Boardman v. Phipps
Encyclopedia
Boardman v Phipps [1966] UKHL 2 is a landmark English trusts law
case concerning the duty of loyalty and the duty to avoid conflicts of interest.
company with factories in Coventry
, Nuneaton
and in Australia through a subsidiary). Boardman was concerned about the accounts of the company, and thought that to protect the trust a majority shareholding is required. He and a beneficiary, Tom Phipps, went to a shareholders' general meeting of the company. They realised together that they could turn the company around. They suggested to a trustee (Mr Fox) that it would be desirable to acquire a majority shareholding, but Fox said it was completely out of the question for the trustees to do so. With the knowledge of the trustees, Boardman and Phipps decided to purchase the shares themselves. They bought a majority stake. But they did not obtain the fully informed consent of all the beneficiaries. By capitalizing some of the assets, the company made a distribution of capital without reducing the values of the shares. The trust benefited by this distribution £47,000, while Boardman and Phipps made £75,000. But then John Phipps, another beneficiary, sued for their profits, alleging a conflict of interest.
said the information is not truly property and it does not necessarily follow that, because an agent acquired information and opportunity while acting in a fiduciary capacity, he is accountable. His liability to account depends on the facts. His Lordship regarded Boardman to be liable because he acquired the information in the course of the fiduciary relationship and because of the fiduciary relationship. The other two members of the majority, Lord Hodson and Lord Guest, opined that information can constitute property in appropriate circumstances and in the current case, the confidential information acquired can be properly regarded as property of the trust. Therefore, Boardman was speculating with trust property and should be liable. The majority agreed unanimously that liability to account for the profits made by virtue of a fiduciary relationship is strict and does not depend on fraud or absence of bona fides, and so Phipps and Boardman would have to account for their profits. However they were generously remunerated for their services to the trust.
Lord Upjohn dissented, and held that Phipps and Boardman should not be liable because a reasonable man would not have thought there was any real sensible possibility of a conflict of interest. This is because there is no possibility the trustee would seek Boardman's advice to purchase the shares and at any rate Boardman could have declined to act if given such request.
His Lordship distinguished Regal (Hastings) v Gulliver
by restricting Regal Hastings to circumstances concerned with property of which the principals were contemplating a purchase. In the present case, as the purchase of the shares was entirely out of the question, Regal Hastings was said to be inapplicable.
Lord Upjohn also agreed with Lord Cohen that information is not property at all, although equity will restrain its transmission if it has been acquired by a breach of confidence. He said unequivocally that knowledge learnt by a trustee in the course of his duties is not property of the trust and may be used for his own benefit unless it is confidential information which is given to him (i) in circumstances which, regardless of his position as a trustee, would make it a breach of confidence to communicate it to anyone or (ii) in a fiduciary capacity.
UK case law
Delaware corporate case law
English trusts law
English trusts law is the original and foundational law of trusts in the world, and a unique contribution of English law to the legal system. Trusts are part of the law of property, and arise where one person gives assets English trusts law is the original and foundational law of trusts in the...
case concerning the duty of loyalty and the duty to avoid conflicts of interest.
Facts
Mr Boardman was the solicitor of a family trust. The trust assets include a 27% holding in a company (a textileTextile
A textile or cloth is a flexible woven material consisting of a network of natural or artificial fibres often referred to as thread or yarn. Yarn is produced by spinning raw fibres of wool, flax, cotton, or other material to produce long strands...
company with factories in Coventry
Coventry
Coventry is a city and metropolitan borough in the county of West Midlands in England. Coventry is the 9th largest city in England and the 11th largest in the United Kingdom. It is also the second largest city in the English Midlands, after Birmingham, with a population of 300,848, although...
, Nuneaton
Nuneaton
Nuneaton is the largest town in the Borough of Nuneaton and Bedworth and in the English county of Warwickshire.Nuneaton is most famous for its associations with the 19th century author George Eliot, who was born on a farm on the Arbury Estate just outside Nuneaton in 1819 and lived in the town for...
and in Australia through a subsidiary). Boardman was concerned about the accounts of the company, and thought that to protect the trust a majority shareholding is required. He and a beneficiary, Tom Phipps, went to a shareholders' general meeting of the company. They realised together that they could turn the company around. They suggested to a trustee (Mr Fox) that it would be desirable to acquire a majority shareholding, but Fox said it was completely out of the question for the trustees to do so. With the knowledge of the trustees, Boardman and Phipps decided to purchase the shares themselves. They bought a majority stake. But they did not obtain the fully informed consent of all the beneficiaries. By capitalizing some of the assets, the company made a distribution of capital without reducing the values of the shares. The trust benefited by this distribution £47,000, while Boardman and Phipps made £75,000. But then John Phipps, another beneficiary, sued for their profits, alleging a conflict of interest.
High Court
Wilberforce J held that Boardman was liable to pay for his breach of the duty of loyalty, but that he could be paid for his services.Court of Appeal
Lord Denning MR, Russell LJ and Pearson LJ upheld Wilberforce J's decision and held that Boardman and Phipps had breached his duty of loyalty, which arose as they had become self-appointed agents representing the trust, by putting themselves in a conflict of interest. They were therefore liable for the profits earnt. However, they would be able to retain a generous remuneration for the services he performed. On this, Lord Denning MR said (at 1021)House of Lords
The majority of the House of Lords (Lords Cohen, Guest and Hodson) held that there was a possibility of a conflict of interest, because the solicitor and beneficiary might have come to Boardman for advice as to the purchases of the shares. They owed fiduciary duties (to avoid any possibility of a conflict of interest) because they were negotiating over use of the trust's shares. The majority disagreed about the nature and relevance of information used by Boardman and Phipps. Lord CohenLionel Cohen, Baron Cohen
Lionel Leonard Cohen, Baron Cohen PC , was a British judge.Invested to the privy council in 1946, Cohen was Lord Justice of Appeal from 1946 to 1951. On 12 November 1951, he was appointed Lord of Appeal in Ordinary and made additionally a life peer with the title Baron Cohen, of Walmer in the...
said the information is not truly property and it does not necessarily follow that, because an agent acquired information and opportunity while acting in a fiduciary capacity, he is accountable. His liability to account depends on the facts. His Lordship regarded Boardman to be liable because he acquired the information in the course of the fiduciary relationship and because of the fiduciary relationship. The other two members of the majority, Lord Hodson and Lord Guest, opined that information can constitute property in appropriate circumstances and in the current case, the confidential information acquired can be properly regarded as property of the trust. Therefore, Boardman was speculating with trust property and should be liable. The majority agreed unanimously that liability to account for the profits made by virtue of a fiduciary relationship is strict and does not depend on fraud or absence of bona fides, and so Phipps and Boardman would have to account for their profits. However they were generously remunerated for their services to the trust.
Lord Upjohn dissented, and held that Phipps and Boardman should not be liable because a reasonable man would not have thought there was any real sensible possibility of a conflict of interest. This is because there is no possibility the trustee would seek Boardman's advice to purchase the shares and at any rate Boardman could have declined to act if given such request.
His Lordship distinguished Regal (Hastings) v Gulliver
Regal (Hastings) v Gulliver
Regal Ltd v Gulliver [1942] , is a leading case in UK company law regarding the rule against directors and officers from taking corporate opportunities in violation of their duty of loyalty. The Court held that a director is in breach of his duties if he takes advantage of an opportunity that the...
by restricting Regal Hastings to circumstances concerned with property of which the principals were contemplating a purchase. In the present case, as the purchase of the shares was entirely out of the question, Regal Hastings was said to be inapplicable.
Lord Upjohn also agreed with Lord Cohen that information is not property at all, although equity will restrain its transmission if it has been acquired by a breach of confidence. He said unequivocally that knowledge learnt by a trustee in the course of his duties is not property of the trust and may be used for his own benefit unless it is confidential information which is given to him (i) in circumstances which, regardless of his position as a trustee, would make it a breach of confidence to communicate it to anyone or (ii) in a fiduciary capacity.
See also
- Corporate lawCorporate lawCorporate law is the study of how shareholders, directors, employees, creditors, and other stakeholders such as consumers, the community and the environment interact with one another. Corporate law is a part of a broader companies law...
- Business judgment ruleBusiness judgment ruleThe business judgment rule is a US case law-derived concept in corporations law whereby the "directors of a corporation . . . are clothed with [the] presumption, which the law accords to them, of being [motivated] in their conduct by a bona fide regard for the interests of the corporation whose...
UK case law
- Keech v Sandford (1724) 2 Sel Cas Ch 16
- Whelpdale v CooksonWhelpdale v CooksonWhelpdale v Cookson 1 Ves Sen 9; 27 ER 856 is an English trusts law case on the duty of loyalty owed by a trustee to beneficiaries of the trust.-Reported decision:...
(1747) 1 Ves Sen 9 - Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134n
- Industrial Development Consultants v Cooley [1972] 1 WLR 443
- Bhullar v BhullarBhullar v BhullarBhullar v Bhullar [2003] is a leading UK company law case on the principle that directors must avoid any possibility of a conflict of interest, particular relating to corporate opportunities. It was not decided under, but is relevant for, s 175 Companies Act 2006.-Facts:Bhullar Bros Ltd was owned...
[2003] 2 BCLC 241
Delaware corporate case law
- Lynch v. Vickers Energy Corp., 429 A2d 497 (1981), sign of imposing a disgorgement remedy
- Rosenblatt v. Getty Energy Co., 493 A2d 929, 939, a quick retreat