In the realm of equity and commercial law, a conflict of interest is not merely a lapse in judgment but a fundamental breach of fiduciary ties. Legally defined as an abbreviation for “conflict of interest and duty,” the rule dictates that a fiduciary may not, without the informed consent of their principal, place themselves in a position where personal interests may sway them from the proper performance of their undertakings. As famously noted in Morton H Meinhard v. Walter J Salmon et al [1928] 249 NY 458, 464, a fiduciary is held to a standard “stricter than the morals of the market place”—a “punctilio of an honour the most sensitive”.
The Universal Conflict Rule
The “conflict rule” is a strict principle of universal application. It operates as an inflexible rule of equity, which prohibits a fiduciary from entering into engagements where personal interests conflict, or potentially conflict, with the interests of those they are bound to protect. Crucially, the rule applies regardless of whether the resulting transaction was objectively fair or if the principal suffered any actual loss; the mere existence of the unauthorized conflict is sufficient to establish a breach.
The primary obligation to resolve such conflicts lies in full and frank disclosure. A fiduciary must disclose their personal interest as soon as a possible conflict arises, allowing the principal to provide informed consent.
Directors and the Corporate Veil
Directors stand in a fiduciary relationship with their companies and are bound to act with loyalty, integrity, and good faith. This duty is codified under Section 213 of the Companies Act 2016, which requires directors to exercise powers for a proper purpose and avoid situations where personal interests clash with their duties.
In Wong Poh Wah & Anor v. Sea Tackle Sdn Bhd [2025] MLRAU 258, the Court of Appeal affirmed that directors who operated a separate business (a Japanese restaurant) and frequently entertained company clients there, while also awarding contracts to the restaurant’s co-owner, acted in actual and operative conflict of interest. Similarly, in Lim Key Min v. Syarikat Tung Shin Sdn Bhd & Ors [2025] MLRHU 2739, a director’s unilateral decision to appoint and fix salaries for family members—classified as “connected persons” under Section 197 of the Companies Act 2016—was held to be a blatant breach of fiduciary duty.
Furthermore, the non-disclosure of a prior working relationship or friendship with a vendor can be a critical breach. In Dagang Nexchange Berhad & Ors v. Mohd Ismail Khan Wazir Khan [2026] 1 MLRH 123, a CEO was found liable for failing to disclose his friendship with a vendor’s majority shareholder, a relationship that gave him the power to influence the outcome of an acquisition to the company’s detriment.
The Legal Profession: Serving Two Masters
The duty to avoid conflicts is perhaps nowhere more strictly enforced than in the legal profession. A solicitor owes an absolute duty to their client not to act for another party in a situation where there is a potential conflict. As articulated in Prince Jefri Bolkiah v. KPMG (A Firm) [1999] 2 AC 222, a fiduciary cannot act “at the same time both for and against the same client,” and their firm is in no better position.
In Ng Siew Lan v. John Lee Tsun Vui & Anor [2017] 2 MLRA 173, a solicitor was found to have acted in a conflict of interest by representing a client in a land transaction while simultaneously acting for another company also interested in buying that same land. The court held that by serving “two masters” without disclosure, the solicitors breached their duty to act in good faith.
However, the law distinguishes between active suits and terminated relationships. While a continuing duty exists to preserve confidentiality, the broader fiduciary relationship generally ends with the termination of the retainer. As noted in Low Tiong Saw v. Low Teong Hwa [2025] MLRHU 1818, there is no general prohibition against a solicitor acting against a party in a prior proceeding and then representing that same party in an unrelated matter later, provided no confidential information is misused.
Insolvency and Public Policy
In the context of winding up and receivership, the standard of independence is equally high. A liquidator or receiver must not only be independent but must be seen to be independent. The principle of nemo judex in re sua—that no one should be a judge in their own cause—demands that a decision-maker recuse themselves if a conflict arises.
In Victor Saw Seng Kee v. Wong Weng Foo & Co & Anor [2026] 1 MLRA 550, the court addressed whether a non-conflicted joint liquidator could act independently when their counterpart was personally conflicted. The court concluded that to promote fairness and maintain public trust, the conflicted party must step aside, allowing the non-conflicted officer to perform the necessary functions of the office.
Conclusion
The law of conflict of interest serves as the “watchdog” of fiduciary relationships, ensuring that those in positions of trust do not prioritize their own interests over their duties to their principals.
Disclaimer: This post is for informational purposes only and does not constitute legal advice. Please consult a qualified Advocate & Solicitor for your specific legal needs.
