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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Guiness plc v Saunders Plc [1989] UKHL 2 (08 February 1990)
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Cite as: [1990] 2 AC 663, [1989] UKHL 2

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JISCBAILII_CASE_TRUSTS

    Parliamentary Archives,
    HL/PO/JU/18/250

    Guinness plc (Respondents)
    v.

    Saunders and another (Appellant)

    JUDGMENT

    Die Jovis 8° Februarii 1990

    Upon Report from the Appellate Committee to whom was
    referred the Cause Guinness plc against Saunders and another,
    That the Committee had heard Counsel as well on Monday the
    30th and Tuesday the 31st of October as on Wednesday the 1st,
    Thursday the 2nd, Monday the 6th and Tuesday the 7th days of
    November last, upon the Petition and Appeal of Thomas Joseph
    Ward, of Ferry Farms, Annapolis, Maryland 21402, USA, praying
    that the matter of the Order set forth in the Schedule
    thereto, namely an Order of Her Majesty's Court of Appeal of
    the 10th day of May 1988, might be reviewed before Her Majesty
    the Queen in Her Court of Parliament and that the said Order
    might be reversed, varied or altered or that the Petitioner
    might have such other relief in the premises as to Her Majesty
    the Queen in Her Court of Parliament might seem meet; as upon
    the case of Guinness plc lodged in answer to the said Appeal;
    and Counsel also having been heard on behalf of Ernest
    Saunders and on behalf of the Serious Fraud Office; and due
    consideration had this day of what was offered on either side
    in this Cause:

    It is Ordered and Adjudged, by the Lords Spiritual and
    Temporal in the Court of Parliament of Her Majesty the Queen
    assembled, That the said Order of Her Majesty's Court of
    Appeal (Civil Division) of the 10th day of May 1988 complained
    of in the said Appeal be, and the same is hereby, Affirmed and
    that the said Petition and Appeal be, and the same is hereby,
    dismissed this House: And it is further Ordered, That the
    Appellant do pay or cause to be paid to the said Respondents
    the Costs incurred by them in respect of the said Appeal, the
    amount thereof to be certified by the Clerk of the Parliaments
    if not agreed between the parties.

    Cler: Parliamentor:

    Judgment: 8.2.90

    HOUSE OF LORDS

    GUINNESS PLC
    (RESPONDENTS)

    V.

    SAUNDERS AND ANOTHER
    (APPELLANT)

    Lord Keith of Kinkel
    Lord Brandon of Oakbrook
    Lord Templeman
    Lord Griffiths
    Lord Goff of Chieveley

    LORD KEITH OF KINKEL

    My Lords,

    I have had the opportunity of considering in draft the
    speech to be delivered by my noble and learned friend Lord
    Templeman. I agree with it, and for the reasons that he gives I
    too would dismiss the appeal.

    LORD BRANDON OF OAKBROOK

    My Lords,

    For the reasons given in the speech of my noble and learned
    friend, Lord Templeman, I would dismiss the appeal.

    LORD TEMPLEMAN

    My Lords,

    The appellant, Mr. Ward, admits receiving £5.2m., the
    money of the respondent company, Guinness, at a time when Mr.
    Ward was a director of Guinness. Payment of this sum to Mr.
    Ward was, he says, remuneration authorised by Mr. Saunders, Mr.
    Roux and Mr. Ward, who formed a committee of the board of
    directors of Guinness. It is admitted by Mr. Ward that payment
    was not authorised by the board of directors. In these proceedings
    Guinness claim £5.2m. from Mr. Ward and in this application,
    Guinness seek an order for immediate payment on the grounds that
    the Articles of Association of Guinness and the facts admitted by
    Mr. Ward show that the payment to Mr. Ward was unauthorised

    - 1 -_

    and must be repaid. The Vice-Chancellor, Sir Nicolas Browne-
    Wilkinson, made the order sought by Guinness and his decision was
    affirmed by the Court of Appeal (Fox and Glidewell L.JJ. and Sir
    Frederick Lawton) [1988] 1 W.L.R. 863. Mr. Ward now appeals.

    On 19 January 1986 a meeting of the board of directors of
    Guinness attended by a quorum passed several resolutions. There
    were 10 directors present; they included the chief executive, Mr.
    Saunders, and two non-executive directors, Mr. Roux and Mr. Ward.
    Legal and investment advisers of Guinness were in attendance.
    The minutes of the meeting record that Mr. Saunders and Mr.
    Roux explained the background to a proposed recommended offer
    by Guinness for the issued share capital of The Distillers Company
    Plc. The board considered drafts of an underwriting agreement, a
    letter of authority to be signed by each of the directors of
    Guinness, two commitment letters by banks, and a merger
    agreement between Guinness and Distillers. Mr. Roux reported on
    the fees and commissions payable by Guinness pursuant to the
    underwriting agreement. There is no record of the possibility of
    any fees, commission or remuneration being payable to a director.
    The draft merger agreement contained an agreement by Distillers
    to pay the costs incurred by Guinness if the offer should not prove
    successful and an agreement by Guinness to indemnify the
    directors of Distillers should the court determine that it had not
    been appropriate for the directors of Distillers to enter into the
    merger agreement and to pay the expenses of Guinness. The
    board of Guinness resolved that an offer be made and approved
    the draft documents which had been considered. The board also
    resolved that "any three directors of the company be and they are
    hereby appointed a committee of the board with full power and
    authority" to settle the terms of the offer, to approve any
    revisions of the offer which the committee might consider it
    desirable to make and:

    "(vi) to authorise and approve, execute and do, or procure to
    be executed and done, all such documents, deeds, acts and
    things as they may consider necessary or desirable in
    connection with the making or implementation of the offer
    and/or the proposals referred to above and any revision
    thereof. ..."

    It is common ground that Mr. Saunders, Mr. Roux and Mr.
    Ward established and constituted themselves a committee of the
    board for the purposes of the resolutions passed on 19 January
    1986, that the committee carried the resolutions into effect and
    that a revised offer resulted in Guinness acquiring all the share
    capital of Distillers.

    In these present proceedings, Mr. Ward pleads that in
    consideration of Mr. Ward "providing advice and services" to
    Guinness during the currency of the offer (which he refers to as
    "the bid") Guinness agreed, in the event of the success of the bid,
    to pay to Mr. Ward a sum equivalent to 0.2 per cent. of the
    ultimate value of the bid. The agreement is said to have been
    entered into by Mr. Saunders, Mr. Ward and Mr. Roux on behalf of
    Guinness and Mr. Ward on his own behalf. It is said that Mr.
    Saunders orally agreed about 19 February 1986, and that Mr. Roux
    orally agreed about the beginning of May 1986, and that the
    agreement was made or evidenced by an invoice delivered to

    - 2 -

    Guinness by a company now admitted to be controlled by Mr.
    Ward. The invoice claimed £5.2m. for advice in respect of the
    successful acquisition of Distillers. The invoice was approved by
    Mr. Roux and the sum of £5.2m. was paid. Mr. Ward pleads in
    the alternative that an agreement by Guinness to pay Mr. Ward
    for his advice and services was made by Mr. Saunders who had
    implied actual authority, or ostensible authority, to do so. Mr.
    Ward pleads that he performed valuable services for the benefit of
    Guinness in connection with the bid. These services were rendered
    between 8 January 1986 (a day prior to the board meeting on 19
    January) and 20 April 1986. These services as set out in
    particulars furnished by Mr. Ward were, in summary: (1)
    negotiations on behalf of Guinness at meetings and in the course
    of telephone conversations with directors and representatives of
    Distillers; (2) negotiations on behalf of Guinness at meetings and in
    the course of telephone conversations with officials of the
    Monopolies and Mergers Commission; and (3) discussions from time
    to time of the bid, the revised bid and the desirability of and
    implementation of the bid at meetings (including the board meeting
    held on 19 January 1986) and in the course of telephone
    conversations with members of the board of Guinness and
    professional advisers of Guinness.

    Mr. Ward claims particular credit for persuading the
    Monopolies and Mergers Commission to allow Guinness to bid for
    Distillers, for persuading some reluctant directors of Guinness to
    persevere with the bid and for persuading Distillers to pay the
    costs of Guinness in connection with the bid should it prove
    unsuccessful.

    Thus Mr. Ward admits receipt of £5.2m. from Guinness and
    pleads an agreement by Guinness that he should be paid this sum
    for his advice and services in connection with the bid. Mr. Ward
    admits that payment was not authorised by the board of directors
    of Guinness.

    The articles of association of guinness provide:

    "REMUNERATION OF DIRECTORS. 90. The board shall fix
    the annual remuneration of the directors provided that
    without the consent of the company in general meeting such
    remuneration (excluding any special remuneration payable
    under article 91 and article 92) shall not exceed the sum of
    £100,000 per annum. . . . 91. The board may, in addition to
    the remuneration authorised in article 90, grant special
    remuneration to any director who serves on any committee
    or who devotes special attention to the business of the
    company or who otherwise performs services which in the
    opinion of the board are outside the scope of the ordinary
    duties of a director. Such special remuneration may be
    made payable to such director in addition to or in
    substitution for his ordinary remuneration as a director, and
    may be made payable by a lump sum or by way of salary,
    or commission or participation in profits, or by any or all of
    those modes or otherwise as the board may determine."

    Articles 90 and 91 of the articles of association of Guinness
    depart from the Table A articles recommended by statute, which
    reserve to a company in general meeting the right to determine

    - 3 -

    the remuneration of the directors of the company. But by article
    90 the annual remuneration which the directors may award
    themselves is limited and by article 91 special remuneration for an
    individual director can only be authorised by the board. A
    committee, which may consist of only two or, as in the present
    case, three members, however honest and conscientious, cannot
    assess impartially the value of its work or the value of the
    contribution of its individual members. A director may, as a
    condition of accepting appointment to a committee, or after he
    has accepted appointment, seek the agreement of the board to
    authorise payment for special work envisaged or carried out. The
    shareholders of Guinness run the risk that the board may be too
    generous to an individual director at the expense of the
    shareholders but the shareholders have, by article 91, chosen to
    run this risk and can protect themselves by the number, quality
    and impartiality of the members of the board who will consider
    whether an individual director deserves special reward. Under
    article 91 the shareholders of Guinness do not run the risk that a
    committee may value its own work and the contribution of its own
    members. Article 91 authorises the board, and only the board, to
    grant special remuneration to a director who serves on a
    committee.

    It was submitted that article 2 alters the plain meaning of
    article 91. In article 2 there are a number of definitions each of
    which is expressed to apply "if not inconsistent with the subject or
    context." The expression "the board" is defined as

    "the directors of the company for the time being (or a
    quorum of such directors assembled at a meeting of
    directors duly convened) or any committee authorised by the
    Board to act on its behalf."

    The result of applying the article 2 definition to article 91,
    it is said, is that a committee may grant special remuneration to
    any director who serves on a committee or devotes special
    attention to the business of the company or who otherwise
    performs services which in the opinion of the committee are
    outside the scope of the ordinary duties of a director. In my
    opinion the subject and context of article 91 are inconsistent with
    the expression "the board" in article 91, meaning anything except
    the board. Article 91 draws a contrast between the board and a
    committee of the board. The board is expressly authorised to
    grant special remuneration to any director who serves on any
    committee. It cannot have been intended that any committee
    should be able to grant special remuneration to any director,
    whether a member of the committee or not. The board must
    compare the work of an individual director with the ordinary
    duties of a director. The board must decide whether special
    remuneration shall be paid in addition to or in substitution for the
    annual remuneration determined by the board under article 90.
    These decisions could only be made by the board surveying the
    work and remuneration of each and every director. Article 91
    also provides for the board to decide whether special remuneration
    should take the form of participation in profits; the article could
    not intend that a committee should be able to determine whether
    profits should accrue to the shareholders' funds or be paid out to
    an individual director. The remuneration of directors concerns all
    the members of the board and all the shareholders of Guinness.

    - 4 -

    Article 2 does not operate to produce a result which is
    inconsistent with the language, the subject and the context of
    article 91. Only the board possessed power to award £5.2m. to
    Mr. Ward.

    Reliance was next placed on article 110 which provides:

    "The directors may establish any committees, local boards or
    agencies for managing any of the affairs of the company,
    either in the United Kingdom, or elsewhere, and may
    appoint any persons to be members of such local boards, or
    as managers or agents, and fix their remuneration, and may
    delegate to any committee, local board, managers or agent
    any of the powers, authorities and discretions vested in the
    board, with power to sub-delegate, and may authorise the
    members of any local board, or any of them to fill any
    vacancies therein, and to act notwithstanding vacancies, and
    any such appointment or delegation may be made upon such
    terms and subject to such conditions as the directors may
    think fit ... "

    Therefore, it is said, the board may delegate to a
    committee the power conferred on the board by article 91 to
    grant special remuneration to a director. But article 110 could
    not have been intended to allow a local board or agency or
    manager to fix the remuneration of a director and article 110
    expressly provides that remuneration shall be fixed by the board.
    Article 110 does not enable the board to delegate the power of
    deciding directors' remuneration which by articles 90 and 91 is
    vested in the board alone.

    Next, reliance was placed on article 100(D) which is in the
    following terms:

    "Any director may act by himself or his firm in a
    professional capacity for the company and any company in
    which the company is interested, and he or his firm shall be
    entitled to remuneration for professional services as if he
    were not a director; provided that nothing herein contained
    shall authorise a director or his firm to act as auditor to
    the company or any subsidiary."

    Article 91 deals with directors' remuneration; article 100(D)
    deals with directors' charges for professional services. There is a
    distinction between remuneration and professional charges.
    Remuneration depends on an assessment of the value of the
    individual and the perceived quality of his work. Professional
    charges can be checked by taxation in the case of lawyers and in
    other instances by professional recommendations and standards of
    comparison. Mr. Ward nowhere alleges in his pleadings that he
    provided professional services. Counsel on his behalf stated that
    Mr. Ward was a member of a New York firm of attorneys. The
    professional charges of that firm in connection with the bid were
    paid to the firm pursuant to article 100(D). If Mr. Ward had
    performed legal professional services separately from the services
    rendered by his firm, then article 100(D) would apply. The advice
    and services upon which Mr. Ward relies in these proceedings were
    not legal professional services. Counsel informed the House that
    Mr. Ward was one of a number of experts who advise and

    - 5 -

    negotiate, implement or frustrate take-over bids. Counsel did not
    suggest that these experts are all lawyers or that they constitute
    a profession or that they possessed the indicia of a profession,
    namely, an organisation which controls entry and membership,
    provides educational and training qualifications, insists upon a
    standard of work and behaviour, imposes disciplinary sanctions for
    misconduct and, above all, acknowledges and enforces a duty to
    the public over and above the duty common to all of obeying the
    law. The services pleaded by Mr. Ward were the services he was
    bound to carry out and which any member of the board is entitled
    and bound to carry out as a member of a committee established
    by the board. Guinness admit for the purposes of this application
    that Mr. Ward performed services which were of value to
    Guinness, although if it were necessary to do so Guinness would
    attempt to prove, and Mr. Ward would deny, that Mr. Ward has
    exaggerated the value of his services and that some of his
    activities were improper and caused damage to Guinness. For
    present purposes it suffices that Mr. Ward seeks remuneration for
    his services as a member of a committee; he is not seeking
    remuneration for professional services provided in a professional
    capacity. Failure to comply with article 91 cannot be disguised as
    an application of article 100(D).

    Mr. Ward also pleads that Mr. Saunders possessed implied
    actual authority or ostensible authority to agree on behalf of
    Guinness that Mr. Ward should be paid for his services. This
    allegation is inconsistent with the express terms of the resolution
    dated 19 January 1986 whereby the board conferred power in
    relation to the bid on the committee and not on Mr. Saunders.
    The board could not confer on the committee the right to agree
    or to award special remuneration to a director. The board could
    not confer such a right on Mr. Saunders. The resolution dated 19
    January 1986 does not purport to confer on anybody a power which
    the board could not confer. The articles of Guinness are binding
    on the board, on the committee, on Mr. Saunders and on Mr.
    Ward. Mr. Ward was not entitled to assume that Mr. Saunders
    possessed an authority inconsistent with the articles of Guinness,
    inconsistent with the appointment of the committee and
    inconsistent with the terms of the appointment of the committee.
    If before or at the board meeting on 19 January 1986 the board
    had been requested to agree to grant special remuneration to Mr.
    Ward, such a request might well have met with a favourable
    response. If the bid for Distillers had not led to allegations of
    misconduct by Guinness it is possible that the payment of £5.2m.
    to Mr. Ward's company, apparently for services rendered by his
    company, would not have been questioned or, at any event, that
    Mr. Ward would not have been required to repay that sum. But
    there never was any contract by Guinness to pay special
    remuneration to Mr. Ward for services rendered in connection with
    the bid for Distillers.

    Since, for the purposes of this application, Guinness concede
    that Mr. Ward performed valuable services for Guinness in
    connection with the bid, counsel on behalf of Mr. Ward submits
    that Mr. Ward, if not entitled to remuneration pursuant to the
    articles, is, nevertheless, entitled to be awarded by the court a
    sum by way of quantum meruit or equitable allowance for his
    services. Counsel submits that the sum awarded by the court
    might amount to £5.2m. or a substantial proportion of that sum;

    - 6 -

    therefore Mr. Ward should be allowed to retain the sum of £5.2m.
    which he has received until, at the trial of the action, the court
    determines whether he acted with propriety and, if so, how much
    of the sum of £5.2m. he should be permitted to retain; Mr. Ward
    is anxious for an opportunity to prove at a trial that he acted
    with propriety throughout the bid. It is common ground that, for
    the purposes of this appeal, it must be assumed that Mr. Ward and
    the other members of the committee acted in good faith and that
    the sum of £5.2m. was a proper reward for the services rendered
    by Mr. Ward to Guinness.

    My Lords, the short answer to a quantum meruit claim
    based on an implied contract by Guinness to pay reasonable
    remuneration for services rendered is that there can be no
    contract by Guinness to pay special remuneration for the services
    of a director unless that contract is entered into by the board
    pursuant to article 91. The short answer to the claim for an
    equitable allowance is the equitable principle which forbids a
    trustee to make a profit out of his trust unless the trust
    instrument, in this case the articles of association of Guinness, so
    provides. The law cannot and equity will not amend the articles
    of Guinness. The court is not entitled to usurp the functions
    conferred on the board by the articles.

    The 28th edition of Snell's Principles of Equity, first
    published in 1868, contains the distilled wisdom of the author and
    subsequent editors, including Sir Robert Megarry, on the law
    applicable to trusts and trustees. It is said, at p. 244, that:

    "With certain exceptions, neither directly nor indirectly may
    a trustee make a profit from his trust. . . . The rule
    depends not on fraud or mala fides, but on the mere fact of
    a profit made."

    The 24th edition (1987) of Palmer's Company Law, first
    published in 1898, contains the distilled wisdom of the authors and
    subsequent editors concerning the law applicable to companies and
    directors. It is said, in volumn 1, at pp. 943-944, that:

    "Like other fiduciaries directors are required not to put
    themselves in a position where there is a conflict (actual or
    potential) between their personal interests and their duties
    to the company. . . . the position of a director, vis-à-vis
    the company, is that of an agent who may not himself
    contract with his principal, and ... is similar to that of a
    trustee who, however fair a proposal may be, is not allowed
    to let the position arise where his interest and that of the
    trust may conflict. ... he is, like a trustee, disqualified
    from contracting with the company and for a good reason:
    the company is entitled to the collective wisdom of its
    directors, and if any director is interested in a contract, his
    interest may conflict with his duty, and the law always
    strives to prevent such a conflict from arising."

    The application of these principles to remuneration in the
    case of a trustee is described by Snell as follows, at p. 252:

    "As the result of the rule that a trustee cannot make a
    profit from his trust, trustees and executors are generally

    - 7 -

    entitled to no allowance for their care and trouble. This
    rule is so strict that even if a trustee or executor has
    sacrificed much time to carrying on a business as directed
    by the trust, he will usually be allowed nothing as
    compensation for his personal trouble or loss of time."

    The application of these principles to remuneration in the
    case of a director is described by Palmer as follows, at p. 902:

    "Prima facie, directors of a company cannot claim
    remuneration, but the articles usually provide expressly for
    payment of it ... and, where this is the case, the
    provision operates as an authority to the directors to pay
    remuneration out of the funds of the company; such
    remuneration is not restricted to payment out of profits."

    The following also appears, at p. 903 :

    "The articles will also usually authorise the payment by the
    directors to one of their number of extra remuneration for
    special services. Where such provision is made, it is a
    condition precedent to a director's claim for additional
    remuneration that the board of directors shall determine the
    method and amount of the extra payment; it is irrelevant
    that the director has performed substantial extra services
    and the payment of additional remuneration would be
    reasonable."

    So far as contract is concerned, Lord Cranworth L.C., in
    Aberdeen Railway Co. v. Blaikie Bros. (1854) 1 Macq. H.L. 461,
    considered, at pp. 471-472:

    "the general question, whether a director of a railway
    company is or is not precluded from dealing on behalf of
    the company with himself, or with a firm in which he is a
    partner. 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 a 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 was 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 still so inflexible is the rule that no inquiry on
    that subject is permitted."

    - 8 -

    So far as equity is concerned, Sir John Stuart V.-C. in
    Barrett v. Hartley (1866) L.R. 2 Eq. 789 said, at p. 796, that
    there was a:

    "very well established principle of this court that a trustee
    is not to exact anything for his services. For the defendant
    it was contended, that although the payment was called a
    bonus, it was for important services rendered. No doubt the
    importance and benefit of the services can hardly be
    exaggerated. But a trustee who greatly benefits his cestui
    que trust by performing his duties is not entitled to say to
    him that he will not give him his property, or proceed to
    execute the trust, unless he be paid a bonus."

    In Bray v. Ford [1896] A.C. 44 a solicitor who was a
    governor of a charitable college charged profit costs for his
    professional services under the mistaken belief that the
    memorandum of association allowed him to do so. Lord Watson
    said, at p. 48, that the respondent was not

    "legally justified in charging and accepting payment of full
    professional remuneration in respect of services rendered by
    him to the college in his capacity of solicitor .... the
    respondent was neither entitled to charge profit costs in
    respect of these services, nor to retain them when received
    by him. Such a breach of the law may be attended with
    perfect good faith, and it is, in my opinion, insufficient to
    justify a charge of moral obliquity, unless it is shown to
    have been committed knowingly or with an improper
    motive."

    Lord Herschell said, at pp. 51-52:

    "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 duty 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
    wrongdoing."

    Equity forbids a trustee to make a profit out of his trust.
    The Articles of Association of Guinness relax the strict rule of
    equity to the extent of enabling a director to make a profit
    provided that the board of directors contracts on behalf of
    Guinness for the payment of special remuneration or decides to
    award special remuneration. Mr. Ward did not obtain a contract
    or a grant from the board of directors. Equity has no power to
    relax its own strict rule further than and inconsistently with the
    express relaxation contained in the articles of association. A

    - 9 -

    shareholder is entitled to compliance with the articles. A director
    accepts office subject to and with the benefit of the provisions of
    the articles relating to directors. No one is obliged to accept
    appointment as a director. No director can be obliged to serve on
    a committee. A director of Guinness who contemplates or accepts
    service on a committee or has performed outstanding services for
    the company as a member of a committee may apply to the board
    of directors for a contract or an award of special remuneration.
    A director who does not read the articles or a director who
    misconstrues the articles is nevertheless bound by the articles.
    Article 91 provides clearly enough for the authority of the board
    of directors to be obtained for the payment of special
    remuneration and the submissions made on behalf of Mr. Ward,
    based on articles 2, 100(D) and 110, are more ingenious than
    plausible and more legalistic than convincing. At the board
    meeting held on 19 January 1986, Mr. Ward was present but did
    not seek then or thereafter to obtain the necessary authority of
    the board of directors for payment of special remuneration. In
    these circumstances there are no grounds for equity to relax its
    rules further than the articles of association provide. Similarly,
    the law will not imply a contract between Guinness and Mr. Ward
    for remuneration on a quantum meruit basis awarded by the court
    when the articles of association of Guinness stipulate that special
    remuneration for a director can only be awarded by the board.

    It was submitted on behalf of Mr. Ward that Guinness, by
    the committee consisting of Mr. Saunders, Mr. Ward and Mr. Roux,
    entered into a voidable contract to pay remuneration to Mr. Ward
    and that since Mr. Ward performed the services he agreed to
    perform under this voidable contract there could be no restitutio
    integrum and the contract cannot be avoided. This submission
    would enable a director to claim and retain remuneration under a
    contract which a committee purported to conclude with him,
    notwithstanding that the committee had no power to enter into the
    contract. The fact is that Guinness never did contract to pay
    anything to Mr. Ward. The contract on which Mr. Ward relies is
    not voidable but non-existent. In support of a quantum meruit
    claim, counsel for Mr. Ward relied on the decision of Buckley J. in
    In re Duomatic Ltd. [1969] 2 Ch. 365. In that case a company
    sought and failed to recover remuneration received by a director
    when the shareholders or a voting majority of the shareholders had
    sanctioned or ratified the payment. In the present case there has
    been no such sanction or ratification either by the board of
    directors or by the shareholders. Mr. Ward also relied on the
    decision in Craven-Ellis v. Canons Ltd. [1936] 2 K.B. 403. In that
    case the plaintiff was appointed managing director of a company
    by an agreement under the company's seal which also provided for
    his remuneration. By the articles of association each director was
    required to obtain qualification shares within two months of his
    appointment. Neither the plaintiff nor the other directors obtained
    their qualification shares within two months or at all and the
    agreement with the managing director was entered into after they
    had ceased to be directors. The plaintiff having done work for
    the company pursuant to the terms of the agreement was held to
    be entitled to the remuneration provided for in the agreement on
    the basis of a quantum meruit. In Craven-Ellis the plaintiff was
    not a director, there was no conflict between his claim to
    remuneration and the equitable doctrine which debars a director
    from profiting from his fiduciary duty, and there was no obstacle

    - 10 -

    to the implication of a contract between the company and the
    plaintiff entitling the plaintiff to claim reasonable remuneration as
    of right by an action in law. Moreover, as in In re Duomatic
    Ltd.
    , the agreement was sanctioned by all the directors, two of
    whom were beneficially entitled to the share capital of the
    company. In the present case Mr. Ward was a director, there was
    a conflict between his interest and his duties, there could be no
    contract by Guinness for the payment of remuneration pursuant to
    article 91 unless the board made the contract on behalf of
    Guinness and there was no question of approval by directors or
    shareholders.

    In support of a claim for an equitable allowance, reference
    was made to the decision of Wilberforce J. in Phipps v. Boardman
    [1964] 1 W.L.R. 993. His decision was upheld by the Court of
    Appeal [1965] Ch. 992 and ultimately by this House under the
    name of Boardman v. Phipps [1967] 2 AC 46. In that case a
    trust estate included a minority holding in a private company
    which fell on lean times. The trustees declined to attempt to
    acquire a controlling interest in the company in order to improve
    its performance. The solicitor to the trust and one of the
    beneficiaries, with the knowledge and approval of the trustees,
    purchased the controlling interest from outside shareholders for
    themselves with the help of information about the shareholders
    acquired by the solicitor in the course of acting for the trust.
    The company's position was improved and the shares bought by the
    solicitor and the purchasing beneficiary were ultimately sold at a
    profit. A complaining beneficiary was held to be entitled to a
    share of the profits on the resale on the grounds that the solicitor
    and the purchasing beneficiary were assisted in the original
    purchase by the information derived from the trust. The purchase
    of a controlling interest might have turned out badly and in that
    case the solicitor and the purchasing beneficiary would have made
    irrecoverable personal losses. In these circumstances it is not
    surprising that Wilberforce J. decided that in calculating the
    undeserved profit which accrued to the trust estate there should
    be deducted a generous allowance for the work and trouble of the
    solicitor and purchasing beneficiary in acquiring the controlling
    shares and restoring the company to prosperity. Phipps v.
    Boardman
    decides that in exceptional circumstances a court of
    equity may award remuneration to the trustee. Therefore, it is
    argued, a court of equity may award remuneration to a director.
    As at present advised, I am unable to envisage circumstances in
    which a court of equity would exercise a power to award
    remuneration to a director when the relevant articles of
    association confided that power to the board of directors.
    Certainly, the circumstances do not exist in the present case. It
    is in this respect that section 317 of the Companies Act 1985 is
    relevant. By that section:

    "(1) It is the duty of a director of a company who is in any
    way, whether directly or indirectly, interested in a contract
    or proposed contract with the company to declare the
    nature of his interest at a meeting of the directors of the
    company .... (7) A director who fails to comply with this
    section is liable to a fine. . . ."

    In Hely-Hutchinson v. Brayhead Ltd. [1968] 1 Q.B. 549, the
    Court of Appeal held that section 317 renders a contract voidable

    - 11 -

    by a company if the director does not declare his interest.
    Section 317 does not apply directly to the present case because
    there was no contract between Guinness and Mr. Ward. But
    section 317 shows the importance which the legislature attaches to
    the principle that a company should be protected against a
    director who has a conflict of interest and duty. There is a
    fundamental objection to the admission of any claim by Mr. Ward
    whether that claim be based on article 100(D), a quantum meruit,
    section 727 of the Act of 1985 or the powers of a court of
    equity. The objection is that by the agreement with the
    committee, which is the foundation of Mr. Ward's claim to any
    relief, he voluntarily involved himself in an irreconcilable conflict
    between his duty as a director and his personal interests. Both
    before and after 19 January 1986, Mr. Ward owed a duty to tender
    to Guinness impartial and independent advice untainted by any
    possibility of personal gain. Yet by the agreement, which Mr.
    Ward claims to have concluded with the committee and which may
    have been in contemplation by Mr. Ward even before 19 January
    1986, Mr. Ward became entitled to a negotiating fee payable by
    Guinness if, and only if, Guinness acquired Distillers and, by the
    agreement, the amount of the negotiating fee depended on the
    price which Guinness ultimately offered to the shareholders of
    Distillers. If such an agreement had been concluded by the board
    of directors, it would have been binding on Guinness under article
    91 but foolish in that the agreement perforce made Mr. Ward's
    advice to Guinness suspect and biased. But at least the conflict
    would have been revealed to the board. As it was, the agreement
    was not made by the board and was not binding on Guinness. The
    agreement was made by the committee and ought not to have
    been made at all. By the agreement Mr. Ward debarred himself
    from giving impartial and independent advice to Guinness. Mr.
    Ward was a director of Guinness and in that capacity was able to
    negotiate his own agreement with the committee of which he was
    a member, and was able to discuss the bid by Guinness for
    Distillers with the other directors, to advise and participate in
    decisions on behalf of Guinness relevant to the bid (including a
    decision to increase the amount of the offer) and to procure the
    acquisition by Guinness of Distillers and thus to claim £5.2m. from
    Guinness. I agree with my noble and learned friend Lord Goff of
    Chieveley that for the purposes of this appeal it must be assumed
    that Mr. Ward acted in good faith, believing that his services were
    rendered under contract binding on the company, and that in that
    mistaken belief Mr. Ward may have rendered services to Guinness
    of great value and contributed substantially to the enrichment of
    the shareholders of Guinness. Nevertheless, the failure of Mr.
    Ward to realise that he could not properly use his position as
    director of Guinness to obtain a contingent negotiating fee of
    £5.2m. from Guinness does not excuse him or enable him to defeat
    the rules of equity which prohibit a trustee from putting himself
    in a position in which his interests and duty conflict and which
    insist that a trustee or any other fiduciary shall not make a profit
    out of his trust.

    Finally, judgment against Mr. Ward on this application was
    resisted in reliance on section 727 of the Act of 1985. 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

    - 12 -

    a person employed by a company as auditor ... it appears
    to the court hearing the case that that officer or person is
    or may be liable in respect of the negligence, default,
    breach of duty or breach of trust, but that he has 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, that
    court may relieve him, either wholly or partly, from his
    liability on such terms as it thinks fit. . . ."

    Mr. Ward requested the committee to pay him and received
    from the committee out of moneys belonging to Guinness the sum
    of £5.2m. as a reward for his advice and services as a director.
    Mr. Ward had no right to remuneration without the authority of
    the board. Thus the claim by Guinness for repayment is
    unanswerable. If Mr. Ward acted honestly and reasonably and
    ought fairly to be excused for receiving £5.2m. without the
    authority of the board, he cannot be excused from paying it back.
    By invoking section 727 as a defence to the claim by Guinness for
    repayment, Mr. Ward seeks an order of the court which would
    entitle him to remuneration without the authority of the board.
    The order would be a breach of the articles which protect
    shareholders and govern directors and would be a breach of the
    principles of equity to which I have already referred.

    I would dismiss this appeal.

    LORD GRIFFITHS

    My Lords,

    I have had the advantage of reading in draft the speeches
    of my noble and learned friends Lord Templeman and Lord Goff of
    Chieveley. I agree with them, and for the reasons that they give
    I too would dismiss the appeal.

    LORD GOFF OF CHIEVELEY

    My Lords,

    In this case, Guinness seeks judgment for the recovery of a
    sum of £5.2m. paid to the appellant, Mr. Ward, without a trial.
    Before the Vice-Chancellor it obtained a judgment on admissions;
    the Vice-Chancellor's decision was affirmed by the Court of
    Appeal, from whose decision Mr. Ward now appeals to your
    Lordships' House.

    I believe that I am not the only person concerned with
    these proceedings who has been startled by the size of that sum,
    which Mr. Ward has claimed to have been paid to him under a
    contract binding on Guinness. But, for present purposes, the

    - 13 -

    amount is irrelevant. For since Guinness is seeking a judgment
    without a trial in proceedings in which Mr. Ward is protesting his
    good faith, he must be treated as, ex hypothesi, an innocent man,
    who has acted throughout in complete good faith, under what he
    believed to be a contract binding on Guinness, and indeed as one
    who claims to have rendered valuable services to Guinness,
    performed with great skill, which have contributed significantly,
    perhaps crucially, to the success of Guinness's bid for the shares
    in Distillers, thereby very substantially enriching the shareholders
    of Guinness. It is on this basis that Guinness's claim to be
    entitled to judgment against Mr. Ward has to be considered. It
    has also to be borne in mind that Mr. Ward claims that, if by any
    chance he is not entitled to the sum of £5.2m. under a contract
    binding on Guinness, then he is entitled to some recompense for
    the services which ex hypothesi he has rendered to Guinness,
    either by way of an equitable allowance, or on a quantum meruit,
    or under section 727 of the Act of 1985.

    What course has the action taken? Before the Vice-
    Chancellor, judgment was given against Mr. Ward on admissions, on
    the basis that he had received the money in breach of his
    fiduciary duty as a director of Guinness, by reason of his failure
    to disclose his interest in the agreement under which he performed
    the services, as required by section 317(1) of the Act of 1985. In
    the Court of Appeal, Mr. Ward's appeal against that decision was
    dismissed. It was said of him [1988] 1 W.L.R. 863, 870-871 that
    he had "succeeded in getting his hands on the company's money,"
    and that the company had never ceased to own the money which
    he had been paid. Accordingly Mr. Ward was constructive trustee
    of the money which he had received, and must pay it back. If he
    wished to make a claim for remuneration in respect of the
    services which he claimed to have rendered to Guinness, he must
    bring a separate action.

    The matter then came before your Lordships' House, by
    leave of the House. Mr. Ward's submissions were presented to the
    Appellate Committee, in an argument conspicuous for its
    moderation as well as for its skill, by junior counsel, Mr. Crow.
    It gradually became clear that Mr. Crow's criticisms of the
    decisions of the courts below were well founded, and that (quite
    apart from very serious difficulties arising upon the construction of
    section 317) they were inconsistent with Hely-Hutchinson v.
    Brayhead Ltd.
    [1968] 1 Q.B. 549, a decision of an exceptional
    Court of Appeal consisting of Lord Denning M.R., Lord Wilberforce
    and Lord Pearson. The decision in that case proceeded on the
    basis that the statutory duty of disclosure (then embodied in
    section 199 of the Companies Act 1948) did not of itself affect
    the validity of a contract. The section had however to be read
    with provisions in the articles, imposing a duty of disclosure upon
    directors of the company. If a director enters into, or is
    interested in, a contract with the company, but fails to declare his
    interest, the effect is that, under the ordinary principles of law
    and equity, the contract may be voidable at the instance of the
    company, and in certain cases a director may be called upon to
    account for profits made from the transaction: see per Lord
    Wilberforce, at p. 589, and Lord Pearson, at p. 594. Perhaps the
    matter is put most clearly by Lord Pearson, who said:

    - 14 -

    "It is not contended that section 199 in itself affects the
    contract. The section merely creates a statutory duty of
    disclosure and imposes a fine for non-compliance. But it
    has to be read in conjunction with article 99. The first
    sentence of that article is obscure. If a director makes or
    is interested in a contract with the company, but fails duly
    to declare his interest, what happens to the contract? Is it
    void, or is it voidable at the option of the company, or is it
    still binding on both parties, or what? The article supplies
    no answer to these questions. I think the answer must be
    supplied by the general law, and the answer is that the
    contract is voidable at the option of the company, so that
    the company has a choice whether to affirm or avoid the
    contract, but the contract must be either totally affirmed
    or totally avoided and the right of avoidance will be lost if
    such time elapses or such events occur as to prevent
    rescission of the contract. . . ."

    On this basis I cannot see that a breach of section 317, which is
    not for present purposes significantly different from section 199 of
    the Act of 1948, had itself any effect upon the contract between
    Mr. Ward and Guinness. As a matter of general law, to the
    extent that there was failure by Mr. Ward to comply with his duty
    of disclosure under the relevant article of Guinness (article
    100(A)), the contract (if any) between him and Guinness was no
    doubt voidable under the ordinary principles of the general law to
    which Lord Pearson refers. But it has long been the law that, as
    a condition of rescission of a voidable contract, the parties must
    be put in statu quo; for this purpose a court of equity can do
    what is practically just, even though it cannot restore the parties
    precisely to the state they were in before the contract. The most
    familiar statement of the law is perhaps that of Lord Blackburn in
    Erlanger v. New Sombrero Phosphate Co. (1878) 3 App.Cas. 1218,
    when he said, at p. 1278:

    "It is, I think, clear on principles of general justice, that as
    a condition to a rescission there must be a restitutio in
    integrum. The parties must be put in statu quo. ... It is
    a doctrine which has often been acted upon both at law and
    in equity."

    However on that basis Guinness could not simply claim to be
    entitled to the £5.2m. received by Mr. Ward. The contract had to
    be rescinded, and as a condition of the rescission Mr. Ward had to
    be placed in statu quo. No doubt this could be done by a court
    of equity making a just allowance for the services he had
    rendered; but no such allowance has been considered, let alone
    made, in the present case.

    Faced with these problems, Mr. Oliver Q.C. was driven, in
    the last resort, to submit that Hely-Hutchinson v. Brayhead Ltd.
    was wrongly decided. I have to confess that I would hesitate long
    before holding that a decision of such a court was erroneous.
    Careful study of the decision, with the assistance of counsel,
    merely served to reinforce my natural expectation that the case
    was rightly decided.

    This being so, it followed that the decisions of the courts
    below in the present case, founded as they were upon a breach of

    - 15 -

    section 317 by Mr. Ward, were erroneous. In ordinary
    circumstances, this conclusion would have led to the appeal being
    allowed. But Mr. Oliver then sought to justify the judgment on
    other grounds. It was first suggested by him quite simply that Mr.
    Ward, having received the money as constructive trustee, must pay
    it back. This appears to have formed, in part at least, the basis
    of the decision of the Court of Appeal. But the insuperable
    difficulty in the way of this proposition is again that the money
    was on this approach paid not under a void, but under a voidable,
    contract. Under such a contract, the property in the money would
    have vested in Mr. Ward (who, I repeat, was ex hypothesi acting in
    good faith); and Guinness cannot short circuit an unrescinded
    contract simply by alleging a constructive trust.

    The next suggestion was that it was unnecessary to have
    regard to section 317 at all. There was a simpler solution to the
    problem. The committee which Mr. Ward claimed to have agreed
    to his remuneration, thereby binding the company, had no power to
    do so, either under article 91 or under article 100(D) of the
    articles of association. It followed that the contract upon which
    Mr. Ward relied was void for want of authority, and that Guinness
    was therefore entitled to recover from Mr. Ward the money paid
    under it on the ground of total failure of consideration, or
    alternatively on the basis that he had received the money as
    constructive trustee. On this basis, it was suggested, summary
    judgment should be entered against Mr. Ward for the full sum.

    Having had the benefit of the assistance of counsel, I have
    reached the conclusion that article 91 does not empower a
    committee of the board of Guinness to authorise special
    remuneration for services rendered by directors of the company.
    It is true that the articles of Guinness are conspicuous neither for
    their clarity nor for their consistency. In particular there is no
    sensible basis upon which it is possible to reconcile article 91 with
    article 110 without doing violence to the language of one or other
    article. But I am satisfied that I should accept Guinness's
    argument on this point.

    But what about article 100(D)? Plainly, on its express
    words, it is outside the ambit of article 91. For under it a
    director who acts for the company in a professional capacity is to
    be remunerated as if he were not a director.

    Mr. Crow told your Lordships that Mr. Ward claims that he
    was acting in a professional capacity, in that he was acting as a
    business consultant. Your Lordships' House has to consider
    whether that submission should be rejected without hearing any
    evidence upon it. I have been troubled whether it would be proper
    to do so. There is a tendency among elderly professional men to
    restrict the meaning of the word "profession" to the older
    professions, such as the church, medicine and the law. But, in the
    course of this century, the meaning of the word has expanded, and
    I suspect that it is still expanding at an accelerating rate. For
    my part, I would be unwilling to hold, without evidence, what are
    the modern professions today. Even so, as is demonstrated in the
    speech of my noble and learned friend, Lord Templeman, there are
    the most formidable difficulties which would in any event have to
    be surmounted if business consultancy as such were to be
    recognised as a profession; and, especially as the expression

    - 16 -

    "business consultant" is capable of more than one meaning, I am
    satisfied that a bare assertion of the proposition cannot of itself
    be enough to justify a trial on this point in the present case.

    The matter may be more appropriately approached in
    another way. Mr. Ward's profession was undoubtedly that of an
    American attorney, he being the senior partner in a law firm in
    Washington D.C.; and I can find no allegation in the pleadings that
    he was acting as a professional business consultant. Let it be
    supposed that he was not an American attorney but an English
    solicitor. It is well known that English solicitors may develop the
    most formidable negotiating skills, which they may deploy in the
    course of their profession as solicitors. No doubt the same is true
    of many experienced American attorneys. Had an English solicitor,
    who was also a non-executive director of Guinness, acted as Mr.
    Ward claims to have done, there might be circumstances in which
    he could claim to have acted in his professional capacity as a
    solicitor in this country. But it appears that Mr. Ward was not
    acting, in the context of a purely English take-over bid, in the
    course of his profession as an American attorney. He appears to
    have been simply deploying, as a non-executive director of
    Guinness, an incidental (though no doubt important) skill which he
    had acquired in the exercise of his profession. On this basis, on
    his pleaded case, Mr. Ward could not have been acting in the
    course of his profession and article 100(D) has no application in
    the present case.

    But the matter does not stop there. Let it be accepted
    that the contract under which Mr. Ward claims to have rendered
    valuable services to Guinness was for the above reasons void for
    want of authority. I understand it to be suggested that articles 90
    and 91 provide (article 100 apart) not only a code of the
    circumstances in which a director of Guinness may receive
    recompense for services to the company, but an exclusive code.
    This is said to derive from the equitable doctrine whereby
    directors, though not trustees, are held to act in a fiduciary
    capacity, and as such are not entitled to receive remuneration for
    services rendered to the company except as provided under the
    articles of association, which are treated as equivalent to a trust
    deed constituting a trust. It was suggested that, if Mr. Ward
    wishes to receive remuneration for the services he has rendered,
    his proper course is now to approach the board of directors and
    invite them to award him remuneration by the exercise of the
    power vested in them by article 91.

    The leading authorities on the doctrine have been rehearsed
    in the opinion of my noble and learned friend, Lord Templeman.
    These indeed demonstrate that the directors of a company, like
    other fiduciaries, must not put themselves in a position where
    there is a conflict between their personal interests and their duties
    as fiduciaries, and are for that reason precluded from contracting
    with the company for their services except in circumstances
    authorised by the articles of association. Similarly, just as
    trustees are not entitled, in the absence of an appropriate
    provision in the trust deed, to remuneration for their services as
    trustees, so directors are not entitled to remuneration for their
    services as directors except as provided by the articles of
    association.

    - 17 -

    Plainly, it would be inconsistent with this long-established
    principle to award remuneration in such circumstances as of right
    on the basis of a quantum meruit claim. But the principle does
    not altogether exclude the possibility that an equitable allowance
    might be made in respect of services rendered. That such an
    allowance may be made to a trustee for work performed by him
    for the benefit of the trust, even though he was not in the
    circumstances entitled to remuneration under the terms of the
    trust deed, is now well established. In Phipps v. Boardman [1964]
    1 W.L.R. 993, the solicitor to a trust and one of the beneficiaries
    were held accountable to another beneficiary for a proportion of
    the profits made by them from the sale of shares bought by them
    with the aid of information gained by the solicitor when acting for
    the trust. Wilberforce J. directed that, when accounting for such
    profits, not merely should a deduction be made for expenditure
    which was necessary to enable the profit to be realised, but also a
    liberal allowance or credit should be made for their work and skill.
    His reasoning was, at p. 1018:

    "Moreover, account must naturally be taken of the
    expenditure which was necessary to enable the profit to be
    realised. But, in addition to expenditure, should not the
    defendants be given an allowance or credit for their work
    and skill? This is a subject on which authority is scanty;
    but Cohen J., in In re Macadam [1946] Ch. 73, 82, gave his
    support to an allowance of this kind to trustees for their
    services in acting as directors of a company. It seems to
    me that this transaction, i.e., the acquisition of a
    controlling interest in the company, was one of a special
    character calling for the exercise of a particular kind of
    professional skill. If Boardman had not assumed the role of
    seeing it through, the beneficiaries would have had to
    employ (and would, has they been well advised, have
    employed) an expert to do it for them. If the trustees had
    come to the court asking for liberty to employ such a
    person, they would in all probability have been authorised to
    do so, and to remunerate the person in question. It seems
    to me that it would be inequitable now for the beneficiaries
    to step in and take the profit without paying for the skill
    and labour which has produced it."

    Wilberforce J.'s decision, including his decision to make such an
    allowance, was later to be affirmed by the House of Lords (sub
    tit. Boardman v. Phipps [1967] 2 AC 46).

    It will be observed that the decision to make the allowance
    was founded upon the simple proposition that "it would be
    inequitable now for the beneficiaries to step in and take the profit
    without paying for the skill and labour which has produced it." Ex
    hypothesi, such an allowance was not in the circumstances
    authorised by the terms of the trust deed; furthermore it was held
    that there had not been full and proper disclosure by the two
    defendants to the successful plaintiff beneficiary. The inequity
    was found in the simple proposition that the beneficiaries were
    taking the profit although, if Mr. Boardman (the solicitor) had not
    done the work, they would have had to employ an expert to do
    the work for them in order to earn that profit.

    - 18 -

    The decision has to be reconciled with the fundamental
    principle that a trustee is not entitled to remuneration for services
    rendered by him to the trust except as expressly provided in the
    trust deed. Strictly speaking, it is irreconcilable with the rule as
    so stated. It seems to me therefore that it can only be
    reconciled with it to the extent that the exercise of the equitable
    jurisdiction does not conflict with the policy underlying the rule.
    And, as I see it, such a conflict will only be avoided if the
    exercise of the jurisdiction is restricted to those cases where it
    cannot have the effect of encouraging trustees in any way to put
    themselves in a position where their interests conflict with their
    duties as trustees.

    Not only was the equity underlying Mr. Boardman's claim in
    Phipps v. Boardman clear and, indeed, overwhelming; but the
    exercise of the jurisdiction to award an allowance in the unusual
    circumstances of that case could not provide any encouragement to
    trustees to put themselves in a position where their duties as
    trustees conflicted with their interests. The present case is,
    however, very different. Whether any such an allowance might
    ever be granted by a court of equity in the case of a director of
    a company, as opposed to a trustee, is a point which has yet to
    be decided; and I must reserve the question whether the
    jurisdiction could be exercised in such a case, which may be said
    to involve interference by the court in the administration of a
    company's affairs when the company is not being wound-up. In
    any event, however, like my noble and learned friend, Lord
    Templeman, I cannot see any possibility of such jurisdiction being
    exercised in the present case. I proceed, of course, on the basis
    that Mr. Ward acted throughout in complete good faith. But the
    simple fact remains that, by agreeing to provide his services in
    return for a substantial fee the size of which was dependent upon
    the amount of a successful bid by Guinness, Mr. Ward was most
    plainly putting himself in a position in which his interests were in
    stark conflict with his duty as a director. Furthermore, for such
    services as he rendered, it is still open to the board of Guinness
    (if it thinks fit, having had a full opportunity to investigate the
    circumstances of the case) to award Mr. Ward appropriate
    remuneration. In all the circumstances of the case, I cannot think
    that this is a case in which a court of equity (assuming that it
    has jurisdiction to do so in the case of the director of a company)
    would order the repayment of the £5.2m. by Mr. Ward to Guinness
    subject to a condition that an equitable allowance be made to Mr.
    Ward for his services.

    Finally, I cannot see any prospect of success in a claim by
    Mr. Ward to relief under section 727 of the Act of 1985. Given
    that Guinness's claim must be one for the recovery of money paid
    to Mr. Ward under a void contract and received by him as a
    constructive trustee, there is no question of his being able to
    claim relief from liability for breach of duty, as might have been
    the case if Guinness's claim has been founded upon breach by Mr.
    Ward of his duty of disclosure.

    I have been very conscious, throughout this case, that
    Guinness is seeking summary judgment for the sum claimed by it,
    without any trial on the merits. Even so, I have come to the
    conclusion that Mr. Ward has no arguable defence to Guinness's
    claim. The simple fact emerges, at the end of the day, that

    - 19 -

    there was, in law, no binding contract under which Mr. Ward was
    entitled to receive the money and that, as a fiduciary, he must
    now restore that money to Guinness. For these reasons, I would
    dismiss the appeal.

    - 20 -


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