Fairford Water Ski Club Ltd v Cohoon & Ors

A director’s conflicting interest in a transaction with the company must be disclosed fully, including its nature and extent. Where the interest concerns payments to the director or an associated business, the amount must be disclosed. A failure to comply with the company’s articles and the applicable statutory disclosure regime makes the transaction voidable and may render the director accountable for profits, subject to limitation, rescission principles and statutory relief.

Section 190 of the Companies Act 2006 operates independently of the general directors’ duties. Member approval is required before a substantial non-cash asset transaction is entered into. Directors remain accountable for unauthorised payments, misuse of corporate opportunities and conflicts of interest, but a claimant must prove liability on the evidence actually explored at trial.

The claimant, a members’ water-skiing club, sued three former directors and an associated watersports business for alleged breaches of directors’ duties, unauthorised payments, misuse of company property and diversion of fees. The fourth defendant counterclaimed for management fees said to be due under an unwritten management agreement.

The principal issues were whether the management agreement was validly authorised; whether payments and property transactions breached the Companies Act 2006; the effect of limitation and statutory relief; and the extent to which fiduciaries had to account for unexplained transactions and profits.

1. Management agreement. The agreement between the Club and Watersports had been made, despite not being reduced to writing. However, the director’s interest had not been disclosed in accordance with clause 84(1) of Table A and section 317 of the Companies Act 1985. Adequate disclosure required the nature and extent of the interest, including the amount of the proposed fee. The agreement was therefore voidable.
2. There was no general discretion to treat non-compliance as merely technical or to dispense with strict compliance with the articles. Shareholder approval was not sufficiently informed to constitute authorisation or ratification. Craig was accountable for the net management fee of £15,000 per year paid after 30 October 2011. The claim for earlier payments was barred by the six-year period under section 21(3) of the Limitation Act 1980. The counterclaim for notice-period fees was dismissed.
3. Unexplained payments. The Club was not entitled to a general presumption that every unexplained payment was recoverable. Liability was established only for payments explored at trial which had been conceded as repayable or represented Watersports’ mark-up on third-party goods or services. Craig, Scott and Watersports were accountable for the resulting sum, without relief under section 1157 of the Companies Act 2006.
4. Conflicts and corporate opportunities. The directors breached their duties by permitting the Club to pay Watersports’ mark-ups, fund items benefiting Watersports, pay utilities for Craig’s lodge and acquire property or opportunities for personal profit. Craig was accountable for profits on Meyer Lodge and specified mobile-home transactions. Section 175 applied even if the Club could not itself have funded or exploited the opportunity.
5. Substantial property transaction. The transfer of Plot 11 engaged section 190 of the Companies Act 2006. The relevant 2012 accounts established the statutory threshold, and the plot’s value exceeded it. The absence of member approval meant that section 190 was breached. Restitution of the plot was no longer possible, so Craig, Jane and Scott were jointly and severally liable for £30,808 under section 195.
6. The remaining claims were dismissed or not proved. Liability and amounts were recorded at paragraph 531, with interest and costs reserved for a further hearing.