QUESTION:

Property Developments Ltd is an unlisted public building development company. The directors are Julian, Sol and Daniel. They believe that given the continued increase in property prices, now is the time to acquire land for future property development. Gerald who is the uncle of Julian owns some land in the western suburbs of Melbourne. Gerald is under financial pressure from the bank to repay the loan on the block of land and is therefore keen to sell. Julian is aware of this and wants to help him.

The other directors of Property Developments Ltd are keen to buy land. Julian believes it is none of the board's business if the land is bought from Gerald and does not disclose to the other directors his relationship to Gerald. He attends the board meeting and recommends and votes in favour of the company acquiring the land for $850,000 which just happens to be the current market value of the land. This value will allow Gerald to repay his debt to the Bank.

The other two directors agree with Julian's recommendation and ask him to undertake the purchase on behalf of the company. At the board meeting Sol and Daniel do not bother to ask for an independent valuation of the property nor do they worry about how the company will finance the purchase. They have a basic understanding of finance but cannot understand financial stat5ements and leave it to the company's accountants to sort out.

Julian's brother Raphael is the sole owner and director of an architectural practice company.

Property Developments Ltd wants to engage an architectural firm to design plans for their buildings. The company decides to ask various firms to tender for the role.

Julian is in charge of the tender process. He tells Raphael what each architectural firm is going to charge. This allows Raphael to offer the lowest price which the company accepts. Julian does not attend the board meeting or vote on this matter as he was away on holiday at the time. He did not tell the Board that his brother was going to submit a tender.

REQUIRED:

Please advise the company directors of the following:

1. What common law duty and statutory duty if any has Julian breached?

2. What common law or statutory duty have Sol and Daniel breached?

3. If the directors have breached their duties do any of them have a defence and if not what are the consequences for them?

In your answer you are required to refer to relevant legislation and case law