Key Facts
- •Neil and Fiona Humphrey (Claimants) brought a derivative claim against Paul Bennett and Alison Murphy (Defendants), directors of Esprit Land Limited.
- •Defendants caused the Company to sell land (Wyken Grange land) to Esprit Homes Construction Limited (Construction), a company where Bennett was the sole shareholder and Murphy was a director.
- •Defendants also diverted an opportunity to acquire adjoining land (Ansty Road land) to Construction.
- •Claimants alleged breach of statutory and fiduciary duties by Defendants under the Companies Act 2006.
- •The High Court granted summary judgment against Bennett but not Murphy, allowing Murphy to amend her defence.
- •The Court of Appeal heard appeals from both decisions.
Legal Principles
Directors must avoid conflicts of interest (Companies Act 2006, sections 175 and 177).
Companies Act 2006, sections 175 and 177
A director's conflict of interest may be authorized by the board, but requires full disclosure (Gwembe Valley Construction Company v Koshy [2003] EWCA Civ 1048).
Gwembe Valley Construction Company v Koshy [2003] EWCA Civ 1048
The court may relieve a director from liability if they acted honestly and reasonably (Companies Act 2006, section 1157).
Companies Act 2006, section 1157
A director of two companies on different sides of a transaction is in a position of conflict of interest and must disclose this.
Transvaal Land Company v New Belgium (Transvaal) Land and Development Company [1914] 2 Ch 488
Outcomes
Appeal by Bennett allowed.
The Court of Appeal found that the Judge erred in granting summary judgment against Bennett, as his proposed Amended Defence raised a realistic prospect of success on the breach of duty claims and the application of section 1157.
Cross-appeal by Humphrey dismissed.
The Court upheld the Judge’s decision not to grant summary judgment against Murphy.