The Proper Purpose Rule as a Constraint on Directors’ Autonomy – Eclairs Group Limited v JKX Oil & Gas plc

Date01 January 2017
DOIhttp://doi.org/10.1111/1468-2230.12244
Published date01 January 2017
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CASES
The Proper Purpose Rule as a Constraint
on Directors’ Autonomy – Eclairs Group Limited vJKX
Oil & Gas plc
Rosemary Teele Langford and Ian M. Ramsay
The recent case of Eclairs Group Limited vJKXOil&Gasplchighlights the pressures faced
by company directors in change of control situations, in which they may be tempted to take
action to prevent or discourage such change. The Supreme Court decision provides important
clarity on the scope of the proper purpose rule in these (and other) situations. We explore the
implications of different judicial interpretations of the proper purpose rule for the autonomy of
directors in their decision-making. We do this by focusing on the scope of the proper purpose
rule, whether a subjective or objective test is employed in the application of the rule and the
test for causation where a director is motivated by mixed purposes.
INTRODUCTION
Directors, as fiduciaries, are subject to duties and constraints to ensure they act
in the interests of the company. One of these is the proper purpose rule, now
codified in section 171(b) of the Companies Act 2006. This section provides
that a director of a company must only exercise powers for the purposes for
which they are conferred. Debate about the scope and contours of the proper
purpose rule is longstanding and has featured prominently in earlier volumes
of this journal.1The scope of the rule was the key aspect of the decision of the
Supreme Court of the United Kingdom in Eclairs Group Limited vJKX Oil &
Gas plc.2
This case assumes particular importance in our understanding of the proper
purpose rule, especially due to the different interpretations regarding the scope
of the rule expressed by the Court of Appeal and the Supreme Court. The
majority of the Court of Appeal provided a narrow interpretation of the
rule. A much broader interpretation was provided by the Supreme Court. In
the words of Lord Sumption,
Senior Lecturer and Harold Ford Professorof Commercial Law, Melbourne Law School, University
of Melbourne, respectively.
1 See, for example, J. R. Birds, ‘Proper Purpose as a Head of Directors’ Duties’ (1974) 37 MLR
37; B.V. Slutsky, ‘Canadian Rejection of the Hogg v Cramphorn “Improper Purposes” Principle
– A Step Forward?’ (1974) 37 MLR 457; S. J. Burridge, ‘Wrongful Rights Issues’ (1981) 44
MLR 40; S. Worthington, ‘Reforming Directors’ Duties’ (2001) 64 MLR 439.
2 [2015] UKSC 71 (Eclairs (SC)).
C2017The Author. The Modern Law Review C2017 The Modern Law Review Limited. (2017) 80(1) MLR 110–132
Published by John Wiley& Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

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