UK: England and Wales: directors' duties - loan of machinery from customer gave rise to fiduciary liability

The Court of Appeal gave judgment yesterday in Towers v Premier Waste Management Ltd [2011] EWCA Civ 923 and reaffirmed the strict nature of directors' fiduciary duties. The case concerned the liability of a director (Mr Towers) who received, without the knowledge of the company's board, the loan of machinery from one of the company's customers which he used to renovate buildings belonging to him and his wife.

At first instance ([2010] EWHC 2440 (Ch)), HHJ Roger Kaye QC held that Mr Towers had acted in breach of fiduciary duty and should account to the company for the benefit he had received: he ordered him to pay the company a sum just short of £8,000. On appeal it was argued by Mr Towers that he had not been placed in a position of conflict and that the trial judge had adopted an approach that was "overly technical and strict in the light of recent case law such as Foster Bryant" and had erred in not exercising the discretion provided by section 1157 of the Companies Act (2006) to relieve Mr Towers from liability. A unanimous Court of Appeal rejected these (and other) arguments. Lord Justice Mummery, delivering the leading judgment, stated that Mr Towers had not begun to demonstrate that the trial judge's decision was wrong with regard to his liability for breach of fiduciary duty.

Elsewhere in his judgment, Mummery LJ made some interesting observations with regard to the general duties of directors under the Companies Act (2006). Although the facts before him occurred before these statutory general duties came into force, he nevertheless noted that it would be "unrealistic to ignore the terms in which the general statutory duties have been framed for post-2006 Act cases. They extract and express the essence of the rules and principles which they have replaced" (para. [3]). Mummery LJ referred to three of these statutory duties - section 172 (the duty to promote the success of the company), section 175 (the duty to avoid conflicts of interest) and section 176 (the duty not to accept benefits from third parties) - regarding them as potentially relevant had the facts occurred after these duties came into force. These comments suggest that the statutory duties have not significantly changed the scope or content of the common law and equitable rules on which they are based. Whether this is correct with regard to section 172 has been the subject of debate: see, for example, the discussion in Keay, Andrew R., 'The Duty to Promote the Success of the Company: Is it Fit for Purpose?', August 20, 2010, University of Leeds School of Law, Centre for Business Law and Practice Working Paper.