“71. .... During a visit by my uncle from the USA [a Mr Dhesi] and whilst going bowling at UK Bowling on Leeds Road, I noticed a ‘Sold’ sign on Whitehall Mill. On calling the agents .... I was informed that the building was under offer and no further offers would be considered. I insisted on being given a chance to look at the building and my offer being forwarded to the owners. I called Matthew Scoley of Eddisons Commercial to view the building the following day. 72. My and [Jatinderjit]’s first offer was rejected but my second, increased offer, was accepted. Both offers were through Eddisons Commercial and from the [outset] I informed them that this was my brother’s and my private acquisition. In the meantime I informed Mr Reddington of Barclays Bank plc of our private venture and he gave us his backing. The intention was to place this building in a self-administered pension fund but we were advised there was insufficient time to carry out the necessary paperwork for a pension fund to acquire the property (the seller insisted on a quick sale) and we had no alternative but to place it in the name of [Silvercrest].”
“Q. There was no doubt in your mind, was there, that it would have been a worthwhile acquisition for the company, is that right? A. No, because Tim and his dad [Mohan] had already ruled out any acquisitions of any further .... ..... Q. It may be that the company did not want it, but would it not have been worthwhile the company having it? A. Yes. .... Q. What made you think it was necessary to go and get legal advice before acquiring the property? A. I did not go to get the legal advice, I simply went to tell John that this is the case, my subject to contract has been accepted, you know: “Can you do the legalities on it, and do you see any problems with it?”
“6.7 Diversion of business opportunity 264. Mr Berragan submits that Inderjit and Jatinderjit were not in breach of fiduciary duty in acquiring Whitehall Mill for their pension. He has referred me [to] part of the speech of Lord Macmillan in Regal Hastings v Gulliver[1967] 2 AC 134 n,153where he said directors are liable to account if: “(i) what the directors did was so related to the affairs of the company that it can properly be said to have been done in the course of their management and in utilisation of their opportunities and special knowledge as directors and (ii) what they did resulted in profit for themselves.” 265. He referred me to the decision of Hutchison J in Island Export v Umunna[1986] BCLC 460 . That was a case where a claim for exploitation of a business opportunity failed. The learned judge cited extensively from a Canadian case (Canadian Aero Services v. O’Malley (1973) 40 DLR (3d)371 (Can SC), 382 – “Descending from the generality, the fiduciary relationship goes at least this far: a director or a senior officer like [the defendants] is precluded from obtaining for himself, either secretly or without the approval of thecompany (which would have to be properly manifested on full disclosure of the facts), any property or business advantage either belonging to the company or for which it has been negotiating; and especially is this so when the director or officer is a participant in the negotiations on behalf of the company.”
“An examination of the case law in this Court and in the Courts of other like jurisdictions on the fiduciary duties of directors and senior officers shows the pervasiveness of a strict ethic in this area of the law. In my opinion, this ethic disqualifies a director or senior officer from usurping for himself or diverting to another person or company with whom or with which he is associated a maturing business opportunity which his company is actively pursuing; he is also precluded from so acting even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself the opportunity sought by the company, or where it was his position with the company rather than a fresh initiative that led him to the opportunity which he later acquired.” 266. Mr Berragan submitted that the acquisition of Whitehall Mill was not the exploitation of a maturing business opportunity; the acquisition was not related to the affairs of the company. Inderjit and Jatinderjit did not acquire Whitehall Mill in the course of their management of the business or by using any opportunity or information which came to them as directors of BBL. They did not misuse their position as directors in any way when they acquired Whitehall Mill. Accordingly the acquisition of Whitehall Mill was not unfairly prejudicial to the Group B shareholders. 267. Mr Corbett QC submitted that this was an obvious business opportunity which would have been advantageous for BBL to acquire. Properties in Leeds Road are hard to find. This site was next door to a site already owned by the Company. Part of it was being occupied by one of its tenants as a car park. Whitehall Mill would have been a valuable addition to BBL’s portfolio. He made the point that the evidence did not justify the inference that the Group B shareholders had no interest in exploiting other opportunities. He also invited me to reject the suggestion that Mohan and Tim would have rejected the proposed acquisition in any event. 268. Mr Corbett QC drew to my attention to passages from the speech of Lord Upjohn in Phipps v Boardman [1966] 3 AER 721 including the following: “Rules of equity have to be applied to such a great diversity of circumstances that they can be stated only in the most general terms and applied with particular attention to the exact circumstances of each case. The relevant rule for the decision of this case is the fundamental rule of equity that a person in a fiduciary capacity must not make a profit out of his trust, which is part of the wider rule that a trustee must not place himself in a position where his duty and his interest may conflict. I believe that the rule is best stated in Bray v Ford by Lord Herschell, who plainly recognised its limitations ([1895–99] All ER Rep at p 1011;[1896] AC at p 51): “It is an inflexible rule of the court of equity that a person in a fiduciary position, such as the plaintiff’s, is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict. It does not appear to me that this rule is, as has been said, founded upon principles of morality. I regard it rather as based on the consideration that, human nature being what it is, there is danger, in such circumstances, of the person holding a fiduciary position being swayed by interest rather than by duty, and thus prejudicing those whom he was bound to protect. It has, therefore, been deemed expedient to lay down this positive rule. But I am satisfied that it might be departed from in many cases, without any breach of morality, without any wrong being inflicted, and without any consciousness of wrong-doing. Indeed, it is obvious that it might sometimes be to the advantage of the beneficiaries that their trustee should act for them professionally rather than a stranger, even though the trustee were paid for his services.”
“… and it is a rule of universal application that no one having such duties to discharge shall be allowed to enter into engagements in which he has or can have a personal interest conflicting or which possibly may conflict with the interests of those whom he is bound to protect.”
“It is an inflexible rule of the court of equity that a person in a fiduciary position, such as the plaintiff’s, is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict. It does not appear to me that this rule is, as has been said, founded upon principles of morality. I regard it rather as based on the consideration that, human nature being what it is, there is danger, in such circumstances, of the person holding a fiduciary position being swayed by interest rather than by duty, and thus prejudicing those whom he was bound to protect. It has, therefore, been deemed expedient to lay down this positive rule. But I am satisfied that it might be departed from in many cases, without any breach of morality, without any wrong being inflicted, and without any consciousness of wrong-doing. Indeed, it is obvious that it might sometimes be to the advantage of the beneficiaries that their trustee should act for them professionally rather than a stranger, even though the trustee were paid for his services.” “… and it is a rule of universal application that no one having such duties to discharge shall be allowed to enter into engagements in which he has or can have a personal interest conflicting or which possibly may conflict with the interests of those whom he is bound to protect.”
“(1) a director may not, without the consent of the company, during the currency of his directorship exploit for himself a commercial opportunity which is within the company’s line of business; (2) in acquiring [the Property] for themselves (via Silvercrest), [the appellants] placed themselves in a position where their self interest conflicted (or where there was a real, sensible possibility that their self interest did or would conflict) with the duties owed by them to the company as fiduciaries; (3) the acquisition of [the Property] was an opportunity so closely associated with the existing activities of the company that [the appellants] as directors: (A) were under a duty to make the opportunity available to the company, and/or (B) in acquiring it without first making it available to the company were under a duty to acquire it only for or on behalf of the company; and/or (C) in acquiring it are to be taken to have acquired it as fiduciaries for the company and to hold it on trust on its behalf.” (A) were under a duty to make the opportunity available to the company, and/or (B) in acquiring it without first making it available to the company were under a duty to acquire it only for or on behalf of the company; and/or (C) in acquiring it are to be taken to have acquired it as fiduciaries for the company and to hold it on trust on its behalf.”
“Rules of equity have to be applied to such a great diversity of circumstances that they can be stated only in the most general terms and applied with particular attention to the exact circumstances of each case.”
“The whole of the law is laid down in the fundamental principle exemplified in Lord Cranworth’s statement [in Aberdeen Railway Co v. Blaikie]. But it is applicable, like so many equitable principles which may affect a conscience, however innocent, to such a diversity of different cases that the observations of judges and even in your Lordships’ House in cases where this great principle is being applied must be regarded as applicable only to the particular facts of the particular case in question and not regarded as a new and slightly different formulation of the legal principle so well settled.”
“The phrase ‘possibly may conflict’ requires consideration. In my view it means that the reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in conflict.”
“The obligation not to profit from a position of trust, or, as it sometimes relevant to put it, not to allow a conflict to arise between interest and duty, is one of strictness. The strength, and indeed the severity, of the rule has recently been emphasised by the House of Lords in Phipps v. Boardman …. It retains its vigour in all jurisdictions where the principles of equity are applied. Naturally it has different applications in different contexts. It applies, in principle, whether the case is one of a trust, express or implied, of partnership, of directorship of a limited company, of principal and agent, or master and servant, but the precise scope of it must be moulded according to the nature of the relationship.”
“Lord Russell of Killowen in the Regal case held that the directors had acquired the shares ‘by reason, and only by reason of the fact that they were directors of Regal, and in the course of their execution of that office’. Lord Macmillan said that the directors were accountable for any profit which they made if it was by reason and in virtue of their office. Lord Wright said that an agent must account for profits secretly acquired ‘in the course of his agency’, and Lord Porter said that ‘one occupying a position of trust must not make a profit which he can acquire only by use of his fiduciary position, or, if he does, he must account for the profit so made’. If the profits made by the appellants [in Phipps v. Boardman] had been made as a result of the acquisition of the shares by them in 1957, it could not, in my view, be said that the shares were acquired ‘only by use of’ their ‘fiduciary position’, or ‘in the course of’ their ‘agency’ or by reason and only by reason of the fact that they were agents of the trust for certain limited purposes.”
“In this case, as Lord Macmillan said in the Regal case, the result depends on issues of fact. Liability to account must depend on their being some breach of duty, some impropriety of conduct on the part of those in a fiduciary position. On the facts of this case I do not consider that there was any breach of duty or impropriety of conduct on the part of the appellants.”
“…. indeed could not do so for the law was already so well settled.”
“The first matter that has to be considered is whether or not the defendant was in a fiduciary relationship with his principals, the plaintiffs. [Counsel for the defendant] argued that he was not because he received this information which was communicated to him privately. With respect, I think that argument is wrong. The defendant had one capacity and one capacity only in which he was carrying on business at that time. That capacity was as managing director of the plaintiffs. Information which came to him while he was managing director and which was of concern to the plaintiffs and was relevant for the plaintiffs to know, was information which it was his duty to pass on to the plaintiffs because between himself and the plaintiffs a fiduciary relationship existed…..”
“….embarked upon a deliberate policy and course of conduct which put his personal interest …. in direct conflict with his pre-existing and continuing duty as managing director of [the company].”
“That is something which for over 200 years the courts have forbidden.”
“I do not think it is necessary, but it appears to me very important, that we should concur in laying down again and again the general principle that in this court no agent in the course of his agency, in the matter of his agency, can be allowed to make any profit without the knowledge and consent of his principal; that that rule is an inflexible rule, and must be applied inexorably by this court, which is not entitled, in my judgment, to receive evidence, or suggestion, or argument as to whether the principal did or did not suffer any injury in fact by reason of the dealing of the agent; for the safety of mankind requires that no agent shall be able to put his principal in the danger of such an inquiry as that.”