Regal (Hastings) Ltd v Gulliver: HL 20 Feb 1942

Directors Liability for Actions Ouside the Company

Regal negotiated for the purchase of two cinemas in Hastings. There were five directors on the board, including Mr Gulliver, the chairman. Regal incorporated a subsidiary, Hastings Amalgamated Cinemas Ltd, with a share capital of 5,000 pounds. There were six directors on its board, who included the five directors of Regal. Regal was only prepared to subscribe 2,000 pounds. It was agreed that each of the directors of Amalgamated would themselves subscribe for 500 shares each, with the exception of Mr Gulliver. He said that he would find investors. He did so, and as a result 200 shares in Amalgamated were allotted to a Swiss company called Seguliva; 200 to a company called South Downs Land Co Ltd and 100 to a Miss Geering. Mr Gulliver himself held 85 out of 500 shares in Seguliva and 100 out of 1,000 shares in South Downs Land Co. He was a director of Seguliva and the managing director of South Downs Land Co, and signed the subscription cheques on their behalf. Miss Geering was a friend of his. The shares in Amalgamated were subsequently sold at a profit; and the court was asked whether the directors were liable to account to Regal for their profit.
Held: Directors are liable to account for activities outside the company if (i) what the directors did was so related to the affairs of the company that it can properly be said to have been done in the course of their management and in utilisation of their opportunities and special knowledge as directors and (ii) what they did resulted in profit for themselves.
Viscount Sankey said: ‘In my view, the respondents were in a fiduciary position and their liability to account does not depend upon proof of mala fides. The general rule of equity is that no one who has duties of a fiduciary nature to perform is allowed to enter into engagements in which he has or can have a personal interest conflicting with the interests of those whom he is bound to protect. If he holds any property so acquired as trustee, he is bound to account for it his cestui que trust.’
Lord Russel of the Killowen said: ‘The rule of equity which insists on those, who by use of a fiduciary position make profit, being liable to account for the profit, in no way depends on fraud, or absence of bona fides; or upon such questions or considerations as whether profit would or would otherwise have gone to the plaintiff, or whether the profiteer was under a duty to obtain the source of the profit for the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made. The profiteer, however honest and well-intentioned, cannot escape the risk of being called upon to account.’
Lord Wright said: ‘That question can be briefly stated to be whether an agent, a director, a trustee or other person in an analogous fiduciary position, when a demand is made upon him by the person to whom he stands in the fiduciary relationship to account for profits acquired by him by reason of his fiduciary position, and by reason of the opportunity and the knowledge, or either, resulting from it, is entitled to defeat the claim upon any ground save that he made profits with the knowledge and assent of the other person. The most usual and typical case of this nature is that of principal and agent. The rule in such cases is compendiously expressed to be that an agent must account for net profits secretly (that is, without the knowledge of his principal) acquired by him in the course of his agency. The authorities show how manifold and various are the applications of the rule. It does not depend on fraud or corruption.’

Lord MacMillan, Lord Russell of Killowen, Viscount Sankey Lord Wright, Lord Porter
[1967] 2 AC 134, [1942] UKHL 1, [1942] 1 All ER 378
England and Wales
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Lists of cited by and citing cases may be incomplete.

Company, Equity

Leading Case

Updated: 02 November 2021; Ref: scu.180409