Dilmun & Anor v Sutton & Anor

A fiduciary who obtains a business opportunity through his fiduciary position must disclose it fully and frankly and obtain fully informed consent before taking it personally. The duty applies even where the principal could not have taken the opportunity, or would not in fact have wished to do so. A fiduciary cannot rely on a general permission to hold outside interests as authority to appropriate opportunities creating a conflict. A third-party company may be liable to account where the fiduciary’s knowledge is attributable to it and it is unconscionable for the company to retain the benefit.

Crown Dilmun and Dilmun Investments claimed against Nicholas Sutton, their former director and employee, and Fulham River Projects Limited. They alleged that Sutton diverted to Fulham River Projects a valuable opportunity to acquire and develop Craven Cottage Football Stadium. Sutton had participated in the transaction through the company while failing to disclose it to the claimants. The claimants sought damages, an account of profits and proprietary relief.

The issues included whether Sutton had authority to take the opportunity, whether he had breached fiduciary and contractual duties, whether knowledge and dishonesty were attributable to Fulham River Projects, and whether that company was liable as a knowing recipient or dishonest accessory.

1. Sutton’s liability. Sutton owed fiduciary duties to the claimants. An opportunity arising through his directorship had to be exploited for their benefit unless, after full and frank disclosure, they gave full and informed consent to his taking it. The evidence did not establish any agreement permitting retrospective disclosure or allowing Sutton to decide unilaterally whether the claimants would be interested.
2. The claimants’ ability to finance or acquire the opportunity was immaterial to the duty to account. The principles in IDC v Cooley and Boardman v Phipps applied. Sutton had acted dishonestly by concealing the opportunity and was liable for breach of fiduciary duty.
3. The contractual permissions concerning Sutton’s personal holdings did not amount to a general waiver of fiduciary duties. They concerned disclosed holdings and required prior approval. Consent obtained through misrepresentation could not be fully informed.
4. Fulham River Projects’ liability. Knowledge of Ms Hamilton, who was its sole director, was attributable to the company. Applying the pragmatic approach in El Ajou v Dollar Land Holdings Plc and Meridian Global Funds Management Asia Ltd v Securities Commission, Sutton’s substantial role in procuring and exploiting the opportunity also justified attributing his knowledge to the company.
5. The attribution of knowledge alone was insufficient under the binding authorities of Satnam Investments Ltd v Dunlop Hayward and Co Ltd and Criterion Properties Ltd v Stratford UK Properties. Nevertheless, it was unconscionable for Fulham River Projects to retain the benefit. It had received property obtained through Sutton’s breach and had participated with knowledge of his dishonesty. It was therefore liable to account, including as an accessory applying Twinsectra Ltd v Yardley.
6. The claimants were not required immediately to elect between taking over the contract, seeking an account or claiming damages. Both defendants were liable to account. The form and timing of the accounting exercise were reserved for a consequential order.

First-instance decision. No prior appellate decision is stated in the judgment.