Mills v Mills (1938) 60 CLR 150 High Court of Australia

The Rule of Proper Purpose 

The role of the director is the focus on this context. Specifically, this rule suggests that when a company director carries out actions that are not in line for the benefit of the company is an improper use of one’s power.
This then results in to breach in the said fiduciary duty of the director towards the company.

Case Facts of Mills v Mills (1938)

A resolution was approved by the directors of Charles Miss (Uardy) Ltd (CM Ltd) which increases the managing director’s extent of the voting power. This was increased in order to pass an increase in the dividend received by the ordinary shareholders, including the managing director, in the form of bonuses.

The instance mainly involved the managing director of CM Ltd. With this on hand, the role of the director is being questioned in the passing of the resolution.
In fact, the resolution is questioned by the minority director. The minority director only had triple voting rights which are held by preference shares.

Case Issue:

The issue is that the resolution is being questioned. Specifically, the reliability of the resolution was challenged by the minority director on the reasoning that the passage of the resolution was not a bona fide act for the interest of the enterprise.

Case Decision:

The decision of the court was that the resolution passed by the majority directors was made under bona fide grounds even though it resulted in the benefit of the majority directors. Therefore, if a group of directors carries on decisions that benefit a group of directors it does not immediately equate to infringing their fiduciary duties.

Case Significance:

This case is significant in the aspect that when directors benefit from a decision then the directors had automatically violated their duties towards the company, specifically acting improperly within a purpose.

Read more about it here.