Brunninghausen v Glavanics

The New South Wales Court of Appeal considered a dispute between shareholders of a company, Brunninghausen (the appellant) and Glavanics (the respondent). The core of the disagreement concerned the appellant's conduct in purchasing the respondent's shares in the company. The respondent alleged that the appellant, as the sole effective director of the company, owed him a fiduciary duty in relation to this transaction.

The primary legal issues before the Court were whether the rule established in *Percival v Wright* applied in this context, and more broadly, whether a director, who was also the sole effective director and a shareholder, owed a fiduciary duty to another shareholder when purchasing that shareholder's shares. The Court had to determine the scope of directors' duties, particularly in circumstances where a director is also a party to a transaction with a fellow shareholder.

The Court of Appeal held that the rule in *Percival v Wright*, which generally states that directors do not owe fiduciary duties to individual shareholders in their capacity as shareholders, was not applicable in the specific circumstances of this case. The Court reasoned that the appellant's position as the sole effective director, combined with his personal interest in acquiring the respondent's shares, created a situation where he owed a fiduciary duty to the respondent. This duty arose from the special relationship of trust and confidence that existed between them, particularly given the appellant's control over the company's affairs and his knowledge of its true value, which was not readily available to the respondent. The Court found that the appellant had breached this duty by failing to disclose material information to the respondent before purchasing his shares.

The Court of Appeal made orders allowing the appeal and remitting the matter to the Supreme Court for further consideration of the appropriate remedy.