In this regard, the words of the Court of Appeal in England, which also express the fact that the duty of fiduciary duty is one of the most basic principles in corporate law, are as follows:
"[The fiduciary] is not subject to fiduciary obligations because he is a fiducairy; it is because he is subject to them that he is a fiduciary" (Bristol and West Building Society v. Mothew [1998] Ch. 1, 18).
- Indeed, we see that the historical roots of the duty of loyalty in Israel, as well as outside it, are firmly rooted in the laws of trust, and they serve as the basis for the company's activity (see: Yosef Gross, Companies Law 589 (Expanded Fifth Edition, 2016) (hereinafter: Gross); Ben Zion, pp. 198-199). Over the years, the legislature explicitly adopted the duty of allegiance to Israeli law, first in the framework of section 9627 of the Companies Ordinance [New Version], 5743-1983, and later, in section 254 of the Companies Law, mentioned above.
Content of the Duty of Loyalty
- After these words, I will now address the content of the duty of fiduciary, and in particular – the secondary duties deriving from it. First of all, it should be noted that section 254(a) of the Companies Law establishes the general standard of conduct expected of an officer of a company, according to which "an officer owes a duty of loyalty to the company, shall act in good faith and act in its favor". In other words, in the course of his actions, the officer must take into account only the best interests of the company, and thus he is strictly forbidden to consider his personal best interests (the Pinrose case, at para. 50; the Berdichev case, at para. 37; the Buchbinder case, at pp. 332-333; Grosskopf and Ben Zion, p. 146; Gross, p. 589).
- The level of consideration required for the interest of the company and the negation of self-interest is easier to understand when compared to the level of consideration for the interest of others required in other legal situations. Grosskopf and Ben-Zion expressed this comparison well, as follows:
"The first extreme situation is called arbitrariness, and rare, if any, cases that permit such conduct in modern law [...] The opposite extreme situation is dominated by the duty of trust in common law, which prohibits the decision-maker from taking into account his personal interest and obligates him to act in the interest of others absolutely. Between these two extremes there are different intermediate points. Good faith is a standard that allows for great consideration of self-interest, but requires a minimal degree of consideration for the other. It assumes that the decision-maker is entitled to act to promote his personal interest, but requires him to show a certain degree of consideration for the interests and expectations of the other. Fairness is a stricter standard, which requires significant consideration of others, while demanding a more considerable restriction of self-interest [...]" (ibid., pp. 137-138).