Killen v Horseworld Ltd & Ors

Under Companies Act 2006, a former director remains subject to the duty to avoid conflicts of interest in respect of property, information or opportunities encountered while serving as a director. The duty applies where there is a direct or indirect interest which conflicts, or may possibly conflict, with the company’s interests. Exploiting an opportunity which the director learned of through the company may therefore constitute a breach even after resignation. Any authorisation must be based on full knowledge of the relevant facts. A director cannot avoid the duty by acquiring a broader package of rights which includes the rights sought by the company.

The claimant had been chief executive of Horseworld Ltd and a director of Horseworld (UK) Ltd. During that relationship she participated in negotiations concerning internet broadcasting rights for the Badminton event and had access to confidential information concerning the project.

She later incorporated Horseworld International (BVI) Ltd, taking 99.98 per cent of its shares, and subsequently acquired a controlling interest in Horse and Country TV Ltd. After leaving the defendant companies, she used Horse and Country to obtain broadcasting rights which included rights that Horseworld Ltd had wished to secure.

The claimant discontinued her claim shortly before trial. The trial concerned the counterclaims by the first and second defendants, principally allegations of breach of fiduciary duty and the relief sought by the companies.

1. Statutory framework. The general directors’ duties in sections 170 to 177 of the Companies Act 2006 are to be interpreted and applied in accordance with the corresponding common-law rules and equitable principles. Section 170(2)(a) makes a former director subject to the duty in section 175 concerning exploitation of property, information or opportunities encountered while a director. This represented a statutory change to the previous equitable rules.
2. Conflict of interest. Section 175 requires a director to avoid a situation in which he or she has, or may have, a direct or indirect interest conflicting, or possibly conflicting, with the company’s interests. The provision applies particularly to the exploitation of an opportunity, and it is immaterial whether the company could itself have taken advantage of it.
3. Authorisation. The statutory authorisation exception could not assist the claimant. Any apparent authorisation by the other directors was given without knowledge of the relevant proposal and of the claimant’s intended 99.98 per cent shareholding. Authorisation obtained by concealment of material facts was ineffective.
4. Application. The proposed transfer of Horseworld’s media interests to a company substantially owned by the claimant was a plain breach of fiduciary duty, although the attempted transfer was unsuccessful. The subsequent acquisition through Horse and Country of broadcasting rights which included rights sought by Horseworld Ltd was also a conflict. The passage of several months after departure did not remove the duty where the claimant acted at the next available opportunity using information, contacts and an opportunity obtained as a director.
5. The claimant’s reliance on Foster Bryant Surveying Ltd v Bryant was not accepted as governing the statutory regime. The defendants were entitled to an account of profits. The outstanding relief was to be dealt with by order, or after further submissions if the parties could not agree.