As a director of the North-West Transportation Company Limited, James H. Beatty was an agent of the company and owed a fiduciary duty to promote the best interests of the corporation. In his role as shareholder, this duty would not be applicable. Based on the traditional no-conflict rule, James Beatty as director would be precluded from entering into a contract in which he could potentially derive a personal benefit. While my understanding is that the shareholder vote can ratify a breach of the no-conflict duty (absent fraud or consent), I don’t believe that this amounts to relieving Beatty of his wider fiduciary duty to the company. The ratification of the contract was based on informed consent and affirmed that the contract was in line with interests of the company. Despite the fact that Beatty as shareholder voted to ratify the proposal of the directors, his duty as director did not come into play because he was not involved in that decision in his role as director. Instead of conceptualizing this as relieving Beatty of fiduciary duties, it may be useful to consider this a way around a strict no-conflict rule that otherwise would have acted against the best interest of the company in this instance. This is supported by the facts of the case which indicated the purchase of the steamer was essential to the company’s business operations, the company was unable to acquire another suitable steamer, and the price was reasonable. What remains unclear to me is whether or not the company could sue to recover any profit made by Beatty despite the contract having been ratified by the shareholders. While it is clear that the traditional no-conflict rule allows companies to recover profits made by directors when they breach the rule, the decision in this case was largely based on contractarian reasoning. In this regard, there is an obvious conflict between giving effect to the intentions of the shareholders as indicated by their ratification of the contract, and upholding the strict principle of no-conflict.
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