Corporate Law : Director's Duties

I just had a meet up with my group mates in school to discuss the company law tutorial that we are suppose to present for next week. After the session, I realized that I did not know the section of Director’s Duties well enough. My rather haphazard studying of the topic by referencing the multifarious sources has not been very productive in aiding me in my understanding. Professor Hans Tjio rather disorganized lecture and lecture notes has not been too helpful to my understanding as well. But I think I got a more coherent picture what this topic of the course is about after my discussion with the group, and the brief consultation that we had with Professor Dan Puchniak.

Foremost, it seems like I have overlooked certain important features of how the law is structured with regards to director’s duties. I had thought that the law was simply defined in the statutory provision of s157 from which the 3 fiduciary duties (i.e. To Act Bona Fide only in the Company’s interest, avoid conflict of interest, and use powers only for their proper purposes) of the directors could be inferred. But I learnt that there is a separate common law doctrine to which such duties are stipulated as well. The difficulty is to find out where the statutory provision and the common law approach overlaps, and where they don’t. Professor Puchniak just gave this hint that there is a case which features a scenario where the breach of duty regarding conflict of interest is covered by the statutory provision but not the common law doctrine. The significance of which category the breach of duty falls under relates to the type of liability that would be accrued to the offender (i.e criminal for breach of fiduciary duty under the statutory provision and civil liability for breach of duty under the common law), and the available remedy for the breach.

I thought that fiduciary duties were the only category for director duties. But now, I understand that there 3 categories to which Director’s Duties can fall under. So as stated before, there is fiduciary duties, which comprises of 2 limbs – to act bona fide only in the company’s interest, and to avoid conflict of interest. There is actually a third limb of ‘use powers only for their proper purpose’, which according to Professor Puchniak, is not very relevant in the Singapore context. I wonder this is so though; the second category of Director’s Duties is Duty of Care and Skills or negligence; and thirdly, there are statutory duties. I had wrongly misconceived duty of care and skills as relating to the standard of care to which the fiduciary duties had to be performed and not as a separate category of duty. It was certainly a big and possibly fatal misconception of Director’s Duties. I am told by Professor Puchniak that the various lecturers have different paradigms on how they would characterize the doctrine of Director’s duties. I had initially thought that there was a monolithic doctrine on Director’s duties. Funny that I did not pick out the difference in paradigm when I read Walter Woon’s textbook on company law. I suppose I wasn’t percipient to the differences in paradigm as I was not expecting there to have been any difference in paradigm.

Under the first limb of fiduciary duties (Act Bona Fide Only in the Company’s interest) consists of 2 tenuous issues – to whom in the corporate constituency is the fiduciary duty owed to, and the standard to which the fiduciary duty has to be upheld. Because of my misconception duty of care and skill relates to how the fiduciary duty was carried out, I thought that the standard of care enunciated in Daniels v Anderson (1995) 16 ACSR 607 (NSWCA) would apply and the standard of carrying out the fiduciary duty is simply one of an minimum objective test. Well, now that I know that duty of care and skills is a separate category of director’s duties, I suppose that leaves open the question of what is the standard of care to which the first limb of the fiduciary duty has to be carried out. I don’t suppose the standard of care stipulated in Daniels v Anderson could be said to apply to the standard of care to which a director is supposed to act for in regards to the company’s interest? 

From what I hear from my group mates who are doing the question, they think that there is a separate stipulation for the standard of care to which a director is supposed to act in bona fide for the company’s interest. However, this is the difficult part in that it is not very clear-cut what this standard of care is, and what the calibrated standard of care would be for the various types of directors (executive directors vs non-executive directors)

But director’s duties do not just stem from s 157. Professor Puchniak mentions that there are other statutory provisions which specifies other sorts of director’s duties. I suppose the range of such duties are manifold, such as the duty to arrange the company’s meetings according to certain formalities under the section 170+ provisions of the Companies Act as told to me by Laurelle. I am not sure whether these that were highlighted to my attention are exhaustive. I suppose I should be observant to what these duties are as I study on the various aspects of company law.

Then, there are the common law duties which parallels the duties explicated in s 157 in a certain regard. It too specifies duties that can be grouped under the categories – 1. Act in the company’s interest, 2. Avoid conflicts of interest, and 3. Use powers for proper purposes. The challenge is to see how these duties are different from that specified in the s157.

So let me summarize

Director Duties

1. Fiduciary/common law duties

1.       - Act Bona Fide in company’s interest

2.       - Avoid conflict of interest

2. Duty of care and skills

3. Other statutory duties