Regal (Hastings) Ltd v Gulliver

A fiduciary who obtains a personal profit by reason of, or in the course of, the fiduciary position must account to the principal. Liability is strict. It does not depend on fraud, bad faith, loss to the principal, a duty to acquire the opportunity for the principal, or the principal’s ability to do so.

Company directors fall within the rule when the opportunity and knowledge arise from their office. Good faith and benefit to the company do not excuse the profit. The fiduciary may protect the transaction by obtaining fully informed assent from the principal or, for directors, the shareholders in general meeting. A person who neither acquired the relevant property beneficially nor received the profit has nothing to account for.

Regal (Hastings) Ltd v Gulliver concerned profits made when shares in a cinema-operating subsidiary were acquired by Regal’s directors, its solicitor and other subscribers, and sold shortly afterwards at a substantial profit. A new board caused Regal to seek recovery of those profits from five former directors and the former solicitor.

Wrottesley J entered judgment for all the defendants. The Court of Appeal dismissed Regal’s appeal, treating the directors’ good faith, the company’s inability to subscribe for all the shares and the absence of loss or fraud as decisive. Regal appealed by special leave.

The central question was whether a fiduciary must account for a profit obtained through the fiduciary office even where the transaction was honest, benefited the company and involved an opportunity which the company could not itself take.

1. Disposition. The House unanimously allowed the appeal against Bobby, Griffiths, Bassett and Bentley, but dismissed it against Gulliver and Garton. Lord Russell of Killowen delivered the leading speech. Lord Macmillan wholly agreed with it, Lord Wright agreed with it completely, Lord Porter concurred in its reasoning and conclusions, and Viscount Sankey reached the same result.

2. Strict liability for fiduciary profit. Per Lord Russell of Killowen, a fiduciary who makes a profit by reason and in the course of the fiduciary relationship must account for it. Liability does not depend on fraud, bad faith, breach of a duty to obtain the opportunity for the principal, loss to the principal, or the principal’s ability to acquire the relevant property. The principles illustrated by Keech v Sandford (1726) Sel. Ch. Cas. 61 and Ex parte James (1802) 8 Ves. jun. 337 applied in full force.

3. Application to the four directors. Lord Macmillan expressed the operative inquiry as whether the conduct occurred in the course of management through the opportunities or special knowledge of office, and whether it produced a personal profit. The four directors acquired the shares only because of their office and while executing it. They therefore had to account, although they acted honestly and Regal could not itself provide the remaining capital.

4. Consent and personal receipt. Per Lord Russell of Killowen, agreed by the other Law Lords, the directors could have protected themselves by obtaining shareholder approval in general meeting. Garton was not liable because he subscribed at Regal’s express request and with its knowledge and consent. Gulliver was not liable because the evidence established that the shares belonged beneficially to other subscribers, the sale proceeds went to them and he made no personal profit. There was no evidence of an indirect profit warranting an inquiry.

5. Orders. Judgment was entered against each of the four liable directors for £1,402 1s. 8d., with interest at four per cent on the specified portions and dates. They were ordered to pay three-quarters of Regal’s taxed trial costs and its full costs in the Court of Appeal and House of Lords. The appeals concerning Gulliver and Garton were dismissed with costs.

• House of Lords: In Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134, also reported as [1942] UKHL 1, the House unanimously allowed Regal’s appeal against four directors and dismissed it against Gulliver and Garton.

• Court of Appeal: On 15 February 1941, the court dismissed Regal’s appeal from Wrottesley J. The House reversed that decision only as against the four directors who personally profited.

• High Court: On 30 August 1940, Wrottesley J entered judgment for all defendants. The House left that judgment standing for Gulliver and Garton but reversed it for Bobby, Griffiths, Bassett and Bentley.