The bona fide fiduciary loyalty of Australian company directors

Abstract

Spearheaded by the High Court’s decision in Breen v Williams, the last two decades have seen an apparent narrowing of Australian fiduciary theory. Focus has been placed on the requirement that fiduciary duties be proscriptive, with primary emphasis on the duties to avoid unauthorised conflicts and profits. A prevalent interpretation is in fact that these are now the only two accepted fiduciary duties. However, company directors have traditionally been subject to other fiduciary duties – principally the duty to act bona fide in the interests of the company, the duty to act for proper purposes and the duty to retain discretions. A fiduciary duty of disclosure has also been recognised in certain circumstances. There is therefore an issue as to whether these other duties can still be classified as fiduciary in nature. Of the fiduciary duties imposed on directors, the duty to act bona fide in the interests of the company is central and fundamental. It encapsulates directors’ fiduciary loyalty and underlies the other fiduciary duties of directors. This thesis demonstrates the fundamentality and centrality of this duty by undertaking detailed examination of its role and operation and of its relationship with the other duties. Contrary to predominant focus on the duties to avoid conflicts and profits, the thesis shows that these duties are subsidiary to the more foundational duty to act bona fide in the interests of the company. In light of the apparent shift in Australian fiduciary theory, this thesis critically assesses the continued fiduciary classification of the duty to act bona fide in the interests of the company and of other fiduciary duties. This involves detailed original analysis of current fiduciary theory and its application to obligations regulating the exercise of discretionary power, as well as critical assessment of the practical relevance of fiduciary classification. A comparison with English law is also undertaken. The analysis in this thesis has significant relevance beyond directors’ fiduciary duties to the scope and application of the fiduciary concept in other relationships. It provides reasoned resolution of the uncertainty currently pervading Australian fiduciary theory and lays the foundation for reformulation of such theory.