Regal (Hastings) Ltd. v. Gulliver and Others (1967)

Introduction

This case revolves around the fiduciary duties of directors and their obligations to avoid conflicts of interest. It sets a landmark precedent on the principle that directors, acting in a fiduciary capacity, must account for profits derived through their position, irrespective of good faith or intention.

Facts

Regal (Hastings) Ltd. owned a cinema and planned to expand its business by acquiring leases for two additional cinemas through a subsidiary, Hastings Amalgamated Cinemas Ltd. The directors of Regal decided to invest £2,000 of the company’s funds into this venture but required an additional £3,000 to complete the transaction.

Instead of securing external financing, the directors personally purchased shares in the subsidiary. These shares were later sold at a significant profit. Regal, under new management, sued the directors to recover these profits, claiming they breached their fiduciary duties by profiting from their positions.

Issues

1. Did the directors breach their fiduciary duty by acquiring and profiting from shares in the subsidiary company?
2. Were the profits made by the directors accountable to Regal, regardless of their good faith or intent?

Reasoning and Judgement

1. Fiduciary Duty: The House of Lords held that directors occupy a fiduciary position and must not exploit their role for personal gain. The profits they made were attributable to their positions as directors and the information acquired in that capacity.
2. Strict Liability: The court emphasized that liability in such cases does not depend on fraud, bad faith, or whether the company suffered a loss. The mere fact that profits were made due to their fiduciary position suffices for accountability.
3. Exceptions: Two respondents, Gulliver and Garton, were not held liable. Gulliver had not directly profited as the shares were held by third parties, while Garton, the solicitor, acted at the company’s request and with its consent.

The court concluded that the directors (except Gulliver and Garton) must account for the profits made.

Significance

This case reinforces the inflexible nature of fiduciary obligations, ensuring that directors cannot exploit their positions for personal gain. It established that liability arises solely from the fact of a fiduciary relationship and profit, not from the company’s loss or the fiduciary’s intent.