Regal (Hastings), Ltd. v. Gulliver (1942) 1 All ER 378 : (1967) 2 A.C. 134 (H.L.)

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The appellants, Regal (Hastings) Ltd. (“Regal”) were plaintiffs in the action and the
respondents Charles Gulliver, Arthur Frank Bibby, David Edward Griffiths, Henry Charles
Bassett, Harry Bentley and Peter Garton were the defendants.
The action was brought by Regal against the first five respondents who were former
directors of Regal, to recover from them sums of money amounting to £7,018 8s. 4d., being
profits made by them upon the acquisition and sale by them of shares in a subsidiary company
formed by Regal and known as Hastings Amalgamated Cinemas Ltd. The action was brought
against the respondent Garton, who was Regal’s former solicitor, to recover a sum of £1,402
1s. 8d. and also a sum of £233 15s. in respect of a solicitor’s bill of costs, the former sum
being profit made by him in a similar dealing in the said shares and the latter sum being a sum
paid to him by Regal in respect of work purported to have been done on their behalf. There
were alternative claims for damages and misfeasance and for negligence.
The action was based upon the allegation that the directors and the solicitor had used their
position as such to acquire the shares in Amalgamated for themselves with a view to enabling
them at once to sell them at a very substantial profit, that they had obtained that profit by
using their offices as directors and solicitor and were therefore accountable for it to Regal,
and also that in so acting they had placed themselves in a position in which their private
interests were likely to be in conflict with their duty to Regal.
VISCOUNT SANKEY – The appellants were the plaintiffs in the action and are referred to as
Regal; the respondents were the defendants. The action was brought by Regal against the first
five respondents, who were former directors of Regal, to recover from them sums of money
amounting to £7,010 8s. 4d., being profits made by them upon the acquisition and sale by
them of shares in the subsidiary company formed by Regal and known as Hastings
Amalgamated Cinemas Ltd. This company is referred to as Amalgamated. The action was
brought against the defendant, Garton, who was Regal’s former solicitor, to recover the sum
of £1,402 1s. 8d., being profits made by him in similar dealing in the said shares. There were
alternative claims for damages and misfeasance and for negligence. The action was based on
the allegation that the directors and the solicitor had used their position as such to acquire the
shares in Amalgamated for themselves, with a view to enabling them at once to sell them at a
very substantial profit, that they had obtained that profit by using their offices as directors and
solicitor and were, therefore, accountable for it to Regal, and also that in so acting they had
placed themselves in a position in which their private interests were likely to be in conflict
with their duty to Regal. The facts were of a complicated and unusual character. I have had
the advantage of reading and I agree with the statement as to them prepared by me noble and
learned friend, Lord Russell to Killowen. It will be sufficient for my purpose to set them out
very briefly.
In the summer of 1935 the directors of Regal, with a view to the future development or
sale of their company, were anxious to extend the sphere of its operations by the acquisition
of other cinemas. In Hastings and St. Leonards there were two small ones called the Elite and

the De Luxe. Negotiations began both for their acquisition or control by lease or otherwise
and for the disposal of Regal itself. Part of the machinery for the purpose was the creation by
Regal of a subsidiary company, the Amalgamated. It was registered on September 26, 1935,
with a capital of £5,000 in £1 shares. The directors were the same as those of Regal with the
addition of Garton. It was thought that only £2,000 of the capital was to be issued and that it
would be subscribed by Regal, who would control it. Then difficulties began with the Elite
and the De Luxe as to a lease, amongst others whether the directors of Amalgamated would
guarantee the rent. The directors were not willing to do so. At last all difficulties were
surmounted at a crucial meeting of October 2, 1935. It was a peculiar meeting. The directors
both of Regal and Amalgamated were summoned to attend at the same place and at the same
time. They did so, but, although separate minutes were subsequently attributed to each
company, it is not easy to say from the evidence at any particular moment for which company
a particular director was appearing. It was resolved that Regal should apply for 2,000 shares
in Amalgamated. It was agreed that £2,000 was the total sum which Regal could find. The
value of the leases of the two cinemas was taken at £15,000. The draft lease was approved.
Each of the Regal directors, except Gulliver, the chairman, agreed to apply for 500 shares,
Gulliver saying he would find people to take up 500. The Regal directors requested Garton to
take up 500. I will deal later with particular evidence applying to Gulliver and Garton, who
delivered separate defences. Thus, the capital of Amalgamated was fully subscribed, Regal
taking 2,000 shares, the five respondents taking 500 shares each, and the persons found by
Gulliver the remaining 500. The shares were duly paid for and allotted. In the final
transaction shortly afterwards these shares were sold at substantial profit, and it is this profit
which Regal asks to recover in this action.
The directors gave evidence and were severely cross-examined as to their good faith. The
trial judge said:
“All this subsequent history does not help me to decide whether the action of the
directors of the plaintiff company and their solicitor on October 2 was bonafide in the
interests of the company and not malafide and in breach of their duty to the
company…I must take it that, in the realisation of those facts, it means that I cannot
accept what has to be established by the plaintiff, and that is that the defendants here
acted in ill faith…Finally, I have to remind myself, were it necessary, that the burden
of proof, as in a criminal case, is the plaintiffs’, who must establish the fraud they
allege. On the whole, I do not think the plaintiff company succeeds in doing that and,
therefore, there must be judgment for the defendants.”
This latter statement was criticised in the Court of Appeal by Du Parcq L.J., who said:
“To anyone who has read the pleadings, but not followed the course of the trial,
that would seem a remarkable statement, because it is common ground that there is
no allegation of fraud in the pleadings whatever…but the course which the case has
taken makes the learned judge’s statement quite apprehensible, because it does
appear to have been put before him as, in the main at any rate, a case of fraud. It must
be taken, therefore, that the respondents acted bonafide and without fraud.”
In the Court of Appeal, Lord Greene M.R. said:

“If the directors in coming to the conclusion that they could not put up more than
£2,000 of the company’s money had been acting in bad faith, and if that restriction of
the company’s investment had been done for the dishonest purpose of securing for
themselves profit which not only could but which ought to have been procured for
their company, I apprehend that not only could they not hold that profit for
themselves if the contemplated transaction had been carried out, but they could not
have held that profit for themselves even if that transaction was abandoned and
another profitable transaction was carried through in which they did in fact realise a
profit through the shares…but once they have admittedly bonafide come to the
decision to which they came in this case, it seems to me that their obligation to
refrain from acquiring these shares came to an end. In fact, looking at it as a matter
of business, if that was the conclusion they came to, a conclusion which, in my
judgment, was amply justified by the evidence from a business point of view, then
there was only one way left of raising the money, and that was putting it up
themselves…That being so, the only way in which these directors could secure that
benefit for the company was by putting up the money themselves. Once that decision
is held to be a bonafide one and fraud drops out of the case, it seems to me there is
only one conclusion, namely, that the appeal must be dismissed with costs.”
It seems therefore that the absence of fraud was the reason of the decision. In the result,
the Court of Appeal dismissed the appeal and from their decision the present appeal is
brought.
The appellants say they are entitled to succeed: (i) because the respondents secured for
themselves the profits upon the acquisition and sale of the shares in Amalgamated by using
the knowledge acquired as directors and solicitors respectively of Regal and by using their
said respective positions and without the knowledge or consent of Regal; (ii) because the
doctrine laid down with regard to trustees is equally applicable to directors and solicitors.
Although both in the court of first instance and the Court of Appeal the question of fraud was
the prominent feature, the appellants’ counsel in this House at once stated that it was no part
of his case and quite irrelevant to his arguments. His contention was that the respondents
were in a fiduciary capacity in relation to the appellants and, as such, accountable in the
circumstances for the profit which they made on the sale of the shares.
As to the duties and liabilities of those occupying such a fiduciary position, a number of
cases were cited to us which were not brought to the attention of the trial judge. In my view,
the respondents were in a fiduciary position and their liability to account does not depend
upon proof of malafides. The general rule of equity is that no one who has duties of a
fiduciary nature to perform is allowed to enter into engagements in which he has or can have
a personal interest conflicting with the interests of those whom he is bound to protect. If he
holds any property so acquired as trustee, he is bound to account for it to his cestui que trust.
The earlier cases are concerned with trusts of specific property: Keech v. Sandford [(1726),
Sel. Cas. Ch. 61], per Lord King L.C. The rule, however, applies to agents, as, for example,
solicitors and directors, when acting in a fiduciary capacity.
It is not, however, necessary to discuss all the cases cited, because the respondents
admitted the generality of the rule as contended for by the appellants, but were concerned

rather to confess and avoid it. Their contention was that, in this case, upon a true perspective
of the facts, they were under no equity to account for the profits which they made. I will
defeat first with the respondents, other that Gulliver and Garton. We were referred to
Imperial Hydropathic Hotel Co. Blackpool v. Hampson, [(1882) 23 ChD 1, 12] where
Bowen L.J., drew attention to the difference between directors and trustees, but the case is
not an authority for contending that a director cannot come within the general rule. No doubt
there may be exceptions to the general rule, as, for example, where a purchase is entered into
after the trustee has divested himself of his trust sufficiently long before the purchase to avoid
the possibility of his making use of special information acquired by him as trustee (see the
remarks of Lord Eldon in Ex parte James,[(1803), 8 Ves. 337, 352] or where he purchases
with full knowledge and consent of his cestui que trust. Imperial Hydropathic Hotel Co.,
Blackpool v. Hampson, [23 ChD 1] makes no exception to the general rule that a solicitor or
director, if acting in a fiduciary capacity, is liable to account for the profits made by him from
knowledge acquired when so acting.
It was then argued that it would have been a breach of trust for the respondents, as
directors of Regal, to have invested more than £ 2,000 of Regal’s money in Amalgamated,
and that the transaction would never have been carried through if they had not themselves put
up the other £3,000. Be it so, but it is impossible to maintain that, because it would have been
a breach of trust to advance more than £ 2,000 from Regal and that the only way to finance
the matter was for the directors to advance the balance themselves, a situation for which
brought the respondents outside the general rule and permitted them to retain the profits
which accrued to them from the action they took. At all material times they were directors and
in a fiduciary position, and they used and acted upon their exclusive knowledge acquired as
such directors. They framed resolutions by which they made a profit for themselves. They
sought no authority from the company, to do so, and, by reason of their position and actions,
they made large profits for which, in my view, they are liable to account to the company.
I now pass to the cases of Gulliver and Garton. Their liability depends upon a careful
examination of the evidence. Gulliver’s case is that he did not take any shares and did not
make any profit by selling them. His evidence, which is substantiated by the documents, is as
follows. At the board meeting of October 2 he was not anxious as put any money of his own
into Amalgamated. He thought he could find subscribers for £ 500 but was not anxious to do
so. He did, however, find subscribers – £ 200 by South Down Land Company, £100 by a
Miss Geering and £ 200 by Seguliva A.G., a Swiss company. The purchase price was paid by
these three, either by cheque or in account, and the shares were duly allotted to them. The
shares were held by them on their own account. When the shares were sold, the moneys went
to them, and no part of the moneys went into Gulliver’s pocket or into his account. In these
circumstances, and bearing in mind that Gulliver’s evidence was accepted, it is clear that he
made no profits for which he is liable to account. The case made against him rightly fails, and
the appeal against the decision in his favour should be dismissed.
Garton’s case is that in taking the shares he acted with the knowledge and consent of
Regal, and that consequently he comes within the exception to the general rule as to the
liability of the person acting in a fiduciary position to account for profits. At the meeting of
October 2, Gulliver, the chairman of Regal, and his co-directors were present. He was asked

in cross-examination about what happened as to the purchase of the shares by the directors.
The question was:
“Did you say to Mr. Garton, ‘Well, Garton, you have been connected with Bentley’s
for a long time, will you not put up £ 500?’ ”
His answer was:
“I think I can put it higher. I invited Mr. Garton to put the £500 and to make up the £
3,000.”
This was confirmed by Garton in examination in chief. In these circumstances, and
bearing in mind that this evidence was accepted, it is clear that he took the share with the full
knowledge and consent of Regal and that he is not liable to account for profits made on their
sale. The appeal against the decision in his favour should be dismissed.
The appeal against the decision in favour of the respondents other than Gulliver and
Garton should be allowed, and I agree with the order to be proposed by my noble and learned
friend Lord Russell of Killowen as to amounts and costs. The appeal against the decision in
favour of Gulliver and Garton should be dismissed with costs.
LORD RUSSELL OF KILLOWEN – My Lords, the very special facts which have led up to this
litigation require to be stated in some detail, in order to make plain the point which arises for
decision on this appeal.
The appellant is a limited company called Regal (Hastings), Ltd., and may conveniently
be referred to as Regal. Regal was incorporated in the year 1933 with an authorised capital of
£2,000 divided into 17,500 preference shares of £1 each and 50,000 ordinary shares of one
shilling each. Its issued capital consisted of 8,950 preference shares and 50,000 ordinary
shares. It owned, and managed very successfully, a freehold cinema theatre at Hastings called
the Regal. In July, 1935, its board of directors consisted of one Walter Bentley and the
respondents Gulliver, Bobby, Griffiths and Bassett. Its shareholders were twenty in number.
The respondent Garton acted as its solicitor.
In or about that month, the board of Regal formed a scheme for acquiring a lease of two
other cinemas (viz., the Elite at Hastings, and the Cinema de Luxe at St. Leonards), which
were owned and managed by a company called Elite Picture Theatres (Hastings & Bristol),
Ltd. The scheme was to be carried out by obtaining the grant of a lease to a subsidiary limited
company, which was to be formed by Regal, with a capital of 5,000 £1 shares, of which Regal
was to subscribe for 2,000 in cash, the remainder being allotted to Regal or its nominees as
fully paid for services rendered. The whole beneficial interest in the lease would, if this
scheme were carried out, enure solely to the benefit of Regal and its shareholders, through the
shareholding of Regal in the subsidiary company. The respondent Garton, on the instructions
of Regal, negotiated for the acquisition of the lease, with the result that an offer to take a lease
for 35 or 42 years at a rent of £4,600 for the first year, rising in the second and third years up
to £ 5,000 in the fourth and subsequent years, was accepted on behalf of the owners on
August 21, 1935, subject to mutual approval of the form of the lease. Subsequently, the
owners of the two cinemas required the rent under the proposed lease to be guaranteed.

On September 11, 1935, Walter Bentley died; and on September 18, 1935, his son, the
respondent Bentley, who was one of his executors, was appointed as director of Regal. It
should now be stated that, the concurrently with the negotiations for the acquisition of a lease
of the two cinemas, Regal was contemplating a sale of its own cinema, together with the
leasehold interest in the two cinemas which it was proposing to acquire. On September 18,
1935, at a board meeting of Regal, the respondent Garton was instructed that the directors
were prepared to give a joint guarantee of the rent of the two cinemas, until the subscribed
capital of the proposed subsidiary company amounted to £ 5,000. He was further instructed
to deal with all offers received for the purchase of Regal’s own assets. On September 26,
1935, the proposed subsidiary company was registered under the name Hastings
Amalgamated Cinemas, Ltd., which may, for brevity, be referred to as Amalgamated. Its
directors were the five directors of Regal, and in addition the respondent Garton.
Harry Bentley, who had been appointed a director of Regal only on September 18, at the
end of the board meeting of that date, inquired from Garton the position as regards the new
company, Amalgamated. In reply, he received a letter dated September 26, 1935, in which
the position, as at that date, is set out by Garton. After stating that the capital of
Amalgamated is £ 5,000, of which £ 2,000 is being subscribed by Regal, “which sum will
form virtually the whole of the present paid up capital” of Amalgamated, and that the rent is
to be guaranteed by the directors so long as the issued capital of Amalgamated is under
£5,000, he concludes as follows:
“Inasmuch, as it is the intention of all the parties that the Regal (Hastings), Ltd. will
not only control the Hastings (Amalgamated) Cinemas, Ltd., but will continue to hold
virtually the whole of the capital, the position of a shareholder of Regal (Hastings),
Ltd., is merely that he has the advantage of a possible asset of the two new cinemas
on sale by the Regal (Hastings) Ltd., of its undertaking, so that the price realised to
the shareholders of the Regal (Hastings) Ltd., will be the amount that he would
normally have received for his interest in such company, plus his proportion of the
sale price of such two new cinemas.”
On October 2, 1935, an offer was received from would-be purchasers offering a net sum
of £ 92,500 for the Regal cinema and the lease of the two cinemas. Of this sum £ 77,500 was
allotted as the price of Regal’s cinema, and £ 15,000 as the price of the two leasehold
cinemas. The splitting of the price seems to have been done by the purchasers at the request
of the respondent Garton; but it must be assumed in favour of the Regal directors that they
were satisfied that £ 77,500 was not too low a price to be paid for their company’s cinema,
with the result that £ 15,000 cannot be taken to have been in excess of the value of the lease
which Amalgamated was about to acquire. On the afternoon of October 2, the six respondents
met at 62, Shaftesbury Avenue, London, the registered office of Regal. Various matters were
mentioned and discussed between them, and they came to certain decisions. Subsequently,
minutes were prepared which record the different matters as having been transacted at two
separate and distinct board meetings, viz., a meeting of the board of Regal, and a meeting of
the board of Amalgamated. The respondent Gulliver stated in his evidence that two separate
meetings, were held, that of the Amalgamated board being held and concluded before that of
the Regal board was begun. On the other hand, the respondent Bentley says:

“It was more or less held in one lump, because we were talking about selling the
three properties.”
The respondent, Garton, states that, after it was decided that Regal could only afford to
put up £ 2,000 in Amalgamated, which was purely a matter for the consideration of the Regal
board, the next matter discussed was one which figures in the minutes of the Amalgamated
board meeting. Moreover, both meetings are recorded in the minutes as having been held at 3
p.m.
Whatever may be the truth as to this, the matters discussed and decided included the
following: (i) Regal was to apply for 2,000 share in Amalgamated; (ii) the offer of £ 77,500
for the Regal cinema and £ 15,000 for the two leasehold cinemas was accepted; (iii) the
solicitor reporting that completion of the lease was expected to take place on October 7, it was
resolved that the seal of Amalgamated be affixed to the engrossment when available; and (iv)
the respondent, Gulliver, having objected to guaranteeing the rent, it was resolved:
“…that the directors be invited to subscribe for 500 shares each and that such shares
be allotted accordingly.”
On October 7, 1935, a lease of the two cinemas was executed in favour of Amalgamated,
for the term of 35 years from September 29, 1935, in accordance with the agreement
previously come to. The shares of Amalgamated were all issued, and were allotted as follows:
2,000 to Regal, 500 to each of the respondents, Bobby, Griffiths, Bassett, Bentley and Garton
and (by the direction of the respondent, Gulliver) 200 to a Swiss Company called Seguliva
A.G., 200 to a company called South Downs Land Co. Ltd., and 100 to a Miss Geering.
In fact, the proposed sale and purchase of the Regal cinema and the two leasehold
cinemas fell through. Another proposition, however, took its place, viz., a proposal for the
purchase from the individual shareholders of their shares in Regal and Amalgamated. This
proposal came to maturity by agreements dated October 24, 1935, as a result of which the
3,000 shares in Amalgamated held otherwise than by Regal were sold for a sum of £3 16s. 1d.
per share, or in other words at a profit of £ 2 16s. 1d. per share over the issue price of par.
As a sequel to the sale of the shares in Regal, that company came under the management
of a new board of directors, who caused to be issued the writ which initiated the present
litigation. By this action Regal seek to recover from its five former directors and its former
solicitor a sum of £ 8,142,10s. either as damages or as money had and received to the
plaintiffs’ use. The action was tried by Wrottesley J., who entered judgment for all the
defendants with costs. An appeal by the plaintiffs to the Court of Appeal was dismissed with
costs.
My Lords, those are the relevant facts which have led up to the debate in your Lordships’
House, and I now proceed to consider whether the appellants are entitled to succeed against
any and which of the respondents. The case has, I think, been complicated and obscured by
the presentation of it before the trial judge. If a case of wilful misconduct or fraud on the part
of the respondents had been made out, liability to make good to Regal any damage which it
had thereby, suffered could, no doubt, have been established; and efforts were apparently
made at the trial, by cross-examination and otherwise to found such a case. It is, however,
due to the respondents to make it clear at the outset that this attempt failed. The case was not

so presented to us here. We have to consider the question of the respondents’ liability on the
footing that, in taking up these shares in Amalgamated, they acted with bonafides, intending
to act in the interest of Regal.
Nevertheless, they may be liable to account for the profits which they have made, if,
while standing in a fiduciary relationship to Regal, they have by reason and in course of that
fiduciary relationship made a profit. This aspect of the case was undoubtedly raised before the
trial judge, but, in so far as he deals with it in his judgment, he deals with it on a wrong basis.
Having stated at the outset quite truly that what he calls “this stroke of fortune” only came the
way of the respondents because they were the directors and solicitor of the Regal, he
continues thus:
“But in order to succeed the plaintiff company must show that the defendants both
ought to have caused and could have caused the plaintiff company to subscribe for
these shares, and that the neglect to do so caused a loss to the plaintiff company.
Short of this, if the plaintiffs can establish that, though no loss was made by the
company, yet a profit was corruptly made by the directors and the solicitor, then the
company can claim to have that profit handed over to the company, framing the
action in such a case for money had and received by the defendants for the plaintiffs’
use.”
Other passages in his judgment indicate that, in addition to this “corrupt” action by the
directors, or, perhaps, alternatively, the plaintiffs, in order to succeed must prove that the
defendants acted mala fide, and not bona fide in the interests of the company, or that there
was a plot or arrangement between them to divert from the company to themselves a valuable
investment. However relevant such considerations may be in regard to a claim for damages
resulting from misconduct, they are irrelevant to a claim against a person occupying a
fiduciary relationship towards the plaintiff for an account of the profits made by that person
by reason and in course of that relationship.
In the Court of Appeal, upon this claim to profits, the view was taken that in order to
succeed the plaintiff had to establish that there was a duty on the Regal directors to obtain the
shares for Regal. Two extracts from the judgment of Lord Greene M.R., show this. After
mentioning the claim for damages, he says:
“The case is put on an alternative ground. It is said that, in the circumstances of the
case, the directors must be taken to have been acting in the matter of their office
when they took those shares; and that accordingly they are accountable for the profits
which they have made…There is one matter which is common to both these claims
which, unless it is established, appears to me to be fatal. It must be shown that in the
circumstances of the case it was the duty of the directors to obtain these shares for
their company.”
Later in his judgment he uses this language:
“But it is said that the profit realised by the directors on the sale of the shares must be
accounted for by them. That proposition involves that on October 2, when it was
decided to acquire these shares, and at the moment when they were acquired by the

directors, the directors were taking to themselves something which properly belong
to their company.”
Other portions of the judgment appear to indicate that upon this claim to profits, it is a
good defence to show bona fides or absence of fraud on the part of the directors in the action
which they took, or that their action was beneficial to the company, and the judgment ends
thus:
“That being so, the only way in which these directors could secure that benefit for
their company was by putting up the money themselves. Once that decision is held
to be a bona fide one, and fraud drops out of the case, it seems to me that there is
only one conclusion, namely, that the appeal must be dismissed with costs.”
My Lords, with all respect I think there is a misapprehension here. The rule of equity
which insists on those, who by use of a fiduciary position make a profit, being liable to
account for that profit, in no way depends on fraud, or absence of bona fides; or upon such
questions or considerations as whether the profit would or should otherwise have gone to the
plaintiff, or whether the profiteer was under a duty to obtain the source of the profit for the
plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether
he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in
fact been damaged or benefited by his action. The liability arises from the mere fact of a
profit having, in the stated circumstances, been made. The profiteer, however honest and
well-intentioned, cannot escape the risk of being called upon to account.
The leading case of Keech v. Sandford [Sel. Cas. Ch. 61] is an illustration of the
strictness of this rule of equity in this regard, and of how far the rule is independent of these
outside consideration. A lease of the profits of a market had been devised to a trustee for the
benefit of an infant. A renewal on behalf of the infant was refused. It was absolutely
unobtainable. The trustee, finding that it was impossible to get a renewal for the benefit of the
infant, took a lease for his own benefit. Though his duty to obtain it for the infant was
incapable of performance, nevertheless he was ordered to assign the lease to the infant upon
the bare ground that, if a trustee on the refusal to renew might have a lease for himself, few
renewals would be made for the benefit of cestuis que trust. Lord King L.C. said:
“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 the rule should be strictly pursued, and
not in the least relaxed…”
One other case in equity may be referred to in this contention, viz., Ex parte James, [8 Ves.
337], decided by Lord Eldon L.C. That was a case of a purchase of a bankrupt’s estate by the
solicitor to the commission, and Lord Eldon L.C., refers to the doctrine thus:
“This doctrine as to purchases by trustees, assignees, and persons having a
confidential character, stands much more upon general principles than upon the
circumstances of any individual case. It rests upon this: that the purchase is not
permitted in any case however honest the circumstances; the general interests of
justice requiring it to be destroyed in every instance; as no court is equal to the
examination and ascertainment of the truth in much the greater number of cases.”

Let me now consider whether the essential matters, which the plaintiff must prove, have
been established in the present case. As to the profit being in fact made there can be no doubt.
The shares were acquired at part and were sold three weeks later at a profit of £ 2 16s. 1d. per
share. Did such of the first five respondents as acquired these very profitable shares acquire
them by reason and in course of their office of directors of Regal? In my opinion, when the
facts are examined and appreciated, the answer can only be that they did. The actual allotment
no doubt had to be made by themselves and Garton (or some of them) in their capacity as
directors of Amalgamated; but this was merely an executive act, necessitated by the alteration
of the scheme for the acquisition of the lease of the two cinemas for the sole benefit of Regal
and its shareholders through Regal’s shareholding in Amalgamated. That scheme could only
be altered by or with the consent of the Regal board. Consider what in fact took place on
October 2, 1935. The position immediately before that day is stated in Garton’s letter of
September 26, 1935. The directors were willing to guarantee the rent until the subscribed
capital of Amalgamated reached £ 5,000. Regal was to control Amalgamated and own the
whole of its share capital, with the consequence that the Regal shareholders would receive
their proportion of the sale price of the two new cinemas. The respondents then meet on
October 2, 1935. They have before them an offer to purchase the Regal cinema for £ 77,500,
and the lease of the two cinemas for £ 15,000. The offer is accepted. The draft lease is
approved and a resolution for its sealing is passed in anticipation of completion in five days.
Some of those present, however, shy at giving guarantees, and accordingly the scheme is
changed by the Regal directors in a vital respect. It is agreed that a guarantee shall be avoided
by the six respondents bringing the subscribed capital up to £ 5,100. I will consider the
evidence and the minute in a moment. The result of this change of scheme which only the
Regal directors could bring about may not have been appreciated by them at the time; but its
effect upon their company and its shareholders was striking. In the first place, Regal would
no longer control Amalgamated, or own the whole of its share capital. The action of its
directors had deprived it (acting through its shareholders in general meeting) of the power to
acquire the shares. In the second place, the Regal shareholders would only receive a large
reduced proportion of the sale price of the two cinemas. The Regal directors and Garton
would receive the moneys of which the Regal shareholders were thus deprived. This vital
alteration was brought about in the following circumstances–I refer to the evidence of the
respondent Garton. He was asked what was suggested when the guarantees were refused, and
this is his answer:
“Mr. Gulliver said ‘We must find it somehow. I am willing to find £500. Are you
willing’, turning to the other four directors of Regal, ‘to do the same?’ They
expressed themselves as willing. He said, ‘That makes £2,500’, and he turned to me
and said, ‘Garton, you have been interested in Mr. Bentley’s companies; will you
come in to take £500?’ I agreed to do so.”
Although this matter is recorded in the Amalgamated minutes, this was in fact a decision
come to by the directors of Regal, and the subsequent allotment by the directors of
Amalgamated was a mere carrying into effect of this decision of the Regal board. The
resolution recorded in the Amalgamated minute runs thus:

“After discussion it was resolved that the directors be invited to subscribe for 500
shares each, and that such shares be allotted accordingly.”
As I read that resolution, and my reading agrees with Garton’s evidence, the invitation is to
the directors of Regal, and is made for the purpose of effectuating the decision which the five
directors of Regal had made, that each should take up 500 shares in the Amalgamated. The
directors of Amalgamated were not conveying an “invitation” to themselves. That would be
ridiculous. They were merely giving effect to the Regal directors’ decision to provide £2,500
cash capital themselves, a decision which had been followed by a successful appeal by
Gulliver to Garton to provide the balance.
My Lords, I have no hesitation in coming to the conclusion, upon the facts of this case,
that these shares, when acquired by the directors, were acquired by reason, and only by reason
of the fact that they were directors of Regal, and in the course of their execution of that office.
It now remains to consider whether in acting as directors of Regal they stood in a
fiduciary relationship to that company. Directors of a limited company are the creatures of
statute and occupy a position peculiar to themselves. In some respects they resemble trustees,
in others they do not. In some respects they resemble agents, in others they do not. In some
respects they resemble managing partners, in others they do not. In In re Forest of Dean Coal
Mining Co. [(1878) 10 Ch. D. 450] a director was held not liable for omitting to recover
promotion money which had been improperly paid on the formation of the company. He
knew of ‘the improper payment, but he was not appointed a director until a later date. It was
held that, although a trustee of settled property which included a debt would be liable for
neglecting to sue for it, a director of a company was not a trustee of debts due to the company
and was not liable. I cite two passages from the judgment of Sir George Jessel M.R.:
“Directors have sometimes been called trustees, or commercial trustees, and
sometimes they have been called managing partners, it does not matter what you call
them so long as you understand what their true position is, which is that they are
really commercial men managing a trading concern for the benefit of themselves and
all other shareholders in it.”
Later, after pointing out that traders have a discretion whether they shall sue for a debt, which
discretion is not vested in trustees of a debt under a settlement, he said:
“Again directors are called trustees. They are no doubt trustees of assets which have
come to their hands, or which are under their control, but they are not trustees of a
debt due to the company…A director is the managing partner of the concern and
although a debt is due to the concern I do not think it right to call him a trustee of that
debt which remains unpaid, though his liability in respect of it may in certain cases
and in respects be analogous to the liability of a trustee.”
The position of directors was considered by Kay J., in In re Faure Electric Accumulator Co.
[(1888) 40 Ch. D. 141]. That was a case where directors had applied the company’s money in
payment of an improper commission, and a claim was made for the loss thereby occasioned to
the company. In referring to the liability of directors, the judge pointed out that directors were
not trustees in the sense of trustees of a settlement, that the nearest analogy to their position

would be that of a managing agent of a mercantile house with large powers, but that there was
no analogy which was absolutely perfect and he added:
“However, it is quite obvious that to apply to directors the strict rules of the Court of
Chancery with respect to ordinary trustees might fetter their action to an extent which
would be exceedingly disadvantageous to the companies they represeat.”
In addition a passage from the judgment of Bowen L.J. in Imperial Hydropathic Hotel
Co., Blackpool v. Hampson [23 Ch. D. 1, 12] may be usefully recalled. He said [(1874) 10
Ch. App. 96]:
“I should wish…to begin by remarking this, that when persons who are directors of a
company are from time to time spoken of by judges as agents, trustees, or managing
partners of the company, it is essential to recollect that such expressions are not used
as exhaustive of the powers and responsibilities of those persons but only as
indicating useful points of view from which they may for the moment and for the
particular purpose be considered–points of view at which for the moment they seem
to be either cutting the circle, or falling within the category of the suggested kind. It
is not meant that they belong to the category, but that it is useful for the purpose of
the moment to observe that they fall pro tanto within the principles which govern that
particular class.”
These three cases, however, were not concerned with the question of directors making a
profit; but that the equitable principle in this regard applies to directors is beyond doubt. In
Parker v. McKenna [(1874) 10 Ch. App. 96], a new issue of shares of a joint stock bank was
offered to the existing shareholders at a premium. The directors arranged with one Stock to
take, at a larger premium, the shares not taken up by the existing shareholders. Stock, being
unable to fulfil his contract, requested the directors to relieve him of some. They did so, and
made a profit. They were held accountable for the profit so made. Lord Cairns L.C. said:
“The court will not enquire and is not in a position to ascertain, whether the bank has
or has not lost by the acts of the directors. All the court has to do is to examine
whether a profit has been made by an agent, without the knowledge of his principal,
in the course and execution of his agency, and the court finds, in my opinion, that
these agents in the course of their agency have made a profit, and for that profit they
must, in my opinion, account to their principal.”
In the same case James L.J. stated his view in the following terms:
“…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 of
his principal; that the 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 Imperial Mercantile Credit Association (Liquidators) v. Coleman [(1873) L.R. 6 H.L.
189], one Coleman, a stockbroker and a director of a financial company, had contracted to
place a large amount of railway debentures for a commission of 5 per cent. He proposed that
his company should undertake to place them for a commission of 1½ per cent. The 5 per cent
commission was in due course paid to the director.who paid over the 1 and a half percent to
the company. He was held liable to account for the 3½ per cent, by Mallins V.C., [(1870) 6
Ch. App. 563] who said:
“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.”
His decree was reversed by Lord Hatherley [(1871) 6 Ch. App. 558, 566 et. seq.] on the
ground that the transaction was protected under the company’s articles of association. Your
Lordships’ House, (L.R. 6 H.L. 189) however, thought that in the circumstances of the case
the articles of association gave no protection, and restored the decree with unimportant
variations. The liability was based on the view, which was not disputed by Lord Hatherley,
that the director stood in a fiduciary relationship to the company. The relationship being
established, he could not keep the profit which had been earned by the funds of the company
being employed in taking up the debentures. The courts in Scotland have treated directors as
standing in a fiduciary relationship towards their company and, applying the equitable
principle, have made them accountable for profits accruing to them in the course and by
reason of their directorships. It will be sufficient to refer to Huntington Copper Co. v.
Henderson, [(1877) 4 R. 294, 308] in which the Lord President cites with approval the
following passage from the judgment of the Lord Ordinary:
“Whenever it can be shown that the trustee has so arranged matters as to obtain an
advantage whether in money or money’s worth to himself personally through the
execution of his trust, he will not be permitted to retain, but he compelled to make it
over to his constituent.”
In the result, I am of opinion that the directors standing in a fiduciary relationship to
Regal in regard to the exercise of their powers as directors, and having obtained these shares
by reason and only by reason of the fact that they were directors of Regal and in the course of
the execution of that office, are accountable for the profits which they have made out of them.
The equitable rule laid down in Keech v. Sandford (Sel. Cas. Ch. 61) and Ex parte James (8
Ves. 337) and similar authorities applies to them in full force. It was contended that these
cases were distinguishable by reason of the fact that it was impossible for Regal to get the
shares owing to lack of funds, and that the directors in taking the shares were really acting as
members of the public. I cannot accept this argument. It was impossible for the cestui que
trust in Keech v. Sandford (Sel. Cas. Ch. 61) to obtain the lease, nevertheless the trustee was
accountable. The suggestion that the directors were applying simply as members of the public
is a travesty of the facts. They could, had they wished, have protected themselves by a
resolution (either antecedent or subsequent) of the Regal shareholders in general meeting. In
default of such approval, the liability to account must remain. The result is that, in my

opinion, each of the respondents Bobby, Griffiths, Bassett and Bentley is liable to account for
the profit which he made on the sale of his 500 shares in Amalgamated.
The case of the respondent Gulliver, however, requires some further consideration, for he
has raised a separate and distinct answer to the claim. He says: “I never promised to subscribe
for shares in Amalgamated. I never did so subscribe. I only promised to find others who
would be willing to subscribe. I only found others who did subscribe. The shares were theirs.
They were never mine. They received the profit. I received none of it.” If these are the true
facts, his answer seems complete. The evidence in my opinion establishes his contention.
Throughout his evidence Gulliver insisted that he only promised to find ££500, not to
subscribe it himself. The £500 was paid by two cheques in favour of Amalgamated, one a
cheque for £200 signed by Gulliver as director and on behalf of the Swiss company Seguliva,
the other a cheque for £300 signed by Gulliver as managing director of South Downs Land
Co., Ltd. They were enclosed in a letter of October 3, 1935, from Gulliver to Garton, in
which Gulliver asks that the share certificates be issued as follows, 200 shares in the name of
himself, Charles Gulliver, 200 shares in the name of South Downs Land Co., Ltd., and 100
shares in the name of Miss S. Geering. The money for Miss Geering’s shares was apparently
included in South Downs Land Co.’s cheque. The certificates were made out accordingly, the
200 shares in Gulliver’s name being, he says, the shares subscribed for by the Swiss company.
When the sale and purchase of the Amalgamated shares was arranged, the agreement for
the sale and purchase was signed on behalf of the vendor shareholders (other than the
respondent Bentley) by Garton & Co., and in a letter of October 17, 1935, Gulliver sent to
Garton (who held the three certificates) three transfers, viz. (1) a transfer of 200 shares
executed by South Downs Land Co. Ltd. (2) a transfer of 200 shares executed by himself, and
(3) a transfer of 100 shares executed by Miss Geering. When the purchase money was paid
cheques were drawn as follows: a cheque for £360 in favour of Miss Geering, a cheque for
£720 in favour of South Downs Land Co. Ltd., and a cheque for the same amount in favour of
Gulliver. By letter of October 24, 1935, written by Gulliver to the National Provincial Bank,
these cheques were paid into the respective accounts of Miss Geering, South Downs Land Co.
Ltd., and Seguliva, A.G.
From the evidence of Gulliver it appeared that Miss Geering is a friend who from time to
time makes investments on his advice; that the issued capital of South Downs and Co. Ltd., is
£1,000 in £1 shares, held by some 11 or 12 shareholders, of whom Gulliver is one and holds
100 shares; and that in the Swiss company Gulliver holds 85 out of 500 shares.
It is of the first importance on this part of the case to bear in mind that these directors
have been acquitted of all suggestion of mala fides in regard to the acquisition of these shares.
They had no reason to believe that they could be called to account. Why then should Gulliver
go to the elaborate pains of having the shares put into the names of South Downs Land Co.
and Miss Geering, and of having the proceeds of sale paid into the respective accounts before
mentioned, if the shares and proceeds really belonged to him? Ex hypothesi he had no reason
for concealment; and no question was raised against the transaction until months after the
proceeds of sale had been paid into the banking accounts of those whom Gulliver asserts to
have been the owners of the shares. I can see no reason for doubting that the shares never
belonged to Gulliver, and that he made no profit on the sale thereof.

Counsel for the appellant, however, contended that the trial judge had found as a fact that
Gulliver was the owner of the shares; and he relied on certain scattered passages in the
judgment, the strongest of which seems to me to be the one in which the judge said:
“I may say this with regard to Mr. Gulliver, that i have not been misled in any way or
led to decide in his favour by the fact that he handed over his shares to his nominees
but rather the reverse.”
I cannot regard that s a finding by the judge that the shares were subscribed for by Gulliver
under aliases, and that the shares and the proceeds of sale in fact belonged to him. It is
equally susceptible of the meaning that he allowed others to subscribe for the shares which he
could have obtained for himself had he so wished. If it be claimed as a finding of fact in the
former sense, all I can say is that there is no evidence which in my opinion would justify such
a finding.
It was further argued that, even if the shares and the proceeds of sale did not belong to
Gulliver, he is nevertheless liable to account to Regal for the profit made by the owners of the
shares, and that upon the authority of Imperial Mercantile Credit Association (Liquidators)
v. Coleman, (L.R. 6 H.L. 189) to which I have already referred. One of the contentions put
forward there by Coleman was that his transaction was a transaction for the benefit of a
partnership in the profits of which he was only interested to the extent of a half, and that
accordingly he could only be made accountable to that extent. That contention was disposed
of by Lord Cairns in the following terms:
“My Lords, I think there is no foundation for this argument. The profit on the
transaction was obtained by Mr. Coleman, and, in the view that I take, was obtained
by him as a director of the association. Whether he desired or whether he determined
to reserve it all to himself or to share it with his firm appears to me to be perfectly
immaterial. The source from which the profit is derived is Mr. Coleman. It is only
through him that his firm can claim. He is liable for the whole of the profits which
were obtained; and it is not the course for a Court of Equity to enter into the
consideration of what afterwards would have become of those profits.”
I am unable to see how this authority helps Regal if it be assumed that neither the shares nor
the profit ever belonged to Gulliver.
It was further said that Gulliver must account for whatever profits he may have made
indirectly through his shareholding in the two companies, and that an inquiry should be
directed for this purpose. As to this, it is sufficient to say that there is no evidence upon which
to ground such an inquiry. Indeed, the evidence so far as it goes, shows that neither company
has distributed any part of the profit. Finally, it was said that Gulliver must account for the
profit on the 200 shares as to which the certificate was in his name. If in fact the shares
belonged beneficially to the Swiss company (and that is the assumption for this purpose), the
proceeds of sale did not belong to Gulliver, and were rightly paid into the Swiss company’s
banking account. Gulliver accordingly made no profit for which he is accountable. As
regards Gulliver, this appeal should, in my opinion, be dismissed.
There remains to consider the case of Garton. He stands on a different footing from the
other respondents in that he was not a director of Regal. He was Regal’s legal adviser; but, in

my opinion, he has a short but effective answer to the plaintiff’s claim. He was requested by
the Regal directors to apply for 500 shares. They arranged that they themselves should each
be responsible for £500 of the Amalgamated capital, and they appealed, by their chairman, to
Garton to subscribe the balance of £500 which was required to make up the £ 3,000. In law
his action, which has resulted in a profit, was taken at the request of Regal, and I know of no
principle or authority which would justify a decision that a solicitor must account for profit
resulting from transaction which he has entered into on his own behalf, not merely with the
consent, but at the request of his client.
My Lords, in my opinion the right way in which to deal with this appeal is (i) to dismiss
the appeal as against the respondents Gulliver and Garton with costs, (ii) to allow it with costs
as against the other four respondents, and (iii) to enter judgment as against each of these four
respondents for a sum of £1,402 1s. 8d. with interest @ 4 per cent from October 25, 1935, as
to £1,300 part thereof and from December 5, 1935, as to the balance. As regards the liability
of these four respondents for costs, I have read the shorthand notes of the evidence at the trial,
and it is clear to me that the costs were substantially increased by the suggestions of mala
fides and fraud with which the cross-examination abounds, and from which they have been
exonerated. In my opinion a proper order to make would be to order these four respondents to
pay only three-quarters of the appellants’ taxed costs of the action. The taxed costs of the
appellants in the Court of Appeal and in this House they must pay in full.
One final observation I desire to make. In his judgment Lord Greene M.R., stated that a
decision adverse to the directors in the present case involved the proposition that, if directors
bona fide decide not to invest their company’s funds in some proposed investment, a director
who thereafter embarks his own money therein is accountable for any profits which he may
derive therefrom. As to this, I can only say that to my mind the facts of this hypothetical case
bear but little resemblance to the story with which we have had to deal.
LORD PORTER – My Lords, I have had an opportunity of reading the speech which has been
delivered by my noble and learned friend. Lord Russell of Killowen, and had we not been
differing from the view of the Court of Appeal I should not desire to add to what he has said.
as we are reversing the judgment of both the court of first instance and the Court of Appeal I
desire, out of respect for the opinions expressed in them, to state in the briefest possible
compass the grounds for the view which I hold.
My Lords, I am conscious of certain possibilities which are involved in the conclusion
which all your Lordships have reached. The action is brought by the Regal Company.
Technically, of course, the fact that an unlooked for advantage may be gained by the
shareholders of that company, is immaterial to the question at issue. The company and its
shareholders are separate entities. One cannot help remembering, however, that in fact the
shares have been purchased by a financial group who were willing to acquire those of the
Regal and the Amalgamated at a certain price. As a result of your Lordships’ decision that
group will, I think, receive in one hand part of the sum which has been paid by the other. For
the shares in Amalgamated they paid £ 3 16s. 1d. per share, yet part of that sum may be
returned to the group, though not necessarily to the individual shareholders by reason of the
enhancement in value of the shares in Regal – an enhancement brought about as a result of the

receipt by the company of the profit made by some of its former directors on the sale of
Amalgamated shares. This, it seems, may be an unexpected windfall, but whether it be so or
not, the principle that a person occupying a fiduciary relationship shall not make a profit by
reason thereof is of such vital importance that the possible consequence in the present case is
in fact as it is in law an immaterial consideration.
The plaintiff, the Regal Company, by its pleadings, claimed (i) damages for negligence,
(ii) alternatively, the profit obtained on the sale of shares in Amalgamated as money had and
received by the defendants to the plaintiffs’ use, and (iii) in the further alternative damages for
misfeasance. No claim for fraud was suggested, and the trial judge expressly exonerated the
defendants from any liability for negligence or misfeasance. Before your Lordships’ House
the claim for money had and received was alone persisted in. The alternative claim for
misfeasance, however, seems also to have been presented to the Court of Appeal, but to have
been rejected by them, and in common with the rest of your Lordships I unreservedly accept
the findings of both courts.
It remains, therefore, to consider the claim that (in the words of Lord Greene M.R.):
“…in the circumstances of the case the directors must be taken to have been acting in
the matter of their office when they took those shares and that, accordingly, they are
accountable for the profits, which they have made.”
That the shares were obtained by the defendants by reason of their position as directors of
Regal is, I think, plain. The original proposition, when the formation of the subsidiary
company was suggested, was that the whole of the shares should be issued to the Regal
Company, partly for cash and partly for services rendered, and this proposition was discussed
and accepted at board meetings of that company. It was only afterwards, when the necessity
for finding £5,000 cash arose, that the issue to any one other than the company was
considered, and then the directors turned to themselves. “There is no doubt it was only
because they were directors and solicitor respectively of the plaintiff company that this stroke
of fortune came their way”, says Wrottesley J., and I agree with his observation.
In these circumstances, it is to my mind immaterial that the directors saw no way of
raising the money save from amongst themselves and from the solicitor to the company, or,
indeed, that the money could in fact have been raised in no other way. The legal proposition
may, I think be broadly stated by saying that one occupying a position of trust must not make
a profit which he can acquire only by use of his fiduciary position, or, if he does, he must
account for the profit so made. For this proposition the cases of Keetch v. Sandford [Sel.
Cas. Ch. 61] and Ex parte James [8 Ves. 337] are sufficient authority. Wrottesley J. and the
members of the Court of Appeal appear to have adopted a narrower outlook with which, with
all respect, I find myself unable to agree. Wrottesley J. said:
“In order to succeed the plaintiff company must show that the defendants both ought
to have caused and could have caused the plaintiff company to subscribe for these
shares and that the neglect to do so caused a loss to the plaintiff company.”
In the Court of Appeal, Lord Greene M.R. said:

“It must be shown that in the circumstances of the case it was the duty of the
directors to obtain these shares for their company…The position of the Regal
Company would have been very much strengthened by having all these shares in the
two companies in the same hands with the possibility of the control. That being so,
the only way in which these directors could secure that benefit for their company was
by putting up the money themselves. Once that decision is held to be a bona fide
one, and fraud drops out of the case, it seems to me there is only one conclusion,
namely, that the appeal must be dismissed with costs.”
To treat the problem in this way is, in my view, to look at it as involving a claim for
negligence or misfeasance and to neglect the wider aspect. Directors, no doubt, are not
trustees, but they occupy a fiduciary position towards the company whose board they form.
Their liability in this respect does not depends upon breach of duty but upon the proposition
that a director must not make a profit out of property acquired by reason of his relationship to
the company of which he is director. It matters not that he could not have acquired the
property for the company itself–the profit which he makes is the company’s even though the
property by means of which he made it was not and could not have been acquired on its
behalf. Adopting the words of Lord Eldon L.C., in Ex parte James [8 Ves. 337, 345]:
“…the general interests of justice require it to be destroyed in every instance; as no
court is equal to the examination and ascertainment of the truth in much the greater
number of cases.”
My Lords, these observations apply generally to the action, but the cases of Gulliver and
Garton stand on a somewhat different footing. AS to them, there are additional and special
considerations to be kept in mind. I need not set them out or refer to them further then by
saying that I find myself in agreement with the reasoning and conclusion on my noble and
learned friend, Lord Russell of Killowen, and would submit with him that the appeal should
be allowed so far as concerns the defendants Bobby, Griffiths, Bassett and Bentley, and
should be dismissed in the case of Gulliver and Garton. I also concur in the order as to costs
which he suggests.
Appeal dismissed as against the respondents Gulliver & Garton.Appeal allowed as against
the other respondents.