Gardner Aerospace Holdings Limited & Anor v Antony John Upton

A director breaches his duties where he uses corporate powers to pursue a personal objective that is contrary to the company’s agreed commercial interests, particularly without board authority or disclosure. Under Companies Act 2006, s.171, the court identifies the power exercised, its proper purpose, the director’s actual substantial purpose and whether that purpose was proper. Under s.172, good faith requires honesty, assessed by reference to the director’s actual belief and the objective standards of ordinary decent people. A personal employment interest may create a conflicting situation under s.175. The court found breaches where a chief executive undermined a proposed transaction, promoted divestment, destabilised the company’s bank and concealed those steps from the board.

The claimants, parent and subsidiary aerospace companies, sued their former CFO, director and interim CEO for breaches of fiduciary and statutory duties and contractual employment duties. The alleged misconduct concerned his communications with government departments, politicians, potential purchasers and the company’s bank during a proposed debt-for-equity transaction that would have increased Chinese state-linked control of the group. The claimants also alleged that he acted to improve his prospects of continued employment under new ownership.

The trial was confined to breach. Causation and loss, including a proposed loss-of-chance case, were deferred. The central issues were whether the defendant acted for improper purposes, failed to promote the companies’ success, placed himself in a position of conflict, breached his employment obligations and misused corporate powers.

1. Outcome. The claimants established breaches of the defendant’s duties as director and employee in the respects identified below. The court made no findings on causation or loss and did not determine the pleaded duty of care and skill under Companies Act 2006, s.174.
2. Proper purpose. Under s.171(b), the court identifies the relevant power, the proper purpose for which it was conferred, the substantial purpose for which it was exercised, and whether that purpose was proper. The inquiry into purpose is factual and concerns the director’s actual motives, while the question whether the purpose was proper is objective. Where several purposes exist, an improper purpose is sufficient if the decision would not have been made without it. The approach in Eclairs Group Ltd v JKX Oil & Gas Plc [2016] 3 All ER 641 was adopted and applied.
3. Good faith and company interests. Section 172 requires the director to act honestly in the way he considers most likely to promote the company’s success for the benefit of its members as a whole. The company’s interests are distinct from those of its members or shareholders. A director may consider employees, business relationships, community interests and reputation, but cannot use those considerations as a pretext for pursuing a personal plan that he knows is contrary to the company’s agreed interests. The court applied the subjective and objective approach to dishonesty described in Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67.
4. Conflict. Section 175 is engaged where a reasonable person, looking at the relevant facts, would consider there to be a real and sensible possibility of conflict between the director’s interests and those of the company. The inquiry is objective. The defendant’s efforts to secure a role with, and assist, potential purchasers of the business created such a conflict.
5. Application. The defendant’s lobbying for refusal of government approval, proposals for divestment, approaches to potential purchasers, and communications designed to unsettle the bank were not legitimate contingency planning. They were steps towards his undisclosed plan to change ownership and improve his employment prospects. They undermined the board’s agreed objective of securing approval and funding, and were taken without board authority or disclosure. This breached Companies Act 2006, ss.171 and 172, the conflict duty in s.175, and clauses 4.1.2–4.1.4 of the employment agreement.
6. Final directions. The parties were invited to agree consequential matters and a draft minute of order. The court expressed the view that mediation would be appropriate.