Cases

Question 1

Cook v Deeks 1916 - duty to avoid conflict of interest

Answer 1

Directors breached duties by diverting a contract for personal gain, ratified by their majority vote - prohibits directors from exploiting opportunities that belong to the company for their personal benefit.

Question 2

Lonsdale v Howard & Hallam 2007 - right to compensation

Answer 2

L, a commercial agent for a shoe manufacturer, was terminated with reasonable notice and paid £7,500 in statutory compensation under the Regulations. He claimed £19,670, equivalent to two years’ gross commission, but the court, considering the failing business’s value, awarded £5,000.

Question 3

Cook v Deeks 1916 - breach of fiduciary duty

Answer 3

The majority directors of Toronto Construction Company used the company’s name for a project but later diverted it to a new company to exclude Cook, a director. They passed a resolution stating the company was not involved in the new project, effectively sidelining Cook. Court ruled the directors breached their fiduciary duties.

Question 4

Law v Law 1905 - disclosing relevant information

Answer 4

William and James Law were partners in a wool manufacturing business. James, the active partner, purchased William’s share for £10,000 but failed to disclose all partnership assets. William later discovered his share was worth more than the agreed price. Court acknowledged that a partner can choose to affirm a transaction even if there wasn’t complete transparency at beginning.

Question 5

King v Tunnock Ltd 2000 - how compensation is calculated

Answer 5

Mr. King, a commercial agent, sought compensation after his contract was terminated. The court awarded £4,762 for notice but denied further compensation. On appeal, Tunnock argued for a lower amount, considering various factors.

Question 6

Carmichael v Evans 1904 - expulsion of a partner (delectus personae)

Answer 6

There was an
expulsion clause in the partnership concerning conduct detrimental to the
partnership business. The notice of expulsion (to a partner) was justified as the
plaintiff had been convicted for travelling without a ticket.

Question 7

Shuttleworth v Cox Brothers and Co (Maidenhead) Ltd 1927 - altering a company’s Articles of Association

Answer 7

Attempt to alter Articles of Association for clause to remove a director - argued it didn’t benefit the company, but court upheld the alteration. This case emphasizes the importance of carefully drafted partnership agreements and the limited grounds for judicial interference in partnership matters.

Question 8

Greenhalgh v Aderne Cinemas Ltd 1951 - alteration of a company’s Articles of Association

Answer 8

G objected to proposed alteration that sought to give M the right to purchase any shares offered for sale by other shareholders - argued it wasn’t for the benefit of the company but for M. Emphasizes the importance of considering the interests of the company and its members when altering constitutional documents.

Question 9

Foss v Harbottle 1843 - proper plaintiff rule

Answer 9

States that a company is the proper plaintiff in a lawsuit for wrongs done to it. This means that individual shareholders generally cannot sue on behalf of the company unless certain exceptions apply, such as the infringement of their personal rights.

Question 10

Salomon v Salomon 1897 - separate legal personality

Answer 10

Sole trader, incorporated his business as a limited liability company so held majority of the shares - faced financial difficulties and went into liquidation; unsecured creditors argued he was the same entity so debt should be left to him. Court rejected the claim that they were the same entity - separate legal entity and person.

Question 11

Edwards v Halliwell 1950 - protecting minority shareholders with legal action

Answer 11

Allowing minority shareholders to bring legal action in specific circumstances, such as when the company’s actions infringe their personal rights or involve a breach of fiduciary duty by directors.

Question 12

Wishart v Castlecroft Securities Ltd 2010 - derivative proceedings for minority shareholders

Answer 12

Petition by shareholder (W) seeking permission to initiate derivative proceedings on behalf of the first respondent company (C). The court granted a shareholder leave to raise proceedings on behalf of the company. Demonstrates the increasing focus on enhancing minority shareholder protection through legal mechanisms like derivative proceedings.

Question 13

Re Care People Ltd 2013 - appointment of an administrator

Answer 13

The court emphasized the importance of following proper procedures when appointing an administrator, highlighting the statutory framework for dealing with companies facing financial difficulties.

Question 14

Boston Deep Sea Fishing v Ansell 1888 - directors’ fiduciary duties

Answer 14

The court found that a director had breached his duty by accepting secret commissions. It emphasizes the core fiduciary obligations of directors to act honestly and in the best interests of the company, including the duty to avoid conflicts of interest and secret profit.

Question 15

Industrial Development Consultants Ltd v Cooley 1972 - duty to avoid conflicts of interest

Answer 15

While employed, engaged in negotiations with another company for a lucrative contract. The court found that a director had breached his fiduciary duty by using information obtained in his capacity as a director for personal gain.

Question 16

Heddle Executrix v Marwick & Houston’s Trustee 1888 - liability of incoming partners

Answer 16

H died and a new partner joined - liable for prior debts (novation). It established that a new partner joining an existing firm is generally not liable for debts incurred by the partnership before they became a partner.

Question 17

Tower Cabinet Co Ltd 1949 - principle of ‘holding out’

Answer 17

Partners in a firm, dissolved partnership but failed to give public notice or advertise it so C ordered goods on credit unaware. The court found that a retired partner was not liable for a debt incurred after their retirement because they had not allowed themselves to be represented as a partner.

Question 18

Aberdeen Railway Co v Blaikie Bros 1854 - directors’ dury to avoid conflicts of interest

Answer 18

A partner in BB was also the chairman of ARC and entered into a contract. The court held that a director who entered into a contract with the company in which he had a personal interest breached his fiduciary duty.

Question 19

Re Marketing Consortium Ltd 1989 - wrongful trading by directors

Answer 19

Company experienced financial difficulties and directors continued trading despite worsening their financial position - led to insolvent liquidation. The court found that directors should have known the company had no reasonable prospect of avoiding insolvent liquidation and ordered them to contribute to the company’s assets.

Question 20

Re D’Jan of London Ltd 1994 - directors’ duty to exercise reasonable care, skill, and diligence

Answer 20

Director failed to ensure the company had adequate insurance coverage - fire destroyed the premises and assets. The court found that a director had breached his duty by failing to ensure adequate insurance coverage for the company.