Murray Vernon Holdings Ltd v Hassall & Ors

A director’s fiduciary duties must be analysed by reference to the company to which the duties are owed and the transaction in question. The no-conflict rule may apply where a director’s personal interest conflicts, or may significantly conflict, with the company’s interests. It does not ordinarily apply merely because company reserves are intended ultimately to finance a transaction by a separate company. Financial assistance for the purchase of a company’s own shares falls outside the incidental-purpose exception where the share purchase is an independent objective rather than an incidental part of a wider corporate purpose. A breach of the financial-assistance prohibition does not establish recoverable loss where the transaction could have been structured lawfully and the company suffered no loss.

The claimant company sued its former chairman and director, Norman Hassall, alleging breaches of fiduciary duty and unlawful financial assistance under the Companies Act 1985. The alleged assistance consisted of transferring money to a parent company, which used it to purchase minority shareholdings in the claimant from Hassall and another shareholder. Hassall denied breach, disputed causation and loss, and sought relief under section 727. He joined the claimant’s controlling shareholders as third parties. The central issues were the validity and fairness of the share prices, the scope of Hassall’s fiduciary duties, whether the assistance was unlawful, and whether the claimant suffered loss.

1. Claim dismissed. The claimant failed to establish recoverable loss or liability requiring relief against Hassall.
2. The option agreement under which Corfield’s shares were to be acquired was valid. The claimant had waived written notice, the relevant accounts were the 2004 audited accounts, and no minority discount applied. The agreed price of £1,050,000 was fair. The court would also have treated unanimous shareholder consent as curing any non-compliance with section 165, following the reasoning in Re Duomatic Ltd [1969] 2 Ch 365 and approving Dashfield v Davidson [2008] BCC 222.
3. The potentially relevant fiduciary principle was the no-conflict rule, not the no-profit rule. The rule concerns a benefit obtained where personal interest conflicts, or may significantly conflict, with the fiduciary duty. The sale of Hassall’s existing shares to Group did not itself create such a conflict with duties owed to Holdings, because Holdings was not the purchaser and the money would belong to Group when used.
4. Even assuming a disclosure duty existed, Hassall had disclosed nothing material that Paul and JJ did not already know. The agreed price was fair, and the claim therefore failed on that alternative basis. The court proceeded on the assumption, without deciding, that Item Software (UK) Ltd v Fassihi [2004] EWCA Civ 1244; [2005] 2 BCLC 91 might support the claimant’s wider disclosure argument.
5. The transfer of funds constituted financial assistance under section 151. The exception in section 153(1) did not apply. The share purchases were independent objectives which preceded and existed independently of the wider restructuring; they were not merely incidental to it. The approach in Brady v Brady [1989] AC 755 was distinguished.
6. Hassall contributed to the section 151 breach by failing to deter the transaction, but Holdings suffered no loss. The payment could have been made lawfully by dividend, or the position could have been regularised after the event. Holdings also had a restitutionary claim against Group. Relief under section 727 would, if necessary, have been granted to Hassall, who acted honestly and reasonably. A conspiracy claim would also have failed for want of loss; the court’s conclusion that section 727 relief was unavailable for such a tort claim was obiter, following Customs & Excise Commissioners v Hedon Alpha Ltd [1981] QB 818.