[BIRMINGHAM ASSIZE]

INDUSTRIAL DEVELOPMENT CONSULTANTS LTD. v. COOLEY

Company - Director - Fiduciary duty to company - Accounting for profits to company - Managing director entering into negotiations with third party on own behalf - Information obtained not disclosed to company - Whether managing director's duty and interests allowed to conflict

The defendant, an architect, was from February 5, 1968, to August 1, 1969, managing director of the plaintiffs, one of a group of companies offering construction services to large public and private industrial enterprises. The defendant's duties included procuring new business for the plaintiffs, particularly in connection with the gas industry and from the gas boards. From 1968 the plaintiffs were interested in a project by the Eastern Gas Board to construct four depots and unsuccessful negotiations took place between the defendant, on behalf of the plaintiffs, and the board. At the end of May or the beginning of June 1969 the deputy chairman of the board approached the defendant for advice in his private capacity about the affairs of the board. They met on June 13, when the defendant became aware that if he could quickly obtain his release from the plaintiffs he would have a good chance of obtaining for himself a valuable contract from the board. At that meeting the defendant acquired knowledge and information not possessed by the plaintiffs, and which the plaintiffs would have wished to possess. On June 16 the defendant obtained his release from the plaintiffs as from the end of July by representing dishonestly that he was in ill health. The plaintiffs would not have agreed to

release him if they had known the full facts about the board's projects or the events of June 13. The defendant was subsequently given the contract by the board as a result of work which, unknown to the plaintiffs, he had done while still the plaintiffs' managing director.

On an action by the plaintiffs, claiming that the defendant was accountable to them for the whole of his benefit under the contract and for all remuneration and fees which he had received or would receive under it:-

Held, that it was an over-riding principle of equity that a man would not be allowed to place himself in a position in which his fiduciary duty and his interests conflicted, and that throughout May, June and July 1969 the defendant was in a fiduciary relationship with the plaintiffs since he was then their managing director, and accordingly information which came to him on June 13, which was of concern to the plaintiffs and relevant for them to know, was information which it was his duty to pass on to them, and that when he began his course of dealing with the gas board he embarked upon a deliberate policy and course of conduct which put his personal interest as a potential contracting party with the board in direct conflict with his pre-existing and continuing duty as managing director of the plaintiffs thereby rendering him accountable to the plaintiffs (post, pp. 451E-452A, 453H, 454C).

Phipps v. Boardman [1967] 2 A.C. 46, H.L.(E.) and Keech v. Sandford (1726) Sel.Cas.t.King (Macnaghten) 175 applied.

The following cases are referred to in the judgment:

Bell v. Lever Brothers Ltd. [1932] A.C. 161, H.L.(E.).

Keech v. Sandford (1726) Sel.Cas. t. King (Macnaghten) 175.

Imperial Mercantile Credit Association, Liquidators of v. Coleman (1871) 6 Ch.App. 558; (1873) L.R. 6 H.L. 189, H.L.(E.).

Parker v. McKenna (1874) 10 Ch.App. 96.

Phipps v. Boardman [1967] 2 A.C. 46; [1966] 3 W.L.R. 1009; [1966] 3 All E.R. 721, H.L.(E.).

Regal (Hastings) Ltd. v. Gulliver (Note) [1967] 2 A.C. 134; [1942] 1 All E.R. 378, H.L.(E.).

The following additional cases were cited in argument:

Boston Deep Sea Fishing and Ice Co. v. Ansell (1888) 39 Ch.D. 339, C.A.

Building and Civil Engineering Holidays Scheme Management Ltd. v. Post Office [1966] 1 Q.B. 247; [1965] 2 W.L.R. 72; [1965] 1 All E.R. 163, C.A.

Chaplin v. Hicks [1911] 2 K.B. 786, C.A.

Cooke v. Deeks [1916] 1 A.C. 554, P.C.

Davy v. Garrett (1878) 7 Ch.D. 473, C.A.

Hamilton v. Wright (1842) 9 Cl & Fin. 111, H.L.(E.).

Hivac Ltd. v. Park Royal Scientific Instruments [1946] Ch. 169; [1946] 2 All E.R. 350, C.A.

Reading v. Attorney-General [1951] A.C. 507; [1951] 1 All E.R. 617, H.L.(E.),

Sanders v. Parry [1967] 1 W.L.R. 753; [1967] 2 All E.R. 803.

ACTION

The defendant, Neville Cooley, was former chief architect of the West Midlands Gas Board. In 1967 he met Mr. Howard Hicks, the chairman and managing director of a group of companies which included the plaintiff company, Industrial Development Consultants Ltd. The plaintiff company offered to large industrial enterprises, both in the public and private sectors, comprehensive construction services including those of architects, engineers and project managers. Mr. Hicks and the defendant came to

an agreement that the defendant should be appointed managing director of the plaintiffs. Letters were exchanged between them mentioning a salary of £6,000, various fringe benefits and a probationary period of six months to be followed by a contract for a period of five or seven years. In the event no written agreement was ever signed, but the defendant joined the plaintiffs as managing director with effect from February 1968. The idea behind his appointment was that in view of his past experience in the gas industry he would be able to help the plaintiffs to procure new business in the public sector, particularly in connection with the various gas boards.

In February 1968 the defendant entered into correspondence with the chairman of the Eastern Gas Board and their surveyor, a Mr. Lacey, exploring the possibility of the plaintiffs designing and constructing new depots for that board, but the defendant's proposition on behalf of the plaintiffs was rejected by the gas board.

In May 1969 a Mr. Smettom, the new deputy chairman of the Eastern Gas Board, made a tentative approach to the defendant in a private capacity about the proposed design and construction of new depots. They met on June 13, 1969, and although Mr. Smettom made no definite commitment, a depot at Letchworth was mentioned, and the defendant realised that if he could quickly get the necessary release from his obligations to the plaintiffs he stood a good chance of getting for his own benefit a very valuable contract from the gas board.

On June 16, 1969, the defendant went to Mr. Hicks and represented that his state of health was such that he could not carry on as managing director: believing the defendant to be seriously ill, Mr. Hicks released him as from August 1, 1969. Roskill J. found that the representation of ill health was untrue to the defendant's knowledge and thus dishonest and was a pretext in order to secure his quick release. The defendant proceeded to register on the Business Names Register 'Design Group for Industry' as a business of consultancy and multi-professional design project management, giving his private address and stating the date of starting business to be June 8, 1969. By a letter of June 17, the defendant informed Mr. Smettom, who had enquired about the defendant's involvement with the plaintiffs, that he had discussed the matter with Mr. Hicks who appreciated his (the defendant's) intentions.

After further correspondence with Mr. Smettom the defendant was on August 6 offered employment by the gas board for a large scheme which Roskill J. found to be substantially the same business which the plaintiffs had been trying to get for themselves in 1968: four depots were to be constructed by the Eastern Gas Board at a capital cost then estimated at £1,700,000. The actual cost was likely to be considerably higher.

On December 2, 1969, the plaintiffs issued a writ against the defendant claiming a declaration that he was a trustee for them of all contracts with the board; an account of all fees and remuneration received by and payable to him in respect of any such contracts; alternatively, damages for breach of the defendant's duties as a director and managing director of the plaintiffs. By his defence the defendant denied that he was under a duty to the plaintiffs to disclose to them his conversations with the Eastern Gas Board, and he denied that the plaintiffs were entitled to the relief claimed.

Stephen Brown Q.C., P. R. De L. Giffard and M. K. Harrison-Hallfor the plaintiffs.

John Davies Q.C. and P. D. J. Scott for the defendant.

March 30, 1971. ROSKILL J. read the following judgment, in which he stated the facts and continued: There can be no doubt that the defendant got this Eastern Gas Board contract for himself as a result of work which he did whilst still the plaintiffs' managing director. It is, of course, right to say that the contract for that work was not concluded until after he had left the plaintiffs. That work was work which the plaintiffs would very much have liked to have had and, indeed, was in substance the same work as they had unsuccessfully tried to get in 1968.

There are a number of other points with which it may be convenient to deal in rather summary form. It is only fair to the defendant to say that the negotiations for the Eastern Gas Board work were initiated in the first instance by Mr. Smettom and not by himself. At the time when Mr. Smettom first approached the defendant at the end of May 1969, Mr. Smettom knew that the plaintiffs had been interested in the previous proposals and had failed to get the work. He learned that the defendant was still with the plaintiffs as their managing director and was not then in private practice. It is important to realise that by the time the defendant and Mr. Smettom met on June 13 the defendant was desperately anxious to obtain this business for himself if he could succeed in doing so. He then learned, first, that the Eastern Gas Board were coming back, if I may use the phrase, into the market and were considering building these depots, secondly, that Mr. Smettom regarded the implementation of this project as urgent and thirdly, in round and general terms, the sort of capital sum which would be involved. All those matters vitally concerned the plaintiffs. At that time the defendant was still their managing director. He was still their managing director not only at the time when he met Mr. Smettom on June 13 but when he prepared those documents over the ensuing weekend, sending them off on June 17 so as to get this work for himself.

However, at the meeting of June 13, Mr. Smettom had made it absolutely plain to the defendant that no commitment was being made with the project, the time-table was likely to be urgent, it was necessary before there was any possibility of commitment being made for the defendant to satisfy Mr. Smettom that he (the defendant) was free of all obligations to the plaintiffs and it was up to the defendant to do whatever was necessary to obtain that freedom.

It is plain that at the meeting of June 13 the defendant became possessed of knowledge and information which was not possessed by his employers, the plaintiffs, knowledge which the plaintiffs would have wished to possess. When the defendant saw Mr. Hicks on June 16 he did so in order to obtain his freedom as quickly as possible. One might add, I hope not unfairly, that he was prepared to obtain his freedom by fair means or if necessary by foul. At that time the Letchworth part of the work was urgent because on the revised plan to which Mr. Smettom referred, the construction of Letchworth was going to cost the Eastern Gas Board of the order of a quarter of a million pounds. Unless the defendant could be free in time to enable him to meet Mr. Smettom's programme requirements, both for Letchworth and the rest, it seems plain Mr. Smettom would not in any event have given the defendant the job ultimately given in the letter dated August 6. I might in this connection read the answer given by Mr. Smettom:

"If I had known Mr. Cooley was under a contract to I.D.C. requiring six or 12 months' notice then unless I.D.C. had agreed to release him would not have gone ahead."

When one looks at the letters of June 17 and the associated documents, there is disclosed the plainest conflict of interest between the defendant as potential architect or project manager of the Eastern Gas Board and as managing director of the plaintiffs. Finally I ought to say that I am sure Mr. Hicks would not have agreed to give the defendant the carteblanche release claimed by the defendant if he had known the full facts about the Eastern Gas Board project.

It is against this background that I turn to consider the difficult questions of law involved.

Mr. Davies, for the defendant, has forcefully described the cause of account for an account which is relied on in this case as misconceived. His admirable argument ran thus: true some directors are in a fiduciary relationship with their companies but when the defendant saw Mr. Smettom on June 13 Mr. Smettom made it plain that he was consulting the defendant not as managing director of Industrial Development Consultants Ltd. but in a private capacity. Therefore, what the defendant did on June 13 and thereafter was not done qua managing director of the plaintiffs. The information he received was not received qua managing director of the plaintiffs. On the contrary the information was given and received in a purely private capacity. There was thus no breach of any duty, even the barest contractual duty, in failing to pass that information on to the plaintiffs. Still less was there any breach of any fiduciary duty because, having regard to the fact that this information was received by the defendant in his private capacity, there could be no fiduciary obligation to pass on this information to Mr. Hicks or to his employers generally.

The argument continued that, that being the position, the defendant did not and could not have got this valuable Eastern Gas Board work by virtue of his position as managing director of the plaintiffs. Indeed, the converse of that was true because the defendant could never have got that work so long as he was their managing director. Therefore, none of the requirements indicated in some of the cases which have been referred to, notably Regal (Hastings) Ltd. v. Gulliver (Note) [1967] 2 A.C. 134. have been satisfied.

Further, it was said that under no circumstances would the plaintiffs have ever got this work because of Mr. Smettom's and Mr. Lacey's objections in principle to the set-up, if I may use that phrase, not only of the plaintiffs but of the I.D.C. Group as a whole. Thus, the argument continued, there is no duty to account. The whole action is completely misconceived. If there be any claim here at all it must lie in damages but a claim for relief by way of an account cannot succeed.

Mr. Davies summarised his argument in this way: any duty which might otherwise have been owed to the plaintiffs by the defendant was eliminated by the nature of Mr. Smettom's approach which was from the outset a private approach. He pointed out that contracts in this connection fell into two different classes, first, contracts with a company in which the director is interested - in relation to those Mr. Davies said there was what he described as an inherent and inevitable conflict of interest and therefore there was a duty to disclose and a consequential liability in the event of a failure to disclose - and, secondly, contracts with a third party with which alone Mr. Davies submitted the court was concerned in this case. The relevant contract was not, as he put it, a contract with I.D.C. at all. It was a contract with a third party and being with a third party there was no inherent conflict between interest and duty unless it could be said that this contract was equally available to the plaintiffs as his employers. As it

was a contract which was not available to the plaintiffs and with a third party there could be no duty to account.

Support for the principle upon which he relied is to be found in a number of text books such as Lewin on Trusts, 16th ed. (1964), and Snell's Principles of Equity, 26th ed. (1966). It is true that when one looks at the reported cases contracts made by a director with a company of which he is a director have usually been treated as falling into a distinct category. Mr. Davies relied in support of his argument upon the speech of Lord Blanesburgh in Bell v. Lever Brothers Ltd. [1932] A.C. 161, 167. I shall not read all the passages from Lord Blanesburgh's speech which were read to me. I shall content myself in view of the hour with only reading a few passages which are immediately relevant. Lord Blanesburgh, after pointing out that the further direction of the judge might have sufficed had the fraud charged been found instead of negatived, said, at p. 193:

"But that charge, like all the other charges of fraud, has disappeared, and the precise character in legal responsibility of the offending transactions stripped of fraud becomes of essential importance. And it was, I venture to think, quite misunderstood. The point here to be noted is that these transactions involved no contract or engagement in which, either for profit or loss, Niger was at all concerned. The contracts were all contracts by which the appellants alone were bound for their own benefit or burden to some outside party exclusive of Niger altogether. And this distinction is vital: because the liability of a director in respect of profits made by him from a contract in which his company also is concerned is one thing: his liability, if any there be, in respect of his profits from a contract in which the company has no interest at all is quite another. In the first case, unless by the company's regulations the director is permitted, subject to or without conditions, to retain his profit, he must account for it to the company. In the second case, the company has no concern in his profit and cannot make him accountable for it unless it appears - this is the essential qualification - that in earning that profit he has made use either of the property of the company or of some confidential information which has come to him as a director of the company."

Pausing there for one moment, Mr. Davies argued that the defendant had made no use of the property of the plaintiffs nor of confidential information which had come to him as a director of the plaintiffs. But Mr. Davies agreed that the dichotomy was not complete and that there was a third class of case where a director might be called upon to account, namely, where he had misused his position as a director of a company.

What Lord Blanesburgh was dealing with was the application of well known and well established principles to the complicated facts of Bell v. Lever Brothers Ltd. I think the right approach to the present case is first to consider the duty which a director (including a managing director) owes to the company of which he is a director. This has been the subject Of repeated statements in cases of the highest authority over the years. The law is summarised in Buckley on the Companies Acts, 13th ed. (1957), pp. 876-877:

"Upon general rules of equity a person holding a fiduciary position as director cannot obtain for himself a benefit derived from the employment of the company's funds, unless the company knows and assents. No director can, in the absence of a stipulation to the

contrary, partake in any benefit from a contract which requires the sanction of a board of which he is a member. He stands in a fiduciary position towards the company, and if he makes any profit when he is acting for the company, he must account to the company. It makes no difference that the profit is one which the company itself could not have obtained, the question being not whether the company could have acquired it, but whether the director acquired it while acting for the company, nor that the interest of the director is as a trustee for a third party. The reason for this is, that the company has a right to the services of its paid directors as an entire board; that it has a right to the advice of every director upon matters which are brought before the board for consideration; and that the general rule that no trustee can derive any benefit from dealing with the trust funds applies with still greater force to that state of things in which the interest of the trustee deprives the company of the benefit of his advice and assistance."

A more recent statement of the highest authority will be found in the speech of Lord Upjohn in Phipps v. Boardman [1967] 2 A.C. 46, 123 onwards:

"Rules of equity have to be applied to such a great diversity of circumstances that they can be stated only in the most general terms and applied with particular attention to the exact circumstances of each case. The relevant rule for the decision of this case is the fundamental rule of equity that a person in a fiduciary capacity must not make a profit out of his trust which is part of the wider rule that a trustee must not place himself in a position where his duty and his interest may conflict. I believe the rule is best stated in Bray v. Ford [1896] A.C. 44, 51 by Lord Herschell, who plainly recognised its limitations: 'It is an inflexible rule of a court of equity that a person in a fiduciary position, such as the respondent's, is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict. It does not appear to me that this rule is, as has been said, founded upon principles of morality. I regard it rather as based on the consideration that, human nature being what it is, there is danger, in such circumstances, of the person holding a fiduciary position being swayed by interest rather than by duty, and thus prejudicing those whom he was bound to protect. It has, therefore, been deemed expedient to lay down this positive rule. But I am satisfied that it might be departed from in many cases, without any breach of morality, without any wrong being inflicted, and without any consciousness of wrong-doing. Indeed, it is obvious that it might sometimes be to the advantage of the beneficiaries that their trustee should act for them professionally rather than a stranger, even though the trustee were paid for his services.' It is perhaps stated most highly against trustees or directors in the celebrated speech of Lord Cranworth L.C. in Aberdeen Railway v. Blaikie (1854) 1 Macq. 461, 471, where he said: '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.' The phrase 'possibly may conflict' requires consideration. In my view it means that the reasonable man looking at the relevant facts and circumstances of the

particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in a conflict.

"Your Lordships were referred at length to the decision of this House in Regal (Hastings) Ltd. v. Gulliver (Note) [1967] 2 A.C. 134. That is a helpful case for its restatement of the well-known principles but the case itself bears no relation to the one before your Lordships. The facts were very different and I summarise them from the opinion of Lord Russell of Killowen at p. 140. The plaintiff company (Regal), the owner of a cinema, was contemplating the purchase of the leases of two other cinemas which were to be transferred to a subsidiary company formed by Regal called Amalgamated. Concurrently Regal was contemplating the sale of all three cinemas to a third party. The intention of the directors was that Regal should subscribe for shares in Amalgamated and then Regal would sell those shares to the third party. There was some trouble over providing a guarantee; the transaction was changed so that the directors of Regal subscribed for shares in Amalgamted instead of Regal itself and then those directors sold those shares to the third party, thereby making an immediate and handsome profit of £2 16s. 1d. per share. That was an obvious case where duty of the director and his interest conflicted. The scheme had been that Regal would make the profit, in fact its directors did. It was a clear case and does not really assist in the present case. It had long been settled in Keech v. Sandford (1726) Sel.Cas.t.King (Macnaghten) 175 that the inability of a beneficiary to obtain the renewal of a lease which was trust property and a renewal of which has always been considered to be trust property did not permit the purchase of that property by the trustee himself. That bears no relation to this case. This case, if I may emphasise it again, is one concerned not with trust property or with property which the persons to whom the fiduciary duty was owed were contemplating a purchase but in contrast to the facts in Regal with property which was not trust property nor property which was ever contemplated as the subject matter of a possible purchase by the trust.

"There has been much discussion in the courts below and in this House upon the observations of their Lordships in the Regal case. But in my view, their Lordships were not attempting to lay down any new view on the law applicable and indeed could not do so for the law was already so well settled. The whole of the law is laid down in the fundamental principle exemplified in Lord Cranworth's statement have already quoted. But it is applicable, like so many equitable principles which may affect a conscience, however innocent, to such a diversity of different cases that the observations of judges and even in your Lordships' House in cases where this great principle is being applied must be regarded as applicable only to the particular facts of the particular case in question and not regarded as a new and slightly different formulation of the legal principle so well settled. Therefore, as the facts in Regal to which alone their Lordships' remarks were directed were so remote from the facts in this case do not propose to examine the Regal case further."

I should have added that Lord Upjohn's speech was a dissenting speech. I do not, however, detect any difference in principle between the speeches

of their Lordships but merely a difference in the application of the facts to principles which were not in dispute. Later Lord Upjohn stated four propositions as follows, at p. 127:

"1. The facts and circumstances must be carefully examined to see whether in fact a purported agent and even a confidential agent is in a fiduciary relationship to his principal. It does not necessarily follow that he is in such a position. 2. Once it is established that there is such a relationship, that relationship must be examined to see what duties are thereby imposed upon the agent, to see what is the scope and ambit of the duties charged upon him. 3. Having defined the scope of those duties one must see whether he has committed some breach thereof and by placing himself within the scope and ambit of those duties in a position where his duty and interest may possibly conflict. It is only at this stage that any question of accountability arises. 4. Finally, having established accountability it only goes so far as to render the agent accountable for profits made within the scope and ambit of his duty."

I think Mr. Brown was right when he said in his reply that that is the basic rule from which all else has been founded. Certainly Viscount Sankey in the Regal case, at p. 137, so stated it and Lord Cranworth's well known statement has been repeated in innumerable cases of the highest authority.

Therefore, the starting point for consideration of the present case is the application of the facts of this case to the propositions stated in Phipps v. Boardman [1967] 2 A.C. 46, 127 by Lord Upjohn, bearing in mind, as Lord Upjohn said in the passage I have quoted, that the application of "this great principle" may be infinitely variable. It is the principle which is important and there is no limit, I venture to think, to the cases to which that principle can be applied, always provided that in applying it, the court does not go outside the well-established limits of the principle.

The first matter that has to be considered is whether or not the defendant was in a fiduciary relationship with his principals, the plaintiffs. Mr. Davies argued that he was not because he received this information which was communicated to him privately. With respect, I think that argument is wrong. The defendant had one capacity and one capacity only in which he was carrying on business at that time. That capacity was as managing director of the plaintiffs. Information which came to him while he was managing director and which was of concern to the plaintiffs and was relevant for the plaintiffs to know, was information which it was his duty to pass on to the plaintiffs because between himself and the plaintiffs a fiduciary relationship existed as defined in the passage I have quoted from Buckley on the Companies Acts and, indeed, in the speech of Lord Cranworth L.C.

It seems to me plain that throughout the whole of May, June and July 1969 the defendant was in a fiduciary relationship with the plaintiffs. From the time he embarked upon his course of dealing with the Eastern Gas Board, irrespective of anything which he did or he said to Mr. Hicks, he embarked upon a deliberate policy and course of conduct which put his personal interest as a potential contracting party with the Eastern Gas Board in direct conflict with his pre-existing and continuing duty as managing director of the plaintiffs. That is something which for over 200

years the courts have forbidden. The principle goes back far beyond the cases cited to me from the last century. The well-known case of Keech v. Sandford (1726) Sel.Cas.t.King (Macnaghten) 175 is perhaps one of the most striking illustrations of this rule.

"A person being possessed of a lease of . . . a market, devised his estate to trustee in trust for the infant; before the expiration of the term the trustee applied to the lessor for a renewal for the benefit of the infant, which he refused, . . . there was clear proof of the refusal to renew for the benefit of the infant, on which the trustee sets a lease made to himself."

Lord King L.C. said at p. 175:

"I must consider this as a trust for the infant, . . . if a trustee, on the refusal to renew, might have a lease to himself, few trust-estates would be renewed to the cestui que use; though I do not say there is a fraud in this case, yet [the trustee] should rather have let it run out, than to have had the lease to himself. This may seem hard, that the trustee is the only person of all mankind who might not have the lease: but it is very proper that rule should be strictly pursued, and not in the least relaxed; for it is very obvious what would be the consequence of letting trustees have the lease, on refusal to renew to cestui que use."

That case shows how rigidly this rule has always been applied.

One sees in the nineteenth-century cases, of which many are quoted in Viscount Sankey's speech in the Regal case [1967] 2 A.C. 134, how this principle has always been maintained. In Liquidators of Imperial Mercantile Credit Association v. Coleman (1873) L.R. 6 H.L. 189, Malins V.-C., before whom the case came at first instance, said (1871) 6 Ch.App. 558, 563:

"It is of the highest importance that it should be distinctly understood that it is the duty of directors of companies to use their best exertions for the benefit of those whose interests are committed to their charge, and that they are bound to disregard their own private interests whenever a regard to them conflicts with the proper discharge of such duty."

In Parker v. MacKenna (1874) 10 Ch.App. 96, James L.J. said, at p. 124:

"I do not think it is necessary, but it appears to me very important, that we should concur in laying down again and again the general principle that in this court no agent in the course of his agency, in the matter of his agency, can be allowed to make any profit without the knowledge and consent of his principal; that that rule is an inflexible rule, and must be applied inexorably by this court, which is not entitled, in my judgment, to receive evidence, or suggestion, or argument as to whether the principal did or did not suffer any injury in fact by reason of the dealing of the agent; for the safety of mankind requires that no agent shall be able to put his principal to the danger of such an inquiry as that."

In the nuclear age that last sentence may perhaps seem something of an exaggeration, but, nonetheless, it is eloquent of the strictness with which throughout the last century and indeed in the present century, courts of the highest authority have always applied this rule.

Therefore, I feel impelled to the conclusion that when the defendant embarked on this course of conduct of getting information on June 13,

using that information and preparing those documents over the weekend of June 14/15 and sending them off on June 17, he was guilty of putting himself into the position in which his duty to his employers, the plaintiffs, and his own private interests conflicted and conflicted grievously. There being the fiduciary relationship I have described, it seems to me plain that it was his duty once he got this information to pass it to his employers and not to guard it for his own personal purposes and profit. He put himself into the position when his duty and his interests conflicted. As Lord Upjohn put it in Phipps v. Boardman [1967] 2 A.C. 46, 127: "It is only at this stage that any question of accountability arises."

Does accountability arise? It is said: "Well, even if there were that conflict of duty and interest, nonetheless, this was a contract with a third party in which the plaintiffs never could have had any interest because they would have never got it." That argument has been forcefully put before me by Mr. Davies.

The remarkable position then arises that if one applies the equitable doctrine upon which the plaintiffs rely to oblige the defendant to account, they will receive a benefit which, on Mr. Smettom's evidence at least, it is unlikely they would have got for themselves had the defendant complied with his duty to them. On the other hand, if the defendant is not required to account he will have made a large profit, as a result of having deliberately put himself into a position in which his duty to the plaintiffs who were employing him and his personal interests conflicted. I leave out of account the fact that he dishonestly tricked Mr. Hicks into releasing him on June 16 although Mr. Brown urged that that was another reason why equity must compel him to disgorge his profit. It is said that the plaintiffs' only remedy is to sue for damages either for breach of contract or maybe for fraudulent misrepresentation. Mr. Brown has been at pains to disclaim any intention to claim damages for breach of contract save on one basis only, and he has disclaimed specifically any claim for damages for fraudulent misrepresentation. Therefore, if the plaintiffs succeed they will get a profit which they probably would not have got for themselves had the defendant fulfilled his duty. If the defendant is allowed to keep that profit he will have got something which he was able to get solely by reason of his breach of fiduciary duty to the plaintiffs.

When one looks at the way the cases have gone over the centuries it is plain that the question whether or not the benefit would have been obtained but for the breach of trust has always been treated as irrelevant. I mentioned Keech v. Sandford a few moments ago and this fact will also be found emphasised if one looks at some of the speeches in Regal (Hastings) Ltd. v. Gulliver (Note) [1967] 2 A.C. 134 though it is true, as was pointed out to me, that if one looks at some of the language used in the speeches in Regal such phrases as "he must account for any benefit which he obtains in the course of and owing to his directorship" will be found.

In one sense the benefit in this case did not arise because of the defendant's directorship; indeed, the defendant would not have got this work had he remained a director. However, one must, as Lord Upjohn pointed out in Phipps v. Boardman [1967] 2 A.C. 46, 125, look at the passages in the speeches in Regal having regard to the facts of that case to which those passages and those statements were directed. I think Mr. Brown was right when he said that it is the basic principle which matters. It is an over-riding principle of equity that a man must not be allowed to put himself in a position in which his fiduciary duty and his interests conflict. The variety of cases where that can happen is infinite. The fact that

there has not previously been a case precisely of this nature with precisely similar facts before the courts is of no import. The facts of this case are, think, exceptional and I hope unusual. They seem to me plainly to come within this principle.

I think that, although perhaps the expression is not entirely precise, Mr. Brown put the point well when he said that what the defendant did in May, June and July was to substitute himself as an individual for the company of which he was managing director and to which he owed a fiduciary duty. It is upon the ground I have stated that I rest my conclusion in this case. Perhaps it is permissible to say I have less reluctance in reaching that conclusion on the application of this basic principle of equity since I know that what happened was enabled to happen because a release was obtained by the defendant from a binding contractual obligation by the dishonest and untrue misrepresentations which were made to Mr. Hicks on June 16.

In my judgment, therefore, an order for an account will be issued because the defendant has made and will make his profit as a result of having allowed his interests and his duty to conflict.

I would only add that if I am wrong on this central question Mr. Brown did in the alternative advance a claim for damages - this was the only claim for damages advanced - for the plaintiffs' loss of the opportunity to get this contract. I mentioned earlier in this judgment the fact that Mr. Lacey and Mr. Smettom both said they would not - I think I can put it as high as this - have employed the plaintiffs because of their objection to this type of organisation. Therefore, it cannot be said that it is anything like certain that the plaintiffs would ever have got this contract. I accept both those witnesses as witnesses of truth. On the other hand, there was always the possibility of the plaintiffs persuading the Eastern Gas Board to change their minds. And ironically enough, it would have been the defendant's duty to try to persuade them to change their mind. It is a curious position under which he whose duty it would have been to seek to persuade them to change their mind should now say that the plaintiffs suffered no loss because he would never have succeeded in persuading them to change their mind.

In the circumstances while I do not put the chance of the Eastern Gas Board being shifted from the stand they adopted very high, nonetheless, the opportunity was there and could not be taken because the plaintiffs never knew about it owing to the defendant's conduct. I do not put the chance very high. I cannot rate it, as I am dealing with liability only, at a greater than 10 per cent. chance. If I am wrong in making an order for account I should have given the plaintiffs as damages whatever would represent a 10 per cent. chance.

Solicitors: Price, Atkins & Price, Birmingham; Slaughter & May.

[Reported by MISS STELLA SOLOMON, Barrister-at-Law]