Judgment was given earlier today by the Supreme Court in Glengary Overseas Limited v JKX Oil & Gas Plc; Eclairs Group Limited v JKX Oil & Gas Plc [2015] UKSC 71. A copy of the judgment is available here or here (pdf). A summary is available here (pdf). The judgment was expected earlier this year; indeed, an earlier hand-down date was published on the Supreme Court website. The reasons for the delay are now clear: the court's draft judgment was withdrawn before delivery, following representations from the parties, because it contained discussion of an issue - causation - that had not been the subject of argument during the oral hearing (submissions were, however, provided after the hearing at the invitation of the court). Whilst the panel of judges agreed on the outcome of the appeal - that the proper purpose rule applied to the exercise of a power given to the directors under the articles - there was a reluctance amongst the majority to accept without further argument aspects of Lord Sumption's opinion (with which Lord Hodge agreed) which would result in a reframing of the rule. As Lord Mance observed (para. [53]:
"... although I have sympathy with Lord Sumption’s view that 'but for' causation offers a single, simple test, which it might be possible or even preferable to substitute for references to the principal or primary purpose, I am not persuaded that we can or should safely undertake what all parties consider would be 'a new development' of company law, without having heard argument".Lord Sumption and Lord Hodge had agreed with the majority view in the High Court of Australia decision Whitehouse v Carlton House Pty (1987) 162 CLR 285, in which it was stated (at 294): "As a matter of logic and principle, the preferable view would seem to be that, regardless of whether the impermissible purpose was the dominant one or but one of a number of significantly contributing causes, the allotment will be invalidated if the impermissible purpose was causative in the sense that, but for its presence, 'the power would not have been exercised". Elsewhere in his opinion, and less controversially, Lord Sumption explained the purpose of the proper purpose rule (now found in section 171 of the Companies Act 2006)(para. [37]):
The rule that the fiduciary powers of directors may be exercised only for the purposes for which they were conferred is one of the main means by which equity enforces the proper conduct of directors. It is also fundamental to the constitutional distinction between the respective domains of the board and the shareholders. These considerations are particularly important when the company is in play between competing groups seeking to control or influence its affairs".A video recording of Lord Sumption explaining the court's decision is available below (this does not give an indication of the disagreement noted above):
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