Company directors with an interest in an agreement or arrangement with their company are under a duty to declare the nature and extent of that interest to the other directors.
Last month’s Court of Appeal case of Fairford Water Ski Club Ltd v Cohoon & Anor (2021) EWCA Civ 143 has given further food for thought on the issue of declaring director’s interests.
The Company ran a members’ water-skiing club on a lake. One of its directors Mr Cohoon had also been concerned in an unincorporated Partnership which ran (from a building leased to it from the Company) a water-skiing school and watersports shop pursuant to a management agreement (subject to a fee) with the Company.
As the Appeal Judge noted, the two business were therefore, “independent of each other but… somewhat intertwined”.
At a board meeting in 2007, the Company made the decision to increase the rent under the lease as well as the management fee. An agreement was reached with the Partnership to document this.
Forward on ten years and the Company commenced court proceedings which sought to claim damages, including against Mr Cohoon, for repayment of £350,000 paid by way of management fees to the Partnership.
The Company claimed to be entitled to recover these fees because Mr Cohoon had failed to declare the nature of his interest in the proposed management agreement at a board meeting.
The Court of Appeal overturned an earlier judgement that Mr Cohoon had not properly declared a conflict of interest. Mr Cohoon was said to have sufficiently declared the nature and extent of his interest in the management agreement within the minutes of the board meeting which took place in 2007.
Furthermore, the declaration was said to be clear and obvious and Mr Cohoon had been under no further obligation pursuant to the articles of association and s.317 Companies Act 1985 (then applicable) to expand his declaration further where his fellow directors were considered to be fully informed of his position (and incidentally had received prior knowledge and understanding of the position at previous board meetings).
Advice for Company Directors Disclosing Interests
Further to the above case, we recommend Company Director’s consider the following key points when considering (or not!) disclosing director interests:
Make any declaration of an interest (in a potential agreement or arrangement with the Company) as soon as reasonably practicable to do so.
Make any such declaration BEFORE the Company enters into such agreement or arrangement.
Any such declaration must clearly cover the “nature and extent” of the said interest in the agreement or arrangement.
Document the declaration in the Company’s board minutes.
For further information about directors duties and the duty to declare interests and conflicts, please contact Farleys’ corporate team on 0845 287 0939 or contact us by email.