Fairford Water Ski Club Ltd v Cohoon & Anor

Under section 317 of the Companies Act 1985, the sufficiency of a director’s disclosure is assessed in context. The director must clearly disclose the nature of any direct or indirect interest so that the board is fully informed of the real state of affairs. Disclosure must be made at the first board meeting at which the proposed contract is considered, but the contract need not have been finally agreed and the precise fee need not yet be known. A director’s existing interest may be obvious from the context, making repetition unnecessary. Section 317 concerns disclosure of the interest, not whether the transaction represents value for money. An independent valuation is therefore not a prerequisite to compliance.

Fairford Water Ski Club Ltd sued Craig Cohoon and his watersports partnership in connection with management fees paid under an oral management agreement. The High Court held that the agreement existed but that Mr Cohoon had failed to declare the nature of his interest as required by section 317 of the Companies Act 1985, allowing recovery of part of the fees: [2020] EWHC 290 (Comm).

On appeal, the appellants argued that Mr Cohoon’s interest had been sufficiently disclosed at an earlier board meeting. The Club cross-appealed on limitation and the basis of recovery. The central issue was whether the disclosure made before the agreement’s final fee was fixed complied with section 317.

The Court of Appeal, in the judgment of Males LJ, with Stuart Smith LJ and Henderson LJ agreeing, allowed the appeal.

1. Section 317 of the Companies Act 1985 applies to any direct or indirect interest. The required detail depends on the nature of the interest, the proposed contract and the surrounding context. The disclosure must leave the other directors fully informed of the real state of affairs. The guidance in Gray v New Augarita Porcupine Mines Ltd [1952] 3 DLR 1 was applied.
2. The declaration must be made at a meeting of the directors, even where the interest is already known. For a proposed contract, it must be made at the first meeting at which entering into the contract is considered. It need not be repeated at every later meeting. The January 2007 meeting was such a meeting because the conflict, the continuing management relationship and the proposed revised arrangements were expressly considered.
3. The terms of a proposed contract need not be finally settled when disclosure is made. The directors already understood that Watersports would continue managing the site and that its fee would increase. The later May meeting expressly referred back to the earlier discussions, so repeating the disclosure would have served no useful purpose. The reasoning in Neptune (Vehicle Washing Equipment) Ltd v Fitzgerald [1996] Ch 274 and Runciman v Walter Runciman Plc [1992] BCLC 1085 supported that conclusion.
4. Section 317 is concerned with disclosure of the interest, not with deciding whether the agreement was commercially advantageous or represented value for money. An independent valuation of the rent was not required for statutory compliance. Those matters might have been relevant to other fiduciary duties, but no such breach was alleged.
5. The Club’s claim for repayment of management fees was dismissed. The cross-appeal did not arise. Watersports’ counterclaim for wrongful termination was limited to, and succeeded in, nominal damages. The court did not decide the further issues concerning rescission, restitution or relief under section 1157 of the Companies Act 2006.

• Court of Appeal (Civil Division) — [2021] EWCA Civ 143: appeal allowed; the Club’s claim for management fees was dismissed and nominal damages were awarded to Watersports on its counterclaim.
• High Court of Justice, Business and Property Courts at Bristol — [2020] EWHC 290 (Comm): held that Mr Cohoon had failed to comply with section 317 of the Companies Act 1985 and allowed recovery of management fees subject to limitation.