Kia ora John, congratulations on the imminent submission of your PhD thesis. It’s been a significant undertaking for you whilst also working as a Barrister and teaching the undergraduate Company Law course at Auckland Law School. Can you tell us about your thesis and its focus?

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Thank you. My thesis title is “The Validity of New Zealand Corporate Transactions Undertaken Contrary to the Interests of the Company”. New Zealand law relating to the impact on corporate transactions of a breach of the duty to act in the best interests of the company is complex and not well understood. It involves consideration of aspects of company law, agency law, the law of equity and contract law. 

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What inspired you to choose this topic?

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Section 131 of the Companies Act 1993 (NZ) requires a director of a company to act in good faith, and in what he or she believes is in the best interests of the company. This fundamental duty of directors is well known. 

What is less well known and understood is the nature of the remedial consequences of breach of this duty, and in particular the impact on company contracts entered into as a result of such a breach. 

There is a lack of clarity and consistency in New Zealand law concerning the validity of such contracts. This makes it difficult for parties to commercial transactions to know where they stand.

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Why does this uncertainty in the law exist?

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For a number of reasons – in large part because of the impact on company contracting in New Zealand of different areas of general law (equity and agency law) which developed without the corporate form in mind, and which deal with questions of contractual validity in different ways. 

The lack of clarity and consistency is also in part due to the specific context of the Companies Act 1993, and the reform process leading to it. While the company law reform leading to the passing of the Act was intended to be a wholesale reform of company law, the area of company contracting was largely unchanged from reforms introduced in the mid 1980s as amendments to the Companies Act 1955. 

The directors’ duty to act in the best interests of the company did receive significant scrutiny as part of the law reform process leading to the 1993 Act. A key part of the Law Commission’s suggested reform was to make directors’ duties more accessible by setting those out in the Act. However, the Act does not make clear the remedial consequences of breach of those duties including the impact of breaches on corporate transactions. 

The Law Commission's proposals for reforming directors' duties, outlined in reports from 1989 and 1990, were only partially accepted by the New Zealand Parliament when enacting the Companies Act. That in turn led to some inconsistency of approach within the Act, and an apparent lack of clarity as to Parliament’s intention. 

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What are the key objectives of your thesis?

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The first objective is to set out in one place where the current New Zealand law sits on the approach to validity of contracts entered into in breach of the best interests duty. The thesis seeks to clarify a complex, and sometimes inconsistent, area of the law, taking into account the impact of the law of equity, agency law and New Zealand company law legislation. The aim is to set out in one place a clear analytical framework for the impact on the validity of contracts of a breach of the duty to act in the best interests of the company.

The second objective is to assess whether there is any need for legislative reform to clarify the law, eliminate inconsistencies in the law, make the law more accessible or better achieve policy objectives. To the extent that New Zealand law is not currently accessible, or is in need of clarification or improvement, the thesis will suggest what legislative reform is desirable. This may be particularly timely given that the New Zealand Law Commission is planning a review of the law relating to directors’ duties in 2025.

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Are you suggesting reform of the current legislation? 

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Yes, I intend in my thesis to suggest legislative reform to how the law of agency law impacts on corporate transactions to enhance the security of such transactions. I also propose clarifying in the Companies Act equitable principles relating to when contracts entered into in breach of fiduciary duty can be set aside by a company, or alternatively affirmed and made binding.

The legislative amendments that I propose are intended to assist in advancing the original objective of the Law Commission in making New Zealand company law more accessible, and they are also intended to draw an appropriate balance between policy objectives of encouraging the certainty and security of commercial transactions, and encouraging integrity and honesty in commercial dealings.

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Thank you for your time John, and all the best with the submission.