Guinness plc v Saunders

A director may receive remuneration for services as a director only through the procedure authorised by the company’s articles. A committee or individual officer cannot confer authority which the articles reserve to the full board.

The law will not imply a contractual right to reasonable remuneration where that would circumvent the articles and the fiduciary rule against unauthorised profit. An equitable allowance is unavailable where it would encourage fiduciaries to place personal interests in conflict with their duties. A director paid under an unauthorised arrangement must restore the money, despite good faith and valuable services.

Guinness plc paid Mr Ward, one of its directors, £5.2 million for services connected with its successful bid for The Distillers Company plc. He alleged that a three-director committee had agreed a contingent fee equal to 0.2 per cent of the bid’s ultimate value. The full board had not authorised the payment.

The Vice-Chancellor entered judgment for Guinness on admissions. The Court of Appeal, Fox and Glidewell LJJ and Sir Frederick Lawton, affirmed that decision in [1988] 1 W.L.R. 863. Mr Ward appealed, relying on the committee’s authority, professional remuneration, quantum meruit, an equitable allowance and statutory relief. The central issue was whether any of those grounds supplied an arguable defence to immediate repayment.

1. Appeal dismissed unanimously. Lord Templeman delivered the principal speech. Lord Keith and Lord Brandon agreed with it; Lord Griffiths agreed with both Lord Templeman and Lord Goff. Mr Ward had no arguable defence and was required to restore the £5.2 million to Guinness.
2. Per Lord Templeman, article 91 reserved to the full board the power to grant special remuneration to a director. Its subject and context excluded the extended definition of “the board” in article 2. Article 110 did not permit delegation of this reserved power. The bid committee and Mr Saunders therefore lacked authority to agree the fee. The purported agreement was not merely voidable: no contract binding Guinness had come into existence.
3. Per Lord Templeman and Lord Goff, article 100(D) concerned services performed in a professional capacity. Mr Ward’s pleaded activities were services rendered as a non-executive director and committee member. His negotiating skill, although acquired through practice as an American attorney, did not establish that he acted professionally as an attorney or business consultant in the English takeover.
4. Per Lord Templeman, the fiduciary rule against unauthorised profit prevented both an implied contract for reasonable remuneration and circumvention of the articles through quantum meruit. Fairness, good faith and the value of the services did not remove the conflict. The court could not exercise a power which the articles entrusted to the board.
5. Per Lord Goff, an equitable allowance may exceptionally be compatible with the no-profit rule where it compensates work producing a benefit without encouraging fiduciaries to place interest in conflict with duty. Whether that jurisdiction can ever remunerate a company director was reserved. It could not assist Mr Ward because his contingent fee depended upon both the success and size of the bid, creating a stark conflict with his duty to give impartial advice. Lord Templeman likewise held that the circumstances could not justify an allowance.
6. Per Lord Goff, section 317 of the Companies Act 1985 did not itself invalidate a contract. Nondisclosure could make an existing contract voidable under the general law, in which event rescission ordinarily required practical restoration of the parties. That analysis could not assist Mr Ward because the committee lacked authority and no binding contract existed.
7. Per Lord Templeman and Lord Goff, section 727 of the Companies Act 1985 could not relieve Mr Ward from the obligation to return money received without contractual entitlement. Such relief would effectively award remuneration contrary to the articles and fiduciary principles.

1. House of Lords: The appeal was dismissed unanimously and the order of the Court of Appeal was affirmed, with costs.
2. Court of Appeal: Fox and Glidewell LJJ and Sir Frederick Lawton affirmed the Vice-Chancellor’s order: [1988] 1 W.L.R. 863.
3. High Court: The Vice-Chancellor, Sir Nicolas Browne-Wilkinson, ordered immediate repayment of £5.2 million to Guinness on admissions.