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Legal analysis by Harneys lawyers

Divided loyalties – the issue of directors’ duties in joint ventures

Publication Date:
30 May 2017

Every company lawyer is taught from an early stage that a director owes their duties to the company, and not to the shareholders or any individual shareholder. This is sometimes referred to as the rule in Percival v Wright [1902] 2 Ch 401. In relation to companies which operate as joint ventures, it is relatively common for the parties to provide for individual shareholders to be able to appoint a director to represent their interests on the board. However, as Lord Denning famously pointed out in Boulting v ACTAT [1963] 2 QB 606, 626, a director nominated by a shareholder still owes their duties first and foremost to the company. That general position was recently confirmed by the Privy Council in Central Bank of Ecuador v Conticorp SA [2015] UKPC 11.

It is well known that BVI company law has been modified to allow the parties, if they so choose, to modify the effect of directors duties such that a director nominated by a particular shareholder may exercise their powers in the best interests of the shareholder first, and the company second (BVI Business Companies Act 2004, section 120(4)). This provision has been deployed in a number of high profile joint venture transactions, as well as a multitude of smaller and less famous ones. What has never been satisfactorily resolved by the courts is the degree to which those potentially conflicting duties must be resolved. It is clear that a director will still owe duties to the company, however, it is not clear to what extent those duties may be suborned when the section is invoked and the interests of the company and one of its shareholders come into conflict.

The role of a director is hemmed in by statutory and fiduciary duties, and people filling that role need to be mindful of a large number of responsibilities when exercising their powers. In relation to joint ventures, it is respectfully suggested that the more flexible and realistic approach to discharging those duties under commercially agreed arrangements is to be preferred over the “forced altruism” of older English common law rules.

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