Stobart Group Ltd v Tinkler

Directors must exercise independent judgment as members of the board. That duty does not licence an individual director to bypass the board by briefing selected shareholders about management matters. A director should raise, debate and decide such matters at board level, or ventilate a properly recorded dissent at a general meeting.

The proper purposes rule requires the court to identify the substantial or primary purpose for which a fiduciary power was exercised. Acting in the company’s perceived best interests does not validate an exercise of power for an improper purpose. A transfer of treasury shares principally intended to influence a general meeting was therefore improper, although the transfer was voidable rather than void.

The claimant, a Guernsey-incorporated listed company, brought proceedings against its founder and former executive director. The dispute arose from a boardroom conflict concerning the company’s management, the chairman’s position, the defendant’s employment and directorship, and the transfer of treasury shares to an employee benefit trust before the annual general meeting.

The claimant alleged breaches of fiduciary and contractual duties and unlawful means conspiracy. The defendant challenged his dismissal, removal from the board, the transfer and voting of shares, and the chairman’s re-election. The court determined ten issues concerning directors’ duties, the committee’s authority, contractual construction, the proper purposes rule, and the consequences of the AGM vote.

1. Outcome. The unlawful means conspiracy claim failed. The defendant was nevertheless found to have committed serious fiduciary and contractual breaches by briefing selected shareholders against the board, disclosing the Duranta budget to a third party, sending a misleading letter to shareholders and communication to employees, and orchestrating the ELT letter and petition.
2. The duty to exercise independent judgment operates on a director as a member of the board. It does not permit freelance action on matters within the board’s management sphere. Concerns should be raised with the board. If disagreement remains sufficiently serious, the director may resign or, where appropriate, express the competing views to shareholders generally at a meeting.
3. The board committee was properly constituted under Article 96 and had authority to exercise the board’s powers, including dismissing the defendant. The deletion of express words concerning his future did not remove the general delegation of power. His dismissal was lawful and valid. Clause 17.4 of the Service Agreement, construed in context and consistently with business common sense, permitted the company to request his resignation as a director of the company.
4. The transfer of 1,715,000 treasury shares was principally made to meet immediate LTIP obligations and was proper. The separate transfer of 5,320,425 shares was principally intended to secure the employee benefit trust’s favourable vote at the AGM. That purpose breached the proper purposes rule, notwithstanding the directors’ genuine belief that the transfer served the company’s interests.
5. The court adopted the substantial or primary purpose approach in Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821, rather than treating the mere presence of a proper purpose as sufficient. A breach made the share transfer voidable, not void. The trustee acquired legal title, exercised its own independent judgment, and voted. The chairman’s re-election was therefore not invalid.
6. The directors’ second removal of the defendant under Article 89(5), immediately after his election at the AGM, was valid and effective. Their duties were owed to the company, not to the majority of shareholders who had voted for him, and the evidence did not establish an improper purpose.
7. The court rejected the conspiracy claim because there was no sufficiently clear common design with the alleged participants and no intention to injure the company. Knowledge that the means were unlawful was not an additional requirement: knowledge of the essential facts was sufficient.