Bhullar & Ors v Bhullar & Ors

There is no single, clear test determining when a corporate opportunity must be treated as belonging to a company. The strict fiduciary rule against placing duty and interest in conflict may apply where an opportunity is closely connected with the company’s business, even if the directors discovered it privately and the company was not actively pursuing the acquisition. Relevant factors include the opportunity’s relationship to the company’s activities, its uniqueness or proximity to company property, the possibility of future conflict, the source of the information, and any use of company resources. Whether the rule should be confined in an owner-managed private company, particularly where the opportunity lies outside its existing line of business, was an arguable issue warranting permission to appeal.

The proceedings arose from a petition under section 459 of the Companies Act 1985 concerning the affairs of a family-owned company. The High Court declared that a property acquired through a company owned by two respondent directors was held on trust for the company and granted consequential relief, including an account of profits.

The directors sought permission to appeal, contending that the opportunity was discovered privately, was outside the company’s existing business, was openly marketed, and involved no use of company property or funds. The central issue was whether a business opportunity must fall within the company’s existing line of business, or be a maturing opportunity discovered in the course of management, before fiduciary accountability arises.

Permission to appeal granted. A stay was ordered in respect of the transfer and account of profits, with liberty to the respondents to apply to discharge the stay within 21 days of receiving notice of the order.

1. The application concerned the High Court’s conclusion that the directors had breached fiduciary duty by acquiring Whitehall Mill through their wholly owned company. The High Court had found a reasonable possibility of conflict between the company’s interests and those of the directors, applying the principle discussed in Phipps v Boardman [1996] 3 All ER 721.
2. Lady Justice Arden observed that the fiduciary rule is strict. A fiduciary must not place himself in a position where duty and interest conflict. The category of business opportunities treated as held for the company is not closed.
3. There was no clear test governing the circumstances in which directors are accountable for an opportunity. Relevant considerations included the site’s uniqueness and contiguity to company property, its relationship with the company’s business, possible future conflicts concerning the company’s tenant, the private source of the information, the absence of active acquisition plans, and whether company resources had been used.
4. The authorities illustrated differing circumstances. Island Export v Umuna [1986] BCLC 460 concerned an opportunity that was not maturing when the director left, whereas Industrial Development Consultants v Cooley [1972] 1 WLR 443 involved resignation to exploit an opportunity learned of as a director. The speeches in Regal (Hastings) v Gulliver [1967] 2 AC 134 supported the strict fiduciary principle, while leaving open the precise scope of the business-opportunity doctrine.
5. Although the court was not hearing the appeal and had not received full argument, there was a real prospect that the Court of Appeal might consider the rule unnecessarily strict for an owner-managed private company where information was obtained privately and without use of company property. That unresolved issue was suitable for consideration on appeal.

• Court of Appeal (Civil Division): On a renewed application, permission to appeal was granted against the order of His Honour Judge Behrens dated 8 May 2002.
• High Court, Chancery Division: The judge declared that Silvercrest Trading (GB) Ltd held Whitehall Mill on trust for Bhullar Brothers Ltd and granted consequential relief, including an account of profits.