another v
McCann & Another (1998) 8 NZCLC 261,56017That the data breach is one of the vital facts for
the insolvent of the firm within the market. The fact is clear that when working within the
organization the important activity is to maintain all the information18Of the firm and maintain
their activity. This help to improve the business and the firm in the market. In this case, the
accused have misused their power of position, and also they have set the different organization
by the information of WSDL and took the tender of HCC. The entire legal advice would be same
for the employees of the firm either they are a director or the regular employees. This is due to
the facts that they provide a considerable contribution to the development of business within the
market.
Data breach within the organization is one of the important activity that might be performed by
the people of the firm. In this kind of cases, none of the people can get rid of the activity and
implement their business within the business. The most common form that could be completed
for the data breach in the organization is to get proper compensation19From the accused of the
issues that have been faced by the firm due to their activity. It can be seen that the organization
need to perform a various and suitable action for gaining their working function within the
market. It can be understood that the firm needs to maintain their working function and get a
proper view of the accused people. For the board of director, the compensation amount is little
high as compared to the other employees of the firm. This is due to the facts that the most of the
vital information regarding the organization is with the director and for that, they can make a
company insolvent within the market. The fact is quite efficient for the firm, and they need to
take a vital step to maintain their information in the market.
17 Kohyar Kiazad, Scott E. Seibert and Maria L. Kraemer, 'Psychological Contract Breach And Employee Innovation: A
Conservation Of Resources Perspective' (2014) 87.
18 Nicky Dries and Sara De Gieter, 'Information Asymmetry In High Potential Programs A Potential Risk For
Psychological Contract Breach' (2014) 43.
19 Deborah DeMott, 'Accessory Disloyalty: Comparative Perspectives On Substantial Assistance To Fiduciary
Breach.'
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Conclusion
The paper eventually concludes the facts that the organization need to maintain the Companies
Act 1993 so that they can perform effective and suitable working function within the market. The
primary point of the law is to provide an appropriate and effective view on the working capacity
of the firm. This paper also concludes the fact that WSDL has been cheated by the member of
the board of directors Felicity and Harriet, regarding the business and the tender. The point is
clear that the working function of the firm needs to take suitable and positive effects to
understand the proper and effective working function within the market. The Companies Act
1993 provides adequate remedies for the organization WSDL to deal with the tender problem
that they faced in the market. It can be seen that the organization DDCL need to provide massive
compensation to the firm to perform their activity.
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References
Baxt R, Duties And Responsibilities Of Directors And Officers (2018)
Companies Act 1993, 'Company Law' (Lawskool.co.nz, 2018)
http://www.lawskool.co.nz/content/nz_company_law_-_summary_sample.pdf
DeMott D, 'Accessory Disloyalty: Comparative Perspectives On Substantial Assistance To
Fiduciary Breach'
Dries NS De Gieter, 'Information Asymmetry In High Potential Programs A Potential Risk For
Psychological Contract Breach' (2014) 43
FETTAHLIOĞLU ÖA AFŞAR, 'The Effects On The Perception Of Alienation Of Breach Of
Psychological Contract Occurred Due To The Emotional Witlessness' (2016) 6
Guest D, 'Trust And The Role Of The Psychological Contract In Contemporary Employment
Relations'
Jain T, 'Effect Of Breach Of Contract On Supplier's VAT Liability: Reflections From The
European Court Of Justice'
Jiang L, T ProbstW Benson, 'Organizational Context And Employee Reactions To Psychological
Contract Breach: A Multilevel Test Of Competing Theories' (2017) 38
Kiazad K, S Seibert M Kraemer, 'Psychological Contract Breach And Employee Innovation: A
Conservation Of Resources Perspective' (2014) 87
Lopez Bohle S and others, 'How Mass Layoffs Are Related To Lower Job Performance And
OCB Among Surviving Employees In Chile: An Investigation Of The Essential Role Of
Psychological Contract.'
Neville FR Currie, 'Toward A Psychological Contract Framework Of Director Effectiveness:
The Role Of CEO Expectations.' (2015) 2015
Scarman L, 'CCH Iknow | Australian Tax & Accounting' (Iknow.cch.com.au, 2018)
https://iknow.cch.com.au/document/atagUio389064sl10563156/queensland-mines-ltd-v-hudson-
ors
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Spamann H, 'Monetary Liability For Breach Of The Duty Of Care?.' [2016] Journal of Legal
Analysis
Stevens R, 'The Legal Nature Of The Duty Of Care And Skill: Contract Or Delict?'
TRAUTMAN LP ORMEROD, 'CORPORATE DIRECTORS’ AND OFFICERS’
CYBERSECURITY STANDARD OF CARE: THE YAHOO DATA BREACH'
Van den Heuvel S, R SchalkM van Assen, 'Does A Well-Informed Employee Have A More
Positive Attitude Toward Change? The Mediating Role Of Psychological Contract Fulfillment,
Trust, And Perceived Need For Change' (2015) 51
Walker A, R AccadiaB Costa, 'VOLUNTEER RETENTION: THE IMPORTANCE OF
ORGANISATIONAL SUPPORT AND PSYCHOLOGICAL CONTRACT BREACH' (2016) 44
Wan W, 'The Illegality Defence In Corporate Law Claims Against Directors And Officers'
Watts P, 'Recouping Liquidation Costs Through Litigation Against Directors—A Dubious
Practice.'
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