ing facts and events take place in New South Wales. 1. 2. 3. 4. Harvest Lane Foods Pty Ltd (HLF) is a small Sydney company that makes bottled chilli sauces. It has three shareholders, each of whom is a director: Petra, Dev and Marco. Marco is also employed by HLF full-time as its Operations Manager. In March 2024, a national supermarket chain, FreshCo, telephoned Marco at the HLF factory and offered HLF a three-year contract to supply supermarket “own brand” chilli sauce. Marco did not tell Petra or Dev about the call. Instead, he registered a new company, Sauce Lab Pty Ltd, which he owns and controls, and signed the FreshCo contract in Sauce Lab’s name. Sauce Lab has since made a profit of $180,000 from the contract. HLF could not have funded the contract itself without borrowing. At a family barbecue in April, Marco said to Petra, “I’ve got a little something going on the side these days.” Petra laughed and said nothing further. Answer this question: Marco argues that (i) he cannot be liable because HLF could never have afforded the FreshCo contract anyway, and (ii) in any event Petra consented at the barbecue. Advise HLF on the strength of these two arguments. (8 Marks)

This advice will consider the strength of the two arguments raised by Marco in his defence against a potential action by Harvest Lane Foods Pty Ltd (HLF) for breach of duty. As a director of HLF, Marco owes strict fiduciary duties to the company, in addition to statutory duties outlined in the Corporations Act 2001 (Cth).¹ The central issue is that Marco has diverted a corporate opportunity, being the contract with FreshCo, to a separate entity he controls, Sauce Lab Pty Ltd, for his own personal gain. This action is a clear potential breach of his duty to avoid a conflict of interest and his duty not to take a corporate opportunity for himself.² The analysis will assess his two specific defences in turn.

First, Marco argues that he cannot be liable because HLF could not have afforded the FreshCo contract itself. This argument is unlikely to succeed. The fiduciary duty owed by a director not to profit from their position is applied strictly by the courts. The foundational authority of Regal (Hastings) Ltd v Gulliver established that liability arises from the mere fact that a profit was made by a director in circumstances where there was a conflict of interest; it is not dependent on whether the company itself could have taken up the opportunity or whether the company suffered any loss.³ In that case, the directors were held liable to account for profits they made personally, even though the company lacked the funds to acquire all the assets it needed. This principle is firmly established in Australian law.⁴ The opportunity to contract with FreshCo came to Marco solely because of his position as Operations Manager and director of HLF. By taking that opportunity for his own company, Sauce Lab, he placed himself in a position of conflict and made a secret profit. Therefore, his liability to account for the $180,000 profit is not excused by HLF’s inability to fund the contract. The law is concerned with the director’s gain, which was obtained by reason of their fiduciary position, not with the company’s hypothetical capacity.

Second, Marco contends that Petra consented to his actions at the family barbecue. This argument is also extremely weak and is almost certain to fail. For a director’s breach of duty to be waived or ratified, there must be fully informed consent from the company.⁵ This means that the director must make a full and frank disclosure of all material facts relating to the breach to the shareholders, who must then approve the director’s conduct, typically by a resolution at a general meeting.⁶ Marco’s vague comment that he had "a little something going on the side" does not constitute disclosure. It provided no information about the nature of the opportunity, the contract with FreshCo, the establishment of Sauce Lab, or the profits he intended to make. Furthermore, this comment was made informally to only one of the three director-shareholders, Petra. Dev was not informed at all. Petra’s laughter and silence cannot be construed as the company’s informed consent. The standard of disclosure required is high, and Marco has failed to meet it.⁷

In conclusion, neither of Marco’s arguments provides a viable defence to a claim for breach of duty. The law does not permit a director to escape liability for taking a corporate opportunity by arguing that the company was financially unable to pursue it. Similarly, valid consent requires full disclosure to the company’s shareholders, which did not occur here. HLF would have a very strong case against Marco for his breach of fiduciary duties and would likely succeed in a claim for an account of the profits, requiring him to surrender the $180,000 made by Sauce Lab.

<hr> ¹ See, eg, Corporations Act 2001 (Cth) ss 181–3. ² Cook v Deeks [1916] 1 AC 554. ³ Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134, 144–5 (Lord Russell). ⁴ See, eg, Furs Ltd v Tomkies (1936) 54 CLR 583. ⁵ Phoenix Power Recyclers Pty Ltd v Dowling [2021] WASC 269, [489]. ⁶ Queensland Mines Ltd v Hudson (1978) 18 ALR 1. ⁷ Gray v New Augarita Porcupine Mines Ltd [1952] 3 DLR 1, 14.