Kings Security Systems Ltd v King & Anor

A director breaches fiduciary and statutory duties where he accepts a personal benefit funded by company assets, even if no third party is involved in the misappropriation. A benefit from a third party is a bribe where it creates a real possibility of conflict between the director’s interest and duty and is kept secret from the company. Silence may amount to misrepresentation where a fiduciary has a duty to disclose wrongdoing. A claimant is not required to accept compensation offered by another person potentially liable for the same loss. Abuse of process remains a recognised tort, but proceedings are not improper merely because they cause financial or reputational consequences flowing naturally from legitimate litigation.

Kings Security Systems Ltd claimed against its former chief executive, Anthony King, concerning his use of a Range Rover supplied by TCH Leasing. The arrangement involved KSSL’s profit share with TCH, an exclusivity commitment, and a nominal personal rental. KSSL alleged bribery, breaches of statutory and fiduciary duties, and misrepresentation inducing a settlement agreement. Mr King denied knowledge of the arrangement, relied on shareholder consent and section 1157 of the Companies Act 2006, and counterclaimed for abuse of process. The central issues were whether the transaction constituted a bribe and breached duty, whether the settlement agreement released the claims or was rescindable, whether TCH’s compensation offer affected loss, and whether KSSL had pursued the proceedings for an improper purpose.

1. Claim allowed in part. Mr King was liable to KSSL for £45,666.47. His counterclaim was dismissed.
2. The Range Rover arrangement was a bribe. TCH conferred a benefit by assuming a material risk that the profit share would not cover the vehicle’s ordinary cost and by providing an exceptional personal lease. Mr King was able to influence KSSL’s relationship with TCH, the benefit created a real possibility of conflict, and the arrangement was secret from KSSL’s board.
3. The transaction breached sections 172, 175, 176 and 177 of the Companies Act 2006, as well as Mr King’s contractual duties. Misappropriation of company property may itself create a conflict between duty and personal interest; involvement of a third party is not required for breaches of sections 172 and 177.
4. The transaction was not authorised under the principle in Re Duomatic Ltd because the board and shareholders, apart from Mr King and Mr Evans, were unaware of its terms.
5. Mr King’s silence constituted a misrepresentation because he owed duties to disclose his wrongdoing. The misrepresentation induced the Settlement Agreement. There was no affirmation, impossibility of restitution, or third-party-rights bar to rescission. KSSL was entitled to rescind and recover £5,000.
6. TCH’s offer of compensation was irrelevant. A claimant may choose which of several persons liable for the same loss to pursue and need not accept an offer from another potential tortfeasor.
7. The tort of abuse of process remains part of English law. It requires proceedings to be brought for an ulterior purpose outside the proper scope of the legal process. Legitimate purposes and consequences naturally flowing from litigation do not become improper because the claimant is also motivated by personal antagonism. The evidence did not establish the alleged improper purposes.
8. KSSL recovered the lost profit share but not the Range Rover insurance cost, because the employment contract required KSSL to insure a vehicle Mr King provided for business use.

First-instance decision. No earlier decision was identified in the judgment.