Monday 24 June 2024
Dear Subscriber,
I hope you had a great weekend. Please see below for the question, the answer to the previous question and associated resources. This is the web version of this newsletter.
Question: InnovateTech Ltd. is a rapidly growing technology company with three directors: Alice, Bob, and Charlie. Recently, Alice discovered a promising new technology during a business trip that could significantly benefit InnovateTech Ltd. Instead of informing the board, Alice decided to invest in the technology through her own private company, TechVentures Ltd., without disclosing her interest to InnovateTech Ltd. Meanwhile, Bob, as the finance director, has been approving large expenditures without seeking board approval, claiming that the expenses were necessary for urgent projects. Charlie, the third director, is unaware of both Alice’s and Bob’s actions. Subsequently, InnovateTech Ltd. faces financial difficulties due to Bob’s unapproved expenditures and misses out on the new technology opportunity because Alice’s private company secured the investment. Charlie, upon discovering these issues, seeks to initiate legal action. Which of the following best describes legal tools to protest the behaviour of Alice and Bob?
1. Alice has breached her duty to avoid conflicts of interest and her duty to act within powers, while Bob has breached his duty to exercise reasonable care, skill, and diligence.
2. Alice has breached her duty to promote the success of the company and her duty to exercise independent judgment, while Bob has breached his duty to avoid conflicts of interest.
3. Alice has breached her duty to avoid conflicts of interest and her duty to disclose any interest in a proposed transaction or arrangement, while Bob has breached his duty to act within powers and his duty to exercise reasonable care, skill, and diligence.
4. Alice has breached her duty to exercise reasonable care, skill, and diligence and her duty to act within powers, while Bob has breached his duty to promote the success of the company.
5. Alice has breached her duty to avoid conflicts of interest and her duty to promote the success of the company, while Bob has breached his duty to exercise independent judgment.
Live Session: Join me for a live session this Wednesday 26th of June at 12.30 to discuss exam stress and wellbeing. This is a session dedicated to those in our community sitting SQE1 in July, but everyone is welcome. Click here for access.
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Answer and feedback to last week’s question: Mary is an elderly woman who recently inherited a significant amount of money. Her nephew, John, who has been helping her manage her finances, persuades her to transfer a large portion of her inheritance to him, claiming he will invest it wisely on her behalf. Mary, trusting John completely and feeling pressured by his insistence, agrees and transfers the money. Later, Mary learns that John has used the money for his personal expenses and not for investments as promised. Mary feels that she was tricked by John and wants to take legal action to recover her money. Which of the following elements must Mary prove to successfully reclaim the funds in this scenario?
1. That John made a fraudulent misrepresentation about the investments
2. That Mary lacked mental capacity to make the financial decision
3. That there was a relationship of trust and confidence between Mary and John, and that John exploited this relationship to Mary’s detriment
4. That Mary was physically coerced by John to transfer the money
5. That Mary received no consideration for the money transferred to John
Correct Answer: 3. That there was a relationship of trust and confidence between Mary and John, and that John exploited this relationship to Mary’s detriment. Feedback: In cases of undue influence, it must be shown that there was a relationship of trust and confidence between the parties, and that one party exploited this relationship to the detriment of the other. In this scenario, Mary trusted John to manage her finances, creating a fiduciary relationship. John exploited this trust to persuade Mary to transfer her inheritance, which he then used for his personal expenses. This exploitation of the trust and confidence Mary placed in John constitutes undue influence. The other options are not directly relevant to a claim of undue influence: fraudulent misrepresentation involves false statements to induce someone into a contract, lacking mental capacity involves the inability to understand the nature of the transaction, physical coercion involves the use of force or threats, and lack of consideration refers to the absence of mutual exchange in a contract. Therefore, the key element Mary needs to prove is the relationship of trust and confidence and John’s exploitation of it.
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All the best
Dr Ioannis Glinavos
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