A recent Queensland Court of Appeal case reinforces the long-standing principle that directors must not let their private interests conflict with the fiduciary duties they owe to the company.
As was expressed by Lord Cranworth in the seminal case of Aberdeen Railway Co v Blaikie Brothers [1843-1860] All ER 249:
“…it is a rule of universal application that no-one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect.”
This equitable principle and the common law duty of directors to avoid conflicts of duty and interest and not take advantage of their position to secure a personal benefit* has been reinforced by the statutory duties set out in the Corporations Act 2001 (Cth) (the Act) which strictly prohibits directors from:
1. not exercising their powers and discharging their duties with a reasonable degree of care and diligence: section 180 of the Act;
2. not acting in good faith in the best interests of the company or for a proper purpose: section 181 of the Act;
3. using their position to obtain an advantage for either themselves or a third party, or to cause detriment to the company: section 182 of the Act;
4. improperly using information gained through their position as a director to obtain an advantage for either themselves or a third party, or to cause detriment to the company: section 183 of the Act. This obligation continues to apply even after a directorship ends.
The recent case of Jones and Ors v Invion Ltd and Anor  QCA 100 (Invion) highlights the consequences of acting in breach of these statutory duties. Invion successfully brought proceedings against three directors who had, without authorisation, purported to act on behalf of Invion when they varied the termination provisions in their contracts. The variation conferred on each of the directors an entitlement to 12 months’ remuneration upon resignation. The directors deliberately withheld their conduct from the Board and resigned six months later, seeking payment in accordance with the variation. The Queensland Court of Appeal upheld the finding that the directors’ conduct was dishonest and ‘in dereliction of their duties as directors.’ Accordingly, they were ordered to pay compensation to Invion for breaching their statutory duties under sections 180, 181 and 182 of the Act.
Given the ramifications to directors of breaching their duties and their liability to account for any benefit received and to compensate the company for any damage suffered by the company, it is important to be mindful of the circumstances in which a conflict may arise and to be aware of some best practice guidelines that should be followed by directors to prevent such conflicts.
The circumstances in which a conflict of interest can commonly arise include where a director:
Make full disclosure of material personal interests
As soon as a director becomes aware that there is a “real, sensible possibility of conflict”** between their personal interests and the company’s interests, a director must immediately declare their interests to the company.
Under section 191(1) of the Act, directors have a strict duty to notify other directors of their ‘material personal interest’ when a potential conflict arises unless there is an exception to disclosing that interest under section 191(2) of the Act.
All facts related to an interest must be declared at a directors meeting, including the nature and extent of the material interest and the relationship between the interest and company affairs.
The meaning of ‘material personal interest’ is not defined in the Act. However, in McGellin v Mount King Mining NL (1998) 144 FLR 288, Justice Murray held that a material interest “should be seen to have a capacity to influence the vote of a particular director upon the decision to be made.” Whether the interest is a material personal interest depends largely on whether the director has a beneficial interest (for example, by way of shareholding).
If you are a director and are not sure whether you have a conflict of interest, consider whether your interest is capable of affecting your ability to make an impartial decision. If so, then it is likely that you do have a conflict of interest and full disclosure should be made.
Can a director vote on a matter where they have a ‘material personal interest’?
This will depend on whether the director is a director of a proprietary company or a public company:
For proprietary companies: a director can vote, subject to the director fully disclosing the nature and extent of the interest before a directors meeting on the transaction. The director may also retain benefits under the transaction under section 194 of the Act.
For public companies: a director cannot vote. Under section 195 of the Act, the conflicted director of a public company must avoid attending the directors’ meeting while the matter is being considered or voting on the matter unless a resolution allowing the director to be present has been passed or an order has been made by ASIC.
Positive duty to prevent the transaction going ahead
In some circumstances, declaring that a conflict of interest may exist, may not, in of itself, be sufficient to fulfil a director’s fiduciary duty to promote the best interests of the company. The case of Adler v ASIC (2003) 179 FLR 1, highlights that a director in a “position of power and influence” may also have a positive duty to use their position to prevent a transaction going ahead in order to protect the company’s best interests:
Ultimately, the positive action that must be taken by directors to prevent transactions going ahead will depend upon the level of involvement the director has had in the transaction and the “gravity of the possible outcome” that could follow for the company.****
To assist in avoiding a conflict of interest, directors can follow some best practice guidelines, including:
A register of all standing notices issued by directors should be maintained by the company secretary so that it can be referred to and circulated where appropriate.
* Chan v Zacharia (1984) 154 CLR 178, 198-9
** Boardman v Phipps  2 AC 66, 124
*** Permanent Building Society (in liq) v McGee (1993) 11 ACSR 260, 290 (Anderson J).
****Fitzsimmons v R (1997) 23 ACSR 355; Adler v ASIC (2003) 179 FLR 1.
McCabes is experienced in advising and assisting companies, directors and company officers in respect of their corporate duties, conflicts of interest, exposure to personal liability, and corporate governance, particularly under the Corporations Act and the Australian Consumer Law.
This article was written by Andrew Lacey, Principal, Fiona Lymant, Senior Associate, Christina Kafalias, Associate, and Erin Turner Manners, Lawyer.
This article is not legal advice. It is intended to provide commentary and general information only. Access to this article does not entitle you to rely on it as legal advice. You should obtain formal legal advice specific to your own situation. Please contact us if you require advice on matters covered by this article.
In June 2023, a Canadian Court in South-West Terminal Ltd v Achter Land and Cattle Ltd, 2023 SKKB 116, held that the "thumbs-up" emoji carried enough weight to constitute acceptance of contractual terms, analogous to that of a "signature", to establish a legally binding contract. Facts This case involved a contractual dispute between two parties namely South-West Terminal ("SWT"), a grain and crop inputs company; and Achter Land & Cattle Ltd ("ALC"), a farming corporation. SWT sought to purchase several tonnes of flax at a price of $17 per bushel, and in March 2021, Mr Mickleborough, SWT's Farm Marketing Representative, sent a "blast" text message to several sellers indicating this intention. Following this text message, Mr Mickleborough spoke with Mr Achter, owner of ALC, whereby both parties verbally agreed by phone that ALC would supply 86 metric tonnes of flax to SWT at a price of $17 per bushel, in November 2021. After the phone call, Mr Mickleborough applied his ink signature to the contract, took a photo of it on his mobile phone and texted it to Mr Archter with the text message, "please confirm flax contract". Mr Archter responded by texting back a "thumbs-up" emoji, but ultimately did not deliver the 87 metric tonnes of flax as agreed. Issues The parties did not dispute the facts, but rather, "disagreed as to whether there was a formal meeting of the minds" and intention to enter into a legally binding agreement. The primary issue that the Court was tasked with deciding was whether Mr Achter's use of the thumbs-up emoji carried the same weight as a signature to signify acceptance of the terms of the alleged contract. Mr Mickleborough put forward the argument that the emoji sent by Mr Achter conveyed acceptance of the terms of the agreement, however Mr Achter disagreed arguing that his use of the emoji was his way of confirming receipt of the text message. By way of affidavit, Mr Achter stated "I deny that he accepted the thumbs-up emoji as a digital signature of the incomplete contract"; and "I did not have time to review the Flax agreement and merely wanted to indicate that I did receive his text message." Consensus Ad Idem In deciding this issue, the Court needed to determine whether there had been a "formal meeting of the minds". At paragraph , Justice Keene considered the reasonable bystander test: " The court is to look at “how each party’s conduct would appear to a reasonable person in the position of the other party” (Aga at para 35). The test for agreement to a contract for legal purposes is whether the parties have indicated to the outside world, in the form of the objective reasonable bystander, their intention to contract and the terms of such contract (Aga at para 36). The question is not what the parties subjectively had in mind, but rather whether their conduct was such that a reasonable person would conclude that they had intended to be bound (Aga at para 37)." Justice Keene considered several factors including: The nature of the business relationship, notably that Mr Achter had a long-standing business relationship with SWT going back to at least 2015 when Mr Mickleborough started with SWT; and The consistency in the manner by which the parties conducted their business by way of verbal conversation either in person or over the phone to come to an agreement on price and volume of grain, which would be followed by Mr Mickleborough drafting a contract and sending it to Mr Achter. Mr Mickleborough stated, "I have done approximately fifteen to twenty contracts with Achter"; and The fact that the parties had both clearly understood responses by Mr Achter such as "looks good", "ok" or "yup" to mean confirmation of the contract and "not a mere acknowledgment of the receipt of the contract" by Mr Achter. Judgment At paragraph , Keene J said: "I am satisfied on the balance of probabilities that Chris okayed or approved the contract just like he had done before except this time he used a thumbs-up emoji. In my opinion, when considering all of the circumstances that meant approval of the flax contract and not simply that he had received the contract and was going to think about it. In my view a reasonable bystander knowing all of the background would come to the objective understanding that the parties had reached consensus ad item – a meeting of the minds – just like they had done on numerous other occasions." The court satisfied that the use of the thumbs-up emoji paralleled the prior abbreviated texts that the parties had used to confirm agreement ("looks good", "yup" and "ok"). This approach had become the established way the parties conducted their business relationship. Significance of the Thumbs-Up Emoji Justice Keene acknowledged the significance of a thumbs-up emoji as something analogous to a signature at paragraph : "This court readily acknowledges that a thumbs-up emoji is a non-traditional means to "sign" a document but nevertheless under these circumstances this was a valid way to convey the two purposes of a "signature" – to identify the signator… and… to convey Achter's acceptance of the flax contract." In support of this, Justice Keene cited the dictionary.com definition of the thumbs-up emoji: "used to express assent, approval or encouragement in digital communications, especially in western cultures", confirming that the thumbs-up emoji is an "action in an electronic form" that can be used to allow express acceptance as contemplated under the Canadian Electronic Information and Documents Act 2000. Justice Keene dismissed the concerns raised by the defence that accepting the thumbs up emoji as a sign of agreement would "open the flood gates" to new interpretations of other emojis, such as the 'fist bump' and 'handshake'. Significantly, the Court held, "I agree this case is novel (at least in Skatchewan), but nevertheless this Court cannot (nor should it) attempt to stem the tide of technology and common usage." Ultimately the Court found in favour of SWT, holding that there was a valid contract between the parties and that the defendant breached by failing to deliver the flax. Keene J made a judgment against ALC for damages in the amount of $82,200.21 payable to SWT plus interest. What does this mean for Australia? This is a Canadian decision meaning that it is not precedent in Australia. However, an Australian court is well within its rights to consider this judgment when dealing with matters that come before it with similar circumstances. This judgment is a reminder that the common law of contract has and will continue to evolve to meet the everchanging realities and challenges of our day-to-day lives. As time has progressed, we have seen the courts transition from sole acceptance of the traditional "wet ink" signature, to electronic signatures. Electronic signatures are legally recognised in Australia and are provided for by the Electronic Transactions Act 1999 and the Electronic Transactions Regulations 2020. Companies are also now able to execute certain documents via electronic means under s 127 of the Corporations Act. We have also seen the rise of electronic platforms such as "DocuSign" used in commercial relationships to facilitate the efficient signing of contracts. Furthermore, this case highlights how courts will interpret the element of "intention" when determining whether a valid contract has been formed, confirming the long-standing principle that it is to be assessed objectively from the perspective of a reasonable and objective bystander who is aware of all the relevant facts. Overall, this is an interesting development for parties engaging in commerce via electronic means and an important reminder to all to be conscious of the fact that contracts have the potential to be agreed to by use of an emoji in today's digital age.
The McCabes Government team are pleased to have assisted Venues NSW in successfully overturning a District Court decision holding it liable in negligence for injuries sustained by a patron who slipped and fell down a set of steps at a sports stadium; Venues NSW v Kane  NSWCA 192 Principles The NSW Court of Appeal has reaffirmed the principles regarding the interpretation of the matters to be considered under sections5B of the Civil Liability Act 2002 (NSW). There is no obligation in negligence for an occupier to ensure that handrails are applied to all sets of steps in its premises. An occupier will not automatically be liable in negligence if its premises are not compliant with the Building Code of Australia (BCA). Background The plaintiff commenced proceedings in the District Court of NSW against Venues NSW (VNSW) alleging she suffered injuries when she fell down a set of steps at McDonald Jones Stadium in Newcastle on 6 July 2019. The plaintiff attended the Stadium with her husband and friend to watch an NRL rugby league match. It was raining heavily on the day. The plaintiff alleged she slipped and fell while descending a stepped aisle which comprised of concrete steps between rows of seating. The plaintiff sued VNSW in negligence alleging the stepped aisle constituted a "stairwell" under the BCA and therefore ought to have had a handrail. The plaintiff also alleged that the chamfered edge of the steps exceeded the allowed tolerance of 5mm. The Decision at Trial In finding in favour of the plaintiff, Norton DCJ found that: the steps constituted a "stairwell" and therefore were in breach of the BCA due to the absence of a handrail and the presence of a chamfered edge exceeding 5mm in length. even if handrails were not required, the use of them would have been good and reasonable practice given the stadium was open during periods of darkness, inclement weather, and used by a persons of varying levels of physical agility. VNSW ought to have arranged a risk assessment of the entire stadium, particularly the areas which provided access along stepped surfaces. installation of a handrail (or building stairs with the required chamfered edge) would not impose a serious burden on VNSW, even if required on other similar steps. Issues on Appeal VNSW appealed the decision of Norton DCJ. The primary challenge was to the trial judge's finding that VNSW was in breach of its duty of care in failing to install a handrail. In addition, VNSW challenged the findings that the steps met the definition of a 'stairwell' under the BCA as well as the trial judge's assessment of damages. Decision on Appeal The Court of Appeal found that primary judge's finding of breach of duty on the part of VNSW could not stand for multiple reasons, including that it proceeded on an erroneous construction of s5B of the Civil Liability Act 2002 and the obvious nature of the danger presented by the steps. As to the determination of breach of duty, the Court stressed that the trial judge was wrong to proceed on the basis that the Court simply has regard to each of the seven matters raised in ss 5B and 5C of the CLA and then express a conclusion as to breach. Instead, the Court emphasised that s 5B(1)(c) is a gateway, such that a plaintiff who fails to satisfy that provision cannot succeed, with the matters raised in s 5B(2) being mandatory considerations to be borne in mind when determining s 5B(1)(c). Ultimately, regarding the primary question of breach of duty, the Court found that: The stadium contained hazards which were utterly familiar and obvious to any spectator, namely, steps which needed to be navigated to get to and to leave from the tiered seating. While the trial judge considered the mandatory requirements required by s5B(2) of the CLA, those matters are not exhaustive and the trial judge failed to pay proper to attention to the fact that: the stadium had been certified as BCA compliant eight years before the incident; there was no evidence of previous falls resulting in injury despite the stairs being used by millions of spectators over the previous eight years; and the horizontal surfaces of the steps were highly slip resistant when wet. In light of the above, the Court of Appeal did not accept a reasonable person in the position of VNSW would not have installed a handrail along the stepped aisle. The burden of taking the complained of precautions includes to address similar risks of harm throughout the stadium, i.e. installing handrails on the other stepped aisles. This was a mandatory consideration under s5C(a) which was not properly taken into account. As to the question of BCA compliance, the Court of Appeal did not consider it necessary to make a firm conclusion of this issue given it did not find a breach of duty. The Court did however indicated it did not consider the stepped aisle would constitute a "stairway" under the BCA. The Court of Appeal also found that there was nothing in the trial judge's reasons explicitly connecting the risk assessment she considered VNSW ought to have carried out, with the installation of handrails on any of the aisles in the stadium and therefore could not lead to any findings regarding breach or causation. As to quantum, the Court of Appeal accepted that the trial judge erred in awarding the plaintiff a "buffer" of $10,000 for past economic loss in circumstances where there was no evidence of any loss of income. The Court of Appeal set aside the orders of the District Court and entered judgment for VNSW with costs. Why this case is important? The case confirms there is no obligation in negligence for owners and operators of public or private venues in NSW to have a handrail on every set of steps. It is also a welcome affirmation of the principles surrounding the assessment of breach of duty under s 5B and s 5C of the CLA, particularly in assessing whether precautions are required to be taken in response to hazards which are familiar and obvious to a reasonable person.
The recent decision in New Aim Pty Ltd v Leung  FCAFC 67 (New Aim) has provided some useful guidance in relation to briefing experts in litigation.