Chapter 7 Directors' Duties - alastairhudson.com

threatens the foundations of any civilised society‟. It was held that an agent ought not to put
herself into a situation in which her duty and her personal interest conflict. Thus, the
constructive trust here was based on avoidance of conflict of interest as well as the need to
deal with the „evil practice‟ of bribery. It was explained that the constructive trust in this case
was further justified because the bribes were drawn from the claimant‟s property (being the
payments for the refurbishment) and also on the basis that the bribes were paid as part of a
fraudulent misrepresentation exercised by S. It was held further that where, as on these facts,
a bribe has been paid here by an employee (S) to a third party (K), and when that third party
is acting in a fiduciary capacity, then both parties are required to account jointly and severally
for the receipt of that bribe. 119 Consequently, the bribe was deemed to have been held on
constructive trust, just as in Reid.
Secret commissions
There are occasions on which the principles relating to “bribes” are treated together with
“secret commissions”. A secret commission is in many cases synonymous with a bribe, in
that a person is in receipt of money covertly. Usually the purpose of such a transaction would
be to induce the recipient to act in a corrupt manner. An example of patterns of secret
commissions are set out in Pakistan v Zadari, 156 a case which – at a purely interlocutory stage
– relates to allegations that payments were made at the behest of the husband of a former
Prime Minister of Pakistan through a series of companies to acquire a 350 acre estate in
Surrey and in connection with a variety of other transactions. While it was not necessary to
dispose of the facts at this interlocutory stage in the proceedings, in the event that it could be
proved that the estate was acquired with secret commissions or bribes then Lawrence Collins
J indicated that that estate would be held on constructive trust for the state of Pakistan.
DUTY TO DECLARE INTEREST IN PROPOSED TRANSACTION
The statutory principle
The core principle
It is a key facet of fiduciary law that a fiduciary may not permit conflicts of interest so that he
deals, for example, with a company for which he acts as a director in circumstances in which
he has some interest of his own bound up in the transaction (the “self-dealing” rule). This
principle is clearly covered by s.175 of the CA 2006, as considered above. However, there is
a duty which can be thought of as being connected with it, and that is the duty in s.177 of the
CA 2006 which requires that a company director must disclose any personal interest in a
proposed transaction. Section 177 provides as follows:
“(1) If a director of a company is in any way, directly or indirectly, interested in a
proposed transaction or arrangement with the company, he must declare the nature
and extent of that interest to the other directors.”
156 [2006] EWHC 2411 (Comm), [2006] All ER (D) 79 (Oct).
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