Parks Of Hamilton (holdings) Limited V. Colin Campbell
| Jurisdiction | Scotland |
| Judge | Lord Hodge |
| Neutral Citation | [2011] CSOH 38 |
| Date | 24 February 2011 |
| Published date | 24 February 2011 |
| Docket Number | CA15/08 |
| Court | Court of Session |
| OUTER HOUSE, COURT OF SESSION [2011] CSOH 38 | |
| CA15/08 | OPINION OF LORD HODGE in the cause PARK'S OF HAMILTON (HOLDINGS) LIMITED Pursuers; against COLIN CAMPBELL Defender: ________________ |
Pursuer: Sandison QC; Brodies LLP
Defender: Logan; Campbell Smith W.S. LLP
24 February 2011
[1] The pursuers, the defender and others were formerly shareholders in a company called LAGTA Limited ("LAGTA"). In 2007 the defender, who was the managing director of LAGTA, negotiated the sale of the shares in LAGTA on behalf of the shareholders of that company. The pursuers seek an accounting from the defender on the ground that he obtained an undisclosed benefit in breach of his fiduciary or quasi-fiduciary obligations to them in the context of those negotiations.
[2] In an earlier decision in this case, [2008] CSOH 117, after a debate on the defender's preliminary plea to the relevancy, I allowed a proof before answer in relation to the pursuers' cases of misrepresentation and breach of fiduciary duty. The parties thereafter adjusted their pleadings and I have now heard a debate on (i) the defender's preliminary plea to the relevancy in which he sought dismissal of the action and (ii) the pursuers' plea to the relevancy in which they sought to exclude from probation certain of the defender's averments and to repel his plea that he was not liable to account to them as their agent for any breach of fiduciary duty.
[3] In short, the pursuers submit that the defender has failed to aver a case of full disclosure of a conflict of interest followed by informed consent; the defender submits that the pursuers and the other shareholders had constructive knowledge of the benefits which he was to receive. The defender also seeks to add a plea in law seeking relief under section 727 of the Companies Act 1985.
Factual background
[4] The pleadings and parties' submissions at debate disclosed that the parties agreed most of the essential facts in this case.
[5] On 16 August 2007 the defender wrote in his capacity as managing director of LAGTA to the shareholders of the company, informing them that Valley Forge (UK) Limited ("VFL") wished to acquire the share capital of LAGTA. The defender informed the other shareholders that, subject to the satisfactory outcome of a due diligence exercise, VFL proposed (a) that the share purchase agreement should be conditional upon the defender continuing to act as a consultant for LAGTA for eighteen months after completion of the share purchase and (b) that an indicative price of £21.50 per share be paid to shareholders other than the defender and an enhanced price of £26 per share to the defender "to reflect the 18 months consultancy period." The defender enclosed with the letter a pro forma power of attorney in his favour for the execution of the share purchase agreement.
[6] The pursuers averred that the defender did not inform any meeting of the board of directors of LAGTA that it was proposed that he would receive remuneration for the consultancy services which he was to provide other than the differential in share price in the proposed share purchase agreement. They averred that the defender was the only director of LAGTA who took part in the negotiation of the three agreements which eventually comprised the deal by which the shares were sold. Those agreements were: (a) the share purchase agreement with VFL, (b) a compromise agreement between LAGTA and the defender releasing LAGTA from any claim by the defender in connection with his employment as managing director and (c) a consultancy agreement by which the defender agreed to provide services to LAGTA after the share purchase.
[7] All three agreements were tabled at the settlement meeting on 30 November 2007, which a representative of the pursuers, Mr Douglas Park, attended. The agenda of that meeting allowed time for the consideration of the terms of the compromise agreement and the consultancy agreement but those who attended the meeting did not examine the documents in any detail. Mr Park signed the share purchase agreement on behalf of the pursuers. The pursuers averred that it was only after the share purchase agreement was signed on that date that they discovered that the consultancy agreement provided that the defender would receive £87,650 plus VAT and expenses per annum for his services during the period of his consultancy.
[8] In their claim based on breach of fiduciary duty the pursuers sought payment of £58,074. They averred that this sum was their proportionate share of the defender's earnings on the basis that the defender was under an obligation to disgorge his entire earnings from the consultancy agreement to the pursuers and the other shareholders.
[9] The defender averred that the solicitors and accountants acting for LAGTA, namely Holmes McKillop and PKF (UK) LLP respectively, had prepared the letter of 16 August 2007 for his signature. Holmes McKillop's terms of appointment were approved by the Board of LAGTA at a meeting on 27 November 2007. The solicitors and accountants negotiated the terms of all three agreements on behalf of all of the shareholders. The solicitors drafted and revised the agreements. The share purchase agreement referred to both the compromise agreement and the consultancy agreement. Signature of the latter two agreements was a component of the settlement of the share purchase agreement and a precondition of the payment of the consideration for the shares.
[10] The pursuers did not admit that those professional firms drafted the letter but averred that they were "ministerially representing the shareholders in the negotiation of the proposed share purchase agreement". They averred that the firms took on that role at the defender's instigation, that he instructed them and that they reported to him. The pursuers averred that the knowledge of Holmes McKillop or PKF as to the terms of the compromise agreement and the consultancy agreement was not held by them as agents of the wider group of shareholders. Accordingly, that knowledge was not part of the constructive knowledge of any shareholder other than the defender.
The law on fiduciary obligations
[11] There was no dispute about the basic rules of the law in relation to fiduciary obligations so far as relevant to this case. Both Mr Sandison QC and Mr Logan accepted as a workable summary what I said in my earlier decision ([2008] CSOH 117):
"[27] ... It is well established that judicial statements about fiduciary duties need to be understood in the context of the particular facts of the particular case. Nonetheless, the general principle in relation to conflict of interest which Lord Young stated [in Huntington Copper Co v Henderson (1877) 4 R 294] is not in doubt. The classic statement of that principle by Lord Cranworth LC in Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461 (at pp. 471-472), which concerned the duties of directors of a company, has been applied to agents and other fiduciaries in many contexts. It is as follows:
'The Directors are a body to whom is delegated the duty of managing the general affairs of the Company.
A corporate body can only act by agents, and it is of course the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principal. 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.
So strictly is this principle adhered to, that no question is allowed to be raised as to the fairness or unfairness of the contract so entered into.
It obviously is, or may be, impossible to demonstrate how far in any particular case the terms of such a contract have been the best for the interest of the cestui que trust, which it is possible to obtain.
It may sometimes happen that the terms on which a trustee has dealt or attempted to deal with the estate or interests of those for whom he is a trustee, have been as good as could have been obtained from any other person, - they may even at the time have been better.
But so inflexible is the rule that no inquiry on that subject is permitted.'
The core principle, which Lord Cranworth described as a rule of universal application, has often been reaffirmed, as for example by Lord Upjohn in Boardman v Phipps [1967] AC 46 at pp. 123-125: a trustee must not place himself in a position where his duty and his interest may conflict.
[28] Certain rules, which appear to me to be relevant to this case, are involved in or stem from that principle. First, a fiduciary may not enter an engagement which involves such a conflict of interest or which the reasonable man would think gives rise to 'a real sensible possibility of conflict': Boardman v Phipps, Lord Upjohn at p. 124. Secondly, in that context, a fiduciary may not act for his own benefit or for the benefit of a third party without having obtained the informed consent of his principal: Huntington Copper, Lord Young at p. 301; Bristol & West Building Society v Mothew [1998] Ch 1, Millett LJ at p. 18. Thirdly, the fiduciary's good faith and the absence of loss to the principal do not remove the fiduciary's obligation to account: Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134, Lord Russell of Killowen at pp. 144-145; Aberdeen Railway Co (above). Fourthly, in the absence of the principal's informed consent it is not sufficient for the fiduciary to establish that if he had disclosed the benefit he would have obtained that consent: Murad v Al-Saraj [2005] EWCA Civ 959, Arden LJ at paragraph 71."
[12] In this debate the principal area of dispute concerned disclosure, informed consent and imputed knowledge.
The defender's submissions
[13] Mr Logan for the defenders...
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