Regal (Hastings) v Gulliver
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, is a leading case in UK company law regarding the rule against directors and officers from taking personal advantage of a
corporate opportunity The ''corporate opportunity'' doctrine is the legal principle providing that directors, officers, and controlling shareholders of a corporation must not take for themselves any business opportunity that could benefit the corporation. The corporate ...
in violation of their duty of loyalty to the company. The Court held that a director is in breach of his duties if he takes advantage of an opportunity that the corporation would otherwise be interested in but was unable to take advantage. However the breach could have been resolved by ratification by the shareholders, which those involved neglected to do.


Facts

Regal owned a cinema in Hastings. They took out leases on two more, through a new subsidiary, to make the whole lot an attractive sale package. However, the landlord first wanted them to give personal guarantees. They did not want to do that. Instead the landlord said they could up share capital to £5,000. Regal itself put in £2,000, but could not afford more (though it could have got a loan). Four directors each put in £500, the Chairman, Mr Gulliver, got outside subscribers to put in £500 and the board asked the company solicitor, Mr Garten, to put in the last £500. They sold the business and made a profit of nearly £3 per share. But then the beneficiaries brought an action against the directors, saying that this profit was in breach of their
fiduciary duty A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for exampl ...
to the company. They had not gained fully informed consent from the shareholders.


Judgment

The House of Lords The House of Lords, also known as the House of Peers, is the upper house of the Parliament of the United Kingdom. Membership is by appointment, heredity or official function. Like the House of Commons, it meets in the Palace of Westminster in ...
, reversing the High Court and the Court of Appeal, held that the defendants had made their profits “by reason of the fact that they were directors of Regal and in the course of the execution of that office”. They therefore had to account for their profits to the company. The governing principle was succinctly stated by Lord Russell of Killowen,
“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 fide In human interactions, good faith ( la, bona fides) is a sincere intention to be fair, open, and honest, regardless of the outcome of the interaction. Some Latin phrases have lost their literal meaning over centuries, but that is not the case ...
s''; or upon questions or considerations as whether the property would or should otherwise have gone to 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.”
Lord Wright said (at 157),
"The Court of Appeal held that, in the absence of any dishonest intention, or negligence, or breach of a specific duty to acquire the shares for the appellant company, the respondents as directors were entitled to buy the shares themselves. Once, it was said, they came to a ''bona fide'' decision that the appellant company could not provide the money to take up the shares, their obligation to refrain from acquiring those shares for themselves came to an end. With the greatest respect, I feel bound to regard such a conclusion as dead in the teeth of the wise and salutary rule so stringently enforced in the authorities. It is suggested that it would have been mere quixotic folly for the four respondents to let such an occasion pass when the appellant company could not avail itself of it; Lord King, L.C., faced that very position when he accepted that the person in the fiduciary position might be the only person in the world who could not avail himself of the opportunity."


Reporting

Curiously, even though it was a House of Lords decision, and is now regarded as one of the seminal cases on directors' duties, the decision was not reported in the official law reports until nearly 26 years after the decision was handed down. During the intervening period, it was only reported in the
All England Law Reports The All England Law Reports (abbreviated in citations to All ER) are a long-running series of law reports covering cases from the court system in England and Wales. Established in 1936, the All England Law Reports are a commercially produced alt ...
.


See also

*''
Guth v. Loft ''Guth v. Loft Inc'', 5 A.2d 503, 23 Del. Ch. 255 (Del. 1939) is a Delaware corporation law case, important for United States corporate law, on corporate opportunities and the duty of loyalty. It deviated from the year 1726 rule laid down in ''Keec ...
'', the Delaware decision that deviated from the strict approach. *'' Keech v Sandford'', the rule of equity that has been the bedrock of fiduciary duties for 280 years. *''
Ex parte James ''Ex parte James'' (1803) 32 ER 385 is an insolvency and company law case, concerning conflicts of interest, and the absolute duty to avoid them. Facts A bankrupt's estate was purchased by a solicitor to the commission of the bankrupt. Judgm ...
'' (1803) 32 ER 385


Notes

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External links


Full text of decision from BAILII.org
United Kingdom company case law House of Lords cases 1942 in British law 1942 in case law