Credit limit increase + fiduciary duties

INTERESTING CASE: Does a business development manager employee owe a fiduciary duty to his employer when he gives a customer a very large credit limit increase (without authorisation)?

Not on these facts, according to the Queensland Court of Appeal. Case is: Metal Manufactures Limited v Johnston & Anor [2020] QCA 42


Very fact heavy, but bear with me:

  • major wholesaler of electrical products (call them ‘M‘)
  • store manager that is employed, and later sued, by M (call them ‘F‘).
  • GMJ, who is the customer, and J, who is the director of GMJ
  • F grants GMJ a $250,000 limit on its trade credit limit to M, at the insistence of J
  • GMJ enters liquidation, owing M about $250k
  • M sues F and J for breach of fiduciary duties and breach of s182(1) of the Corporations Act

Court ruled that J could not be liable, if F wasn’t liable.

The following points went in F’s favour: F was not a senior employee and had a modest wage … F had no special position of trust or confidence from M … F did not obtain, nor sought to obtain, a bribe or benefit for himself … F believed (naively) GMJ would pay the debt … no pleadings by M that F’s motive was increasing sales for his store, or to increase his bonus.

The following points went against F: F deliberately increased the limit … F withheld information from M and its auditors … F was naïve but not dishonest in the sense of impropriety.

Ultimately, F and J were not held liable.

I can’t think of another case like this in the credit management world, but would love to hear your thoughts in the comments.

#SVVoidables #SVVoidables100 #creditmanagement

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