As a director, James Beatty owed a duty to North-West Transport Co., however, while wearing his shareholder “hat” he did not owe that same duty. I wouldn’t say the shareholder vote that allowed him to personally enter into the contract of sale relieved him of that duty, I think it just gave him another “hat” to wear; it allowed him to act as “James Beatty – Ordinary Citizen”(very James Bond-esque…). This situation is an obvious conflict of interest scenario, but based on the facts Beatty did everything correctly to disclose the conflict, and then followed the appropriate procedures to get approval/resolution from the shareholders to go ahead with the contract.
I don’t think that North-West Transport could have sued to recover any of Beatty’s profits received from the scenario because he acted appropriately in the situation by disclosing the conflict and received the majority approval from the shareholders to enter into the contract. Based on the facts of the case, North-West Transport apparently needed to acquire the ship for the efficiency of the business, and there was also no other ship available that met the standards that they needed. This, to me, indicates that Beatty didn’t use his fiduciary position within the company to his advantage just to earn himself a profit, but that from a director’s standpoint it was a contract that the company needed to enter into for the sake of the business. The fact that he made a profit due to the contract does not necessarily show he was acting in breach of his fiduciary duty. Also, since it was all director and then shareholder-approved in a special resolution differentiates this case from Regal Hastings, where the company was successful in suing for profits earned.
Great points Kristen! I agree with your point that Beatty was acting as an ordinary citizen when voting and that he did do everything possible possible to disclose the conflict.
After going through Unit 8, it seems as though the court in Greenhalgh v. Arderne Cinemas Ltd. eluded to the fact that shareholders do not have to look out for the corporations best interest. In that case, even though Mr. Mallard was a majority shareholder and director (and also the founder) the court said that when he was acting as a shareholder he only had to consider what was in his personal benefit.
I think it is really important, if an individual plays multiple roles in a corporation, to analyze his or her role separately.