Q 6 2007 Zone B

Wagner Ltd runs a number of cinema’s two years ago David was given a contract as NED of the company
“for life”. Simon the owner of 75% of the shares in Wagner Ltd was perfectly happy with this
arrangement. Six months ago David was approached by Puccini Ltd to work as a NED for its company.
Puccini Ltd is a competitor for Wagner Ltd; David accepted the appointment without telling Wagner Ltd.
He was not given an employment contract by Puccini, but its AA states that any director removed from
office is entitled to three months of compensation.

At a recent social occasion, Simon told David that there was a rumor that Puccini had been approached
by Verdi Ltd who was offering to sell them a cinema for £101,000. Simon said that although the cinema
is in very attractive position the price is too high. Immediately thereafter David contracted Verdi and
agreed to purchase the cinema for him at £95,000.He had resold it for £105,000.

When Wagner and Puccini discovered the above they each remove David as Director, and they each
seek to hold David liable for the profit made of the purchase and sale of the cinema.

Advise David of any liability he might face to each of these companies and weather he will be entitled to
any compensation from either company as removal of him as director.

Issues

- David is a NED of Wagner Ltd and Puccini Plc

Competing Directorships

- Cook V Deeks , IDC v Cooley a director has a fiduciary duty towards his company.
- By David being a director of both companies is a breach of fiduciary as he could be stealing
information from one company to the other.
- The moment David comes up with a business opportunity for Wagner, it will automatically be at
the detriment of Puccini.
- London Mashanoland v New Mashanoland – a director is allowed to hold competing
directorships.
- Plus group v Pyke – doubted the position of London Mashanoland
- Reformed in Bell v Lever Brothers – a director cannot hold competing directorships
- CMS Simmons Dolphin- one is allowed to use the ‘know how’ of a business but not the contacts
of the former business.
 - OTF there is a breach of this as David had purchased a cinema from Verdi Ltd but this was
obtained from the contacts of Wagner Ltd.
- S 172 CA 2006-Duty to promote success of company (a director must make decisions in good
faith for the benefit of a company)
- The actions of David appropriating a corporate opportunity would amount to a breach of the
above provision.
- S 172(1)(f)CA 2006 the need to act fairly between members of a company.
- By David being a NED of two competing companies would not amount to acting fairly between
both companies.
- This is because a decision that is made for Wagner Ltd would not benefit Puccini Ltd.
- Aberdeen Railway v Blackie Brothers - Here the director of a railway company is also the
director of Blackie Brothers , the railway company contracted to purchase chairs from Blackie
Brothers . This lead to the director being put in a position of conflict of interest.
- Similarly OTF David is in a position of conflict of interest.
- David has breached the terms of S 175 CA 2006

Purchase of cinema

- David purchased a cinema for £95,000 and sold it for £105,000. He made a profit of £10,000.He
had obtained this information from Simon the Director of Wagner Ltd.
- Simon had said “ although the location is good the price is too high”
- David knowing that Verdi had approached Puccini with a price of £101,000. David had
purchased the property for himself.
- S 175(1)CA 2006-This is in breach of duty to avoid conflict of interest
- IDC V Cooley- where a third party approach the director in person to deal with him. This
amounts to conflict of interest.
- Scottish Co-operation v Mayor- Competing directorship is allowed if the companies are not in
conflict with each other. If it is then it is not allowed.
- OTF the two companies are in conflict as they are rivals.
- S 172(2) CA 2006-the exploitation of information is irrelevant weather the company intends to
take advantage over it.
- OTF even if Wagner Ltd did not purchase the cinema. The expression that “even if the location is
good” seems to indicate interest. (this amounts to appropriating a corporate opportunity)
- Bhullar v Bhullar A director must bring attention to the company even if it was not interested in
it.
- David did not bring this corporate opportunity to its company.
- S 177 CA 2006 – Duty to declare interest
- S 177(1)CA 2006 if a Director is directly or indirectly interested in a transaction it must be
disclosed to the board of members.
- OTF David did not disclose this to members of both companies. If he had disclosed it and the
members are fine with the transaction then there is no issue.
 S 177(6)CA 2006- If parties could not have any reasonable interest in the transaction then there
is no need to disclose information.
- OTF It is clear that both parties were interested in the said transaction. As Wagner and Puccini
Ltd has expressed an interest in the said transaction,
- David has clearly breached S 177 CA 2006. His actions would be considered illegitimate.

Remedies

- S 178(1)CA 2006 Civil consequences of a general duty would lead to equitable principles being
applied.
- This is to say that the sum of £10,000 profit that is made by David is to be divided between
Wagner and Puccini Ltd.
- S 1157CA 2006- Defense of acting honestly and reasonably(honestly didn’t know)
- This may not apply as it is unlikely that David would have not known that both parties are
competing.
- And unlikely that David would not have known that both parties are interested in the said
property. It is clear that he plans to make extra profits for himself.
- S 180 CA 2006- If there is consent or approval from both parties then it is fine. But there is
none of such on the facts.
- Puccini’s Ltd AA starts that if a director is removed from office he must be given 3 months
compensation.
- Safron v Welfrey-Compensation is only afforded if a director had done is best in his duties.
- Otf unlikely.