Halton International Inc (Holding) & Anor v Guernroy Ltd

An agent’s fiduciary duties depend on the contractual relationship and the purposes for which authority was granted. A power of attorney or voting mandate does not, without more, require the agent to act primarily in the interests of the principals. Where the agreement gives the agent a broad discretion to raise finance, including by issuing shares to itself or its associates, the court should not imply pre-emption or disclosure obligations that contradict the agreement’s commercial purpose. A collateral assurance that existing shareholders will have an opportunity to participate does not itself create a fiduciary relationship or alter the contract. The claim was therefore dismissed.

The claimants were shareholders in British Mediterranean Airlines Ltd. They granted Guernroy Ltd voting control under an agreement intended to facilitate the renewal of a British Airways franchise and the raising of new capital.

Guernroy subsequently used the voting authority to approve a share issue to itself and other investors. The claimants alleged that Guernroy owed fiduciary duties, including duties not to obtain an advantage and to offer shares first to existing shareholders. They sought a transfer of shares representing the participation they said they should have been offered.

The central issue was whether the voting agreement created those fiduciary duties and, if so, whether they had been breached.

1. The claim was dismissed. The principal issue was whether the voting agreement imposed fiduciary duties on Guernroy in exercising its voting and fundraising powers.

2. Fiduciary duties are shaped by the underlying agreement. Although an agency relationship may be fiduciary, the court must examine whether the agent undertook to act in the principals’ interests and must construe the contractual limits of that undertaking.

3. The voting agreement gave Guernroy a broad authority to procure finance for the company in any manner it considered appropriate. That authority included waiving the articles’ pre-emption provisions and approving the issue of shares to Guernroy or persons associated with Mr Said. Requiring a prior pro-rata offer, detailed disclosure and informed consent would fundamentally alter the express agreement.

4. The commercial context confirmed that conclusion. Guernroy had agreed to support or underwrite the financing needed for the franchise only in return for voting control. It received that control on the contractual terms and was not an agent required to put the existing shareholders’ interests before its own financing objectives.

5. The memorandum promising existing shareholders an opportunity to participate was a bare promise about the intended exercise of the powers. It did not create a fiduciary relationship, modify the voting agreement or establish an estoppel. In any event, the claimants had been given an opportunity to subscribe, although the timing and information supplied were inadequate.

6. The court made alternative observations on causation, acquiescence and limitation. The evidence did not establish that the claimants would have subscribed. The claim was also treated as subject to the six-year limitation period, and the requirements for postponement under the Limitation Act 1980 were not met.