Bhullar & Ors v Bhullar & Anor

A director’s fiduciary duty to avoid conflicts of interest is not confined to the misuse of company property or to a "maturing business opportunity". The question is whether the director’s personal exploitation of an opportunity creates a real and sensible possibility of conflict with the company’s interests, assessed in the particular circumstances.

A director who receives information about a commercial opportunity relevant to the company must disclose it. It is immaterial that the information was received privately or that the company might not have pursued the opportunity. A director who acquires it personally without disclosure breaches that duty.

The petitioners and the appellants were members and directors of a family company. Following a breakdown in relations, negotiations to divide the company’s business and assets failed. While still directors, the appellants acquired through their own company a property adjoining an investment property owned by the company, without disclosing the opportunity to their co-directors.

On a petition under section 459 of the Companies Act 1985, HHJ Behrens held that the appellants had breached fiduciary duty. He declared that their company held the property on trust for the company, ordered its transfer at the purchase price, and directed an account of profits. The appellants appealed only that relief. The issue was whether their private acquisition created a relevant conflict of interest and required disclosure to the company.

1. Appeal dismissed unanimously. Lord Justice Jonathan Parker held, with whom Lord Justice Brooke and Lord Justice Schiemann agreed, that the appellants had breached their fiduciary duties by acquiring the property through Silvercrest without first disclosing the opportunity to the company.

2. The governing equitable rule was the strict rule against a fiduciary entering an engagement in which personal interest conflicts, or may conflict, with the interests of those protected. It was not necessary that the company should have had a beneficial interest in the opportunity, or that the opportunity should qualify as a "maturing business opportunity". The court applied the flexible, fact-sensitive approach stated in Phipps v Boardman [1966] 3 AER 721, and the formulation in Aberdeen Railway Co v Blaikie (1854) 1 Macq. 461.

3. The necessary qualification was that a reasonable person, considering the actual facts and circumstances, would identify a real and sensible possibility of conflict. The rule did not extend to merely conceivable conflicts. Its strictness nevertheless required application according to the fiduciary relationship and the circumstances.

4. The appellants were continuing directors while the company remained in business. The opportunity to acquire the adjoining property was commercially relevant information which the company needed to know. Its proximity to the company’s existing investment property made it commercially attractive. It did not matter that the opportunity came to the appellants privately, or that the company might not have taken it up. Their non-disclosure and personal acquisition therefore created the requisite possible conflict. The High Court’s declaration, transfer order and direction for an account of profits remained in force.

• Court of Appeal (Civil Division): The appeal was dismissed. Lord Justice Jonathan Parker gave the leading judgment, with which Lord Justice Brooke and Lord Justice Schiemann agreed.

• High Court, Chancery Division, Leeds District Registry: On 8 May 2002, HHJ Behrens held that the appellants had breached fiduciary duty in acquiring the property. He declared that Silvercrest held it on trust for the company, ordered its transfer at the purchase price, and directed an account of profits. No citation for that order is stated in the judgment.