Chapter 7 Directors' Duties - alastairhudson.com

personal profits: first, if he has authorization to do so, in line with s.175 of the CA 2006;
secondly, if he has resigned from his employment before commencing the activities which
led to the profit; and, thirdly, if the director had no powers at all to act as a director in practice
before then making those personal profits. Each of these approaches is taken in turn.
First, the complex question of the acquisition of authorization in relation to companies.
Before considering this question in detail, it is important to understand the subtle differences
between companies and trusts. A number of cases dealing with companies have been
considered already. More recent cases in company law have suggested that this corporate
opportunity doctrine will be pursued so that a director may be absolved from liability for
secret profits if the company is not intending to pursue the opportunity from which the
director earned his profits. So, in Island Export Finance Ltd v Umunna, 132 the company had a
contract with the government of Cameroon to supply the government with post boxes. Mr
Umunna resigned from the company once the contract was completed, having worked on that
contract and acquired a great deal of expertise in that particular activity. The company ceased
pursuing this line of business and after his resignation Mr Umunna entered into a similar
contract on his own behalf. The company sued him for the personal profits which he made for
himself under this second contract. The court held that Mr Umunna‟s fiduciary obligations
towards the company did not cease once he resigned from its employment. This makes sense:
if it were not the case, then no fiduciary could ever be bound by their fiduciary office if they
had the good sense to resign immediately before breaching their duties. However, in this
instance, the court found that the company had not been seeking to develop this sort of
business opportunity at the time Mr Umunna had done so and therefore he had not interfered
with a corporate opportunity.
Secondly, we should consider the position of directors who have resigned from their
employment and who then seek to exploit an opportunity on their own account. In Balston v
Headline Filters Ltd, 133 a director had resigned from a company and leased premises with a
view to starting up in business on his own account before a client of the company approached
him and asked him to work for the company. Falconer J held that there was no breach of duty
in these circumstances because there was nothing wrong with a director leaving his
employment and setting up in business on his own account and, furthermore, there had not
been any maturing business opportunity in this case which the director had diverted to
himself. Therefore, in company law, it has been held that company directors may, assuming
nothing in their contracts to the contrary prohibiting such an action under contract law, resign
from their posts and on the next day begin activities which would previously have been in
breach of their fiduciary duties. 134 Although, a director may not, even after resigning from her
post, use either the company‟s property or information which she had acquired while still a
director of the company to generate personal profits. 135 Clearly, if such behaviour were
132 [1986] BCC 460.
133 [1990] FSR 385.
134 CMS Dolphin v. Simonet [2001] 2 BCLC 704 (Lawrence Collins J); Quarter Master UK Ltd v. Pyke [2005] 1
BCLC 245, 264 (Mr Paul Morgan QC) and British Midland Tool Ltd v. Midland International Tooling Ltd
[2003] 2 BCLC 523 (Hart J).
135 Ultraframe UK Ltd v Fielding [2005] EWHC 1638 (Ch), [2005] All ER (D) 397, per Lewison J.
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