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The Director’s Fiduciary Obligations—A Fresh Look?

Published online by Cambridge University Press:  27 June 2003

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Extract

It is a pillar of equity that “a person in a fiduciary position 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” (per Lord Upjohn in Phipps v. Boardman [1967] 2 A.C. 46, 123). The House of Lords in Regal (Hastings) v. Gulliver [1942] 1 All E.R. 378 demonstrated the unrelenting nature, and some have argued inequitable severity (see, e.g., Jones, (1968) 84 L.Q.R. 472), of the director-fiduciary’s obligations to his company. Such “absolutism” (Lowry & Edmunds, [2000] J.B.L. 122) is necessary because human infirmity makes it difficult to resist temptation, and it is only thus that the level of conduct for fiduciaries can be “kept at a level higher than that trodden by the crowd” (per Cardozo C.J. in Meinhard v. Salmon (1928) 249 N.Y. 456, 464). The principle that a director is free to act as a director of or otherwise engage in a competing business, established at the turn of the 19th century by Chitty J. in London & Mashonaland Exploration Co. Ltd. v. New Mashonaland Co. Ltd. [1891] W.N. 165 and assumed correct by Lord Blanesburgh in Bell v. Lever Bros. Ltd. [1932] A.C. 161, 195, is therefore clearly an aberration and somewhat difficult to defend. A reconsideration of the rule would be timely. In this light, the decision of the Court of Appeal in Plus Group Ltd. and others v. Pyke [2002] EWCA Civ 370 is something of a missed opportunity as both Brooke L.J. and Jonathan Parker L.J. thought it unnecessary to attempt a resolution. Sedley L.J., although perspicuous about his discomfort with it, nevertheless admitted that Mashonaland “is the law that binds us”. His Lordship did however observe that “if one bears in mind the high standard of probity which equity demands of fiduciaries, and the reliance which shareholders and creditors are entitled to place upon it, the Mashonaland principle is a very limited one”.

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Case and Comment
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Copyright © Cambridge Law Journal and Contributors 2003

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