Employment Update July 2009: Fiduciary duties

23 July 2009

Employment Group

Obligation was on chief executive to show expenses properly claimed

In Environmental Recycling Technologies v Daley, the Court of Appeal has recently considered the responsibilities of a company chief executive officer when dealing with company money.

The CEO had been the man ‘on the ground’ in an overseas branch of the company. It was decided to close that branch down and he had the responsibility for doing that, the last step being the sale of the company property. When this was successfully achieved and $270,000 received, he kept that sum for himself, sending the company a reconciliation statement to show that it represented repayment of monies he had paid out personally on the company’s behalf.

The employer claimed the money back. It alleged the CEO had spent the money without authority.

In this case, having heard evidence from the CEO, the Court of Appeal disagreed and allowed him to keep the money.

However, the court accepted that, because the CEO was in a fiduciary position as a very senior employee, the burden of proof was on him to show that the expenses had been properly incurred on the company’s behalf rather than, as would normally be the case, for the claimant (employer) to show on the balance of probabilities that the expenses had been improperly incurred.
Points to note –

  • Senior employees’ obligations to their employer are not just those set out in the service agreement. They are under an unwritten fiduciary duty to act in their employer’s best interests at all times and, if it ever becomes an issue between them and their employer, it will be for them to prove that they have done so.

  • The duty can apply to senior managers, not just company directors. Company directors will be bound by the seven statutory duties now set out in the Companies Act 2006. All company directors should be aware of these obligations. They will have to compensate the company for any loss suffered as a result of a breach on their part. They should take advice if unsure as to their position.