Davies v Ford & Ors

A company director’s fiduciary duties are not limited to preventing misappropriation of existing company assets. They also prohibit exploiting a business opportunity or infrastructure for personal benefit where this creates a real possibility of conflict. It is immaterial that the company could not itself have taken advantage of the opportunity, including because it was insolvent or of doubtful solvency. A director who diverts an opportunity may therefore be liable even where no valuable goodwill was transferred. Claims involving misapplication of pre-existing company property fall outside the ordinary limitation period under Limitation Act 1980 section 21(1)(b); other fiduciary breaches are subject to six years unless fraudulent. Restoration of a dissolved company does not automatically make former directors fiduciaries throughout the dissolution period. An account of profits may be subject to an equitable allowance, even after dishonest conduct, depending on the circumstances.

The claimant, as assignee of claims belonging to Greenbox Recycling Ltd, sued its former directors, Stephen Ford and Richard Monks, and Greenbox Recycling (Kent) Ltd. The claims arose from the establishment and operation of the second company after the intended waste-management business at the Ashford Site had been developed through the first company. The claimant alleged breaches of contract and directors’ duties, diversion of business opportunities, knowing receipt, and entitlement to proprietary and equitable remedies.

The liability trial concerned Mr Monks’ contractual and fiduciary duties, limitation, relief under the Companies Act 2006, laches, clean hands, constructive trust, equitable allowance, and judgment in default against Mr Ford.

1. Contract. No final employment or consultancy contract had been agreed with Mr Monks. The proposed terms remained unsettled and were never accepted by him. The contractual claim therefore failed.
2. Fiduciary duties. Mr Monks was subject to the duties in Companies Act 2006 sections 172 and 175. The focus was not confined to whether GBR owned pre-existing assets. A director may breach duty by placing himself in a position of conflict and exploiting an opportunity for his own benefit.
3. Mr Monks caused the incorporation of GBRK, arranged the clearance of the Ashford Site, procured the transfer of the environmental permit, obtained leasehold rights, arranged finance for equipment, and secured an operator’s licence for GBRK. Each step advanced GBRK’s interests while GBR had an opposing interest in developing the same business from the same site. This constituted a breach of section 175 and meant that Mr Monks could not have acted in good faith to promote GBR’s success under section 172.
4. The argument that GBR was insolvent or unable to exploit the opportunities did not assist Mr Monks. The no-conflict rule expressly makes it immaterial whether the company could take advantage of the property, information or opportunity. The authorities relied upon concerning insolvent or “phoenix” companies did not justify a departure from the ordinary rule.
5. The use of GBR’s funds to clear the Ashford Site involved misapplication of pre-existing corporate property and fell within Limitation Act 1980 section 21(1)(b). The other breaches did not involve such property. They were nevertheless not time-barred because the court found Mr Monks had acted dishonestly, engaging section 21(1)(a).
6. Mr Monks was not entitled to relief under Companies Act 2006 section 1157 because he had acted dishonestly. The claims were not barred by laches or unclean hands. The claimant sued in GBR’s right, and the matters relied upon did not have an immediate and necessary relation to GBR’s equity.
7. Restoration under section 1032(1) did not automatically deem Mr Monks and Mr Ford to have remained directors, and fiduciaries, throughout GBR’s dissolution. The whole of GBRK’s current business was therefore not automatically held on constructive trust. The extent of any proprietary or accounting remedy required further determination.
8. Mr Monks was entitled in principle to claim an equitable allowance for his efforts and capital investment, although the amount and scope remained for the further trial. Judgment in default was ordered against Mr Ford.