Directors’ Fiduciary Duties: A New Analytical Framework
Prior to the enactment of the Companies Act 2006, the equitable principles on directors’ fiduciary duties of loyalty comprising the no-conflict and no-profit rules have been characterised in the form of either a strict or flexible approach.1 Simply put, under the strict approach2, absent the company’s informed consent, liability is automatically triggered if a director enters into engagements which he has, or can have, a personal interest conflicting or which may possibly conflict with that of the company.3 And if he makes a profit, he has to account for that.4 The rules 1
* Faculty of Law, University of Hong Kong. I am very grateful to Professor Sarah Worthington for reading and citing this article, and to Professor Lusina Ho and Peter Chau for very helpful comments on earlier versions. Email: firstname.lastname@example.org
J. Lowry and R. Edmunds, “The Corporate Opportunity Doctrine: The Shifting Boundaries of the Duty and its Remedies” (1998) 61 M.L.R. 515; R. Edmunds and J. Lowry, “The No-Conflict-No Profit Rules and the Corporate Fiduciary: Challenging the Orthodoxy of Absolutism”  J.B.L. 122; S. Scott, “The Corporate Opportunity Doctrine and Impossibility Arguments” (2003) 66 M.L.R. 852; D.D. Prentice and J. Payne, “The Corporate Opportunity Doctrine” (2004) 120 L.Q.R. 198; M. Conaglen, “The Nature and Function of Fiduciary Loyalty” (2005) 121 L.Q.R., 452; D. Kershaw, “Lost in Translation: Corporate Opportunities in Comparative Perspective” (2005) 25 O.J.L.S. 603; D. Kershaw, “Does it Matter How the Law Thinks About Corporate Opportunities” (2005) 25 L.S. 533; H. C. Hirt, “The Law on Corporate Opportunities in the Court of Appeal: Re Bhullar Bros Ltd”  J.B.L. 669; T. Singla, “The Fiduciary Duties of Resigning Directors” (2007) 28 Company Lawyer 275; J. Lowry and R. Edmunds, “Judicial Pragmatism: Directors’ Duties and Post-Resignation Conflicts of Duty”  J.B.L. 83; D. Ahern, “Guiding Principles for Directorial Conflicts of Interest: Re Allied Business and Financial Consultants Ltd; O’Donnell v Shanahan” (2011) 74 M.L.R. 596.
Commentators who are in favor of the strict approach invoke Keech v Sandford (1726) Sel Cas Ch 61, Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq. 461, Bray v Ford  A.C. 44, Boardman v Phipps  2 A.C. 46, Regal (Hastings) Ltd v Gulliver  1 All ER 378;  2 A.C. 134n, Bhullar v Bhullar  EWCA Civ 424;  B.C.C. 711, Industrial Development Consultants Ltd v Cooley  1 W.L.R. 443 and O’Donnell v Shanahan  EWCA Civ 751;  B.C.C. 822 in support of their argument. 3
Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq. 461at 471 per Lord Cranworth.
Note, however, that there is no longer an independent no-profit rule under s 175 of the Companies Act 2006 as s 175(2) has subsumed it under the no-conflict rule. See Bray v Ford  A.C. 44 at 51-2 and Boardman v Phipps  2 A.C. 46 at 123 per Lord Upjohn.
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are said to be inexorable and inflexible. It is irrelevant whether the company could or would exploit the opportunity, whether the director has acted in good faith or whether the third party refuses to deal with the company.
By contrast, under the flexible approach5, the court undertakes a fact-intensive investigation of all the relevant facts and circumstances including but not limited to whether the company is able to take up the opportunity, whether the opportunity is within the company’s line of business, whether the opportunity came to the director in his private capacity, whether it is a maturing business opportunity which the company is actively pursuing and whether the director has acted with fides; no single factor is decisive and the court has to evaluate the entire circumstances holistically in determining whether a director has...
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