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Question - Appendix 6

Disclosure of director’s interests and

conflict of interest

Nurul Hikmah Binti Roslan 1524078

Nusaibah Binti Mohd Radzi 1728072

Facts of the case
Rosa who is a non-executive director in a
Singapore based company called B-Mazon Ltd. The
company provides online educational materials and
resources and operates an online skill development
center.
She was approached by Adverts Bhd with an
offer that she join its board of directors. Adverts Bhd
has been involved in the printing business since 2000
and provides services in printing annual reports,
brochures, books and other documents and
materials.
The Chairman of Adverts Bhd informed Rosa that
they want to leverage Rosa's experience and business
contacts. The CEO also remarked that Adverts’ team
would like to tap into Rosa’s knowledge of the online
educational space and share B-Mazon’s strategy as a
leading company in this area. According to the CEO of
Adverts Bhd, the printing and publication business is
losing its consumer-base due to technology.
On one litigation case happen between Adverts Bhd
and Aces Sdn Bhd, Adverts Bhd has a good prospect of
winning. However, After Rosa’s Husband who currently
work in Zoco & Associates, representing Aces Sdn Bhd,
informed her that there is a strong case in favour of Aces
Sdn Bhd, Rosa having second thoughts about joining
Adverts Bhd.
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Issue to be discuss

(a) Whether she has any disclosure obligations to either Adverts

Bhd or B-Mazon Ltd

(b) whether there is any breach of her duty if Rosa shares her
knowledge of the online educational space, business contacts
and B-Mazon’s strategy to Adverts Bhd.
First issue;

Whether Rosa has any disclosure

obligations to either Adverts Bhd or B-mazon Ltd

 1. Whether Rosa has any

disclosure obligation to Adverts Bhd.

Statutory duties under Companies Act 2016

Section 221(1)

“Every director of company who is in any way, whether directly and indirectly, interested
in a contract or proposed contract with the company shall, as soon as practicable after the
relevant facts have come to the director’s knowledge, declare the nature of his interest at a
meeting of the board of directors.”
Section 221 (6)

“Every director of a company who holds any office or possesses any property where duties
or interests may be created in conflict with his duties or interests as director shall declare the
fact and the nature, character and extent of the conflict at a meeting of the directors of the
company.”
Application

❏ Rosa was informed about one litigation involving a contract entered into by
Adverts Bhd in January 2019 to sell one of its assets to Aces Sdn Bhd.
Subsequently, Aces Sdn Bhd was not able to provide the full purchase price and
the board of Adverts Bhd decided to terminate the contract in March 2019.
Adverts Bhd has a good prospect of winning.
❏ However, Rosa has found out from her husband that there is a strong case in
favour of Aces Sdn Bhd.
❏ Since her husband was appointed as partner at Zoco & Associates, Rosa is
having a second thought to join Adverts Bhd.
Application

❏ Rosa is yet to accept the offer as a non-executive director an unanimous

agreement in the board meeting.
❏ Thus, she is yet to be as a non-executive director of Adverts Bhd where she does
not have the obligation to disclose information to Adverts Bhd.
 2. Whether Rosa has any

disclosure obligation to Adverts Bhd.

Statutory duties under Companies Act 2016

Section 218

“A director or officer of a company shall not, without the consent or ratification of a general
meeting-

a) Use the property of the company

b) Use any information acquired by virtue of his position as a director or officer of the company
c) Use his position as such director or officer
d) Use any oppurtunity of the company which he bacame aware of, in the performance
 e) engage in business which is in competition with the company.

To gain directly or indirectly, a benefit for himself or any other person, or cause detriment to the
company.
Faccenda Chicken v Fowler

The court classified information into 3 classes:

1. Information which was so easily accessible to the public that an employee

was at liberty to impart it to anyone during his employment or afterwards
2. Confidential information which he could not use or disclose during his
employment without breaching his duty of fidelity to his employer, but
which, in the absence of an express restrictive covenant, he was at liberty
to use thereafter
3. Specific trade or secrets processes which are so confidential that they may
never be used for anyone’s benefit but the master
Golden Village Multiplex Pte Ltd v Phoon Chiong

❏ In this case, the court held that the directors who acquired
information at board of meetings and information given to him as a
director of a company cannot use the information to cause detriment
to the company or cannot use it for the interest of other person.
❏ A contract entered into between Aberdeen Railways and Blaikie Bros.
Aberdeen Railways, the plaintiff needed a large number of iron chairs (rail
sockets) at the cost of 8 Pounds/Ton, to which the Blaikie Bros agreed.
The contract was entered into for the duration of 18 months.
❏ The contract had been performed partly, and Blaikie Bros had provided
Aberdeen railways with as much as two-thirds of the contracted amount
of iron chairs.
❏ However, after that, Aberdeen Railways refused to accept any more of the
iron chairs from Blaikie Bros. The Blaikie Bros filed a suit to enforce this
contract which Aberdeen Railways refused to enforce.
❏ The argument put forth by the respondents i.e. Aberdeen Railways, was
that the managing director of Aberdeen Railways at the time when the
contract was made, Sir Thomas Blaikie, was also the Managing Director of
the Blaikie Bros, which implied that there was a conflict of interest in the
action.
Application

❏ Based on section 218 and 221 (6) of Companies Act, Rosa as the non-
executive director of B-Mazon Ltd have obligation to not disclose any
confidential information of B-mazon Ltd since this can affect the company.
❏ She was approached because of The CEO of Adverts Bhd remarked that
Adverts’s team would like to tap into Rosa’s knowledge of the online
educational space and share B-Mazon’s strategy as a leading company in
this area.
❏ Thus, she would be held liable if she was to disclose the information to
Adverts Bhd.
Second Issue;

Whether there are any breach of her duty if Rosa shares her
knowledge of the online educational space, business contacts
and B-Mazon’s strategy to Adverts Bhd.
Common law duty
Fundamental fiduciary duty
owed by the director of the
company
1. No-conflict rule
2. No-profit rule
3. No-misappropriation rule
Statutory duties under Companies Act 2016
Section 218. (1) a director of a company shall not, without the consent or ratification
of a general meeting -
(a) Use the property of the company
(b) Use any information acquired by virtue of his position as a director or officer
of the company
(c) Use his positions as such director or officer
(d) Use any opportunity of the company which he became aware of, in the
performance of his functions as a director or officer of the company or;
(e) Engage in business which is in competition with the company,
To gain directly or indirectly, a benefit for himself or any other person, or cause
detriment to the company
1. Whether Rosa will breach the duty as a director if
Rosa shares her knowledge on online educational
space.
Misuse of Property or information belonging to the
company

Section 218. (1) a director of a company shall not, without

- Under the common law ,
the consent or ratification of a general meeting-
breach of duty exist if the
director misuse the (a) Use the property of the company
company’s asset (property or
information) belongs to the (b) Use any information acquired by virtue of his position
company as a director or officer of the company

- The common law principle To gain directly or indirectly, a benefit for himself or any
can be seen in the Section other person, or cause detriment to the company.
218. (1) (a) & (b) which
provides:
What constitute an information is a company’s
confidential information?

In Faccenda Chicken v Fowler (1987) Ch 17, Such information has been categorized
into three categories;

1. Company’s information that can publicly access- not confidential

2. Information which the director must treat as confidential, if he resign, the said
information become part of his skills and knowledge, then the director is not to
be prevented to use the information for himself.
3. Trade secrets or secrets processes which is co confidential that may never be
used for anyone’s benefit but the master - confidential
Any information belonging to the company is the company’s property and cannot be used
without the company’s approval

Such corporate information that could be prohibited to be use by the director without the
board consents includes:

- Any information presented in board’s meeting which considered as confidential,

- Company’s customer base,
- Commissions and discount provided to its distributor,
- Company’s pricing strategy,
- Product’s market feedback,
- Company’s supplier.
Case: Soon seng palm Oil mill Sdn Bhd v Jang Lim Luang @ Yeo
Kim Luang (2011) 9 MLJ 496

Held: The director was liable for misusing confidential information

relating an in connection to the company’s invention that she had access
to in the course of her employment with the company. -she was liable for
breach of her fiduciary duty as she had unlawfully misappropriated,
disclosed and/or used the confidential information to set up companies
engaged in the same research and development that arose from the
collaboration and launched competitive businesses using such
information.
Application

- Based on the facts, Adverts Bhd would like to tap on Rosa knowledge on the
online educational spaces . If it is seem through the facts that such knowledge
were general knowledge, ie, the basic knowledge on the nature of the business,
which can also be access by public in online platform, such information conveys
does not make Rosa as a director breach of her fiduciary duty. However, if such
information given would make or bring benefit more to Adverts company in
matters of improving their business than, she may be held liable for conveying
confidential information.
2. Whether Rosa will breach the duty as a director if
Rosa shares her business contact
Misuse of Property or information belonging to the
company

Section 218. (1) a director of a company shall not, without

- Under the common law ,
the consent or ratification of a general meeting-
breach of duty exist if the
director misuse the (a) Use the property of the company
company’s asset (property or
information) belongs to the (b) Use any information acquired by virtue of his position
company as a director or officer of the company

- The common law principle To gain directly or indirectly, a benefit for himself or any
can be seen in the Section other person, or cause detriment to the company.
218. (1) (a) & (b) which
provides:
Case: Southern Real Estate v Dellow (2003) SASC 318

Held: The judge found that the list of the names and addresses of 58 clients had been
prepared while Dellow was an employee and director of SRE and she was liable for
misusing corporate information for her own personal benefit

Conclude:
- Business contact own by Rosa deemed to be confidential in nature as the matters
involves her skill and knowledge for the company as a director.
- Thus, Rosa is breach of her duty as a director in giving the business contacts to
Adverts Bhd as it is considered as confidential information under the second category.
- Whether the act of sharing the business contact
can be regarded as diverting business
opportunity & breach the fiduciary duty in doing
so
Ascertaining the business opportunity through tests;

1. Maturing Business opportunity

- Considers that the opportunity belongs to the company where the company
is currently considering the opportunity
1. Current line of business
- If the opportunity falls within the company’s line of business i.e the
company’s assets, knowledge, expertise and talents, could the company
reasonably be able to adapt itself to pursue the opportunity now or in the
reasonable future.
Case: CMS Dolphin Ltd v Simonet (2001) 2 BCLC 704

Mr Simonet resigned from his position as managing director of CMS Dolphin Ltd (a small advertising
company on Charing Cross Road) and he set up a new company. He attracted clients and employees from
his former company. CMS’s staff followed and so did the major clients. CMS sued Mr Simonet for the
profits he made, alleging that he had breached his duty of loyalty to the company. Mr Simonet contended
that he owed no duty because he had left the company.

Held: The director is entitled to resign even if his resignation might bring disastrous effect to the company.
He is not thereafter precluded from using his general fund of knowledge and skill , or his personal
connections to compete.

- Where a director exploits after his resignation, a maturing business opportunity of the company, he is
in breach of his fiduciary duty as the opportunity is to be treated as if it were property of the
company.
Case: Island Export Finance v Umunna (1986) BCLC 460

The director had resigned from the company out of dissatisfaction with its progress and he
later received an order from the company’s former customer

Conclude: A director was not in breach if he contacted clients of the company and made
use of his business connections for the new company or for himself after resignation-
although he managed to secure orders for postal caller boxes, there was no assurance that
the company would be given future contracts. The company then ceased to involved in
the business. The director subsequently resigned and secured a contract to supply postal
caller boxes and a travelling post box.
Application

- B-Mazon’s Bhd does not ceased to be involved in the nature of business, then
if the sharing of business contacts happen during Rosa employment as the
director of the company, Rosa may be liable for breach of her fiduciary duty.

- Even Though after Rosa resign from the company, the fiduciary duty do not
automatically cease. It must be proved that during the resignation, the
company was not actively seeking the business at the time she resigned and
exploited the opportunity.
3. Whether Rosa will breach
the duty as a director if she
shares B-Mazon’s strategy to
Adverts Bhd.
 Misuse of Property or information belonging to the
company

- Under the common Section 218. (1) a director of a company shall not, without the
law , breach of duty consent or ratification of a general meeting-
exist if the director
misuse the company’s (a) Use the property of the company
asset (property or
information) belongs (b) Use any information acquired by virtue of his position as a
to the company director or officer of the company

- The common law To gain directly or indirectly, a benefit for himself or any other
principle can be seen person, or cause detriment to the company.
in the Section 218.
(1) (a) & (b) which
provides:
What constitute an information is a company’s confidential
information?

In Faccenda Chicken v Fowler (1987) Ch 17, Such information has been categorized into
three categories;

1. Company’s information that can publicly access- not confidential

2. Information which the director must treat as confidential, if he resign, the said
information become part of his skills and knowledge, then the director is not to be
prevented to use the information for himself. - Confidental, after resign, not
confidential
3. Trade secrets or secrets processes which is co confidential that may never be used for
anyone’s benefit but the master - confidential
Yukilon Manufacturing Sdn Bhd & Anor v Dato’ Wong Gek Meng & Ors (1998) 4 CLJ Supp 319

Yukilon manufacturing sdn bhd was a joint-venture company manufacturing cosmetics sponges. The
shareholders were a japanese company and Dato’ Wong and his family. Unknown to the japanese
shareholder, Dato’ Wang and his brother incorporated another company using the name of Supertex
manufacturing Sdn Bhd to manufacture the similar products produce by Yukilon. They had disclose
confidential information belongs to Yukilon - to enable Supertex to use the information in its
manufacturing process.

Held: The director was liable for breach of duty for, amongst others, misusing Yukilon’s confidential
product information for another company which he incorporated. Yukilon successfully obtained an
order restraining Dato’ Wong and his brother from continuing to manufacture and deal with certain
cosmetics and sponge products which closely resembles Yukilon’s product.
Case: Golden Village Multiplex Pte Ltd v Phoon Chiong Kit (2006) SGHC 38

- The director who acquired information at board meetings and information

given to him as a director of a company cannot use that information to cause
detriment to the company or cannot use it for the interest of other persons.

Conclude:
- Company’s business strategy deemed to be confidential in nature as the matters passed in
the board meeting for maintaining the company’s product improvement.
- Thus, Rosa is breach of her duty as a director in exposing B-Mazon’s Sdn Bhd strategy to
Adverts Bhd given that the information given is a confidential information under the third
category.
Conclusion

Based on the above issues, Rosa should consider all the appropriate measure to enter into
Adverts Bhd as a non-executive director and also her current positions as non-executive
member in B-mazon’s company as to avoid conflict of interest.

Equitable principle: Fiduciary is held up the highest standard of conduct &

can’t benefit from his fiduciary position.