D %26amp; M are brothers commenced business with their friends C, H, G under MP Pty ltd. D %26amp; M are the only directors of AF Pty Ltd. D found properties for sale %26amp; kept proposal for purchase before MP pty ltd's business colleagues. However, D expressed his view that the asking price was a bit high. The proposal was rejected because C, H and G agreed with D that the price was too high. M did not vote for the proposal. Thereafter, D %26amp; M decided to buy the properties for AF Pty. Ltd. The sale was duly carried through at the same price as that which MP had declined to pay. AF Pty.Ltd. has subsequently made $60,000 profit from the resale of the properties. Advise C, H %26amp; G who have just discovered the facts, whether MP Pty.Ltd. has any rights against A F Pty. Ltd., D %26amp; M?
In what way may D %26amp; M have failed to fulfill their obligations to C, H, and G?
If C, H and G are responsible for due diligence on deals brought to the board of MP, they have nobody to blame but themselves for failing to obtain a third-party appraisal of the property, thus their rejection of the proposal to MP could be deemed negligent and they could be sued by the shareholders for the lost profits. Yes, they may have the right to rely upon information brought to them, but look where it got them.
If they only "have just discovered the facts", then they would have to prove D knew of the relevant (additional) facts at the time MP negligently rejected the proposal, and that D breached a fiduciary obligation of utmost care by failing to disclose them. However, D did not vote, thus potentially relieving D of personal liability for the mistake made by MP. AF would then have to prove the damages, and that D%26amp;M (at AF) did nothing unique in making a large profit (i.e., that AF could have had the same profit). Of course, D%26amp;M would countersue the AF board for failing to exercise due care in rejecting the proposal, so they win either way.
gladiolus
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