Appointing Nominee Directors And Fettering Of Discretion Of Directors - Jersey Guide

This guide outlines the legal issues related to the appointment of a nominee director, subsequent to nomination pursuant to a shareholders agreement or otherwise, and the extent to which such director may be regarded as subject to the wishes of the nominator in addition to or in the place of his fiduciary duties.

Background

In general, a director may not fetter his discretion by contracting with other directors or with third parties to act in a certain way in the future. In other words, a directors obligation to act in accordance with his fiduciary duties would usually take precedence over any course of conduct he may have previously agreed with codirectors or third parties. However, there are exceptions to the principle referred to above.

The above issues are considered further below.

Duties of directors

The duties of the directors of a company incorporated under the Companies (Jersey) Law 1991 ("Companies Law"), comprise a combination of statutory and common law duties. English case law on directors' duties will carry weight and/or be persuasive in the Jersey courts. For current purposes, the key duties may be summarised as follows.

Statutory duty Article 74(1) of the Companies Law enshrines in statute the general duties of a director to act honestly and in good faith and with due care, diligence and skill. Common law duties A director has a duty to act in what he bona fide considers to be the best interests of the company. He must not act for any collateral purpose. Even if the directors are acting in good faith and in the interests of the company as a whole, the directors must nevertheless use their powers for the purposes for which they were conferred. Duties of nominee

The term nominee is not used in the Companies Law. Although the English law equivalent in the form of the Companies Law 2006 also does not define the term nominee director, in the 1998 consultation paper on directors' duties (CP 153), the Law Commission noted the definition as follows:

"persons who, independently of the method of their appointment, but in relation to their office, are expected to act in accordance with some understanding or arrangement which creates an obligation or mutual expectation of loyalty to some person or persons other than the company as a whole"

An important issue which arises from the above statement and generally is the extent to which a director who is appointed as a nominee director may be subject to a duty to act in accordance with the wishes of his nominator. In Hawkes v Cuddy (2009) EWCA Civ 291 Stanley Burton LJ stated that:

"In my judgement, the fact that a director of a company has been nominated to that office by a shareholder does not, of itself, impose any duty on the director owed to his nominator. The director may owe duties to his nominator if he is an employee or officer of the nominator, or by reason of a formal or informal agreement with his nominator, but such duties do not arise out of his nomination, but out of a separate agreement or office. Such duties cannot however, detract from his duty to the company of which he is a director when he is acting as such.

As the Australian cases to which the judge referred indicate, an appointed director, without being in breach of his duties to the company, may take the interests of...