Company Directors not free to prefer Own Interests
Deeks and Hinds were the directors of a construction company. They negotiated a lucrative construction contract with the Canadian Pacific Railway. During the negotiations, they decided to enter into the contract personally, on their own behalves, and incorporated a new company, the Dominion Construction Company to carry out the work. The contract appeared to be taken over by this company, by whom the work was carried out and the profits made. A shareholder in the Toronto Construction Company brought a derivative action against the directors and the Dominion Construction Company. Because this was a derivative action, the Toronto Construction Company was also joined as a defendant.
Held: Deeks and Hinds were guilty of a breach of duty in the course they took to secure the contract, and were to be regarded as holding it for the benefit of the Toronto Construction Company: ‘while entrusted with the conduct of the affairs of the company they deliberately designed to exclude, and used their influence and position to exclude, the company whose interest it was their first duty to protect.’ This led to the legal conclusion that: ‘men who assume the complete control of a company’s business must remember that they are not at liberty to sacrifice the interests which they are bound to protect, and, while ostensibly acting for the company, divert in their own favour business which should properly belong to the company they represent.’
Lord Parker of Waddington, Viscount Haldane, Lord Sumner, Lord Buckmaster LC
[1916] 1 AC 554, [1916] UKPC 10, (1916) 27 DLR 1, [1916-17] All ER 285
Bailii
Canada
Cited by:
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Approprietary remedy against Fraudulent Agent
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Lists of cited by and citing cases may be incomplete.
Updated: 04 August 2021; Ref: scu.230283 br>