Fairford Water Ski Club Ltd v Cohoon & Anor

The Court of Appeal allowed the appeal and held that the director's declaration of his interest in an agreement with the company complied with the duty in section 317 of the Companies Act 1985. The court applied the guiding principle that the required declaration depends on the nature of the director's interest and the context in which it arises, and held that the board was "fully informed of the real state of things" by earlier board discussion in January 2007 about the director's role and the proposed arrangements. The court rejected the judge's separate reasoning that an independent valuation of the lease rent was a precondition of valid disclosure under section 317. As a consequence, the company's claim for recovery of management fees under the management agreement was dismissed and the club was held liable to the partnership for nominal damages for wrongful termination.

Background and parties. The respondent, Fairford Water Ski Club Ltd, owned a lake and ran a members' water-skiing business. The first appellant, Mr Craig Cohoon, was a director and chairman of the Club and a partner in Craig Cohoon Watersports, an unincorporated partnership which operated a ski school and shop at the site. The Club paid Watersports management fees under an oral arrangement from 2007 until 2017.

Procedural posture. The Club sued in the High Court for multiple breaches of directors' duties; HHJ Russen found breach of the duty to disclose under section 317 of the Companies Act 1985 and ordered recovery of the difference between the management fees and lease rental for six years prior to the claim. The defendants appealed to the Court of Appeal from HHJ Russen QC ([2020] EWHC 290 (Comm)).

Nature of the claim/application. The Club sought repayment of management fees paid to Watersports on the basis that the director failed to declare the nature of his interest in the management agreement as required by section 317 of the Companies Act 1985, rendering the contract voidable.

Issues framed by the court. (i) Whether Craig complied with the requirement in section 317 to declare the nature of his interest at a directors' meeting; (ii) whether any such failure could be cured by earlier disclosures or known facts; (iii) whether absence of an independent valuation of lease rent undermined any declaration; and (iv) consequential questions including limitation and relief under section 1157 Companies Act 2006 (not finally decided by the Court of Appeal because they did not arise if disclosure was sufficient).

Court's reasoning. The court analysed the purpose and wording of section 317 and related authorities. It held (i) the required declaration depends on the nature of the interest and the context; (ii) the declaration must be made at a directors' meeting but need not state finalised contractual figures where the context makes the position clear; (iii) the board meeting of 4 January 2007 was convened to address the conflict and, on a fair reading of the minutes and surrounding facts, the directors were made aware and had a statutory pause for thought about the conflict; (iv) the later May 2007 meeting which settled the fee was to be read against the prior discussions so a further recital of the already-known interest would have been redundant. The court therefore concluded there was compliance with section 317. The court also rejected the judge's subsequently advanced point that an independent valuation was necessary for valid disclosure, finding that point not open to the judge and irrelevant to compliance with section 317.

Result and consequences. The appeal was allowed, the Club's claim for repayment under the management agreement was dismissed, and the Club was held liable to Watersports for nominal damages for wrongful termination of the agreement; other issues (including limitation and section 1157 relief) did not require decision.

Appeal allowed. The Court of Appeal held that the requirement in section 317 of the Companies Act 1985 was satisfied by the director's declaration made in the context of board discussions initiated in January 2007, because the nature of his interest was manifest and the board was fully informed of the real state of things. The judge was wrong to treat absence of an independent valuation as fatal to disclosure. Consequently the Club's claim to recover the management fees failed and the Club was liable to Watersports for nominal damages for wrongful termination of the management agreement.

Appeal from the High Court of Justice, Business & Property Courts at Bristol, HHJ Russen QC (sitting as a judge of the High Court) [2020] EWHC 290 (Comm), to the Court of Appeal [2021] EWCA Civ 143. The Court of Appeal allowed the appeal and set aside the recovery ordered by the judge below in respect of the management fees.