Question

Until three years ago, Slater was the sole shareholder and director of Lockley Quarries Ltd., a small corporation that owned a quarry and produced trimmed limestone blocks. Then an opportunity arose to purchase a second quarry at a very good price. Slater did not have sufficient funds and persuaded Mason to come into business with him and to help finance the purchase of the new quarry. As a result, Mason became a 40 percent shareholder and a director of Lockley Quarries. Slater and Mason got on well together and the business prospered.

A few months ago, Slater was approached by an old friend, Chalker, who proposed

that they – Chalker and Slater – purchase and operate a gravel pit that had come

onto the market. Slater agreed, and a new corporation was formed to acquire the

gravel pit, with Chalker and Slater as equal shareholders and directors. Mason has learned of the dealings between Slater and Chalker. He considers that he should have been given the opportunity to participate in the new gravel pit venture.

Do you agree? Does Mason have any remedy against Slater?

Answer 1

Yes, only if Chalker agrees with it. Chalker and Slater have equal shares in the new gravel pit venture. So decisions cannot be taken by his own. If Slater succeed in convincing Chalker, then Mason will get an opportunity to participate in the new venture.

Here there is a Conflict of Interest will happened with Slater. A conflict of interest existing when a person must answer to two different individuals or groups whose needs are at odds with each other. In this case, serving one individual or group will injure the other. But in case of Mason, A conflict of interest also arises when a person chooses personal gain over the duties to an organization in which they are a stakeholder or exploits their position for personal gain in some way. As he helped Slater before, he consider that we might get the opportunity to participate in new venture. Here he is exploiting his position as director of Lockely Quarries Ltd for his personal interest in participating the new venture. If the new gravel pit venture is registering under Lockely Quarries then Manson will get a legal right to participate in the new venture also.

Does Mason have any remedy against Slater?

Yes, Mason can stop Slater by the application of fiduciary law of loyalty. The duty of loyalty is often called the cardinal principal of fiduciary relationships, but is particularly strict in the law of trusts. Duty of loyalty in corporation law to describe a fiduciary's "conflicts of interest and requires fiduciaries to put the corporation's interests ahead of their own." It is generally acceptable if a director makes a decision for the corporation that profits both him and the corporation. The duty of loyalty is breached when the director puts his or her interest in front of that of the corporation.

The corporate opportunity doctrine is one application of the fiduciary duty of loyalty. The corporate opportunity doctrine is the legal principle providing that directors, officers, and controlling shareholders of a corporation must not take for themselves any business opportunity that could benefit the corporation. Mason can states that the corporation that he hold the shares of 40 percent could get harmed by the transaction. The corporate opportunity doctrine only applies if the opportunity was not disclosed to the corporation. Here Slater didn't discuss about the new venture rather that he parcipate for his own benefit and become director. This could be the breach of the liability of the direction. Directors of a company may potentially be held liable by the shareholders of the company for breach of their duties in certain circumstances. By stating all these points, Slater will be forced to convince Chalker and Mason will get the opportunity to participate in gravel pit venture.