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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Bhullar & Ors v Bhullar & Ors [2002] EWCA Civ 1509 (26 September 2002) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2002/1509.html Cite as: [2002] EWCA Civ 1509

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IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION
LEEDS DISTRICT REGISTRY
(HIS HONOUR JUDGE BEHRENS
SITTING AS A JUDGE OF THE HIGH COURT)

		Royal Courts of Justice Strand London, WC2 Thursday, 26 September 2002

1. LADY JUSTICE ARDEN: This is a renewed application for permission to appeal against the order of His Honour Judge Behrens dated 8 May 2002. His Honour Judge Behrens was sitting as a Deputy Judge of the Chancery Division in the Leeds District Registry The application relates to part only of the judge's order, namely the declaration which the judge made that Silvercrest Trading (GB) Ltd ("Silvercrest"), which is owned by the second and third respondents to the action (the applicants today), holds its interest in the property known as Whitehall Mill, Huddersfield in trust for Bhullar Brothers Ltd ("BBL"). The judge also gave certain consequential relief against which it is also sought to appeal.
2. The grounds for appeal are in section 7 of the notice of appeal, namely that it is contended that:

"The Judge was wrong to hold that [the applicants] were in breach of fiduciary duty in purchasing Whitehall Mill through Silvercrest Ltd."

The applicants seek an order on appeal that this order be set aside.

3. I can summarise the material facts quite briefly. The petition was a petition for relief under section 459 of the Companies Act 1985. The parties to the petition, other than the company, were all shareholders in the company. There had been a breakdown in relations between the two sides of a single family that owned and controlled the company. The company owned and operated a number of grocery stores. The petitioners contended that the company's affairs had been conducted in a manner unfairly prejudicial to them and there was an allegation that the applicants were in breach of fiduciary duty by diverting a business opportunity, namely the opportunity to acquire the freehold of a site adjoining one of the company's properties, from the company for their own benefit.
4. The company's freehold site was a site called Springbank Works in Leeds Road, Huddersfield. Springbank Works is let to tenants, including UK Superbowl which occupies part of the site for a car park. It is not entirely clear to me from the judgment whether it is Whitehall Mill that is occupied for the purposes of a bowling alley and the company's property for a car park or vice versa, but it does not matter for present purposes. In 1999 the applicants discovered that Whitehall Mill was for sale. They decided to buy it through a company called Silvercrest, of which they were the sole shareholders, and they completed the purchase without obtaining the consent of the company. They acquired the knowledge that the site was for sale on a private occasion when they were attending the Superbowl premises and saw a For Sale notice outside.
5. The applicants argued that to fall within section 459 of the Act the opportunity had to be a maturing business opportunity or one related to the company's business and discovered by the directors in the course of their management of the company. The respondents contended that it was enough that the opportunity was related to the company's business and contended that there was in those circumstances a clear conflict of interest and duty.
6. The judge's conclusions are at paragraphs 271-273. In brief he decided that this was not a maturing business opportunity but that there was a real possibility of conflict. He said:

"272. In my view when one considers the undisputed facts of the case, in particular the facts relied on by Mr Corbett QC [counsel for the respondent to the petition] 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 [Phipps v Boardman [1996] 3AER 721]. That is to say reasonable men looking at the facts would think that there was a [reasonable] possibility of conflict.

273. It follows that there was a breach of fiduciary duty by Inderjit and Jantinderjit in acquiring Whitehall Mill for themselves. I do not think that this is affected by the fact that Tim saw the letter from Eddersons dated 11th June 1989."

That is a matter with which I need not deal. The judge went on to grant an account of the profits occasioned by reason of the acquisition by Silvercrest of the property Whitehall Mill.

7. On this application for permission to appeal the applicants have filed a skeleton argument and Mr Berragan appears on their behalf today. They contend that they discovered the property was for sale when they went to UK Superbowl on a private occasion and saw the For Sale notice. They point out that the judge did not hold that they were under a duty to disclose to the company that Whitehall Mill was for sale, and they contend that it was necessary for the judge so to decide. I need not comment on that, save to say that it is not entirely clear to me that this is an essential stage and that without it the applicants were bound to succeed. But I am not hearing the appeal, nor have I heard full argument, and accordingly I only make those observations for the purpose of saying that that reason of itself would not necessarily have caused me to grant permission to appeal.
8. At paragraph 13 of their skeleton argument the applicants contend that this particular opportunity was not within the company's existing business; that the company was indeed trying to dispose of other property; that the company had no particular interest in property in Leeds Road as such (as the judge may be read as having suggested); that Whitehall Mill was openly marketed and that there was no evidence of purchase at an undervalue. In paragraph 14 they point out that the fact that this was not a maturing business opportunity was enough to put an end to the matter, on their submissions.
9. In paragraphs 15 and 16 they refer to the speeches of Lord Macmillan and Lord Russell in Regal (Hastings) v Gulliver [1967] 2 AC 134, 153 and 147. Mr Berragan submits that the effect of these passages is to require the act to be done in the execution of a fiduciary's duties, or to be so closely related to the company's affairs that it can be said to have been done in the execution of those duties. Mr Berragan submits that those tests were not satisfied here. However, Mr Berragan also fairly accepts in his argument that the category of cases in which a business opportunity is to be treated as held for the benefit of the company is not closed as the basic principle is that a director must not place himself in a position in the performance of his office in which his duties and interest conflict.
10. In his submissions before me today, Mr Berragan has emphasised that it is well established that a director must not make personal use, without the company's full consent, of an opportunity of which he becomes aware in the course of his office as director and that he is accountable for the use of an opportunity which he was under a duty to disclose. The proposition on which he relies is in effect that where a director becomes aware of a business opportunity which is in a field in which the company is not actively engaged -- and in this regard he relies on the circumstance that the company had not resolved to expand its interest at Springbank Works -- then the opportunity is not one that the directors have to disclose to the company and for which they are accountable if they do not do so. Accordingly, the proposition being put before me and which it is said raises an issue which is suitable for the grant of permission to appeal is that it is arguable that a business opportunity to be one to which the company is entitled ought to be one within its existing line of business. Additional circumstances are relied on here, namely that the company is an owner-managed company; that the information was acquired privately; and, of course, that there was no evidence of undervalue -- or, I would add, of use of the company's property, for instance by way by way of a loan. That is the proposition.
11. Various authorities have been referred to before me. The case of Island Export v Umuna [1986] BCLC 460 was a case where a director retired from the company in good faith and then took up and exploited an opportunity of which he had been aware while he was a director. It was held that he was not accountable because the opportunity was not a maturing business opportunity when he left. That case is to be contrasted with Industrial Development Consultants v Cooley [1972] 1 WLR 443, a decision of Roskill J where the director resigned in order to take advantage of an opportunity of which he had become aware as a director, and accordingly he was held accountable to the company for the profits in so doing. There is, as is often said, a strict rule of equity that a fiduciary should not place himself in a position where his duty and interest conflict. It is said that that rule is necessary to deter any exploitation of business opportunities by fiduciaries to the disadvantage of the beneficiary, here the company.
12. In this particular case, there seem to me to be a number of considerations. The matter came before me on paper and the view which I then took was that no triable issue was raised. In particular I stated that:

"The fact that the directors discovered the opportunity in their personal capacities is only one factor. The opportunity was related to the company's business as it was the owner of the neighbouring freehold and moreover its tenant was using part of the site as a car park."

As I then said, there are a number of considerations in this case. In particular, the site was a unique site in the sense that it was contiguous to the Springbank Works. Moreover, the exploitation of this opportunity by the directors may run the risk that at a future date the directors may personally be in a position of conflict with the company because the company may wish to take some action against its tenant that Silvercrest does not wish to take, and so on. On the other hand, there are other factors in the applicants' favour, namely that they acquired knowledge of the opportunity on a private occasion and that the company was not actively pursuing acquisitions, and there was no question of the directors in question being responsible for acquiring opportunities such as this one or utilising company money. So far as the company's resources are concerned, the case apparently proceeded on the basis that the company would have been able to raise the necessary money, if necessary by borrowing, and accordingly there was no point to be made that the company could not have financed this matter.

13. However, the position is that there is no clear test. As I have said, there are a number of factors, some of which are in favour of the applicants and some of which are against them. I note that in Principles of Corporate Governance: Analysis and Recommendations (1994) published by the American Law Institute, "corporate opportunity" was defined it as including "(2) Any opportunity to engage in a business activity of which a senior executive becomes aware and knows is closely related to a business in which the corporation is engaged or expects to engage" (para 5.05(b). (The expression "senior executive" would appear to include executive directors: see paras 1.27 and 1.33. That definition is very close to the test which the judge applied.
14. Nonetheless it seems to me on reflection that there is an issue appropriate for consideration by the Court of Appeal as to whether, in an owner-managed company and especially in a case where information is obtained on a private occasion and without use of company property, the opportunity, to be one for which the directors are accountable, ought to be within an existing line of business of the company. The effect of the strict rule of equity is to deter exploitation of any business opportunity. It is arguable that this is unnecessarily strict in the case of private companies, and may lead to non-exploitation of the benefits. Moreover, there is an obvious and unresolved difficulty where a director has several directorships and learns of an opportunity which may be closer to one company's business than another.
15. In those circumstances, and particularly in the light of the case law, it seems to me that there is a real prospect of success on appeal, and I give permission accordingly.

ORDER: Permission granted. There will be a stay of the transfer and account of profits, on terms that the respondents to the appeal are at liberty to apply to the court to discharge the stay within 21 days of receiving notice of today's order.

(order does not form part of the approved judgment)