A Director's Duty of Loyalty and the Relevance of the Company's Scope of Business: Cheng Wai Tao v Poon Ka Man Jason

AuthorPearlie Koh
Publication Date01 Sep 2017
where the nature of the criminal activity was more serious and/or more central
to the activity involved, where the illegal activity was expressly included in the
contract, or where one of the parties did not know or intend that the activity in
question to be carried out was illegal but the other did, or where the proceedings
arose out of the fact that such a contract had only been partly performed.89
It is not possible to lay down a clear and definitive rule that would cover
the second example and any other future examples. Thus, although Lord
Neuberger said that the application of the Rule would resolve and dispose of
this case, he endorsed Lord Toulson’s range of factors approach because of the
considerable permutations and complexities that have arisen and could continue
to arise from cases involving contractual illegality that are not contemplated by
the Rule.90
The minority’s rule-based approach ‘has failed to deliver on what some have
claimed to be its principal virtue viz ease of application and predictability of
outcome.’91 Admittedly, the range of factors approach is not strictly necessary
for the resolution of the specific issue in this case and the disposal of the appeal
(as demonstrated by Lord Neuberger’s Rule and in particular Lord Mance and
Lord Clarke’s reasoning). However, because the law was in ‘disarray’,92 the ma-
jority was correct to have set the record straight by authoritatively pronouncing
on what the correct approach to the illegality defence is. This approach has been
shown to be well-supported by authorities, and, if refinements suggested in this
article were to be made, it is likely to result in significantly less uncertainty than
the minority’s rule-based approach.
A Director’s Duty of Loyalty and the Relevance
of the Company’s Scope of Business: Cheng Wai Tao v
Poon Ka Man Jason
Pearlie Koh
The Hong Kong Court of Final Appeal has utilised a ‘scope of business’ inquiry to delineate
the boundaries of the no-conflict rule for the company director. Such an inquiry is directed
at discerning the realistic ability of the company to exploit any particular business opportunity
and a strict capacity approach is eschewed, at least where the no-conflict rule is concerned. The
decision is premised on a bifurcation between the no-conflict and no-profit rules, suggesting
89 ibid at [179] per Lord Neuberger.
90 ibid at [180]-[182].
91 ibid at [134] per Lord Kerr.
92 ibid at [164] per Lord Neuberger.
Singapore Management University.
C2017The Author. The Modern Law Review C2017The Modern Law Review Limited.
(2017) 80(5) MLR 927–954 941

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