Towers v Premier Waste Management Ltd

The Court of Appeal dismissed the director’s appeal. The court applied equitable principles and the statutory formulation of directors’ duties in the Companies Act 2006 (noting ss.170, 172, 175 and 176) to hold that a director who accepted an undisclosed personal loan of plant from a company customer breached the fiduciary duties of loyalty, the no-conflict principle and the no-profit principle. The breach attracted strict liability to account for the benefit obtained irrespective of lack of bad faith, small value of the benefit or absence of actual loss to the company.

The judge’s quantification of the benefit as the hire value for a six month period was upheld, as was the refusal to exercise the court’s discretion under s.1157 Companies Act 2006 to relieve the director from liability. The fact that a company employee (Mr Rafter) arranged the loan and that the plant was in poor condition did not excuse non-disclosure or negate the fiduciary breach.

This was an appeal from HHJ Roger Kaye QC in the Chancery Division, Newcastle (case no. 9NE30012). Premier Waste Management Limited (the Company) sued its director, Mr Towers, for an account of benefits after it was discovered that in 2003 Mr Towers had accepted, without disclosure or board approval, a free loan of second-hand plant and equipment from a customer, Mr Ford. The Company also joined Mr Ford but the cross-claims between the Company and Mr Ford were settled and do not feature in this appeal.

Nature of the claim / relief sought:

• The Company sought an account and compensation from Mr Towers for breach of fiduciary duties (no-conflict, no-profit and duty of loyalty) and a declaration concerning liability to hire charges (as against Mr Ford, settled).

Issues framed:

• Whether Mr Towers breached fiduciary duties by accepting an undisclosed personal benefit from a company customer;
• the appropriate measure and period for quantifying the benefit to be accounted for; and
• whether the court should exercise its discretion under s.1157 Companies Act 2006 to relieve the director from liability.

Court’s reasoning: The court reasoned that directors owe strict fiduciary duties derived from equitable principles, now expressed in the Companies Act 2006. That strict rule requires undivided loyalty and prevents a director entering engagements in which personal interest conflicts with the company’s interest. The court held that the loan deprived the company of the opportunity to consider whether it should take the opportunity itself and that concealment of the benefit constituted a secret profit subject to an account, regardless of the value or the absence of bad faith. The judge’s factual findings that the director used the equipment for about six months and that remedial works (notably replacement tracks) were paid through the Company supported quantification of the benefit and militated against relief under s.1157. Commercial reality, informality and friendship were not sufficient to negate the duty to disclose.

Appeal dismissed. The Court of Appeal upheld the finding that Mr Towers breached fiduciary duties (no-conflict, no-profit and duty of loyalty) by accepting an undisclosed personal loan of plant from a company customer, affirmed the judge’s quantification for a six month period, and agreed that there were no grounds to relieve him from liability under s.1157 Companies Act 2006.

Appeal from HHJ Roger Kaye QC, High Court of Justice, Chancery Division, Newcastle District Registry (Case No. 9NE30012). Permission to appeal was granted by Arden LJ on 9 December 2010. The Court of Appeal handed down judgment [2011] EWCA Civ 923 on 28 July 2011.