Lee v Futurist Developments Ltd

A director must account for a corporate opportunity appropriated through a company controlled by him where the opportunity arose from the company’s business and was obtained through his fiduciary position. Informed consent requires disclosure of the relevant facts; concealment prevents consent from being effective.

A speculative alternative transaction is not a compensable corporate opportunity unless there was a realistic prospect that the company would pursue it. Equitable compensation must restore the loss caused by the breach, but must not over-compensate. A transaction forming part of an inseparable package cannot ordinarily be rescinded in isolation.

Mrs Lee claimed an order for the sale of land in which she held a 25% interest under a declaration of trust made when she and her husband disposed of their interests in Futurist Developments Ltd, formerly Skelhorne Developments Ltd.

The company counterclaimed against Mr and Mrs Lee. It alleged that the trust arrangement was induced by misrepresentation and that Mr Lee, while its director, had misappropriated company money, breached fiduciary duties and diverted corporate opportunities. The principal issues were whether Mr Lee had to account for introduction fees paid by Unite to a company controlled by him, whether the company had lost a wider opportunity to contract directly with Unite, and whether the trust arrangement should be rescinded.

1. Unite introduction fee. Mr Lee owed fiduciary duties including the no-conflict rule, the no-profit rule and duties not to divert maturing business opportunities or exploit company information. The introduction of Unite to the development project was a corporate opportunity of Skelhorne. It was not open to Mr Lee to procure payment to Parkmoor, his family company, rather than to Skelhorne, without informed consent. The existence of the commission was concealed from the other active shareholders, so no informed consent was given.
2. Mr Lee was liable to account for the net commission of £405,000, after allowing £45,000 paid to Mr Cooper for the introduction. The sum carried compound interest at 1.5% above Base Rate, with quarterly rests, from receipt of each instalment.
3. Wider corporate opportunity. The company failed to establish a realistic opportunity to contract directly with Unite or to renegotiate the Maple Oak transaction. Even if the commission had been disclosed, the evidence showed that the company would have proceeded with the existing transaction, which was regarded as advantageous and depended on Maple Oak’s role, planning work and acquisition of the Manweb land.
4. Other claims. The alleged misappropriations were not proved. No adverse inference arose from missing records. The court also rejected the claim based on alleged misrepresentations concerning the Switch Island arrangements. The evidence did not establish material reliance.
5. In any event, rescission of the Switch Island document alone would have been inappropriate because it formed part of the wider arrangements for the disposal of the Lees’ interests in Skelhorne. Those arrangements could not fairly be separated.
6. Mr Lee’s fiduciary duty as director did not give Skelhorne a right to recover the value of Mrs Lee’s interest in Switch Island. His role as her agent in negotiating the disposal of her shares did not impose a fiduciary duty of disclosure to Skelhorne. Requiring repayment of the net commission with compound interest provided just satisfaction.
7. Mrs Lee’s claim succeeded. The counterclaim against her was dismissed. The counterclaim against Mr Lee succeeded only to the extent of the £405,000 net commission and interest.