Towers v Premier Waste Management Ltd

A company director’s fiduciary duty of loyalty and the no-conflict and no-profit principles are strict. An undisclosed personal benefit from a company customer can constitute a breach without proof of fraud, corruption, bad faith, actual conflict, company loss, or an intention by the company to take the opportunity. The duty is not avoided because the benefit is small, the equipment is poor, the dealings are informal, or an intermediary arranged them. Relief under section 1157 of the Companies Act 2006 requires a fair basis for excusal, which was absent. The appeal and abandoned cross-appeal were dismissed.

Premier Waste Management Ltd sued its former director, Philip Towers, for an account of the benefit obtained from an undisclosed and unapproved free loan of equipment by a company customer. The High Court found a breach of fiduciary duty and ordered payment of £5,200 plus interest. Mr Towers appealed against liability and the refusal of relief. The company cross-appealed on the period for which the benefit was assessed, but abandoned that appeal during the hearing. The central issues were whether the informal transaction created a breach of the loyalty and no-conflict duties, and whether relief from liability was available.

Lord Justice Mummery delivered the principal judgment. Lord Justices Etherton and Wilson agreed.

1. Applicable principles. The relevant events predated the operative provisions of the Companies Act 2006. The common law and equitable fiduciary principles therefore governed the claim. Sections 170(3) and 170(4) nevertheless expressed the relationship between the statutory duties and the principles from which they were derived.
2. Loyalty and conflicts. The no-conflict and no-profit rules protect the company’s right to decide whether to object to an opportunity being diverted to a director. They impose strict liability. Proof of fraud, corruption, bad faith, fault, actual conflict causing loss, company loss, or an intention or ability by the company to exploit the opportunity is unnecessary. The principles in Aberdeen Railway Co v Blaikie 1 Macq 461, Boulting v Association of Cinematograph, Television and Allied Technicians [1963] 2 QB 606, Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200 and Regal (Hastings) Ltd v Gulliver [1967] AC 134 supported that conclusion.
3. Application. The small value of the benefit, the poor condition of the equipment, the absence of proof that Mr Towers would otherwise have hired it, the lack of benefit to the customer, the informal relationship, and the fact that Mr Rafter acted as intermediary did not prevent a breach. The Parkdale [1897] P 53 was distinguished because it concerned a customary gratuity accepted by an employee with the employer’s knowledge, not a secret commission or fiduciary no-conflict case.
4. Relief. The refusal of relief under section 1157 of the Companies Act 2006 disclosed no error. There was no mitigating factor, injustice or hardship supporting excusal. The use of the company to fund repairs positively militated against relief. The judge’s concise reasons were sufficient.
5. Disposition. The appeal was dismissed. The abandoned cross-appeal was also dismissed.

1. Court of Appeal (Civil Division): Dismissed Mr Towers’s appeal. The company’s cross-appeal was abandoned and dismissed. [2011] EWCA Civ 923.
2. High Court of Justice, Chancery Division, Newcastle District Registry: HHJ Roger Kaye QC found a breach of fiduciary duty and ordered Mr Towers to pay £5,200 plus interest.