P was a director of In Plus. However, he had fallen out with his co-director; and had been effectively excluded from the management of the company. While still a director, he set up his own company which entered into contracts on its own behalf with a major customer of In Plus. In so doing, he used no property belonging to In Plus and made use of no confidential information which had come to him as a director of In Plus.
Held: he was not in breach of his fiduciary duties to In Plus, even though he remained a de jure director of it. The two strands of the fundamental rule that obliged fiduciaries to account for personal benefit or gain had two separate themes were labelled the ‘no conflict rule’ and the ‘no profit rule’. They must be considered separately. Sedley LJ: ‘Quite exceptionally, the defendant’s duty to the claimants had been reduced to vanishing point by the acts (explicable and even justifiable though they may have been) of his sole fellow director and fellow shareholder Mr Plank. Accepting as I do that the claimants’ relationship with Constructive was consistent with successful poaching on Mr Pyke’s part, the critical fact is that it was done in a situation in which the dual role which is the necessary predicate of [the claimants’] case is absent. The defendant’s role as a director of the claimants was throughout the relevant period entirely nominal, not in the sense in which a non-executive director’s position might (probably wrongly) be called nominal but in the concrete sense that he was entirely excluded from all decision-making and all participation in the claimant company’s affairs. For all the influence he had, he might as well have resigned.’ and (Brooke LJ) ‘There is no completely rigid rule that a director may not be involved in the business of a company which is in competition with another company of which he was a director.’
Brooke LJ: ‘The governing principles in this type of case are found in what are sometimes called the no conflict rule and the no profit rule. The judgment of Malins V-C in Imperial Mercantile Credit Association (liquidators) v Coleman (1871) 6 Ch App 558 at 563 represents an early statement of the relevant principles. Under the former rule, certain consequences can flow if directors place themselves in a position where their personal interests or duties to other persons are liable to conflict with their duties to the company of which they are directors unless the company gives its informed consent. Under the latter, directors are not permitted to retain secret profits which they make by using information or property or opportunities which belong to their company. Even if their company would not itself have benefited from the opportunity, equity treats the profits which the director, or former director, has made as property which he is under a duty to pay over to the company which he has betrayed by his disloyalty.’
Judges:
Sedley LJ, Brooke LJ, Jonathan Parker LJ
Citations:
[2002] EWCA Civ 147, [2002] 2 BCLC 201
Links:
Jurisdiction:
England and Wales
Citing:
Doubted – London and Mashonaland Exploration Co Ltd v New Mashonaland Exploration Co Ltd 1891
There is nothing inherently objectionable in the position of a company director (and chairman) who, without breaching any express restrictive agreement or disclosing any confidential information, becomes engaged, whether personally or as a director . .
Cited by:
Cited – Ultraframe (UK) Ltd v Fielding and others ChD 27-Jul-2005
The parties had engaged in a bitter 95 day trial in which allegations of forgery, theft, false accounting, blackmail and arson. A company owning patents and other rights had become insolvent, and the real concern was the destination and ownership of . .
Lists of cited by and citing cases may be incomplete.
Company
Updated: 23 June 2022; Ref: scu.216794