5/11/2011 Promoters and fiduciary duties Fiduciary duties imposed on promoters Erlanger v New Sombrero Phosphate Co(1878)3 App Cas 1218 (House of Lords) Lord Cairns:"I do not say that the owner of the property may not promote and form a joint stock company,and then sell his property to it,but I do say that if he does he is bound to take care that he sells it to the company through the medium of a board of directors who can and do exercise an independent and intelligent judgment on the transaction,and who are not left under the belief that the property belongs,not to the promoter,but to some other person..." Lord O'Hagan:"it required,in its exercise,the utmost good faith, the completest truthfulness,and a careful regard to the protection of the future shareholders." Promoters and fiduciary duties Fiduciary duties imposed on promoters Erlanger v New Sombrero Phosphate Co(1878)3 App Cas 1218 (House of Lords) Lord O'Hagan:"In all such cases the directorate nominated by the promoters should stand between them and the public,with such independence and intelligence,that they may be expected to deal fairly,impartially and with adequate knowledge in the affairs submitted to their control." "the promoters in this case failed to remember the exigencies of their fiduciary position,when they appointed directors who were in no way independent of themselves,and who did not sustain the interests of the company with ordinary care and intelligence..." ."such a transaction ought not to be allowed to stand." 10 65/11/2011 5 9 Promoters and fiduciary duties • Fiduciary duties imposed on promoters  Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 (House of Lords) • Lord Cairns: “I do not say that the owner of the property may not promote and form a joint stock company, and then sell his property to it, but I do say that if he does he is bound to take care that he sells it to the company through the medium of a board of directors who can and do exercise an independent and intelligent judgment on the transaction, and who are not left under the belief that the property belongs, not to the promoter, but to some other person…” • Lord O’Hagan: “it required, in its exercise, the utmost good faith, the completest truthfulness, and a careful regard to the protection of the future shareholders.” 10 Promoters and fiduciary duties • Fiduciary duties imposed on promoters  Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 (House of Lords) • Lord O’Hagan: “In all such cases the directorate nominated by the promoters should stand between them and the public, with such independence and intelligence, that they may be expected to deal fairly, impartially and with adequate knowledge in the affairs submitted to their control.” • “the promoters in this case failed to remember the exigencies of their fiduciary position, when they appointed directors who were in no way independent of themselves, and who did not sustain the interests of the company with ordinary care and intelligence…” • “such a transaction ought not to be allowed to stand