Company and Commercial Law - LAWS62023

LAWS62023 - This paper is based on Company and Commercial law. This essay focuses on the director's duties in light of the no-conflict-no-profit rule, which can be harsh or flexible in modern usage. Prior to the Companies Act of 2006, domestic development of corporate governance in enterprises was limited to a framework in which effective enhancement was recognised (CA-2006). CA-2006 went into effect to simplify the regulations of private-sector companies. The birth of this act related to the roles of officials in a company had a significant impact, leaving it as landscape legislation in the UK.

M d e a e a a d er a ao ul N m : Comp ny n Comm ci l L w
M d e de A 1o ul Co : L WS62023-
e ere e 1SU R f nc No: SU 7029393
rdWo Count: 2693

Introduction
Domestic development of coperate governance in enterprises were limited to a framework where
effective enhancement was recognized prior to Companies Act 2006 (CA-2006). In order to
simplify the regulations of companies in the private sector, CA-2006 came into force. A vast
effect was brought out with the birth of this act related to roles of officials in a company
remaining it to be a landscape legislation in UK. Board members of a company is ensured to
make decisions that would benefit the company. This concept was derived from the Latin term
‘fiducia’ meaning that the officials have a duty to build a relationship of loyalty, confidence and
trust between director, company and shareholders.1 This essay is focused on director’s duties in
light with no-conflict-no-profit rule to be harsh or flexible in the modern use.
An immune effect is brought upon to the company with director’s decisions. Directors are
configured to be in a fiduciary relationship with the company. Equity puts them at a position
where they are required to work towards the benefit of the interest of the company by excluding
other personal interests with the exercise of powers2. No-conflict-no-profit rule, refrain from
accepting benefits from third parties and declaring interests in proposed transactions are duties in
relation to fiduciary of directors. No-conflict rule is given more focus with the backing of
judicial interference in deciding how changes should be applied in the modern era.
Scope of No-conflict-no-profit rule
Acting outside the scope given will lead to corruptions. Oversaturation of power vested within an
individual may self-center with abuses requiring balanced decent duties discharged evenly3. In
order to mitigate this, CA-2006 brings out Sec.175 dealing with no-conflict-no-profit rule.
According to the statutory definition, conflict of interest rule is interpreted as “the director
should not, without company’s consent, put himself in a position where there is a possible
conflict between duties owed to the company, personal interests conflicting or interests of third
parties”.4
1 Bristol and West Building Society v Mothew [1996] EWCA Civ 533
2 Burges Salmon, 'The Responsibilities And Duties Of A Company Director' (Burges-salmon.com, 2019)
<https://www.burges-salmon.com/news-and-insight/publications/the-responsibilities-and-duties-of-a-company-
director/> accessed 1 May 2020
3 John Farrar, 'Abuse Of Powers By Directors' (2020) 33 The Cambridge Law Journal 222
4 Companies Act 2006, s175

Directors are expected to act in accordance with policies of the company and exercise their
powers to increase the value of the company for a long term. Board members including directors
are fiduciary responsible to act accordingly to be beneficial to the enterprise. Therefore, they
should be cautious with the depth of relationship to ensure no interests are conflicted. If a strict
governance of the rule is not carried out, stakeholder’s confidence on the association will not be
guaranteed. A director engaging in wrongful trade resulting in a debt because of it, will be liable
as a conflict arises.5 Conflict of interest positions the company at risk to act in the best interest of
the organization. Any incident which associates conflicting interests with another, director is
expected to excuse themselves from the transaction unless told otherwise.
Doctrine of conflicting interests incorporated in Aberdeen V Blaikie
Strict compliance of this notion was set out in the case Aberdeen. This essay revolves around the
concept from this case; Directors having conflicting interests with another party. Mr.Blaike was
self-dealing while acting with conflict of interest resulting the contract to be void. Fixing a
higher price dealt with personal interest rather than looking for the best interest of the company6.
As Fullerton J reiterated, would the same rule apply if the accused party was a trustee or a
manger apart from being a body of directors.7 In the same aspect it is clear that this rule is
dysfunctional in some aspects.8 This essay derives onto each defects of the rule while explaining
if the rule is associated with the duties of directors subjected to being too harsh. The question of
‘can these rules be enforced if they are stricter than before?’ will be addressed.
The principle adhered in the prominent case Aberdeen is strict where no questions are raised
related to the fairness/unfairness of the contract. Moreover, the provision of Sec.175 stands as a
prophylactic ethical rule as laid down in this case.9 With the origin of this case, the concept of
coperate opportunity was evolved. A situation where a duty to avoid conflict of interest is
exercised is interpreted as ‘coperate opportunity’. If the Director appropriate for his own
5 Re a company [1988] BCC 526
6 Aberdeen Rail Co v Blaikie [1854] UKHL 1 Macqueen 46
7 Ibid n6 (Fulleton J)
8 David Gibbs, 'Aberdeen Rail Co V Blaikie [1843-1860] All ER Rep 249: Lord Upjohn, Was It Really "So Well
Settled"?' (Gibbslawandlife.blogspot.com, 2010) <http://gibbslawandlife.blogspot.com/2010/10/aberdeen-rail-co-v-
blaikie-1843-1860.html> accessed 1 May 2020.
9 Anthony Nwafor and Chinwe Okoli, 'The Corporate Opportunity Doctrine - An Inflexible Or Flexible Rule' (2013)
9 Corporate Board: role, duties and composition 24

economic benefit by excluding any other extraneous benefits owned to the company because of
the opportunity is in breach of his duty as a fiduciary.10 CA-2006 creates controversy for modern
directors to be uncertain in terms of Sec.175. The legislation focuses on safeguarding the
integrity of Director’s loyalty11 and on promoting company’s culture.12 In order to accomplish a
concise application of no-conflict-no-profit rule, the author of this essay is bringing out
arguments to make the rule more flexible in the modern use.
Critical Analysis on flexible approach to no-conflict-no-profit rule
I. No-profit and no-conflict applied simultaneously
Sec.175,17713,18214 are required to encompass equitable obligations colliding together as no-
conflict, no-profit and self-dealing rule.15 The initial issue answered with this context is in
relation to the separate rules of ‘no-conflict’ and ‘no-profile’ rule. Firstly, to establish the conflict
of interest notion, the interest of Directors and transaction in question needs to be linked. The
objective of no-conflict rule is to preclude director from being dominated by personal interests
whereas no-profit rule precludes director from misusing his position for personal monetary
advantages.16 This rule had been applied simultaneously to directors as precisely applied to
managers and trustee pre-2006 era.17 However, after the enactment of CA-2006, these two rules
have been adopted to act separately.
Whether these two rules are applied separately has not been clearly established in recent cases
and this issue was subjected to academic reviews.18 Many scholars have argued to reconsider the
demarcation of objectives between the rules. CA-2006 expressly states about conflict and a
mention of profit to be too vague in Sec.175. Even though academics argue a strict scrutiny
involving the distinction of the rules being appreciated, the author of the essay beg to differ.
10 Prentice [1984] MLR 464
11 Douglas Kershaw, ‘Lost in Translation: Corporate Opportunities in Comparative Perspective' (2005)
25(4) Oxford Journal of Legal Studies 603
12 Lowry and Edmunds, ‘The Corporate Opportunity Doctrine: The Shifting Boundaries of the Duty and its
Remedies’ (1998) 61 Modern Law Review 515
13 Ibid n4, s177
14 Ibid n4, s184
15 Alan Dignam and John Lawry, Company Law (7th edn, Oxford University Press 2012) 413
16 Kak Loui Chan v Zacharia (1984) 154 CLR 178
17 Keech V Sandford [1726] EWHC Ch J31
18 Pearlie Koh, ‘Once a Director, Always a Fiduciary?' (2003) 62(2) Cambridge Law Journal, 403

Practical differences of no-profit had been detected when forming the provision. Currently,
courts are not concerned themselves about the company’s interests however is anxious in
deciding the opportunity arose to the company when he was acting as a fiduciary. In that case, if
an opportunity was addressed to him independently, the company should not to keep him
accounted for conflicting interests. This post-2006 strategy had acted cooperatively with
detecting what actual coperate opportunity cases are. The author is putting out the suggestion to
make the rule more flexible by attaching both no-profit and no-conflict rules to be exercised
concurrently together. By doing so, cases will limit to where money is only conflicted. Thereby,
a better concise application will be carried out by Sec.175.
II. Decrease scope for abuse of power
When companies cannot own up-to opportunities, director will force himself to fully utilize the
opportunity for their benefit by neglecting the advantages for the company. If a strict approach
was adopted, director will continue to act unfaithfully by conflicting interests because the idea of
being pressured, cornered will make them be more concerned to work towards their own benefit.
Even though no-profit rule is exercised to ensure a safe mechanism to mitigate abuses, as long as
a strict approach is adopted respective to no-conflict rule, decrement of corruptions will not be
guaranteed.19 Therefore, it is wise to provide a lee-way for directors to act freely by flexing the
rule to a certain extend.
III. Director acting in good faith
In exercising laws related to coperate opportunity, the courts have confirmed that the director’s
intentions irrelevant to the scope even if director has acted in bona fide evidently. Regal V
Gulliver proves the strict approach of courts in cases relating to conflicting interests associated
with the director being a pre-2006 case. It was argued that profits made out of the transaction
needs to be returned to coperation as Director’s personal interests were conflicting. Genuine
intentions of good faith were evolved in the director’s mind as its proven that he took extra risks
to develop the project. If not for his actions to exploit the enterprise which the company was
unable to do on its own, the company would face with a loss.20
19 'Effect Of Companies Act 2006 On Director Conflict Of Interest' (Ukdiss.com, 2019)
<https://ukdiss.com/examples/companies-act-2006-conflict-of-interest.php> accessed 1 May 2020
20 Regal (Hastings) Ltd v Gulliver [1942] UKHL 1

All of the liability derived from Sec.175 is attached to them by virtue of their position. In simple
terms, “directors do not have a commercial life outside of the company”.21 Just because a certain
opportunity is related to the company, it would be unreasonable to hold director liable whenever
a breach occurs. Generally, coperate opportunity overlaps with fiduciary duties. Therefore,
accompany of money will lead to disloyalty. No-conflict-no-profit rule needs to be flexible to
review the intentions of directors as well. It is clearly absurd, capricious to hold a director liable
who acted in good faith to save the company from bankruptcy. Therefore, if a bona fide intention
is established, the company should not make the director accountable for profits he made. In that
sense the author of the essay notes that if the rule was more flexible in application for cases, such
unfair corruptions will not be leaded and it would help one to act honestly without prioritizing
their own interests than that of the company.
IV. Coperate opportunity doctrine
The case, Boardman V Phipps brings out another reason for the significance of a flexible rule.
This is a classic case example to define the application of coperate opportunity doctrine by
incorporating both no-conflict and no-profit rule. Boardman was an acting solicitor who
exploited his opportunity by capitalizing the assets of the company while obtaining profit for his
position as the director. It has been evident that he acquired confidential information in order to
proceed with the profit. Court held; the profits should be returned as a clear indication of conflict
of interest was evident. However, it should be acknowledged that gaining personal opportunity
did not show any signs of dishonesty.22 Similar to Regal case, if not for the exploitation, the
company would lead to a loss.
Critically analyzing the facts of the case, it is incompetent to hold the director liable after
assisting to uplift the gain and reputation of the company. The creator of law has disregarded link
between fiduciary and profits when the director exploited the company with intentions of loyalty
because the courts imposes a strict duty on him regardless of being honest.23 In circumstances
likewise, imposing a flexible approach is advisable. The courts should revisit the operation of the
no-conflict-no-profit rule in harsh instances.24 The dissenting judgment of Regal emphasize that
21 Andrew Keay, directors’ duties (2 edn, Bristol Jordon, 2014) 333
22 Boardman v Phipps [1966] UKHL 2
23 Ibid n19
24 Murad V Al-Saraj [2005] EWCA Civ 959

no-profit and no-conflict rule should exist independently but the author disagrees because there
is a collateral relationship between the two rules. Therefore, they should exist simultaneously. In
such manner corruptions will mitigate like how it was presumed to be in Boardman’s case.
V. Undefined scope of the rule
Those who are unaware of what they are dealing with generally is mistaken about the diversity of
the scope. Controversy arises when common law does not define the extend to where a fiduciary
must exploit his duties. For instance, a fresh Directorial elect on one’s company would have the
theoretical knowledge on what No-conflict-no-profit rule is, by following the company policies.
However, since there is an absence in practicality, directors will not be able to distinguish what
his personal interests are limited to. Therefore, with this reasoning the author of the essay diverts
to the ideology to make the rule flexible than what is existing modernly in CA-2006.
VI. New commercial realities
Another reason is when considering director’s interests conflicting when a subsidiary of the main
coperation is developed. It draws attention that he will be in conflicting interests between two
companies even though it involves same franchises. Multiple directorships conflicts interest
between companies. Specially directing in competitive companies.25 It was allowed until
Parliamentary standing committee interfered saying it will be inconvenient to be directors in two
competing companies. This was confirmed in Plus Group Ltd V Pyke saying being active
directors of two companies will lead to confusion.26 However, this ideology was not eliminated
from the sector. If the scope was flexible, directors will have the discretion to serve as directors
for multiple corporations by gaining fame and profit.
VII. Misappropriation of company’s funds and self-advantages.
A proposition where director is held in breach for finding an opportunity even if he was not
wearing the director’s hat is found in the case of Bhullar regarding a property situated next to
their company was purchased by him with the motive of setting up another business. Court held
director in breach as a fiduciary as company was not informed regarding the land.27 This case is
25 London & Mashonaland Exploration Co Ltd v New Mashonaland Exploration Co Ltd [1891] WN 165
26 Plus Group Ltd v Pyke [2002] EWCA Civ 370
27 Bhullar v Bhullar [2003] EWCA Civ 424, 2 BCLC 241

unfair with context to Sec.175. The author of the essay compromise as a strict rule should not be
applicable to modernized cases because every argument, facts and background differs from one-
another. The purpose of this rule was to restrict directors from misappropriating funds of the
company and self-advantages. Hence Maintaining a flexible approach for proposed transactions
is pertinent because if a strict approach was carried out for such cases, the objective of the rule
will not be met.
VIII. Contradiction if director is unwell
Director who had a stroke was not allowed to withdraw his investments and was denied from
receiving remuneration. Mr.Pyke did not breach his Fiduciary duties but was discriminated.
Courts have to be in a novel position to avoid terminating director from responsibility without
considering the profit he brought forward.28 When comparing this case to IDC V Cooley,
contemplating him for conflicting interest is fair as he faked his disease to gain the opportunity
of the company to himself. Even though the company was not able to obtain the opportunity, the
dishonesty of Cooley puts him in a position of breach as a fiduciary. In that sense, it is prudent if
the rule was adopted flexibly to safeguard Directors acting with honesty.
IX. Breach amounting to an immoral action
An expansive view of the provision needs to be seen to abduct abuses occurred as a result of the
case.29 Even if director is awarded with gifts, it should be accounted towards the assets of the
company.30 Because of the lack of clarity, positions of parties will not be conductive. The need to
look into a case in a reasonable man’s perceptive was brought by Bray V Ford. An objective
approach was looked at to think there was an actual sensible possibility of conflict between
parties.31 Furthermore, the company has no concern with the director’s profit if it did not relate to
company’s information.32 Company law review brought out shareholders of a company must not
be given the discretion to appoint or remove a director as it conflicts with the board of director’s
discretion to make decisions within the company.33
28 Towers v Premier Waste Management Limited [2011] EWCA Civ 923
29 Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443
30 Charles Wild and Stuart Weinstein, Smith And Keenan's Company Law (17th edn, Pearson 2016) 246
31 Bray v Ford [1896] AC 44 (Hersell LJ)
32 Bell v Lever Bros Ltd [1932] AC 161
33 Paul Davis, Introduction To Company Law (2nd edn, Oxford University Press 2010) 176

X. Director’s resignation
Opportunities directed at the director after the resignation is proceeded with does not conflict
with his interests with the former company. Foster V Bryant brings out assumption of director
acting in bad faith which was proven later that he did not take the post in another company
before his resignation was completed.34 In terms of director retiring/ resigning, the courts need to
look into a merit-based approach because one’s duty of being a fiduciary does not extend
afterwards.35 The author of the essay emphasizes if such considerations were brought out pre-
2006, continuance of such criteria in the modern era would mitigate the unwanted issues related
to conflict of interest.
Conclusion
Coperate industries rely individually taking power of their positions to thrive and take benefits
for themselves.36 The demands of coperate opportunity arising daily; require an enhanced
flexible application under statute and common law because the directors are considered as the
only individual to not venture towards their opportunity simply because his company acquires an
interest towards it. The commercial courts should interpret the law in accordance with
contractual expectations of Directors in modern world. Interpreting the law in a flexible manner
suggests how a case related to no-conflict-no-profit rule should be approached.37 An adjustable
approach needs to be applied realistically to affairs disclosing an actual conflict of interest and
not rhetorical conflicts.38 The author can conclude the essay by stating that time had come for
courts to consider relaxing the severity of the rule to an extend in appropriate cases.
Bibliography
Primary sources
34 Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200
35 Island Export Finance v Umunna [1986] BCLC 460
36 George Etomi, 'Implementing Checks And Balances On The Power(S) Of Board Of Directors | Lexology'
(Lexology.com, 2017) <https://www.lexology.com/library/detail.aspx?g=c2e9de1e-e05e-4dd0-91b3-8ab02114bace>
accessed 1 May 2020
37 Simon Whitney, 'Corporate Opportunities Law And The Non-Executive Director' (2016) 16 Tandonline 154
38 Boulting v Association of Cinematograph, Television and Allied Technicians [1963] 2 QB 606

Case laws
Aberdeen Rail Co v Blaikie [1854] UKHL 1 Macqueen 46
Bell v Lever Bros Ltd [1932] AC 161
Bhullar v Bhullar [2003] EWCA Civ 424, 2 BCLC 241
Boardman v Phipps [1966] UKHL 2
Boulting v Association of Cinematograph, Television and Allied Technicians [1963] 2 QB 606
Bray v Ford [1896] AC 44 (Hersell LJ)
Bristol and West Building Society v Mothew [1996] EWCA Civ 533
CMS Dolphin Ltd v Simonet [2001] EWHC Ch 415
Cook v Deeks [1916] UKPC 10
Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200
Gencor ACP Ltd v Dalby [2000] EWHC 1560 (Ch)
Green v Bestobell Industries Pvt Ltd [1982] 1 ACLC 1
Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443
Island Export Finance v Umunna [1986] BCLC 460
Kak Loui Chan v Zacharia (1984) 154 CLR 178
Keech V Sandford [1726] EWHC Ch J31
London & Mashonaland Exploration Co Ltd v New Mashonaland Exploration Co Ltd [1891]
WN 165
Murad V Al-Saraj [2005] EWCA Civ 959
O'Donnell v Shanahan [2009] EWCA Civ 751
Plus Group Ltd v Pyke [2002] EWCA Civ 370

Prentice [1984] MLR 464
Re a company [1988] BCC 526
Regal (Hastings) Ltd v Gulliver [1942] UKHL 1
Sharma v Sharma [2013] EWCA Civ 1287
Shepherds Investment Ltd v Walters [2006] EWHC 836
Towers v Premier Waste Management Limited [2011] EWCA Civ 923
Statutes
Companies Act 2006
Secondary sources
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Davis P, Introduction To Company Law (2nd edn, Oxford University Press 2010)
Dignam A, and Lawry J, Company Law (7th edn, Oxford University Press 2012)
Keay A, ‘directors’ duties’ (2 edn, Bristol Jordon, 2014) 333
Wild C, and Weinstein S, Smith And Keenan's Company Law (17th edn, Pearson 2016)
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Kershaw D, ‘Lost in Translation: Corporate Opportunities in Comparative Perspective' (2005)
25(4) Oxford Journal of Legal Studies 603
Koh P, ‘Once a Director, Always a Fiduciary?' (2003) 62(2) Cambridge Law Journal, 403
Lowry J and Edmunds R, ‘The Corporate Opportunity Doctrine: The Shifting Boundaries of the
Duty and its Remedies’ (1998) 61 Modern Law Review 515
Nwafor A, and Okoli C, 'The Corporate Opportunity Doctrine - An Inflexible Or Flexible Rule'
(2013) 9 Corporate Board: role, duties and composition
Simon W, 'Corporate Opportunities Law And The Non-Executive Director' (2016) 16
Tandonline 154