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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Parks of Hamilton (Holdings) Ltd v Campbell [2011] ScotCS CSOH_38 (24 February 2011)
URL: http://www.bailii.org/scot/cases/ScotCS/2011/2011CSOH38.html
Cite as: [2011] CSOH 38, [2011] ScotCS CSOH_38

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OUTER HOUSE, COURT OF SESSION

[2011] CSOH 38

CA15/08

OPINION OF LORD HODGE

in the cause

PARK'S OF HAMILTON (HOLDINGS) LIMITED

Pursuers;

against

COLIN CAMPBELL

Defender:

ннннннннннннннннн________________

Pursuer: Sandison QC; Brodies LLP

Defender: Logan; Campbell Smith W.S. LLP

24 February 2011

[1] The pursuers, the defender and others were formerly shareholders in a company called LAGTA Limited ("LAGTA"). In 2007 the defender, who was the managing director of LAGTA, negotiated the sale of the shares in LAGTA on behalf of the shareholders of that company. The pursuers seek an accounting from the defender on the ground that he obtained an undisclosed benefit in breach of his fiduciary or quasi-fiduciary obligations to them in the context of those negotiations.

[2] In an earlier decision in this case, [2008] CSOH 117, after a debate on the defender's preliminary plea to the relevancy, I allowed a proof before answer in relation to the pursuers' cases of misrepresentation and breach of fiduciary duty. The parties thereafter adjusted their pleadings and I have now heard a debate on (i)  the defender's preliminary plea to the relevancy in which he sought dismissal of the action and (ii)  the pursuers' plea to the relevancy in which they sought to exclude from probation certain of the defender's averments and to repel his plea that he was not liable to account to them as their agent for any breach of fiduciary duty.

[3] In short, the pursuers submit that the defender has failed to aver a case of full disclosure of a conflict of interest followed by informed consent; the defender submits that the pursuers and the other shareholders had constructive knowledge of the benefits which he was to receive. The defender also seeks to add a plea in law seeking relief under section 727 of the Companies Act 1985.

Factual background

[4] The pleadings and parties' submissions at debate disclosed that the parties agreed most of the essential facts in this case.

[5] On 16 August 2007 the defender wrote in his capacity as managing director of LAGTA to the shareholders of the company, informing them that Valley Forge (UK) Limited ("VFL") wished to acquire the share capital of LAGTA. The defender informed the other shareholders that, subject to the satisfactory outcome of a due diligence exercise, VFL proposed (a)  that the share purchase agreement should be conditional upon the defender continuing to act as a consultant for LAGTA for eighteen months after completion of the share purchase and (b)  that an indicative price of г21.50 per share be paid to shareholders other than the defender and an enhanced price of г26 per share to the defender "to reflect the 18 months consultancy period." The defender enclosed with the letter a pro forma power of attorney in his favour for the execution of the share purchase agreement.

[6] The pursuers averred that the defender did not inform any meeting of the board of directors of LAGTA that it was proposed that he would receive remuneration for the consultancy services which he was to provide other than the differential in share price in the proposed share purchase agreement. They averred that the defender was the only director of LAGTA who took part in the negotiation of the three agreements which eventually comprised the deal by which the shares were sold. Those agreements were: (a)  the share purchase agreement with VFL, (b)  a compromise agreement between LAGTA and the defender releasing LAGTA from any claim by the defender in connection with his employment as managing director and (c)  a consultancy agreement by which the defender agreed to provide services to LAGTA after the share purchase.

[7] All three agreements were tabled at the settlement meeting on 30 November 2007, which a representative of the pursuers, Mr Douglas Park, attended. The agenda of that meeting allowed time for the consideration of the terms of the compromise agreement and the consultancy agreement but those who attended the meeting did not examine the documents in any detail. Mr Park signed the share purchase agreement on behalf of the pursuers. The pursuers averred that it was only after the share purchase agreement was signed on that date that they discovered that the consultancy agreement provided that the defender would receive г87,650 plus VAT and expenses per annum for his services during the period of his consultancy.

[8] In their claim based on breach of fiduciary duty the pursuers sought payment of г58,074. They averred that this sum was their proportionate share of the defender's earnings on the basis that the defender was under an obligation to disgorge his entire earnings from the consultancy agreement to the pursuers and the other shareholders.

[9] The defender averred that the solicitors and accountants acting for LAGTA, namely Holmes McKillop and PKF (UK) LLP respectively, had prepared the letter of 16 August 2007 for his signature. Holmes McKillop's terms of appointment were approved by the Board of LAGTA at a meeting on 27 November 2007. The solicitors and accountants negotiated the terms of all three agreements on behalf of all of the shareholders. The solicitors drafted and revised the agreements. The share purchase agreement referred to both the compromise agreement and the consultancy agreement. Signature of the latter two agreements was a component of the settlement of the share purchase agreement and a precondition of the payment of the consideration for the shares.

[10] The pursuers did not admit that those professional firms drafted the letter but averred that they were "ministerially representing the shareholders in the negotiation of the proposed share purchase agreement". They averred that the firms took on that role at the defender's instigation, that he instructed them and that they reported to him. The pursuers averred that the knowledge of Holmes McKillop or PKF as to the terms of the compromise agreement and the consultancy agreement was not held by them as agents of the wider group of shareholders. Accordingly, that knowledge was not part of the constructive knowledge of any shareholder other than the defender.

The law on fiduciary obligations

[11] There was no dispute about the basic rules of the law in relation to fiduciary obligations so far as relevant to this case. Both Mr Sandison QC and Mr Logan accepted as a workable summary what I said in my earlier decision ([2008] CSOH 117):

"[27] ... It is well established that judicial statements about fiduciary duties need to be understood in the context of the particular facts of the particular case. Nonetheless, the general principle in relation to conflict of interest which Lord Young stated [in Huntington Copper Co v Henderson (1877) 4 R 294] is not in doubt. The classic statement of that principle by Lord Cranworth LC in Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461 (at pp. 471-472), which concerned the duties of directors of a company, has been applied to agents and other fiduciaries in many contexts. It is as follows:

'The Directors are a body to whom is delegated the duty of managing the general affairs of the Company.

A corporate body can only act by agents, and it is of course the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principal. 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.

So strictly is this principle adhered to, that no question is allowed to be raised as to the fairness or unfairness of the contract so entered into.

It obviously is, or may be, impossible to demonstrate how far in any particular case the terms of such a contract have been the best for the interest of the cestui que trust, which it is possible to obtain.

It may sometimes happen that the terms on which a trustee has dealt or attempted to deal with the estate or interests of those for whom he is a trustee, have been as good as could have been obtained from any other person, - they may even at the time have been better.

But so inflexible is the rule that no inquiry on that subject is permitted.'

The core principle, which Lord Cranworth described as a rule of universal application, has often been reaffirmed, as for example by Lord Upjohn in Boardman v Phipps [1967] AC 46 at pp. 123-125: a trustee must not place himself in a position where his duty and his interest may conflict.


[28] Certain rules, which appear to me to be relevant to this case, are involved in or stem from that principle. First, a fiduciary may not enter an engagement which involves such a conflict of interest or which the reasonable man would think gives rise to 'a real sensible possibility of conflict': Boardman v Phipps, Lord Upjohn at p. 124. Secondly, in that context, a fiduciary may not act for his own benefit or for the benefit of a third party without having obtained the informed consent of his principal: Huntington Copper, Lord Young at p. 301; Bristol & West Building Society v Mothew [1998] Ch 1, Millett LJ at p. 18. Thirdly, the fiduciary's good faith and the absence of loss to the principal do not remove the fiduciary's obligation to account: Regal (
Hastings) Ltd v Gulliver [1967] 2 AC 134, Lord Russell of Killowen at pp. 144-145; Aberdeen Railway Co (above). Fourthly, in the absence of the principal's informed consent it is not sufficient for the fiduciary to establish that if he had disclosed the benefit he would have obtained that consent: Murad v Al-Saraj [2005] EWCA Civ 959, Arden LJ at paragraph 71."

[12] In this debate the principal area of dispute concerned disclosure, informed consent and imputed knowledge.

The defender's submissions

[13] Mr Logan for the defenders submitted that the defender, a director of an engineering company, relied on the lawyers and accountants who acted on behalf of all the shareholders. They were aware of all the relevant information and that their knowledge should be imputed to the pursuers. Accordingly, there was no misrepresentation as the pursuers had imputed knowledge of the true facts. Further, the defender did not fail to disclose the conflict of interest and was not in breach of his fiduciary duty. There were no secret profits. Professionals from Holmes McKillop and PKF attended the board meetings of LAGTA, which a representative of the pursuers also attended, to update the board on the progress of the negotiation of the share sale. The solicitors' knowledge of the true facts would be imputed to the pursuers and the other shareholders unless either (i)  the solicitors were defrauding their principals or (ii)  the defender had been aware that they would not pass on the information to them. Neither exception had been averred. In any event, the defender had acted throughout in good faith in his capacity as managing director of LAGTA and had a relevant defence under section 727 of the Companies Act 1985 (now section 1157 of the Companies Act 2006). That defence and any relief, which the court might grant, could be decided on only after proof.

[14] In relation to the law of imputed knowledge he referred me to Bowstead & Reynolds on Agency (18th ed.) paragraphs 8.204-8.209; El Ajou v Dollar Land Holdings plc [1994] 2 All ER 685, Hoffmann LJ at pp.702-703; Blackley v National Mutual Life Association of Australasia Ltd [1972] NZLR 1038; Strover and Another v Harrington [1988] Ch 390, Browne-Wilkinson VC at pp. 407-410; and Southbourne Investments Ltd v Greenmount Manufacturing Ltd [2008] 1 NZLR 30. Mr Logan submitted that because of the close inter-relationship between the three agreements as parts of the sale deal, it was artificial to suggest that Holmes McKillop acted in different capacities in relation to the individual agreements. Even if Holmes McKillop acted in two capacities, they had the relevant knowledge in both capacities. In relation to the law relating to confidential information within a firm, he referred to Prince Jefri Bolkiah v KPMG [1999] 2 AC 222 in support of the contention that unless special measures are taken, information moves within a firm.

The pursuers' submissions

[15] Mr Sandison submitted, correctly, that the defender did not dispute that the circumstances in which he found himself were ones in which a reasonable man might consider as having given rise to a real sensible possibility of conflict of interest between his own interests and those of the other shareholders. The defender had not averred that the pursuers or the other shareholders had given informed consent to that conflict. The defender's case amounted to no more than the assertion that the professional advisers as well as he were in breach of duties owed to the shareholders for whom the defender acted as agent in negotiating the share purchase agreement. The notification cases on which Mr Logan relied were not in point. There was no general rule that an agent's knowledge would be imputed to his principal. If an agent was under a duty to inform his principal that gave rise merely to a rebuttable inference of fact that he had done so: El Ajou (above), Hoffmann LJ at 703 h-j.

[16] He referred to Boardman v Phipps [1967] 2 AC 46, Lord Upjohn at p.124; Commonwealth Oil & Gas Co. Ltd v Baxter 2010 SC 156, Lord Nimmo Smith at paragraphs 71-74. The defender needed to disclose the conflict and obtain full and informed consent from the other shareholders: Boardman v Phipps (above), Lord Hodson at p.109; Commonwealth Oil & Gas (above), Lord Nimmo Smith at paragraph 78; Crown Dilmun Investments Ltd v Sutton [2004] 1 BCLC 468, Peter Smith J at paragraph 137. The person consenting must have understood fully what he was doing, what his legal rights were and what he was surrendering: Boulting v ACTAT [1963] 2 QB 606, Upjohn LJ at p.636. Partial or oblique disclosure was not sufficient; nor was it enough if the agent provided his principal with the means of knowledge: Gwembe Valley Development Co. Ltd v Koshy [2004] 1 BCLC 131, Mummery LJ at paragraph 65; New Zealand Netherland Society "Oranje" Inc. v Kuys [1973] 1 WLR 1126, Lord Wilberforce at p.1131; and Dunne v English (1874) LR 18 Eq 524, Sir George Jessel MR at p.535. Where an agent had to make full disclosure and obtain informed consent, the law of constructive knowledge had no role. Whether or not there had been fully informed consent must depend upon the facts of each case: Hurstanger Ltd v Wilson [2007] 1 WLR 2351, Tuckey LJ at paragraph 35.

[17] Even if, contrary to the pursuers' submission, constructive knowledge was sufficient to establish full disclosure, Mr Sandison submitted that there were no averments to support a case that the pursuers had done anything to give their informed consent.

[18] The only issue for probation, he submitted, was the extent of the benefit which the defender received by entering into the consultancy agreement. The defender's averments in Answers 4 and 5 about the role and knowledge of the solicitors and accountants and the averments in Answer 5 about the consequences of the compromise agreement and the consultancy agreement for the defender were irrelevant and should be refused probation. Also the averments (in Answer 8), that the sums paid under the consultancy agreement were for work which he undertook after terminating his employment and that the pursuers had no claim on those sums, should not be admitted to probation and his fourth plea in law which denied any breach of fiduciary duty should be repelled. The defender's averments that the pursuers and the other shareholders would not have been paid any more in any circumstances, that the deal would not have been completed if he had not been paid under the consultancy agreement, and that he had surrendered valuable rights and undertaken to indemnify others in respect of part of their warranty obligations which were essential to the deal, were not a proper subject of enquiry: Parker v McKenna (1874) 10 Ch App. 96, James LJ at p.124; Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134, Lord Russell of Killowen at pp.144-145.

[19] The defender's proposed case for relief under section 727 of the Companies Act 1985 was irrelevant. The court's power to grant relief could be exercised only in relation to a person's acts as a director or officer of a company: Customs and Excise Commissioners v Hedon Alpha Ltd [1981] 1 QB 818; First Independent Factors & Finance Ltd v Mountford [2008] BCC 598; and Murray Vernon Holdings Ltd v Norman Hassall [2010] EWHC 7 (Ch). In this case the defender acted not as managing director of LAGTA but as agent of its shareholders.

Discussion

(i) Conflict of interest, disclosure and informed consent

[20] There was no significant dispute between the parties on the law relating to disclosure by the agent and the informed consent of the principal. I summarise it briefly in the following propositions.

[21] Where the agent who is subject to fiduciary duties places himself in a position where a reasonable man looking at the facts and circumstances of the particular case would think that there was a real sensible possibility of conflict of interest, the agent must obtain the fully informed consent of his principals: Boardman v Phipps (above) Lord Hodson at p.109. Secondly, the agent in order to obtain that fully informed consent must make full disclosure of the circumstances which give rise to the conflict or potential conflict of interest: Commonwealth Oil & Gas Co Ltd (above) Lord Nimmo Smith at paragraph 78; and Crown Dilmun (above), Peter Smith J at paragraphs 136-137. In New Zealand Netherlands Society "Oranje" Inc. (above) Lord Wilberforce (at pp.1131-1132) stated the principle that requires disclosure:

"Their Lordships entirely accept, as a matter of law, that if an arrangement is to stand, whereby a particular transaction, which would otherwise come within a person's fiduciary duty, is to be exempted from it, there must be full and frank disclosure of all material facts."

In the context of a claim that a fiduciary has made unauthorised profits, which is this case, it is not sufficient that the agent discloses merely that he is making a profit; he must disclose the source and scale of the profit which he is making from his position: Gwembe Valley Development (above), Mummery LJ at paragraph 64. The burden of proving full disclosure lies on the agent, and what amounts to sufficient disclosure depends on the circumstances of each case: Hurstanger Ltd v Wilson (above), Tuckey LJ at p.2362.

[22] Thirdly, it is not sufficient to meet the obligation of disclosure for the fiduciary to say enough to put the principals on inquiry. That is not full disclosure: Dunne v English (above) Sir George Jessel MR at p.535. The amount of detail required depends in each case upon the nature of the contract or arrangement and the context in which it arises: Gray v New Augarita Porcupine Mines [1952] 3 DLR 1, Lord Radcliffe at p.14. Fourthly, having obtained such full disclosure of the material facts, the principals must give informed consent to the arrangement. Such informed consent in my opinion necessarily entails that the principals are aware that they do not have to consent and that by consenting they are allowing an arrangement to stand which otherwise would have been open to challenge. In Boulting v ACTAT (above) Upjohn LJ stated (at p.636):

"...the person entitled to the benefit of the rule may relax it, provided he is of full age and sui juris and fully understands not only what he is doing but also what his legal rights are, and that he is in part surrendering them."

That principle is unquestionable. The requisite knowledge of the principals is "not only of all the relevant facts but of their rights." But the principle must be applied with common sense to the particular circumstances of each case, as Upjohn LJ stated at pp.637-638.

[23] Fifthly, it is not a defence to an obligation to account for the fiduciary to argue that the principals did not suffer injury as a result of his conflict of interest or the taking of a secret profit. See Aberdeen Railway Co, which I have cited in paragraph [11] above, and Regal (Hastings) Ltd v Gulliver (above) at pp.144-145. In Parker v McKenna (above) James LJ at p.124 presented the rule that no agent can be allowed to profit in the course of his agency without the knowledge and consent of his principal, as "an inflexible rule" and stated that the court was not entitled:

"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."

While, since 1874, many other things have threatened the safety of mankind, the inflexibility of the rule prohibiting a fiduciary from obtaining benefit from his breach of fiduciary duty has not diminished. Indeed, although it would appear not to have been argued before the Inner House, it is possible to analyse the circumstances of Commonwealth Oil & Gas (above) in the light of that principle and reach the same result by applying in relation to the second defender the alternative grounds of recovery, namely bad faith or gratuitous benefit.

[24] I do not understand Mr Logan to dispute these propositions and see his averments about the absence of loss to the pursuers as directed towards the claim for relief under section 727 of the Companies Act 1985, which I discuss below.

(ii) Imputed knowledge

[25] Where then does the law of imputed knowledge fit into the regime of disclosure and informed consent?

[26] In my opinion there was force in Mr Sandison's submission that the cases which were concerned with the authority, real or apparent, of an agent to receive notifications from a third party on behalf of his principal were not in point. The defender does not assert that he gave any notification of his interest in the consultancy agreement to the solicitors in their capacity as agents of the other shareholders with the aim of obtaining their informed consent. On the contrary, Mr Logan's submission was that the defender was a director of an engineering company, that he was not aware of the niceties of the law relating to fiduciaries and that he relied on the solicitors to do whatever was needed. In my view had the defender disclosed his interest to the solicitors and had they either actual or apparent authority both to receive notification and to give consent on behalf of their clients, their so doing would have bound their clients. In that sense the law of imputed knowledge may be relevant to disclosure and informed consent.

[27] Absent the assertion of such disclosure by a communication to the solicitors, we are not concerned with Article 94 of Bowstead & Reynolds or the third category which Hoffmann LJ described in El Ajou (at p.703). Those passages dealt with the agent authorised to receive communications. In Article 94, Bowstead & Reynolds stated:

"A notification to an agent is effective as such if the agent receives it within the scope of his actual or apparent authority, whether or not it is subsequently transmitted to the principal, unless the person seeking to charge the principal with notice knew that the agent intended to conceal the notification from the principal."

Blackley (above) concerned the disclosure of information, which was material to the risk undertaken in an insurance contract, to an agent of the insurers with ostensible authority to receive such communications. Turner P (at p.1049) analysed the case as an application of the principles of estoppel. He stated (at pp.1045-1046) that imputed knowledge was not the question which arose in the case; the issue was whether the insured's wife had performed, on the insured's behalf, his duty of disclosure. Strover v Harrington (above) was concerned with the implied actual authority, or at least the apparent authority, which each party to a conveyancing transaction gives to his solicitors to receive information from the other party (or his solicitors) regarding the transaction. Southbourne Investments Ltd (above), which was concerned with (i)  the authority of a solicitor to receive a personal cheque on behalf of his client and (ii)  whether the client could be estopped from refusing the cheque by delaying to reject it, also is not in point.

[28] Mr Logan also referred to Article 95 in Bowstead & Reynolds, which, under the title, "Knowledge Acquired Through Agent", states:

"The law may impute to a principal knowledge relating to the subject-matter of the agency which the agent acquires while acting within the scope of his authority."

That cautious statement (viz. the use of "may") is explained in the commentary in which the authors state that it is extremely difficult to reduce to any order the plethora of cases. They point out (at paragraph 8.209) that, in El Ajou, Hoffmann LJ did not rely on any such general principle but listed certain non-exhaustive categories into which the cases should be divided. The authors admit that the two explanations, which they give for the rule, are not entirely satisfactory as an explanation of the case law. The first is the identity of principal and agent; the principal should not be able by using an agent to put himself in a better position than that in which he would have been if he had dealt personally. On such an approach knowledge which the agent acquired outside the scope of his agency would not be imputed to the principal. The second explanation is that where an agent receives information which it is his duty to pass on to his principal, the court may infer that he did so in the absence of explicit indications to the contrary. It is sufficient to say that this Article is a shaky peg on which to hang a submission that a claim should be dismissed as irrelevant without enquiry into the facts.

(iii) The facts disclosed in the pleadings and the agreed documents

[29] The facts disclosed in the pleadings and the agreed documents do not suggest that matters are as straightforward as either party represented them. The defender was the managing director of LAGTA. The Board of LAGTA met on 5 July 2007 and considered a proposal for the purchase of the shares of LAGTA which involved the defender receiving a higher price for his shares than the other shareholders and his entering into a separate consultancy agreement. It is also admitted that the Board of LAGTA discussed the proposals to purchase the shares in the company at various meetings.

[30] The terms of engagement of Holmes McKillop, which were eventually signed on about 27 November 2007, stated that the solicitors had acted on behalf of all of the shareholders of LAGTA and were executed on behalf of LAGTA. The pursuers aver that the solicitors and PKF were instructed on behalf of the company "in connection with those aspects of the proposed transactions concerning the company". But the fee note, which the solicitors presented to the defender as the seller's representative after completion of the transactions, suggested that in the negotiations with the purchasers' solicitors they were acting for the shareholders in relation to the share purchase agreement and for the defender in relation to the compromise agreement and the consultancy agreement.

[31] The share purchase agreement described the defender as the shareholders' representative. This is consistent with the defender's admission that he negotiated the share purchase agreement and the ancillary documents on behalf of the shareholders. While the shareholders other than the defender were not parties to the compromise agreement and the consultancy agreement, those agreements were referred to in clause 3.2 of and schedule 5 to the share purchase agreement and completion of the deal was conditional upon their execution.

[32] The defender avers, but the pursuers do not admit, that Holmes McKillop prepared the letter of 16 August 2007 for the defender's signature. If that is established and there is no evidence that the defender gave specific instructions as to its terms, the professional authorship of the letter may have a significant bearing on the case based on fraudulent or negligent representation.

[33] It is far from clear to me how the defender can rely on Holmes McKillop's knowledge of the terms of the consultancy agreement to elide the obligation to obtain the informed consent of the shareholders to the consultancy agreement. Even if the solicitors' knowledge was imputed to the shareholders, where is their informed consent? But until there is clear evidence as to the scope of the remit of the solicitors and accountants, the instructions which they were given and by whom, it appears to me that it would be premature to reach concluded views on disclosure and informed consent. In any event as most of the averments which the pursuers seek to have deleted are also relevant to the defender's answer to the case of misrepresentation or to his application for relief, it is prudent to allow a proof before answer.

(iv) The application for relief under section 727 of the Companies Act 1985

[34] The defender as a fall back seeks the court to grant him relief under section 727 of the Companies Act 1985 and moves the court to allow him to insert a relevant plea in law. Subsection (1) of that section provides:

"(1)  If in any proceedings for negligence, default, breach of duty or breach of trust against an officer of a company or a person employed by a company as auditor...it appears to the court hearing the case that the officer or person is or may be liable in respect of negligence, default, breach of duty or breach of trust, but that he acted honestly and reasonably, and that having regard to all the circumstances of the case (including those connected with his appointment) he ought fairly to be excused for the negligence, default, breach of duty or breach of trust, the court may relieve him, either wholly or partly, from his liability on such terms as it thinks fit."

[35] It is clear from the case law that section 727 and its predecessor in the 1948 Act (section 448) could not be pleaded to obtain relief against a liability to third parties or strangers. Those provisions related to breaches of duty or defaults by a person in his capacity as a director or officer of the company. Thus in the leading case of Customs and Excise Commissioners v Hedon Alpha Ltd (above) the Court of Appeal held that the director of a bookmaking company could not invoke the provision of the 1948 Act against a personal statutory liability to pay general betting duty. Stephenson LJ accepted the submissions on behalf of the Commissioners that section 448 was available to be pleaded against a claim by a company or on its behalf against a director to enforce his liability to them or his duties under the Companies Acts (p.824D-E). Ackner LJ also held that the relief was confined to claims by or on behalf of the company or its liquidator against the officer for his personal breaches of duty (p.826A-B). Griffiths LJ reached a similar view but stated it in slightly broader terms. He said (at p.827F-G):

"Although the section is expressed in wide language it is in my view clearly intended to enable the court to give relief to a director who, although he has behaved reasonably and honestly has nevertheless failed in some way in the discharge of his obligations to his company or their shareholders or who has infringed one of the numerous provisions in the Companies Acts, that regulate the conduct of directors." (my emphasis)

It is not disputed that the Court of Appeal's interpretation of this provision of the 1948 Act is authoritative guidance on the replacement provisions in the later Companies Acts: see Barras v Aberdeen Steam Trawling and Fishing Co 1933 SC (HL) 21, Viscount Buckmaster at p.27. Consistently with that approach, in the two cases on section 727 of the 1985 Act to which I was referred, namely First Independent Factors & Finance Ltd (above) and Murray Vernon Holdings Ltd (above) the court founded on the Court of Appeal's decision in CCE v Hedon Alpha Ltd.

[36] While the case law establishes a clear dichotomy between claims by strangers on the one hand and claims by or on behalf of the company against a person in his capacity as a director, it is not apparent to me that the shareholders of the company would in the context of this action necessarily be classified as strangers or that the defender would necessarily be analysed as acting in a capacity other than as a director of the company. The board of LAGTA comprised representatives of its shareholders. They had a hand in considering the proposed purchase and arranging for the defender to act as the seller's representative. It is not clear whether any shareholders other than the defender had an executive role in the management of the company. The defender signed the letter of 16 August 2007, which has given rise to the pursuer's case of misrepresentation, in his capacity as managing director of the company. The defender asserts that he was employed as managing director of the company to obtain the best possible price for its shareholders on the sale of their shares. The continued involvement of the defender in the management of the company was an essential part of the sale deal. As the representative of the shareholders in the negotiation of the sale of the shares he acted for all of the corporators; in other words he acted for the company as a whole. The Hedon Alpha Ltd case predated the wider recognition of the assent principle in Re Duomatic Ltd [1969] 2 Ch 365. In the circumstances I consider that I need to hear evidence on the precise roles of the Board, the defender and the other shareholders in relation to the transaction before I reach firm conclusions (a)  whether or not the pursuers' claim is sufficiently of the nature of a corporate claim, (b)  whether or not the defender was acting in a capacity which was clearly different from his capacity as a director of the company, and (c)  whether any difference in capacity is legally significant in the circumstances of this case.

[37] Accordingly, I will not rule on the relevancy of the defender's claim for relief until I have read and heard the evidence of the relevant facts.

Conclusion

[38] I will allow the defender to amend his defences by adding a plea in law seeking relief under section 727 of the Companies Act 1985. I will not exclude any averments from probation. I will put the case out by order to discuss further procedure.

[39] The pursuers' claim is not for a large sum. If the defender proves his averments as to the extent of his receipts from the consultancy agreement, the pursuers' claim will be substantially smaller. I invite parties to consider in advance of the by order hearing how they can achieve a resolution or a judicial determination of their dispute in an economic manner.


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