Industrial Development Consultants Ltd. v. Cooley(1972) 1 W.L.R. 443

Case Summary

Full Case Details

The defendant, Neville Cooley, was former chief architect of the West Midlands Gas
Board. In 1967 he met Mr. Howard Hicks, the chairman and managing director of a group of
companies which included the plaintiff company, Industrial Development Consultants Ltd.
The plaintiff company offered to large industrial enterprises, both in the public and private
sectors, comprehensive construction services including those of architects, engineers and
project managers. Mr. Hicks and the defendant came to an agreement that the defendant
should be appointed managing director of the plaintiffs. Letters were exchanged between
them mentioning a salary £6,000, various fringe benefits and a probationary period of six
months to be followed by a contract for a period of five or seven years. In the event no
written agreement was ever signed, but the defendant joined the plaintiffs as managing
director with effect from February 1968. The idea behind his appointment was that in view of
his past experience in the gas industry he would be able to help the plaintiffs to procure new
business in the public sector, particularly in connection with the various gas boards.
In February 1968 the defendant entered into correspondence with the chairman of the
Eastern Gas Board and their surveyor, a Mr. Lacey, exploring the possibility of the plaintiffs
designing and constructing new depots for that board, but the defendant’s proposition on
behalf of the plaintiffs was rejected by the gas board.
In May 1969 a Mr. Smettom, the new deputy chairman of the Eastern Gas Board, made a
tentative approach to the defendant in a private capacity about the proposed design and
construction of new depots. They met on June 13, 1969, and although Mr. Smettom made no
definite commitment, a depot at Letchworth was mentioned, and the defendant realised that if
he could quickly get the necessary release from his obligations to the plaintiffs he stood a
good chance of getting for his own benefit a very valuable contract from the gas board.
On June 16, 1969, the defendant went to Mr. Hicks and represented that his state of health
was such that he could not carry on as managing director: believing the defendant to be
seriously ill, Mr. Hicks released him as from August 1, 1969. It was found that the
representation of ill health was untrue to the defendant’s knowledge and thus dishonest and
was a pretext in order to secure his quick release. The defendant proceeded to register on the
Business Names Register ‘Design Group for Industry’ as a business of consultancy and multiprofessional design project management, giving his private address and stating the date of
starting business to be June 8, 1969. By a letter of June 17, the defendant informed Mr.
Smettom, who had enquired about the defendant’s involvement with the plaintiffs, that he had
discussed the matter with Mr. Hicks who appreciated his (the defendant’s) intentions.
After further correspondence with Mr. Smettom the defendant was on August 6 offered
employment by the gas board for a large scheme which was found to be substantially the
same business which the plaintiffs had been trying to get for themselves in 1968: four depots
were to be constructed by the Eastern Gas Board at a capital cost then estimated at
£1,700,000. The actual cost was likely to be considerably higher.
On December 2, 1969, the plaintiffs issued a writ against the defendant claiming a
declaration that he was a trustee for them of all contracts with the board; an account of all fees

and remuneration received by and payable to him in respect of any such contracts;
alternatively damages for breach of the defendant’s duties as a director and managing director
of the plaintiffs. By his defence the defendant denied that he was under a duty to the
plaintiffs to disclose to them his conversations with the Eastern Gas Board, and he denied that
the plaintiffs were entitled to the relief claimed.
ROSKILL J.-There can be no doubt that the defendant got this Eastern Gas Board contract
for himself as a result of work which he did whilst still the plaintiffs’ managing director. It is,
of course, right to say that the contract for that work was not concluded until after he had left
the plaintiffs. That work was work which the plaintiffs would very much have liked to have
had and, indeed, was in substance the same work as they had unsuccessfully tried to get in
1968.
There are a number of other points with which it may be convenient to deal in rather
summary form. It is only fair to the defendant to say that the negotiations for the Eastern Gas
Board work were initiated in the first instance by Mr. Smettom and not by himself. At the
time when Mr. Smettom first approached the defendant at the end of May 1969, Mr. Smettom
knew that the plaintiffs had been interested in the previous proposals and had failed to get the
work. He learned that the defendant was still with the plaintiffs as their managing director
and was not then in private practice. It is important to realise that by the time the defendant
and Mr. Smettom met on June 13 the defendant was desperately anxious to obtain this
business for himself if he could succeed in doing so. He then learned, first, that the Eastern
Gas Board were coming back, if I may use the phrase, into the market and were considering
building these depots, secondly, that Mr. Smettom regarded the implementation of this project
as urgent and thirdly, in round and general terms, the sort of capital sum which would be
involved. All those matters vitally concerned the plaintiffs. At that time the defendant was
still their managing director. He was still their managing director not only at the time when
he met Mr. Smettom on June 13 but when he prepared those documents over the ensuing
weekend, sending them off on June 17 so as to get this work for himself.
However, at the meeting of June 13, Mr. Smettom had made it absolutely plain to the
defendant that no commitment was being made with the project, the time-table was likely to
be urgent, it was necessary before there was any possibility of commitment being made for
the defendant to satisfy Mr. Smettom that he (the defendant) was free of all obligations to the
plaintiffs and it was up to the defendant to do whatever was necessary to obtain that freedom.
It is plain that at the meeting of June 13 the defendant became possessed of knowledge
and information which was not possessed by his employers, the plaintiffs, knowledge which
the plaintiffs would have wished to possess. When the defendant saw Mr. Hicks on June 16
he did so in order to obtain his freedom as quickly as possible. One might add, I hope not
unfairly, that he was prepared to obtain his freedom by fair means or if necessary by foul. At
that time the Letchworth part of the work was urgent because on the revised plan to which
Mr. Smettom referred, the construction of Letchworth was going to cost the Eastern Gas
Board of the order of a quarter of a million pounds. Unless the defendant could be free in
time to enable him to meet Mr. Smettom’s programme requirements, both for Letchworth and
the rest, it seems plain Mr. Smettom would not in any event have given the defendant the job

ultimately given in the letter dated August 6. I might in this connection read the answer given
by Mr. Smettom:
“If I had known Mr. Cooley was under a contract to I.D.C. requiring six or 12
months’ notice then unless I.D.C. had agreed to release him I would not have gone
ahead.”
When one looks at the letters of June 17 and the associated documents, there is disclosed
the plainest conflict of interest between the defendant as potential architect or project manager
of the Eastern Gas Board and as managing director of the plaintiffs. Finally I ought to say
that I am sure Mr. Hicks would not have agreed to give the defendant the carteblanche release
claimed by the defendant if he had known the full facts about the Eastern Gas Board project.
Mr. Davies, for the defendant, has forcefully described the cause of account for an
account which is relied on in this case as misconceived. His admirable argument ran thus:
true some directors are in a fiduciary relationship with their companies but when the
defendant saw Mr. Smettom on June 13 Mr. Smettom made it plain that he was consulting the
defendant not as managing director of Industrial Development Consultants Ltd. but in a
private capacity. Therefore, what the defendant did on June 13 and thereafter was not done
qua managing director of the plaintiffs. The information he received was not received qua
managing director of the plaintiffs. On the contrary the information was given and received
in a purely private capacity. There was thus no breach of any duty, even the barest
contractual duty, in failing to pass that information on to the plaintiffs. Still less was there
any breach of any fiduciary duty because, having regard to the fact that this information was
received by the defendant in his private capacity, there could be no fiduciary obligation to
pass on this information to Mr. Hicks or to his employers generally.
The argument continued that, that being the position, the defendant did not and could not
have got this valuable Eastern Gas Board work by virtue of his position as managing director
of the plaintiffs. Indeed, the converse of that was true because the defendant could never have
got that work so long as he was their managing director. Therefore, none of the requirements
indicated in some of the cases which have been referred to, notably Regal (Hastings) Ltd. v.
Gulliver [(1967) 2 A.C. 134], have been satisfied.
Further, it was said that under no circumstances would the plaintiffs have ever got this
work because of Mr. Smettom’s and Mr. Lacey’s objections in principle to the set-up, if I may
use that phrase, not only of the plaintiffs but of the I.D.C. Group as a whole. Thus, the
argument continued, there is no duty to account. The whole action is completely
misconceived. If there be any claim here at all it must lie in damages but a claim for relief by
way of an account cannot succeed.
Mr. Davies summarised his argument in this way: any duty which might otherwise have
been owed to the plaintiffs by the defendant was eliminated by the nature of Mr. Smettom’s
approach which was from the outset a private approach. He pointed out that contracts in this
connection fell into two different classes, first, contracts with a company in which the director
is interested – in relation to those Mr. Davies said there was what he described as an inherent
and inevitable conflict of interest and therefore there was duty to disclose and a consequential
liability in the event of a failure to disclose – and, secondly, contracts with a third party with

which alone Mr. Davies submitted the court was concerned in this case. The relevant contract
was not, as he put it, a contract with I.D.C. at all. It was a contract with a third party and
being with a third party there was no inherent conflict between interest and duty unless it
could be said that this contract was equally available to the plaintiffs as his employers. As it
was a contract which was not available to the plaintiffs and with a third party there could be
no duty to account.
Support for the principle upon which he relied is to be found in a number of text books
such as Lewin on Trusts, 16th ed. (1964), and Snell’s Principles of Equity, 26th ed. (1966).
It is true that when one looks at the reported cases contracts made by a director with a
company of which he is a director have usually been treated as falling into a distinct category.
Mr. Davies relied in support of his argument upon the speech of Lord Blancsburgh in Bell v.
Lever Brothers Ltd. [(1932) A.C. 161, 167]. I shall not read all the passages from Lord
Blanesburgh’s speech which were read to me. I shall content myself in view of the hour with
only reading a few passages which are immediately relevant. Lord Blanesburgh, after
pointing out that the further direction of the judge might have sufficed had the fraud charged
been found instead of negatived, said, at p. 193:
“But that charge, like all the other charges of fraud, has disappeared, and the
precise character in legal responsibility of the offending transactions stripped of fraud
becomes of essential importance. And it was, I venture to think, quite misunderstood.
The point here to be noted is that these transactions involved no contract or
engagement in which, either for profit or loss, Niger was at all concerned. The
contracts were all contracts by which the appellants alone were bound for their own
benefit or burden to some outside party exclusive of Niger altogether. And this
distinction is vital: because the liability of a director in respect of profits made by him
from a contract in which his company also is concerned is one thing: his liability, if
any there be, in respect of his profits from a contract in which the company has no
interest at all is quite another. In the first case, unless by the company’s regulations
the director is permitted, subject to or without condition, to retain his profit, he must
account for it to the company. In the second case, the company has no concern in his
profit and cannot make him accountable for it unless it appears – this is the essential
qualification – that in earning that profit he has made use either of the property of the
company or of some confidential information which has come to him as a director of
the company.”
Pausing there for one moment, Mr. Davies argued that the defendant had made no use of the
property of the plaintiffs nor of confidential information which had come to him as a director
of the plaintiffs. But Mr. Davies agreed that the dichotomy was not complete and that there
was a third class of case where a director might be called upon to account, namely, where he
had misused his position as a director of a company.
What Lord Blanesburgh was dealing with was the application of well known and well
established principles to the complicated facts of Bell v. Lever Brothers Ltd. I think the right
approach to the present case is first to consider the duty which a director (including a
managing director) owes to the company of which he is a director. This has been the subject

of repeated statements in cases of the highest authority over the years. The law is summarised
in Buckley on the Companies Acts, 13th ed. (1957), pp. 876-877:
“Upon general rules of equity a person holding a fiduciary position as director
cannot obtain for himself a benefit derived from the employment of the company’s
funds, unless the company knows and assents. No director can, in the absence of a
stipulation to the contrary, partake in any benefit from a contract which requires the
sanction of a board of which he is a member. He stands in a fiduciary position
towards the company, and if he makes any profit when he is acting for the company,
he must account to the company. It makes no difference that the profit is one which
the company itself could not have obtained, the question being not whether the
company could have acquired it, but whether the director acquired it while acting for
the company, nor that the interest of the director is as a trustee for a third party. The
reason for this is, that the company has a right to the service of its paid directors as an
entire board; that it has a right to the advice of every director upon matters which are
brought before the board for consideration; and that the general rule that no trustee
can derive any benefit from dealing with the trust funds applies with still greater
force to that state of things in which the interest of the trustee deprives the company
of the benefit of his advice and assistance.”
A more recent statement of the highest authority will be found in the speech of Lord
Upjohn in Phipps v. Boardman [(1967) 2 A.C. 46, 123] onwards:
“Rules of equity have to be applied to such a great diversity of circumstances that
they can be stated only in the most general terms and applied with particular attention
to the exact circumstances of each case. The relevant rule for the decision of this
case is the fundamental rule of equity that a person in a fiduciary capacity must not
make a profit out of his trust which is part of the wider rule that a trustee must not
place himself in a position where his duty and his interest may conflict. I believe the
rule is best stated in Bray v. Ford [(1896) A.C. 44, 51] by Lord Herschell, who
plainly recognised its limitations: ‘It is an inflexible rule of a court of equity that a
person in a fiduciary position, such as the respondent’s, is not, unless otherwise
expressly provided, entitled to make a profit, he is not allowed to put himself in a
position where his interest and duty conflict. It does not appear to me that this rule is,
as has been said, founded upon principles of morality. I regard it rather as based on
the consideration that, human nature being what it is, there is danger, in such
circumstances, of the person holding a fiduciary position being swayed by interest
rather than by duty, and thus prejudicing those whom he was bound to protect. It has,
therefore, been deemed expedient to lay down this positive rule. But I am satisfied
that it might be departed from in many cases, without any breach of morality, without
any wrong being inflicted, and without any consciousness of wrong-doing. Indeed, it
is obvious that it might sometimes be to the advantage of the beneficiaries that their
trustee should act for them professionally rather than a stranger, even though the
trustee were paid for his services.’ It is perhaps stated most highly against trustees or
directors in the celebrated speech of Lord Cranworth L.C. in Aberdeen Railway v.
Blaikie [(1854) 1 Macq. 461, 471], where he said: ‘And it is a rule of universal

application, that no one, having such duties to discharge, shall be allowed to enter
into engagements in which he has, or can have, a personal interest conflicting, or
which possibly may conflict, with the interest of those whom he is bound to protect.’
The phrase ‘possibly may conflict’ requires consideration. In my view it means that
the reasonable man looking at the relevant facts and circumstances of the particular
case would think that there was a real sensible possibility of conflict; not that you
could imagine some situation arising which might, in some conceivable possibility in
events not contemplated as real sensible possibilities by any reasonable person, result
in a conflict.
“Your Lordships were referred at length to the decision of this House in Regal
(Hastings) Ltd. v. Gulliver. That is a helpful case for its restatement of the wellknown principles but the case itself bears no relation to the one before your
Lordships. The facts were very different and I summarise them from the opinion of
Lord Russell of Killowen at p. 140. The plaintiff company (Regal), the owner of a
cinema, was contemplating the purchase of the leases of two other cinemas which
were to be transferred to a subsidiary company formed by Regal called
Amalgamated. Concurrently Regal was contemplating the sale of all three cinemas to
a third party. The intention of the directors was that Regal should subscribe for shares
in Amalgamated and then Regal would sell those shares to the third party. There was
some trouble over providing a guarantee; the transaction was changed so that the
directors of Regal subscribed for shares in Amalgamted instead of Regal itself and
then those directors sold those shares to the third party, thereby making an immediate
and handsome profit of £2 16s. 1d. per share. That was an obvious case where duty
of the director and his interest conflicted. The scheme had been that Regal would
make the profit, in fact its directors did. It was a clear case and does not really assist
in the present case. It had long been settled in Keech v. Sandford [(1726) Sel. Cast.
King (Macnaghten) 175] that the inability of beneficiary to obtain the renewal of a
lease which was trust property and a renewal of which has always been considered to
be trust property did not permit the purchase of that property by the trustee himself.
That bears no relation to this case. This case, if I may emphasise it again, is one
concerned not with trust property or with property which the persons to whom the
fiduciary duty was owed were contemplating a purchase but in contrast to the facts in
Regal with property which was not trust property nor property which was ever
contemplated as the subject matter of a possible purchase by the trust.
There has been much discussion in the courts below and in this House upon the
observations of their Lordships in the Regal case. But in my view, their Lordships
were not attempting to lay down any new view on the law applicable and indeed
could not do so for the law was already so well settled. The whole of the law is laid
down in the fundamental principle exemplified in Lord Cranworth’s statement I have
already quoted. But it is applicable, like so many equitable principles which may
affect a conscience, however innocent, to such a diversity of different cases that the
observations of judges and even in your Lordships’ House in cases where this great
principle is being applied must be regarded as applicable only to the particular facts

of the particular case in question and not regarded as a new and slightly different
formulation of the legal principle so well settled. Therefore, as the facts in Regal to
which alone their Lordships’ remarks were directed were so remote from the facts in
this case I do not propose to examine the Regal case further.”
I should have added that Lord Upjohn’s speech was a dissenting speech. I do not,
however, detect any difference in principle between the speeches of their Lordships but
merely a difference in the application of the facts to principles which were not in dispute.
Later Lord Upjohn stated four propositions as follows, at p. 127:
‘1. The facts and circumstances must be carefully examined to see whether in
fact a purported agent and even a confidential agent is in a fiduciary relationship to
his principal. It does not necessarily follow that he is in such a position. 2. Once it is
established that there is such a relationship, that relationship must be examined to see
what duties are thereby imposed upon the agent, what is the scope and ambit of the
duties charged upon him. 3. Having defined the scope of those duties one must see
whether he has committed some breach thereof and by placing himself within the
scope and ambit of those duties in a position where his duty and interest may possibly
conflict. It is only at this stage that any question of accountability arises. 4. Finally,
having established accountability it only goes so far as to render the agent
accountable for profits made within the scope and ambit of his duty.”
I think Mr. Brown was right when he said in his reply that, that is the basic rule from
which all else has been founded. Certainly Viscout Sankey in the Regal case, at p. 137, so
stated it and Lord Cranworth’s well known statement has been repeated in innumerable cases
of the highest authority.
Therefore, the starting point for consideration of the present case is the application of the
facts of this case to the propositions stated in Phipps v. Boardman [(1967) 2 A.C. 46, 127] by
Lord Upjohn, bearing in mind, as Lord Upjohn said in the passage I have quoted, that the
application of “this great principle” may be infinitely variable. It is the principle which is
important and there is no limit, I venture to think, to the cases to which that principle can be
applied, always provided that in applying it, the court does not go outside the well-established
limits of the principle.
The first matter that has to be considered is whether or not the defendant was in a
fiduciary relationship with his principals, the plaintiffs. Mr. Davies argued that he was not
because he received this information which was communicated to him privately. With respect,
I think that argument is wrong. The defendant had one capacity and one capacity only in
which he was carrying on business at that time. That capacity was as managing director of the
plaintiffs. Information which came to him while he was managing director and which was of
concern to the plaintiffs and was relevant for the plaintiffs to know, was information which it
was his duty to pass on to the plaintiffs because between himself and the plaintiffs a fiduciary
relationship existed as defined in the passage I have quoted from Buckley on the Companies
Act and, indeed, in the speech of Lord Cranworth L.C.
It seems to me plain that throughout the whole of May, June and July 1969 the defendant
was in a fiduciary relationship with the plaintiffs. From the time he embarked upon his course

of dealing with the Eastern Gas Board, irrespective of anything which he did or he said to Mr.
Hicks, he embarked upon a deliberate policy and course of conduct which put his personal
interest as a potential contracting party with the Eastern Gas Board in direct conflict with his
pre-existing and continuing duty as managing director of the plaintiffs. That is something
which for over 200 years the courts have forbidden. The principle goes back far beyond the
cases cited to me from the last century. The well-known case of Keech v. Sandford [(1726)
Sel. Cas. t. King (Macnaghten) 175] is perhaps one of the most striking illustrations of this
rule.
“A person being possessed of a lease of… a market, devised his estate to trustee
in trust for the infant; before the expiration of the term the trustee applied to the
lessor for a renewal for the benefit of the infant, which he refused…there was clear
proof of the refusal to renew for the benefit of the infant, on which the trustee sets a
lease made to himself.”
Lord King L.C. said at p. 175:
“I must consider this as a trust for the infant; … if a trustee, on the refusal to
renew, might have a lease to himself, few trust-estates would be renewed to the cestui
que use; though I do not say there is a fraud in this case, yet (the trustee) should
rather have let it run out, than to have had the lease to himself. This may seem hard,
that the trustee is the only person of all mankind who might not have the lease: but it
is very proper that rule should be strictly pursued, and not in the least relaxed; for it is
very obvious what would be the consequence of letting trustees have the lease, on
refusal to renew to cestui que use.”
That case shows how rigidly this rule has always been applied.
One sees in the nineteenth-century cases, of which many are quoted in Viscount Sankey’s
speech in the Regal case, how this principle has always been maintained. In Liquidators of
Imperial Mercantile Credit Association v. Coleman [(1873) L.R. 6 H.L. 189], Malins, V.C.,
before whom the case came at first instance, said [(1871) 6 Ch. App. 558, 563]:
“It is of the highest importance that it should be distinctly understood that it is the
duty of directors of companies to use their best exertions for the benefit of those
whose interests are committed to their charge, and that they are bound to disregard
their own private interests whenever, a regard to them conflicts with the proper
discharge of such duty.”
In Parker v. MacKenna [(1874) 10 Ch. App. 96], James L.J. said, at p. 124:
“I do not think it is necessary, but it appears to me very important, that we should
concur in laying down again and again the general principle that in this court no
agent in the course of his agency, in the matter of his agency, can be allowed to make
any profit without the knowledge and consent of his principal; that that rule is an
inflexible rule, and must be applied inexorably by this court, which is not entitled, in
my judgment, to receive evidence, or suggestion, or argument as to whether the
principal did or did not suffer any injury in fact by reason of the dealing of the agent;

for the safety of mankind requires that no agent shall be able to put his principal to
the danger of such an inquiry as that.”
In the nuclear age that last sentence may perhaps seem something of an exaggeration, but,
nonetheless, it is eloquent of the strictness with which throughout the last century and indeed
in the present century, courts of the highest authority have always applied this rule.
Therefore, I feel impelled to the conclusion that when the defendant embarked on this
course of conduct of getting information on June 13, using that information and preparing
those documents over the weekend of June 14/15 and sending them off on June 17, he was
guilty of putting himself into the position in which his duty to his employers, the plaintiffs,
and his own private interests conflicted and conflicted grievously. There being the fiduciary
relationship I have described, it seems to me plain that it was his duty once he got this
information to pass it to his employers and not to guard it for his own personal purposes and
profit. He put himself into the position when his duty and his interests conflicted. As Lord
Upjohn put it in Phipps v. Boardman [(1967) 2 A.C. 46, 127]: “It is only at this stage that any
question of accountability arises.”
Does accountability arise? It is said: “Well, even if there were that conflict of duty and
interest, nonetheless, this was a contract with a third party in which the plaintiffs never could
have had any interest because they would have never got it.” That argument has been
forcefully put before me by Mr. Davies.
The remarkable position then arises that if one applies the equitable doctrine upon which
the plaintiffs rely to oblige the defendant to account, they will receive a benefit which, on Mr.
Smettom’s evidence at least, it is unlikely they would have got for themselves had the
defendant complied with his duty to them. On the other hand, if the defendant is not required
to account he will have made a large profit, as a result of having deliberately put himself into
a position in which his duty to the plaintiffs who were employing him and his personal
interests conflicted. I leave out of account the fact that he dishonestly tricked Mr. Hicks into
releasing him on June 16 although Mr. Brown urged that that was another reason why equity
must compel him to disgorge his profit. It is said that the plaintiffs’ only remedy is to sue for
damages either for breach of contract or may be for fraudulent misrepresentation. Mr. Brown
has been at pains to disclaim any intention to claim damages for breach of contract save on
one basis only, and he has disclaimed specifically any claim for damages for fraudulent
misrepresentation. Therefore, if the plaintiffs succeed, they will get a profit which they
probably would not have got for themselves had the defendant fulfilled his duty. If the
defendant is allowed to keep that profit he will have got something which he was able to get
solely by reason of his breach of fiduciary duty to the plaintiffs.
When one looks at the way the cases have gone over the centuries it is plain that the
question whether or not the benefit would have been obtained but for the breach of trust has
always been treated as irrelevant. I mentioned Keech v. Sandford a few moments ago and
this fact will also be found emphasised if one looks at some of the speeches in Regal
(Hastings) Ltd. v. Gulliver (Note) 134 though it is true, as was pointed out to me, that if one
looks at some of the language used in the speeches in Regal such phrases as “he must account
for any benefit which he obtains in the course of and owing to his directorship” will be found.

In one sense the benefit in this case did not arise because of the defendant’s directorship;
indeed, the defendant would not have got this work had he remained a director. However,
one must, as Lord Upjohn pointed out in Phipps v. Boardman look at the passages in the
speeches in Regal having regard to the facts of that case to which those passages and those
statements were directed. I think Mr. Brown was right when he said that it is the basic
principle which matters. It is an over-riding principle of equity that a man must not be
allowed to put himself in a position in which his fiduciary duty and his interests conflict. The
variety of cases where that can happen is infinite. The fact that there has not previously been a
case precisely of this nature with precisely similar facts before the courts is of no import. The
facts of this case are, I think, exceptional and I hope unusual. They seem to me plainly to
come within this principle.
I think that, although perhaps the expression is not entirely precise, Mr. Brown put the
point well when he said that what the defendant did in May, June and July was to substitute
himself as an individual for the company of which he was managing director and to which he
owed a fiduciary duty. It is upon the ground I have stated that I rest my conclusion in this
case. Perhaps it is permissible to say I have less reluctance in reaching that conclusion on the
application of this basic principle of equity since I know that what happened was enabled to
happen because a release was obtained by the defendant from a binding contractual obligation
by the dishonest and untrue misrepresentations which were made to Mr. Hicks on June 16.
In my judgment, therefore, an order for an account will be issued because the defendant
has made and will make his profit as a result of having allowed his interests and his duty to
conflict.
I would only add that if I am wrong on this central question Mr. Brown did in the
alternative advance a claim for damages – this was the only claim for damages advanced – for
the plaintiffs’ loss of the opportunity to get this contract. I mentioned earlier in this judgment
the fact that Mr. Lacey and Mr. Smettom both said they would not – I think I can put it as high
as this – have employed the plaintiffs because of their objection to this type of organisation.
Therefore, it cannot be said that it is anything like certain that the plaintiffs would ever have
got this contract. I accept both those witnesses as witnesses of truth. On the other hand, there
was always the possibility of the plaintiffs persuading the Eastern Gas Board to change their
minds. And ironically enough, it would have been the defendant’s duty to try to persuade
them to change their mind. It is a curious position under which he whose duty it would have
been to seek to persuade them to change their mind should now say that the plaintiffs suffered
no loss because he would never have succeeded in persuading them to change their mind.
In the circumstances while I do not put the chance of the Eastern Gas Board being shifted
from the stand they adopted very high, nonetheless, the opportunity was there and could not
be taken because the plaintiffs never knew about it owing to the defendant’s conduct. I do not
put the chance very high. I cannot rate it, as I am dealing with liability only, at a greater than
10 per cent chance. If I am wrong in making an order for account I should have given the
plaintiffs as damages whatever would represent a 10 per cent chance.