It is surprising how often company directors disregard their duties. For so long as no one complains, this situation can continue for some time without causing any apparent problems. However, if the conduct is challenged, it can lead to some seemingly surprising results. The case involving Philip Towers and Premier Waste Management Limited, which was decided in 2011, is an interesting example.
In the Towers case, the Court of Appeal was asked to overturn a decision by the trial judge that Mr Towers had breached his fiduciary duty to the company (PWM). The circumstances were that a customer of PWM had offered Mr Towers the use of certain equipment without charge for personal use in connection with the renovation of a property. In fact the arrangements were made on his behalf by the Operations Manager at PWM and not by Mr Towers himself. Nonetheless, the details of the arrangements were not disclosed to the Board of PWM and therefore were not formally approved.
When the customer later invoiced PWM for the use of the equipment, PWM issued proceedings against Mr Towers for breach of his director’s duties and the trial judge held him liable to account to the company for the six month period of hire for which the customer had invoiced the company.
The Court of Appeal outlined the duties in question as being a duty of loyalty to the company to ensure that there was no conflict of interest and said that this would include a duty not to make any secret profit. The offer by the customer of a free loan of equipment to Mr Towers was regarded as an opportunity that he should have disclosed to the company, in case the company wished to take advantage of it. Having failed to do this, he was in breach of his duties and was liable to account for any profit he made.
As is often the case in situations of this sort, Mr Towers had given no consideration at the time as to the possibility that he might have been acting unlawfully. It was not until sometime later that his actions caught up with him.