Question 1

Datacon plc specializes in IT installations for the retail trade. Tariq, a director of Datacon plc, was approached in a private capacity as a well-known expert in the field and invited to join the board of Input Ltd, whose business mirrors to a certain extent Datacon plc’s business. Tariq accepted an invitation to be a director while remaining on the board of Datacon plc, and acted as a consultant and adviser.

Having developed a rival system to Datacon plc, Input Ltd organized a public launch of the new product. For the launch, Tariq contacted a number of Datacon plc’s clients. The launch led to the signing up of a number of major clients, including some clients of Datacon plc.

Advise the board of Datacon plc of any breaches of duty committed by Tariq, and any remedies available against him. Would your answer be different if he had resigned his directorship of Datacon plc when he joined the board of Input Ltd?

Answer guidance

You need to deal with the related issues of a director becoming a director of a competing company, and his obligations of confidentiality both during his directorship and after resignation. On competing/overlapping directorships you will need to evaluate critically the early cases of London and Mashonaland Exploration Company Ltd v New Mashonaland Exploration Co Ltd [1891] WN 165 and Bell v Lever Bros [1932] AC 161, and also look at more recent cases, including Plus Group Ltd v Pyke [2002] EWCA Civ 370, [2002]2 BCLC 201 and Commonwealth Oil & Gas Co Ltd v Baxter [2009] CSIH 75. Make sure you link your discussion to the codified duties in CA 2006, particularly s. 175, and consider whether a director with two competing directorships would be in breach of this duty, and when the breach would arise.

With regard to publicising the launch to Datacon’s clients, you need to consider whether there is a breach of T’s duty of confidentiality and s. 175. You should also raise whether there is a further/connected duty on T to disclose his wrongdoing to Datacon (Item Software (UK) Ltd v Fassihi [2004] EWCA Civ 1244). Don’t forget to deal with the alternative scenario of T having resigned. Provided there is no restraint of trade clause prohibiting him from contacting clients of Datacon, T would unlikely to be in breach of confidentiality: consider cases such as Island Export Finance Ltd v Umunna [1986] BCLC 460. But remember that s. 175 does continue to apply in relation to exploitation of information etc known about prior to departure (s. 170(2)) and what T does prior to departure and the circumstances of his departure may be very significant (consider eg Colman Taymar Ltd v Oakes [2001] 2 BCLC 749, Shepherds Investments Ltd v Walters [2007] 2 BCLC 202, Foster Bryant Surveying Ltd v Bryant [2007] 2 BCLC 239).

Question 2

"Traditionally the courts have applied the no-conflict, no-profit, rules with unyielding strictness ... Notwithstanding that starting point, the position is not one of unremitting severity ..." (B. Hannigan, Company Law 4th edn, 2015)

Critically assess this statement on directors’ duties, including consideration of how this position is reflected in Companies Act 2006.

Answer guidance

You should explain the basic concepts of no-conflict and no-profit rules, with reference to cases such as Aberdeen Rly Co v Blaikie Bros (1854) 2 Eq Rep 1281, and assess how these have been translated into CA 2006 ss. 175-177 (with continuing relevance of pre-2006 case law).

Your focus should be on the extent to which the approach is strict, why this is, and where (and why) there are areas of less severity. Regal (Hastings) Ltd v Gulliver[1942] 1 All ER 378 obviously requires some attention, and you should also consider other cases that indicate a strict approach (and the justification behind it) such as Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443; Boardman v Phipps [1966] 3 All ER 721; O’Donnell v Shanahan [2009] 2 BCLC 666.  You also need to explain where the strictness might be relaxed, including: ‘maturing business opportunity’ cases such as Canadian Aero Services Ltd v O’Malley(1973) 40 DLR (3d) 371  and Island Export Finance Ltd v Umunna [1986] BCLC 460; the balancing of interests post-resignation; allowing authorisation by the board; requiring disclosure of interest in contract to board.

Make sure you evaluate the merits (and otherwise) of a strict approach, and assess whether the ‘exceptions’ are justifiable or too wide or too narrow. You could consider whether CA 2006 has changed the law in any way, and whether further reform is necessary.