GQA Qualifications Limited v Michael Clayton

A director may breach Companies Act 2006, section 171(a), by exercising powers without constitutional authority, even where the conduct is otherwise motivated by the company’s interests. The statutory duty in section 172 is subjective: the question is whether the director honestly believed that the conduct would promote the company’s success, assessed in light of the facts as understood by the director. A genuine and reasonable belief may provide reasonable and proper cause for drastic action under the contractual duty of trust and confidence. A qualifying whistleblowing disclosure may constitute lawful excuse for an otherwise unauthorised use of confidential information. Section 43D of the Employment Rights Act 1996 is not confined to advice from legally qualified persons, but the disclosure must genuinely be made in the course of obtaining legal advice.

GQA Qualifications Limited brought claims against its former chief executive officer and director, Michael Clayton, for breach of contract, statutory and fiduciary duties, and confidence. The claims arose from Mr Clayton’s disclosure of confidential and privileged material, his handling of a tax-reporting issue, and his attempt to suspend the other directors and exclude them from the company’s operations while an investigation was proposed.

The central issues were whether Mr Clayton had acted outside his powers, failed to promote GQA’s success or avoid conflicts of interest, breached contractual and fiduciary duties, and whether the disclosures were protected by the whistleblowing provisions of the Employment Rights Act 1996.

1. The claim succeeded in part. The court found that Mr Clayton’s purported suspension of the other directors breached section 171(a) of the Companies Act 2006, because he had no constitutional authority to suspend them. Since the conduct was ultra vires, section 171(b), which concerns the improper exercise of an existing power, did not apply.

2. Mr Clayton did not breach section 172. He genuinely believed that the proposed payments to members and directors were contrary to GQA’s interests and that his removal would enable those payments to proceed. Applying the subjective good-faith test, his belief was honestly held. His conduct was not irrational or disproportionate in the circumstances as he understood them.

3. There was no breach of section 175. Mr Clayton’s interest in retaining his employment did not constitute a direct or possible conflict with GQA’s interests on the facts.

4. The disclosures of confidential and privileged material to Mr Firman on 24 October 2024 and to Mr Globe on 4 November 2024 breached the employment contract. The disclosure to Mr Kearns after dismissal breached the continuing equitable duty of confidence. The failure to disclose the wrongdoing to GQA also breached Mr Clayton’s fiduciary duty.

5. A qualifying disclosure under the whistleblowing regime may provide lawful excuse for an otherwise unauthorised use of confidential information. The disclosure to Mr Firman on 24 October was not protected because Mr Clayton lacked a reasonable belief that the material tended to show criminal conduct or breach of legal obligation at that time.

6. The later disclosure to Mr Firman was protected by section 43D because Mr Clayton regarded him, a former solicitor conducting a legal-advice business, as competent to provide legal advice. Section 43D is not limited to advice from solicitors or barristers. The disclosure to Mr Globe was not protected because he neither held himself out as a legal adviser nor received the information to provide legal advice or fill an evidential gap for Mr Firman.

7. Mr Clayton’s suspension of the directors from their executive roles and exclusion of them from day-to-day operations did not breach the contractual duty of trust and confidence. He had reasonable and proper cause for acting on his genuine belief that the company and his position were in imminent peril. The remaining alleged breaches were not made out.