Bhullar v Bhullar [2003] EWCA Civ 424 concerned two company directors who bought neighbouring property for themselves without telling their fellow directors. The Court of Appeal held that the purchase created a real possibility of conflict between their personal interests and their duties to the company. The company did not need to be actively negotiating for the property before the directors became accountable.
Facts
Bhullar Bros Ltd was a family company operating grocery businesses and owning investment property. Its shares were divided equally between the families of two brothers, Mohan and Sohan Bhullar. Sohan’s sons, Inderjit and Jatinderjit, were among its directors. The company owned Springbank Works, which it let to a bowling business.
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Relations between the two families broke down. In 1998, Mohan and his son Tim said that they wanted to divide the company’s business and assets and did not want it to acquire further properties. Negotiations followed, but no division was completed and the company continued trading.
In 1999, Inderjit discovered during a private visit to the bowling premises that White Hall Mill, next to Springbank Works, was available for purchase. The bowling tenant already used part of it as a car park. Inderjit and Jatinderjit arranged to buy it through Silvercrest Trading (GB) Ltd, a company they owned and controlled.
They obtained advice from the company’s solicitor that there was no difficulty with the purchase, but did not disclose the opportunity and their intended acquisition to their fellow directors. Inderjit accepted in evidence that acquiring the property would have been worthwhile for Bhullar Bros.
The proceedings
Mohan’s family brought an unfair-prejudice petition under section 459 of the Companies Act 1985. The trial judge refused their principal request for a share purchase or reorganisation, but found that Inderjit and Jatinderjit had breached their fiduciary duties over White Hall Mill.
The judge declared that Silvercrest held the property on trust for Bhullar Bros. He ordered the directors, at their own cost, to procure its transfer to the company at the price Silvercrest had paid, and directed an account of profits. The directors appealed against that relief. The refusal of the petitioners’ wider claims was not under appeal.
Issue
Could directors be accountable for taking a commercial opportunity discovered privately when their company was not pursuing it and had indicated that it did not wish to make further property acquisitions?
The directors argued that the company had no proprietary interest in the opportunity and that there was no “maturing business opportunity” which they had diverted. They also relied on the fact that they had not obtained the information through their work as directors.
Decision and reasoning
The Court of Appeal unanimously dismissed the appeal. Jonathan Parker LJ gave the judgment, with which Brooke and Schiemann LJJ agreed.
The starting point was the directors’ existing fiduciary relationship with Bhullar Bros. The no-conflict rule was not restricted to misuse of property already belonging to the company. Nor did the company have to establish that it owned the opportunity. The question was whether, in the particular circumstances, the directors’ personal acquisition engaged their duty to avoid conflicting interests.
The court applied the test of a real, sensible possibility of conflict. An entirely speculative possibility was insufficient, but the rule was not confined to transactions that the company had already begun negotiating.
Here, the company was still trading and the opportunity was commercially relevant to it. The neighbouring location and the existing tenant’s use of part of White Hall Mill made the property attractive to the company. Whether Bhullar Bros could or would actually have bought it was not decisive. Information about the opportunity was relevant for the company to know, so the directors were obliged to communicate it.
The court also regarded their concern about a possible conflict, which had led them to seek legal advice, as supporting the existence of that possibility. The solicitor’s reassurance did not displace the duties owed to the company. Discovering the property privately did not remove the conflict created by acquiring it while remaining directors.
Significance
The distinction is between an opportunity already being pursued by a company and a transaction capable of conflicting with a director’s existing duties. The first is not essential to establish the second. The judgment applied the no-conflict rule to the facts of the directors’ relationship with this company; it did not depend on treating every available commercial opportunity as company property.
