England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY
DIVISION, LEEDS DISTRICT REGISTRY
(HHJ BEHRENS)

		Royal Courts of Justice Strand, London, WC2A 2LL
		31 March 2003

Lord Justice Jonathan Parker :

INTRODUCTION

1. This is an appeal by the second and third respondents in the proceedings, Inderjit Singh Bhullar ("Inderjit") and Jatinderjit Singh Bhullar ("Jatinderjit") (together "the appellants"), against an order dated 8 May 2002 and made by His Honour Judge Behrens, sitting as a judge of the High Court in the Chancery Division, Leeds District Registry. Permission to appeal was granted by Arden LJ on 26 September 2002, following an oral hearing.
2. In the proceedings, the appellants' uncle Mohan Singh Bhullar ("Mohan"), his two sons Steven Singh Bhullar and Kalvinder Singh Bhullar (known as Tim) ("Steven" and "Tim" respectively) and his wife Charan Kaur Bhullar petition under section 459 of the Companies Act 1985 ("the 1985 Act") for relief in respect of a family company, Bhullar Bros Ltd ("the Company"). The petitioners (whom I shall call collectively "Mohan's family") together hold 50 per cent of the issued ordinary shares in the Company. The remaining 50 per cent is held by the appellants, their father Sohan Singh Bhullar ("Sohan") and their mother Rajinder Kaur Bhullar (I shall call them collectively "Sohan's family"). The directors of the Company are and have at all material times been Sohan, Mohan, the appellants and Tim. Hence Sohan's family have at all material times had a majority of 3:2 on the board of the Company. The respondents to the petition are Sohan's family and the Company. The Company has not played any independent role in the proceedings.
3. By the petition, Mohan's family allege that the affairs of the Company have been conducted in a manner which is unfairly prejudicial to their interests, and they seek by way of primary relief an order for the sale to them, or to the Company, of the shares held by Sohan's family at a price to be determined by the court; alternatively, an order giving relief in respect of the various matters of which complaint is made, including an order for the reconstruction or reorganisation of the Company's business. The petition also seeks authority for Mohan's family to bring proceedings in the name of the Company against the appellants for breach of fiduciary duty.
4. In the result, following a lengthy hearing, the judge declined to grant the primary relief sought by Mohan's family. He did, however, find that the appellants had breached their fiduciary duty to the Company in acquiring for their personal benefit a property known as White Hall Mill ("the Property"), which they had purchased in the name of Silvercrest Trading (GB) Ltd ("Silvercrest"), a company which they own and control. By his order the judge declared that Silvercrest holds the Property on trust for the Company and he ordered that the appellants at their own cost procure that Silvercrest transfer the Property to the Company at the price which was paid for it. He also directed an account of profits. In order to avoid the need for Silvercrest to be joined as a respondent to the petition, counsel for the appellants (Mr Neil Berragan, who also appears for the appellants on this appeal) was also instructed to represent Silvercrest.
5. The appeal relates only to the relief granted in respect of the purchase of the Property. There is no cross-appeal by Mohan's family against the judge's refusal to grant the primary relief sought on the petition. Mohan's family have, however, filed a respondent's notice seeking to uphold the relief granted in respect of the purchase of the Property on different or additional grounds.

THE FACTUAL BACKGROUND

6. Although the judge's recital of the factual history occupied 197 paragraphs of his admirably thorough and lucid judgment, the facts relevant to this appeal are not in dispute and can be shortly stated.
7. From about the 1950s, Mohan and Sohan ran a grocery shop at 44 Springwood Street, Huddersfield, as equal partners. On 22 October 1964 the Company was incorporated to take over the partnership business. The authorised share capital was £2,000 divided into 2,000 £1 ordinary shares. 1,000 shares were issued to Mohan and 1,000 to Sohan, and they became the first directors of the Company.
8. After some early loss-making years the Company began to prosper. In addition to its premises at 44 Springwood Street, it acquired a number of other properties in the locality from which it carried on its grocery business. It also acquired an investment property known as Springbank Works, Leeds Road, Huddersfield, which has at all material times been let to UK Superbowl Ltd for the purposes of a bowling operation. It is common ground that the objects of the Company as set out in its Memorandum of Association include the acquisition of property for investment.
9. On 1 February 1995 Tim and the appellants were appointed directors of the Company, joining Mohan and Sohan on the board.
10. By about May 1998 relations between Mohan's family and Sohan's family had broken down, and a state of considerable acrimony prevailed (the reasons for this are not material for present purposes). Mohan and Tim decided that the time had come for the two families to go their separate ways. They informed Sohan and the appellants of their decision at a board meeting held in about May 1998, saying that they did not wish any further properties to be acquired by the Company. Sohan's family accepted this decision in principle, and thereafter negotiations took place between the two families with a view to dividing the Company's assets and business between them. Unfortunately, for reasons which I need not go into, the negotiations came to nothing, and in 2001 the petition was issued.
11. In the meantime, in about June 1999 the appellants discovered by chance that the Property was on the market. The Property is adjacent to Springbank Works, and at that time UK Superbowl Ltd was using part of the Property as a car park. In paragraphs 71 and 72 of his witness statement Inderjit described what happened, as follows:

"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]."

12. Later in his witness statement, Inderjit states that prior to the acquisition of the Property he sought advice from the Company's solicitor, Mr John Norcliffe, as to whether there was any reason why he and Jatinderjit could not acquire the Property for their personal benefit. Mr Norcliffe's advice was to the effect that there was no difficulty about this.
13. Contracts were exchanged on 15 July 1999, and the purchase was completed shortly thereafter in the name of Silvercrest.
14. The appellants did not at that stage disclose the purchase to their co-directors.
15. Inderjit was cross-examined about the purchase of the Property by Mr James Corbett QC (appearing for Mohan's family). The transcript of his cross-examination contains the following passages:

"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?". You know – any conflict of interest in any shape or form. ....

.....

Q. ..... Did you go to get advice or not?

A. I went to give John Norcliffe the document for the offers etc. That's when I got the advice, and the completion took place several weeks afterwards. So yes, I did get the advice before, but I did not go specifically to get the advice.

....

Q. What was it you wanted legal advice about?

A. I just wanted to make sure there was no conflict of interest.

Q. What made you think there might be a conflict of interest?

A. Because the property was adjacent to our property.

Q. It was obvious to you, was it not, that there might be a conflict of interest about you acquiring that property instead of the company. Yes?

A. I believe there was no conflict of interest because I found the property in my private time. I had taken two or three days off, and therefore I didn't owe the company anything during my time off. And on top of which, Tim and Mohan had specifically said that they didn't really want anything to do with us after that. They wanted to split completely, separate the businesses, and not buy anything new or any other new business ventures or anything like that, they just wanted to separate.

Q. Did you regard yourself as not being a director during your time off?

A. No, I did not.

Q. You regarded yourself as being a director all of the time?

A. I am on call all the time in case there's staff problems or anything, yes I did. All the time ....

Q. And you saw this property and thought about buying it for yourself, is that right?

A. Yes, I did. .... Because I did not find out [about] it while I was at work, or any information whatsoever. No information whatsoever came to me because of my position within the company.

Q. You did not mention to Mohan or Tim that you were thinking about buying the property did you?

A. No I did not.

Q. Why not?

A. Because at that time I did not feel that I needed to, once the company solicitor had told me that I could go ahead and that there was no conflict of interest, and that I thought I would tell them later on, in my good time.

Q. But they did not even have to be asked about whether this property next door to company property should be bought by the company?

A. Not in my view, because they had specifically said they didn't want anything to do with us. They didn't want to buy anything new, they didn't want to start any new business, nothing whatsoever. So I automatically took it that they're only going to say "We're not interested".

....

Q. The reason why you did not tell them deliberately about your proposed purchase of that property was that you knew that there was a risk that they might say that the company should buy it. That is right, is it not?

A. Not at all, my Lord. I regarded this as my private affair, and therefore I did not need – I did not feel that I needed to disclose my private ongoings to anybody. I believed that at that time, Tim had his houses etc., I had not asked him, he had not told me, so therefore likewise I did not need to disclose what I was doing to anybody.

Q. Did you even think about whether you owed some duty to the company to act in its interests and not just in your own?

A. I believed there was absolutely no conflict of interest at that time....

Q. That is not an answer to my question. Did you even think about whether you owed a duty to the company before you owed a duty to your own interests?

A. Yes, I did think, and I thought I didn't owe the company that duty, regarding that building.

....

Q. Everybody still had an interest in what property the company had. That is right, is it not?

A. Yes, that is correct.

Q. And if that property next door to the company's property had been bought by the company, it was not a foregone conclusion as to who would have had it on an asset split, was it?

A. If it had been bought by the company, then no, there wouldn't have been. But the matter didn't arise, because Tim and Mohan had already said that they weren't prepared to entertain any such acquisitions or business acquisitions .... We simply assumed that because they said "We don't want to do anything new with you jointly in the future, and we want to split whatever is here", I assumed that that ruled out [business] opportunities altogether."

16. Jatinderjit was also cross-examined briefly about the purchase of the Property. He confirmed Inderjit's evidence.

THE JUDGE'S JUDGMENT IN RELATION TO THE PURCHASE OF THE PROPERTY

17. Having set out the relevant facts in paragraphs 161 to 166 of his judgment, the judge addressed the allegation of breach of fiduciary duty in paragraphs 264 to 273 of his judgment, as follows:

"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 134n,153 where 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 the company (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."

Pausing there, this formulation of the fiduciary duty of a director would appear to be absolutely in accord with the line of authority exemplified by Regal (Hastings) Ltd v Gulliver. Laskin J then continues as follows (at 382):

"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."

It is perhaps stated most highly against trustees or directors in the celebrated speech of Lord Cranworth LC, in Aberdeen Ry Co v Blaikie Brothers ([1843–60] All ER Rep at p 252) where he said:

"… 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."

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 a conflict.

269. Mr Corbett QC accordingly submits that when one looks at the undisputed facts surrounding the acquisition of Whitehall Mill there was a clear conflict of interest between the interests of Inderjit and Jatinderjit, and the interests of BBL. Accordingly he submits that there was a breach of fiduciary duty by Inderjit and Jatinderjit in making the acquisition without making full disclosure to BBL.

270. I have to confess that I have not found the resolution of this part of the case easy. Indeed it was for that reason that I invited the parties to make detailed oral submissions on the point notwithstanding the very full final submission I had received.

271. I agree with Mr Berragan that it cannot be said that the acquisition of Whitehall Mill was a "maturing business opportunity" within the meaning ascribed to it in the authorities to which I have referred. BBL were not in any sense negotiating for Whitehall Mill at the time of its acquisition. On the other hand I agree with Mr Corbett QC the question of whether this was a maturing business opportunity is not conclusive. The question I have to ask is the wider question posed in the passages in Lord Upjohn's speech to which I have referred.

272. In my view when one considers the undisputed facts of the case, in particular the facts relied on by Mr Corbett QC set out above, this was a case where the interests of BBL and those of Inderjit and Jatinderjit conflicted in the sense explained by Lord Upjohn. That is to say reasonable men looking at the facts would think there was a real sensible possibility of conflict.

273. It follows that there was a breach of fiduciary duty by Inderjit and Jatinderjit in acquiring Whitehall Mill for themselves. I do not think this is affected by the fact that Tim saw the letter from Eddisons dated 11^th June 1999. This did not amount to disclosure by Inderjit or Jatinderjit; nor did it amount to acquiescence by Tim let alone the other Group B shareholders. As the authorities show whether or not BBL would have taken up the opportunity is irrelevant. It is certainly not clear to me that it would not have done so. I agree that there is at the moment no evidence before me as to the profit that may have been made by Inderjit or Jatinderjit. That can only be determined on the taking of an account."

THE ISSUES ON THE APPEAL

18. The appellants challenge the judge's decision that in purchasing the Property through Silvercrest they breached their fiduciary duty to the Company on the ground that he wrongly applied the applicable principles, as laid down by the House of Lords in Phipps v. Boardman.
19. By their respondent's notice, Mohan's family seek to uphold the judge's decision on the following different or additional grounds:

"(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."

THE ARGUMENTS ON THE APPEAL

20. Mr Berragan, in his attractively presented submissions, submits that a director of a company is under no duty to offer to the company business opportunities which come to him privately, notwithstanding that the company may be in a position to exploit such opportunities. He submits that the judge was in error in holding that because the Company might possibly have been interested in acquiring the Property, ergo the appellants were in breach of their fiduciary duty in acquiring it for themselves. He submits that, applying the principles laid down in Phipps v Boardman, the first step is to identify the nature and scope of the appellants' pre-existing duty as fiduciaries in relation to the purchase of the Property. Until the nature and scope of that pre-existing duty has been identified, he submits, one cannot determine whether in purchasing the Property the appellants breached that duty.
21. He submits, relying on Millett LJ's analysis of constructive trusteeship in Paragon Finance plc v. Thackerar [1999] 1 All ER 400 at 408, that it is necessary to distinguish between constructive trusteeship which is said to arise from a wrongful act where there is no pre-existing fiduciary relationship, and a case such as the instant case where the fiduciary relationship predates the allegedly wrongful act. In the latter case, he submits, constructive trusteeship can only arise by reason of some improper dealing by the fiduciary with property belonging to his cestui que trust. Turning to the facts of the instant case, he submits that the opportunity to purchase the Property cannot be regarded as in any sense belonging to the Company, and that the mere fact that the Company might have been interested in purchasing the Property was not in itself enough to make it so.
22. In any event, he submits, on the uncontested evidence any interest on the part of the Company in acquiring the Property can only have been an extremely limited one. In support of this submission, he points to the evidence that the Company's main business consisted of operating supermarkets; that it owned only one commercial investment property (albeit adjacent to the Property); and that when the Property was acquired the Company had been trying unsuccessfully to sell one of its supermarkets for some two years. He also points out that there is no evidence that the Company had registered an interest in acquiring commercial investment property with any estate agent, or that Silvercrest acquired the Property on especially advantageous terms.
23. Mr Berragan submits that the judge's finding (in paragraph 271 of his judgment) that the opportunity to acquire the Property was not a "maturing business opportunity" is sufficient in itself to dispose of the claim based on breach of fiduciary duty; and that no question arises as to a possible conflict of interest. He relies on Regal Hastings v. Gulliver [1967] 2 AC 134n for the proposition that directors are only liable for breach of fiduciary duty where they are acting in the course of managing the company's affairs and "in utilisation of their opportunities and special knowledge as directors" (see ibid. at 153 per Lord Macmillan). He submits that on the facts as found the appellant's actions in purchasing the Property through Silvercrest were not related to the Company's affairs, nor can they be said to have been done in the course of managing the Company's affairs or to have involved the utilisation of opportunities or special knowledge acquired as directors.
24. In her written skeleton argument, Miss Rosalind Nicholson (for the Mohan family), relying in particular on the speech of Lord Upjohn in Phipps v. Boardman, submits that the equitable rule as to the accountability of directors is not limited to cases in which there is a "maturing business opportunity" but extends to cases in which the director either has or can have (to use the words of Lord Cranworth LC in Aberdeen Railway Co v. Blaikie (1854) 1 Macq 461, 471) "a personal interest conflicting, or which possibly may conflict, with the interests of whose whom he is bound to protect": in other words, as Lord Upjohn explained in Phipps v. Boardman (at p.124), where there is "a real sensible possibility of conflict". She submits that on the facts the instant case is such a case. In the instant case, the opportunity to acquire the Property was plainly in the Company's line of business. Relying on the decision of the Privy Council in New Zealand Netherlands Society "Oranje" Inc v. Laurentuis Cornelis Kuys [1973] 1 WLR 1126, she submits that that is enough to give rise to a real sensible possibility of conflict of interest. She submits that the circumstances in which the opportunity presented itself to the director are immaterial, since accountability does not depend on whether the director happens to be acting as such at the time.
25. Nor, Miss Nicholson submits, is it necessary that the director should have profited by taking the opportunity which presented itself. In support of this submission she relies on Parker v. McKenna (1874) LR 10 Ch 124. Citing Movitex Ltd v. Bulfield [1988] BCLC 104 at 117 per Vinelott J, she reminds us that a director faced with such an opportunity may always free himself from the obligation to account by obtaining the company's full and informed consent.
26. She further submits, relying on Industrial Development Consultants Ltd v. Cooley [1972] 1 WLR 443 at 451F per Roskill J, that a director may come under a positive duty to make a business opportunity available to his company if it is in the company's line of business or if the director has been given responsibility to seek out particular opportunities for the company and the opportunity concerned is of such a nature as to fall within the scope of that remit.

CONCLUSIONS

27. I agree with Mr Berragan that the concept of a conflict between fiduciary duty and personal interest presupposes an existing fiduciary duty. But it does not follow that it is a prerequisite of the accountability of a fiduciary that there should have been some improper dealing with property 'belonging' to the party to whom the fiduciary duty is owed, that is to say with trust property. The relevant rule, which Lord Cranworth LC in Aberdeen Railway Co v. Blaikie described as being "of universal application", and which Lord Herschell in Bray v. Ford [1896] AC 44 at 51, described as "inflexible", is that (to use Lord Cranworth's formulation) no fiduciary "shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which may possibly conflict, with the interests of those whom he is bound to protect".
28. In a case such as the present, where a fiduciary has exploited a commercial opportunity for his own benefit, the relevant question, in my judgment, is not whether the party to whom the duty is owed (the Company, in the instant case) had some kind of beneficial interest in the opportunity: in my judgment that would be too formalistic and restrictive an approach. Rather, the question is simply whether the fiduciary's exploitation of the opportunity is such as to attract the application of the rule. As Lord Upjohn made clear in Phipps v. Boardman, flexibility of application is of the essence of the rule. Thus, at ibid. p.123 he said:

"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."

Later in his speech (at p.125) Lord Upjohn gave this warning against attempting to reformulate the rule by reference to the facts of particular cases:

"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."

29. To my mind that warning is particularly apt in the instant case, given that the joint bundle of authorities which has been placed before us contains no less than 23 authorities, including Australian and American authorities.
30. As it seems to me, the rule is essentially a simple one, albeit that it may in some cases be difficult to apply. The only qualification which is required to Lord Cranworth's formulation of it is that which was supplied by Lord Upjohn in Phipps v. Boardman, where he said this (at p.124):

"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."

31. The strictness of the rule, and the flexibility of its application, was stressed by Lord Wilberforce in the Privy Council decision in New Zealand Netherlands Society etc. v. Kuys, where he said (at p.1129):

"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."

32. In support of his submission that the rule will only apply where there has been some improper dealing with trust property, Mr Berragan relies on Viscount Dilhorne's reference in Phipps v. Boardman (at p.84) to a purchase of trust property by a trustee as an example of impropriety on the part of the trustee in respect of which equity will require him to account. But I cannot read that observation by Viscount Dilhorne as imposing any kind of restriction on the rule as stated by Lord Cranworth.
33. Mr Berragan also relies on Viscount Dilhorne's references to Regal (Hastings) v. Gulliver when concluding (dissenting, with Lord Upjohn, from the majority of their Lordships) that, on the facts of Phipps v. Boardman, the appellants were not accountable for the profits they had made. Thus, referring to the Regal case, Viscount Dilhorne said this (at p.88):

"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."

34. Later in his speech Viscount Dilhorne said (at p.94):

"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."

35. As to the Regal case, Lord Upjohn said (at p.125) that in his view their Lordships in that case were not attempting to lay down any new view on the applicable law, and (he continued):

"…. indeed could not do so for the law was already so well settled."

For the same reason, I cannot regard Viscount Dilhorne (or for that matter any others of their Lordships in Phipps v. Boardman) as laying down any new formulation of the rule. The observations on which Mr Berragan relies were made by Viscount Dilhorne in course of applying the rule to the particular facts of Phipps v. Boardman.

36. In so far as reference to authority is of assistance in applying the rule to the facts of any particular case, the authority which (of those cited to us) is nearest on its facts to those of the instant case is the decision of Roskill J in Industrial Development Consultants Ltd v. Cooley. In that case, a commercial opportunity was offered to the defendant, who was at the time the managing director of the plaintiff company, in his private capacity. The defendant subsequently obtained his release by the company in order to exploit that opportunity for his own benefit. Had the company known that he had been offered that opportunity, it would not have agreed to release him. He was held accountable for the benefits he had received by exploiting the opportunity. The opportunity was not one which the company could itself have exploited.
37. Roskill J, after quoting extensively from Lord Upjohn's speech in Phipps v. Boardman, observed (plainly correctly, if I may respectfully say so) that although Lord Upjohn dissented (with Viscount Dilhorne) in the result, there was no difference between any of their Lordships as to the applicable principles, but only as to the application of those principles to the facts of the case. Turning to the facts, Roskill J said this (at p.451):

"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….."

38. Roskill J went on to hold that the defendant had:

"….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]."

He continued, referring to Keech v. Sandford (1726) Sel. Cas, t. King 61:

"That is something which for over 200 years the courts have forbidden."

39. He went on to stress the rigidity with which the rule had since been applied. As confirmation of this, he cited the following well-known passage from the judgment of James LJ in Parker v. McKenna:

"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."

40. I turn, then, to the facts of the instant case.
41. Like the defendant in Industrial Development Consultants Ltd v. Cooley, the appellants in the instant case had, at the material time, one capacity and one capacity only in which they were carrying on business, namely as directors of the Company. In that capacity, they were in a fiduciary relationship with the Company. At the material time, the Company was still trading, albeit that negotiations (ultimately unsuccessful) for a division of its assets and business were on foot. As Inderjit accepted in cross-examination, it would have been "worthwhile" for the company to have acquired the Property. Although the reasons why it would have been "worthwhile" were not explored in evidence, it seems obvious that the opportunity to acquire the Property would have been commercially attractive to the Company, given its proximity to Springbank Works. Whether the Company could or would have taken that opportunity, had it been made aware of it, is not to the point: the existence of the opportunity was information which it was relevant for the Company to know, and it follows that the appellants were under a duty to communicate it to the Company. The anxiety which the appellants plainly felt as to the propriety of purchasing the Property through Silvercrest without first disclosing their intentions to their co-directors – anxiety which led Inderjit to seek legal advice from the Company's solicitor – is, in my view, eloquent of the existence of a possible conflict of duty and interest.
42. I therefore agree with the judge when he said (in paragraph 272 of his judgment) that "reasonable men looking at the facts would think there was a real sensible possibility of conflict".

RESULT

43. I would dismiss this appeal.

Lord Justice Brooke:

44. I agree.

Lord Justice Schiemann:

45. I also agree.