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Pennyfeathers Ltd v Pennyfeathers Property Co Ltd [2013] EWHC 3530 (Ch)

Company directors in breach of fiduciary duty and in conflict of interest

Facts

The first claimant was a company set up by the second and third claimant to exploit the opportunity to develop farmland. The second and third defendant were also shareholders in the first claimant. Later, the second and third defendant agreed to buy out the second and third claimant. In anticipation of this, the second and third defendant set up the first defendant company to buy the farm and entered options to buy surrounding land.

Issue

The key issues were whether the obligations of the second and third defendants as directors of the first claimant were superseded by the buy-out agreement and whether the purchase of the farm by them, through the first defendant, was a conflict of interest.

 Held

The court found that the parties were seasoned businessmen. Accordingly, it was unlikely that they intended to be bound by a buy-out contract in the form of a sketchy manuscript note. It was clear that the buy-out agreement was not concluded pending further negotiations with the owner of the farmland. The second and third defendant had acted in conflict of interest and in breach of their fiduciary duties to the first claimant. They had not acquired the informed consent of the second and third claimant in relation to their purchase of the farmland and had acted in bad faith. The establishment by the second and the third defendants of the first defendant company to exploit the development opportunity did not defeat their fiduciary duties owed to the first claimant and the first claimant’s right of action against them.

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