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Directors' Fiduciary Duties Cases

The document discusses key legal cases regarding directors' duties, specifically focusing on fiduciary responsibilities as established before and after the Companies Act 2006. It highlights the British Midland Tool case, which emphasizes a director's obligation to act in the company's best interests and disclose competitive plans, and the IDC v Cooley case, which holds directors accountable for profiting from opportunities obtained during their tenure. Additionally, it mentions the Thermascan v Norman case, which clarifies that directors may not be liable for using general knowledge acquired during their directorship to benefit a new business.

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41 views2 pages

Directors' Fiduciary Duties Cases

The document discusses key legal cases regarding directors' duties, specifically focusing on fiduciary responsibilities as established before and after the Companies Act 2006. It highlights the British Midland Tool case, which emphasizes a director's obligation to act in the company's best interests and disclose competitive plans, and the IDC v Cooley case, which holds directors accountable for profiting from opportunities obtained during their tenure. Additionally, it mentions the Thermascan v Norman case, which clarifies that directors may not be liable for using general knowledge acquired during their directorship to benefit a new business.

Uploaded by

choudaryali90
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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THE FIRST TWO CASES WERE DECIDED BEFORE THE COMPANIES ACT 2006 WAS IMPLEMENTED BUT

THEY ARE AUTHORITIES FOR THE SAME DIRECTORS’ DUTIES AS LATER STIPULATED IN THE 2006 ACT
AND PUT IN BRACKETS AND/OR IN ITALICS FOR YOU HERE:

British Midland Tool Case: Once the decision to set up a business in competition has been made,
that is sufficient to hold a director responsible, regardless of whether actual/significant steps were
taken after resignation from the company. What matters is the time when the information helping
the director in forming the competitive business was acquired by him:

A number of directors hatched the plan to go into competition while they were still working for the
company. One of them then retired, but the others continued as directors for a while longer before
resigning themselves and immediately activating the new business. The judge held that
implementation of the directors' plan necessarily involved a breach of fiduciary duty even by those
individuals who remained, for the time being, directors of the company.

Held: a director's duty to act so as to promote the best interests/success of the company (section
172 of Cos. Act 2006) included a duty on his part to inform the company of any activity, actual or
threatened, which might damage those interests, even where that involved telling tales on his co-
directors.

IDC V Cooley: A director is accountable for all the profit he made out of the opportunity or
confidential information entrusted to him while he was director of the same company before any
resignation. (grasping a possible economic opportunity and section 170(2) ):

Mr Cooley was an architect employed as managing director of Industrial Development Consultants.


The Gas Board had a lucrative project pending and in negotiations with IDC. Mr. Cooley was told that
the gas board did not want to contract with IDC, but directly with him. Mr. Cooley then told the
board of IDC that he was unwell and requested he be allowed to resign from his job on early notice.
They accepted his resignation. He then undertook the work for the gas board on his own account.
IDC found out and sued him for breach of his fiduciary duty.

Held: He was in direct breach of his fiduciary duty as he had profited personally by use of an
opportunity which came to him through his directorship: it made no difference that the company
itself would not have obtained the contract. He was therefore accountable to the company for the
benefits gained from the contract.

The IDC case shows that an individual may still be subject to the duties even after he ceases to be a
director and that there is a Section 175 duty To Avoid Conflicts Of Interest.
Thermascan V Norman: If the information came to the director in question through a "general fund
of knowledge accumulated while a director” of (previous) company then there would be no liability
for setting up a business or using the information to the disadvantage of the company he was part of.

(section 171 is based upon the equitable principle that directors ‘must only act within the powers
that have been vested in them for the purposes of which they have been vested)

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