Duty to exercise independent judgment
Part 10 A company's directors
(1)A director of a company must exercise independent judgment.
(2)This duty is not infringed by his acting—
(a)in accordance with an agreement duly entered into by the company that restricts the future exercise of discretion by its directors, or
(b)in a way authorised by the company's constitution.
In the Companies Acts “director” includes any person occupying the position of director, by whatever name called.
Defined in s.250 · see it in the full Act“company” means a company formed and registered under this Act, that is—
a company so formed and registered after the commencement of this Part, or
a company that immediately before the commencement of this Part—
was formed and registered under the Companies Act 1985 (c. 6) or the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)), or
was an existing company for the purposes of that Act or that Order,
(which is to be treated on commencement as if formed and registered under this Act).
(4) In this section and that Schedule “company” includes any body corporate.
Defined in s.1159(4) · see it in the full ActThe court refused permission for the section 173 claim because it was not separately particularised and the evidence disclosed no prima facie failure to exercise independent judgment. (see paras [129]-[130])
Applies the duty to exercise independent judgment. Fowler’s personal interest in establishing and advancing AFML dictated his conduct while he remained a director, contrary to Lux’s interests (see paras [75]-[79]).
The court treated the directors’ duties under section 173, together with sections 171, 172 and 174 to 177, as applying to the handling of the claimant SPVs and found breaches arising from improper payments and conflicts of interest (see paras [308]-[309]).
36 more judgments, and what each says about section 173, are in the case-law panel in the full Act.
333.This duty codifies the current principle of law under which directors must exercise their powers independently, without subordinating their powers to the will of others, whether by delegation or otherwise (unless authorised by or under the constitution to do so).
334.The section provides that directors must not fetter the future exercise of their discretion unless they are acting:
in accordance with an agreement which has been duly entered into by the company; or
in a way authorised by the company’s constitution.
335.The duty does not confer a power on the directors to delegate, nor does it prevent a director from exercising a power to delegate conferred by the company’s constitution provided that its exercise is in accordance with the company’s constitution. Under the draft model articles of association for private companies limited by shares, the directors may delegate their functions in accordance with the articles.