Aberdeen Railway Co v Blaikie Brothers: HL 1854

The plaintiff needed a large quantity of iron chairs (rail sockets) and contracted for their supply over an 18-month period with Blaikie Bros a partnership. Thomas Blaikie was the managing partner of Blaikie Bros and a director and the chairman of the Aberdeen Railway Company. The contract was partly performed but, having taken delivery of about two-thirds of the iron chairs, the Aberdeen Railway Company refused to accept any more. The defendant sought to enforce the contract or for damages for breach.
Held: The railway company’s defence succeeded on the grounds that Mr Blaikie’s self-dealing rendered the contract voidable at its suit.
The equitable rule as to the accountability of directors is not limited to cases in which there is a maturing business opportunity but extends to cases in which the director either has or can have a personal interest conflicting, or which possibly may conflict, with the interests of whose whom he is bound to protect. ‘This, therefore, brings us to the general question, whether a Director of a Railway Company is or is not precluded from dealing on behalf of the Company with himself, or with a firm in which he is a partner. The Directors are a body to whom is delegated the duty of managing the general affairs of the Company. A corporate body can only act by agents, and it is of course the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principal. And it is a rule of universal application, that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect. So strictly is this principle adhered to, that no question is allowed to be raised as to the fairness or unfairness of a contract so entered into.’
and ‘Mr Blaikie was not only a Director, but (if that was necessary) the Chairman of the Directors. In that character it was his bounden duty to make the best bargains he could for the benefit of the Company. While he filled that character, namely, on the 6th of February, 1846, he entered into a contract on behalf of the Company with his own firm, for the purchase of a large quantity of iron chairs at a certain stipulated price. His duty to the Company imposed on him the obligation of obtaining these chairs at the lowest possible price. His personal interest would lead him in an entirely opposite direction, would induce him to fix the price as high as possible. This is the very evil against which the rule in question is directed, and I here see nothing whatever to prevent its application. I observe that Lord Fullerton seemed to doubt whether the rule would apply where the party whose act or contract is called in question is only one of a body of Directors, not a sole trustee or manager. But, with all deference, this appears to me to make no difference. It was Mr Blaikie’s duty to give his co-Directors, and through them to the Company, the full benefit of all the knowledge and skill which he could bring to bear on the subject. He was bound to assist them in getting the articles contracted for at the cheapest possible rate. As far as related to the advice he should give them, he put his interest in conflict with his duty, and whether he was the sole Director or only one of many, can make no difference in principle. The same observation applies to the fact that he was not the sole person contracting with the Company; he was one of the firm of Blaikie Brothers, with whom the contract was made, and so interested in driving as hard a bargain with the Company as he could induce them to make.’
Lord Cranworth LC
(1854) 1 Macq 461, (1854) 17 D (HL) 20
Scotland
Cited by:
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Lists of cited by and citing cases may be incomplete.
Updated: 16 August 2021; Ref: scu.180412