UK: England and Wales: resignation and the director's continuing duty to avoid conflicts of interest

Sitting as a Deputy Judge of the High Court, Mr Ashley Greenbank delivered judgment today in Burnell v Trans-Tag Ltd [2021] EWHC 1457 (Ch). The decision, while first instance, is nevertheless important because of the discussion it contains of section 170(2)(a) of the Companies Act 2006, which provides that a person ceasing to be a director continues to be subject to the duty in section 175 to avoid conflicts of interest as regards "the exploitation of any property, information or opportunity of which he became aware at a time when he was a director".

Deputy Judge Greenbank stated (at paras [411] and [412]):

... the extended duty imposed by s170(2)(a) is a continuing duty and ... it must therefore be possible for a breach of that continuing duty to be founded on acts which take place after a director has resigned his or her directorship. It follows that, following the introduction of the general duties by CA 2006, it cannot be an absolute requirement for a breach of the extended duty that a director's resignation must have been prompted or influenced by his or her wish to acquire a business opportunity of the company.

Such a conclusion is of course contrary to the reasoning in some of the cases which discuss the common law rules and equitable principles on which the general duty in s175 is based, in particular, that of Rix LJ in Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200 and Cockerill J in Recovery Partners GP Ltd v Rukhadze [2018] EWHC 2918 (Comm) ... However, the courts did not have to address in Foster Bryant or Recovery Partners the question of the interaction of the existing case law principles with the statutory code. My conclusion also, in theory, risks creating circumstances in which duties are extended beyond the scope of the duties imposed by common law rules and equitable principles on which the general duty is based and imposing liabilities for breach in cases where liability might not arise based on those principles. However, it is, in my view, an inevitable result of the codification.".

Australia: independent contractors and fiduciary duties

The Federal Court gave judgment earlier this month in SBA Music Pty Ltd v Hall (No 3) [2015] FCA 1079. The case provides a good illustration of the circumstances in which an independent contractor, with significant management responsibilities, can be subject to statutory and fiduciary duties. The trial judge, Justice Wigney, observed: "Where reliance is placed on an independent contractor in relation to tasks of special responsibility critical to the financial and reputational well-being of the enterprise, such reliance and the trust that it involves may cause the contractor to owe fiduciary duties" (para. [14]).

UK: Scotland: section 1157 of the Companies Act 2006

Section 1157 of the Companies Act 2006 provides the court with the power to grant a director relief where the director has breached a duty but it appears to the court that he has acted honestly and reasonably and that, having regard to all in the circumstances, he ought fairly to be excused. The application of section 1157 was considered in an opinion delivered earlier today in the Court of Session (Outer House) by Lord Woolman: McGivney Construction Ltd v Kaminski [2015] CSOH 107. Referring to several Scottish and English authorities, including Towers v Premier Waste Management Ltd [2011] EWCA Civ 923, a director's claim for relief under section 1157 was refused because he had acted dishonestly.

UK: Scotland: fiduciary duties and the non-executive director

The Court of Session (Inner House) has considered the scope of a non-executive director's fiduciary duties in Commonwealth Oil and Gas Co. Ltd. v Baxter [2009] CSIH 75. This is an important decision because there are few recent cases considering non-executive directors' duties. Their Lordships held that the non-executive director owed the same duties to the company as its executive directors. The decision will be of interest in England and other jurisdictions, not least because their Lordships discussed a broader conceptual question: are fiduciary duties proscriptive or prescriptive?

UK: England and Wales: reasserting the strictness of directors' fiduciary duties

The Court of Appeal has given judgment today in O'Donnell v Shanahan & Anor [2009] EWCA Civ 751, one of the most important recent decisions concerning directors' fiduciary duties. The case concerned a petition under Section 459 of the Companies Act (1985) - now Section 994 of the Companies Act (2006) - in which it was alleged that breaches of fiduciary duty were unfairly prejudicial under Section 459. The company's business was the provision of financial and business advice and assistance. Two of its directors bought an investment property of which they became aware whilst acting as directors. They did this through another company in which they together held half the shares. 

At first instance - see [2008] EWHC 1873 (Ch) - the judge held that the acquisition of properties for investment was not within the scope of the company's business and that, as such, the directors did not breach the fiduciary no-conflict rule where such properties were acquired. There was, the trial judge observed, no real sensible possibility of conflict (para. [208]). Moreover, the trial judge held that notwithstanding that the opportunity came to the directors' attention in their capacity as directors of the company, because it was outside of the scope of the company's business their exploitation of the opportunity did not breach the no-profit rule.

A unanimous Court of Appeal has disagreed with the trial judge's findings. Rimer LJ, delivering the only reasoned opinion (with which Waller and Aikens LJJ agreed) held that the directors had breached the no-profit and no-conflict rules and, in a judgment stressing the strictness of directors' fiduciary duties, his Lordship observed (para. [55]):

The authorities relating to trustees' and directors' duties to account for profit earned in consequence of a breach of the 'no profit' rule are legion, they all appear to me to point to the same conclusion and none appears to qualify the liability to account by reference to whether the impugned transaction was (in the case of an alleged breach by a director) within or without the scope of the company's business ... the rationale of the 'no conflict' and 'no profit' rules is to underpin the fiduciary's duty of undivided loyalty to his beneficiary. If an opportunity comes to him in his capacity as a fiduciary, his principal is entitled to know about it. The director cannot be left to make the decision as to whether he is allowed to help himself to its benefit".

Update (24 July 2009): Some comment to follow in the next few days. Meanwhile, a summary of the decision has been provided here by the ICLR as part of its WLR(D) service.