The defendant was a director of the plaintiff company, Gerard Cassegrain & Co (GC & Co). GC & Co sought an order that the defendant pay compensation for alleged breaches of his fiduciary duty as a director.
GC & Co had received a substantial sum of money from a settlement. In an attempt to minimise liability for capital gains tax and at the suggestion of the defendant, GC & Co established a loan account for part of the settlement sum in favour of the defendant. Approval for this loan account was obtained at an informal meeting with a shareholder who had special constitutional power to pass any resolution at a general meeting. The defendant subsequently used funds from the account to acquire property from GC & Co and to pay for his living expenses.
In finding for GC & Co, the Court held that the defendant had dishonestly breached his fiduciary duty. The defendant had withdrawn funds with the knowledge that the loan account was not recording a genuine debt owed to him, and was only to facilitate a claim for a taxation advantage.
Further, the Court found that the shareholder's special constitutional powers could only have been exercised in the context of a general meeting, where all members had received notice of the meeting and had an opportunity to discuss and debate. As no general meeting had been convened, the defendant's conduct had not been authorised.
This case serves as a reminder that directors have fiduciary duties to act in the best interests of the companies they serve so need to act with a high degree of probity. This case shows that special constitutional powers conferred on a shareholder or shareholders regarding particular resolutions, should be exercised at a duly convened general meeting where members are given notice and the opportunity for discussion where that is required under the terms of the constitutional power.