Guiding Principles for Directorial Conflicts of Interest: Re Allied Business and Financial Consultants Ltd; O'Donnell v Shanahan

Published date01 July 2011
DOIhttp://doi.org/10.1111/j.1468-2230.2011.00862.x
Date01 July 2011
AuthorDeirdre Ahern
CASES
Guiding Principles for Directorial Con£icts of Interest:
Re Allied Busi ness a nd Financi al Con sultant s Ltd;
O’Donnell vShanahan
Deirdre Ahern
n
The Court of Appeal has disposed of the ‘scope of business’ test as the touchstone principle for
directorial entrepreneurship cases and has con¢rmed the continuing applicability of a capacity
approach while emphasising the importance of directors obtaining the company’s informed
consent before taking up opportunities that they encounter. This provides welcome legal
certainty but raises interesting questions about the scope of a director’s disclosureobligations.
INTRODUCTION
The Court of Appeal’s decision in ReAllied B usiness and Financ ial Consultants Ltd;
O’Donnell vShanahan
1
(O’Donnell) examines directorial entrepreneurship, in
particular, the thorny question of the test to be applied to determine whether a
con£ict of interest arises. The Court’s reasoning provides a principled resolution
of this di⁄cult issue based on a strict, prophylactic approach. However, while
relatively certain of application, opponents of this approach tend to highlight its
failure to engage satisfactori ly with the vexed question of what opportunities a
company can legitimately lay claim to.
The legal interface between private business endeavour and¢duciary responsi-
bilities is not an easy one. The appropriate test to be employed i n determining
whether a director is f ree to take up an opportunity encountered is a question that
has divided courts and commentators over the years with a division between
those favouring t he capacity approach propounded i n Regal (Hasti ngs) Ltd vGulliver
2
(Regal (Hastings )) andthose favouringa more £exible, fact-sensitive approach which
seeks to categorise the opportunity as one in which the company would or would
not have an interest. Opposing viewpoints have been at play in the ambivalence
exhibited by the courts in relation to directors taking up businessopportunities that
they encounter in the course of their directorships. Nevertheless, the equivocation
of the courts over the last number of decades in selecting an appropriate model for
dealing with competitive activity by directors has led to a line of authorities exhi-
biting avarietyof judicial approaches to keymatters of legal principle.
Traditionally judges have expressed themselves to be unwilling to go behind
a directorial pro¢t in order to determine the level of culpability based on the
surrounding circumstances including whether the company would have real
n
Trinity College Dublin.
1Re AlliedBusiness a nd Financial Consultants Ltd; O’Donnell vShanahan [2009] EWCA Civ 751; [2009] 2
BCLC666. RimerLJ deliveredthe judgmentof the Court (Aikens andWallerLJJconcurring).Unless
otherwiseindicated all references in square brackets are to paragraphs in the judgmentof Rimer LJ.
2[1942] 1 A ll E R 378.
r2011The Author.The Modern Law Review r2011 The ModernLaw Review Limited.
Published by BlackwellPublishing, 9600 Garsington Road,Oxford OX4 2DQ,UK and 350 Main Street, Malden, MA 02148, USA
(2011) 74(4) 596^616

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT