Company - Director's breach of fiduciary duty

- company claiming account of profits - statutory relief from liability for honest and reasonable breaches of fiduciary duty availableColeman Taymar Ltd and others v Oakes and another: ChD (Judge Reid QC sitting as a High Court judge): 19 July 2001The claimants brought an action against the first defendant for breach of confidence and/or fiduciary duty, alleging that the first defendant had misused confidential information received while a director of the first claimant to enter into wrongful competition with that company, either personally or through the agency of the second defendant, and claimed an account of profits.The first defendant sought relief under section 727(1) of the Companies Act 1985 on the basis that he had acted honestly and reasonably and ought fairly to be excused his breach of duty.

Michael Supperstone QC and Andrew Clutterbuck (instructed by Eversheds) for the claimants.

David Oliver QC and Thomas Moody-Stuart (instructed by DLA) for the first defendant.Held, giving judgment for the first claimant, that as a director and senior employee the first defendant owed the first claimant both contractual and fiduciary duties to do his best to promote its business and to act in complete good faith towards it, but such duties did not prohibit that person while still a director or employee forming the intention to set up in competition once his employment had ceased or taking preliminary steps provided there was no actual competitive activity while the directorship/ employment continued; that the first claimant's decision to seek an account of profits in lieu of damages did not prevent the first defendant relying on section 727(1); that section 727 required an essentially subjective approach to the question of honesty, but any test of reasonableness was inherently objective; that even if a director had acted honestly and reasonably the court still had to consider whether in all of the circumstances the director ought fairly to be excused from liability, either absolutely or on such terms as the court thought fit; that by going behind the claimants' back to negotiate leases of the claimants' business premises for his own benefit, the first defendant may not have acted dishonestly but he had acted unreasonably and so was not entitled to relief under section 727 in respect of that; but that relief pursuant to section 727 would be granted in relation to the purely technical breaches of duty which had taken place during the period in which the first defendant was technically still a director of the first claimant but had ceased to be employed by it.