Company Law Reform Bill [HL]

My Lords, the first two subsections of Clause 159, to which the amendment relates, are based on the current law. It is quite right that they set out the duty in general and open terms, but that is because that is how the equitable principle is currently expressed and applied. In the very famous case of Phipps v Boardman, Lord Upjohn pointed out:"““Rules of equity have to be applied to such a great diversity of circumstances that they can be stated only in the most general terms and applied with particular attention to the exact circumstances of each case””." When the law commissions looked at the principle on which Clause 159(1) is based, they explained that certain consequences can flow if directors place themselves in a position where their personal interests or duties to other persons are liable to conflict with their duties to the company unless the company gives its informed consent. Directors cannot keep secret profits which they make by using information or property or opportunities which belong to their company. However, the law commissions considered that this was an area of law which was not settled. The courts have applied the principle to the use of assets, information and opportunities of the company. But there has been uncertainty as to what this means. The Company Law Review recommended leaving the determination of what is an asset, opportunity or information of the company for the courts to develop. Since then there has been a further development because in a 2003 Court of Appeal decision, Bhullar v Bhullar, directors were held in breach of fiduciary duty purchasing property adjacent to property owned by the company. Not only was the opportunity not known to the company, but the company had previously taken the decision not to purchase any more property. The Court of Appeal rejected the suggestion that the company had to have some kind of beneficial interest in the opportunity. The Court of Appeal rejected that and the judgment of one of the judges ended by saying that,"““reasonable men looking at the facts would think there was a real sensible possibility of conflict””." Subsection (3) provides that the duty does not apply if the situation cannot reasonably be regarded as being likely to give rise to a conflict of interest. If the matter falls outside the ambit of the company’s business, a real conflict of interest is unlikely. In such a case the amendment would be unnecessary. This amounts to subsections (1) and (2) not being intended to change the law. I understand that that is the concern behind the Law Society’s point, referred to by the noble Lord. It will be for the courts to determine just what is—and this is the important point—the conflict with the interests of the company. Fundamentally, it is those last words which seem to me to be important. I hope that, given the reassurance that no change to the law is intended, the noble Lord will feel able to withdraw the amendment.