Directors' Duties and Case Law: Companies Act 2006

S173 CA 2006: Duty to Exercise Independent Judgment

Under Section 173 of the Companies Act 2006, directors must exercise independent judgment. A primary authority for this is Fulham Football Club v Cabra Estates.

S174 CA 2006: Duty of Reasonable Care and Skill

This duty is divided into an objective test and a subjective test:

• Objective Test: The relevant skills and experience expected of an ordinary director.
• Subjective Test: The relevant skills and experience expected of that particular director.

Key cases include Re Brazilian Rubber Plantation and Re Denham.

S175 CA 2006: Duty to Avoid Conflicts of Interest

Directors are under a duty to avoid relevant conflicts of interest. This principle was examined in Aberdeen Railway v Blaikie Brothers.

Aberdeen Railway v Blaikie Brothers

The plaintiff (P) required a large quantity of iron chairs and entered a contract for their supply over an 18-month period with the Blaikie Brothers partnership. Thomas was their managing partner and also a director of the company. The contract was not fully performed, though some deliveries were made. When the Aberdeen Railway Company refused to accept further orders, the defendants claimed for breach of contract and damages.

Bhullar v Bhullar

A director owes a duty to avoid conflicts of interest, including the exploitation of a corporate opportunity. In this case, the company operated grocery stores and commercial property for rent. On the facts, tenants used an adjacent property as a car park. One director saw a "For Sale" sign on that adjacent property and caused a company he controlled to purchase the land without informing the other directors. It was held that he was under a duty to discuss the purchase with the company before proceeding.

IDC v Cooley

Mr. Cooley was the managing director of Industrial Development Consultants (IDC). His duties included procuring business for developing gas depots. Although the company failed to negotiate a contract with the Eastern Gas Board, the board approached Mr. Cooley privately. They indicated they would only contract with him personally; consequently, he resigned to enter the contract with the Gas Board in a personal capacity.

Cook v Deeks

The parties, Deeks and Hinds, were directors of a construction company. While negotiating a construction contract with the Canadian Pacific Railway, they decided to enter into the contract personally, thereby diverting the opportunity from the company.