Guinness Plc v Saunders and Another
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE FOX,LORD JUSTICE GLIDEWELL,SIR FREDERICK LAWTON |
| Judgment Date | 10 May 1988 |
| Judgment citation (vLex) | [1988] EWCA Civ J0510-1 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 88/0396 |
| Date | 10 May 1988 |
[1988] EWCA Civ J0510-1
Lord Justice Fox
Lord Justice Glidewell
Sir Frederick Lawton
88/0396
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(THE VICE-CHANCELLOR)
Royal Courts of Justice
MR. T. P. E. CURRY Q.C. and MR. J. R. CROW (instructed by Messrs. Calow Easton) appeared for the Appellant (Second Defendant).
MR. D. K. R. OLIVER Q.C., MR. R. A. FIELD Q.C. and MR. P. J. SALES (instructed by Messrs. Herbert Smith) appeared for the Respondents (Plaintiffs).
This is an appeal by the second defendant ("Mr. Ward") from an order of the Vice-Chancellor which declared (1) that Mr. Ward, upon receipt thereof from the plaintiffs, Guinness PLC ("Guinness") by Marketing and Acquisition Consultants Ltd. ("MAC") on or about 23rd May 1986 of the sum £5.2 million, held that sum as a constructive trustee for and on behalf of Guinness and continued to hold any part of that sum or any payments derived therefrom still vested in him as a constructive trustee for Guinness; (2) that Mr. Ward was liable as a constructive trustee to repay the sum of £5.2 million received by MAC on his behalf; and (3) that Guinness was entitled to an equitable charge over any bank or other account or over any other property to the extent that the balance in such account or such property as aforesaid derives from the £5.2 million or any part of that sum.
And it was ordered, inter alia, that Mr. Ward pay to Guinness the sum of £5.2 million and certain sums by way of interest.
Early in 1986 Guinness launched a takeover bid for Distillers PLC. The bid was strongly resisted.
Mr. Saunders (who is the other defendant but takes no part in these proceedings), Mr. Roux and Mr. Ward were all directors of Guinness and formed a committee of the Board of Guinness for the purpose of conducting the bid. The bid was, in fact, successfully concluded in April 1986.
In May 1986, MAC, which is a Jersey company controlled by Mr. Ward, submitted to Guinness an invoice for £5.2 million in respect of services connected with the bid. On 23rd May 1986 that sum was paid by Guinness to MAC. Although Guinness say that they were not, at that time, aware of the connection between the payment to MAC and Mr. Ward, Guinness now allege, and Mr. Ward admits, that the £5.2 million was received on behalf of Ward and should be treated as a payment to him. He was a director of Guinness at the material times.
Mr. Ward alleges that an oral agreement ("the Agreement") was made between Guinness and Mr. Ward that Mr. Ward should be paid £5.2 million for his services and advice as a business consultant to Guinness in connection with the bid. This payment was, as I understand it, in addition to payments to Mr. Ward's law firm for legal services in relation to the bid.
Guinness agree that Mr. Ward did render some service to the company during the bid, though the extent of the services and the capacity in which they were rendered (i.e. as director or legal adviser or business consultant) is in dispute. Guinness deny that the Agreement was entered into but contend that, even if it was (and I will assume that it was), it was made in breach of Mr. Ward's fiduciary duty as a director of Guinness in that it was not disclosed to the directors of Guinness as required by section 317 of the Companies Act 1985 and Article 100A of the Articles of Association of Guinness. It is contended by Guinness that Mr. Ward accordingly held the £5.2 million and the property for the time being representing it as a constructive trustee for Guinness and is bound to repay to Guinness any balance which cannot now be traced.
There is much dispute as to facts but the Vice-Chancellor made the order under Order 27 Rule 3 of the Rules of the Supreme Court, upon admissions by Mr. Ward. I will return to that aspect later.
The material provisions of the statute and of the Articles of Association are as follows:
Companies Act 1985 Section 317
"(1) It is the duty of a director of a company who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the company to declare the nature of his interest at a meeting of the directors of the company.
…
(7) A director who fails to comply with this section is liable to a fine.
…
(9) Nothing in this section prejudices the operation of any rule of law restricting directors of a company from having an interest in contracts with the company."
The Articles of Association
Article 2 Meanings
"The Statutes: The Companies Act 1948 and every statutory modification and re-enactment thereof for the time being in force concerning joint stock companies and affecting the Company.
The Board: The Directors of the Company for the time being (or a quorum of such Directors assembled at a meeting of Directors duly convened) or any Committee authorised by the Board to act on its behalf.
Article 100
(A) A Director who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the Company shall declare the nature of his interest at a meeting of the Directors in accordance with the Statutes.
…
(C) A Director may hold any other office or place of profit under the Company (other than the office of Auditor) in conjunction with his office of Director for such period and on such terms (as to remuneration and otherwise) as the Board may determine and no Director or intending Director shall be disqualified by his office from contracting with the Company either with regard to his tenure of any other such office or place of profit or as vendor, purchaser or otherwise, nor shall any such contract, or any contract or arrangement entered into by or on behalf of the Company in which any Director is in any way interested, be liable to be avoided, nor shall any Director so contracting or being so interested (unless otherwise agreed between him and the Company) be liable to account to the Company for any profit realised by any such contract or arrangement, by reason of such Director holding that office or of the fiduciary relationship thereby established.
(D) Any Director may act by himself or his firm in a professional capacity for the Company and any company in which the Company is interested, and he or his firm shall be entitled to remuneration for professional services as if he were not a Director: provided that nothing herein contained shall authorise a Director or his firm to act as auditor to the Company or any subsidiary.
Article 110
The Directors may establish any Committees…and may delegate to any Committee…any of the powers, authorities and discretion vested in the Board…"
As regards the pleadings, the statement of claim (after referring to the payment of the £5.2 million to MAC for Mr. Ward), alleges by paragraphs 7 and 8 as follows:
"7. By reason of his position as a Director of the Plaintiff, the Second Defendant owed a duty to disclose his interest in the said payment to the Plaintiff before the said payment was made…
8. In breach of the said fiduciary duties owed by each of the Defendants the said payment was made without the Second Defendant's interest therein being disclosed to the Plaintiff.…"
Paragraph 9 of the statement of claim then refers to the assertion by the defendants of the creation of the Agreement. Paragraph 10(A) of the statement of claim pleads:
"If, which is not admitted, the Second Defendant did provide business consulting services to the Plaintiff in respect of the said bid and the First and Second Defendants made the agreement in February 1986 referred to above and/or the First Defendant approved the said payment as remuneration for such services, the First and Second Defendants acted in breach of their said fiduciary duties in causing and/or permitting and/or approving the said payment and, in the case of the Second Defendant, receiving the same through MAC.
…
Particulars
(i) Neither the alleged agreement nor the said payment and the Second Defendant's interest therein was disclosed to the Plaintiff whether to the General Meeting or the Board of Directors as it should have been by each of the Defendants by reason of the Second Defendants said interest therein.
…"
Mr. Ward admits the receipt of the £5.2 million but says that, if he was under a duty to disclose his interest in the Agreement, such duty was discharged by disclosure to the committee of directors which I have mentioned consisting of Mr. Saunders, Mr. Roux and himself.
It was agreed before the Vice-Chancellor that there are three basic questions. First, has Mr. Ward admitted that there was no disclosure of his interest in the Agreement to a full meeting of the directors of Guinness? Secondly, if he has so admitted, is Guinness entitled to judgment for repayment of the £5.2 million? Thirdly, if Guinness is, thus far, entitled to such judgment, is Guinness prevented from recovering judgment by the claims which Mr. Ward asserts to be relieved from liability, either under section 727 of the Companies Act 1985 or by way of quantum meruit or by way of an allowance in equity? I deal with these matters in turn.
To continue reading
Request your trial
-
Clark v Cutland
... ... one express trust is paid improperly and without valuable consideration to the trustees of another trust, that money or its traceable proceeds still belongs in equity to the first trust and its ... to the pension fund trustees were without legal effect and not merely voidable (see Guinness plc v Saunders [1990] 2 AC 663 at 693 per Lord Templeman, with whom Lord Keith, Lord Brandon ... ...
- Avel Consultants Sdn Bhd and Another v Mohd Zain Yusof and Others
- Avel Consultants Sdn Bhd and Another v Mohd Zain Yusof & 2 Ors
- Re Ciro Citterio Menswear Plc ((in Administration)), Ciro Citterio Menswear Plc and Others v Thakrar and Others
-
The Continuing Value of Relief for Directors' Breach of Duty
...at first instance in Guinness plc vSaunders [1988] BCLC 43, 52. On appeal, the point was left open by Fox LJ in the Court ofAppeal ([1988] 1 WLR 863, 871); and found to be irrelevant to the determination of the claim bythe House of Lords ([1990] 2 AC 663). For the judicial assumption that re......
-
Virtual shareholder meetings: who decides how companies make decisions?
...above n 1, regarding the importance of deliberative assemblies in good corporate governance. (27) Simmonds, above n 1, 515-16. (28) [1988] 1 WLR 863; aff'd [1990] 2 AC 663 (House of (29) Section 317. (30) Guinness plc v Saunders [1988] 1 WLR 863, 868. The other members of the Court of Appea......
-
Case Note: DISCLOSING CONFLICTS OF INTERESTS
...Insurances Ltd v Scattergood, supra n 8, at [153]. 15 [1982] Ch 442. 16 Ibid at 445. 17 Supra n 15, at 453. 18 Supra n 15, at 454. 19 [1988] 1 WLR 863. This issue was not directly considered in the House of Lords. 20 That is, s 317 of the UK Companies Act 1985 (c 6). 21 Supra n 19, at 868. ......