Boardman and another v Phipps
[1966] 3 All ER 721[1967] 2 AC 46
(Decision by: Lord Upjohn)
Boardman and another
vPhipps
Judges:
Viscount Dilhorne
Lord Cohen
Lord Hodson
Lord Guest
Lord Upjohn
Judgment date: 3 November 1966
UK
Decision by:
Lord Upjohn
My Lords, the facts have been set out so fully in the opinion of my noble and learned friend, Viscount Dilhorne, that I do not propose to say anything about the family, the trusts declared by Charles William Phipps' will or the trust holding of eight thousand shares in a textile company called Lester & Harris Ltd ("the company"). I shall content myself with a brief account of the relevant history before I examine the law. It is convenient to follow the pattern adopted in argument on both sides and to divide this history into chapters and phases.
Chapter one begins in December, 1956, when Mr Fox, a practising chartered accountant and the active trustee, received the accounts of the company which he thought were very unsatisfactory. So he consulted the family solicitor, the appellant Mr Boardman, who also advised the trustees from time to time. Mr Fox who had already formed the impression that the directors were unfriendly to the Phipps family wanted to see the majority holding in friendly hands and not in unfriendly hands.
It was decided that Mr Boardman and the appellant Mr Tom Phipps ("Tom"), who was engaged in the textile industry, should go to the annual general meeting of the company on 28 December 1956, with the idea of getting Tom appointed a director; and they were given proxies for that purpose. Mrs Noble, Tom's sister, another trustee, was kept in touch with events by Mr Boardman, her mother the third trustee being too old and ill to pay any attention to trust affairs. So Tom and Mr Boardman attended the meeting and Mr Boardman explained that the Phipps family were very dissatisfied with the accounts. There was a good deal of argument about the validity of certain proxy forms of the Harris family and a number of questions on the accounts put by Mr Boardman were answered by the chairman Mr Smith, a solicitor. Mr Boardman proposed that Tom should be elected to the board, but the chairman after much discussion refused to accept the motion. So the meeting ended in the defeat of the Phipps representatives and they reported to Mr Fox that they had met with a very hostile reception.
Then there were discussions and Mr Boardman suggested that Tom should try to buy a controlling interest in the company, but the latter felt that the operation was too big for him and wanted Mr Boardman to come in with him and the latter agreed to do so. Mr Fox was most happy at this idea as he could see the company getting under far more efficient management than in the past. It is of cardinal importance, and, in my view fundamental to the decision of this case, to appreciate that at this stage there was no question whatever of the trustees contemplating the possibility of a purchase of further shares in the company. Mr Fox (whose evidence was accepted by the judge) made it abundantly plain that he would not consider any such proposition. The reasons for this attitude are worth setting out in full: (a) the acquisition of further shares in the company would have been a breach of trust for they were not shares authorised by the investment clause in the will; (b) although not developed in evidence it must have been obvious to those concerned that no court would sanction the purchase of further shares in a small company which the trustees considered to be badly managed. It would have been throwing good money after bad. It would also have been necessary to bring in proposals for installing a new management. Mr Fox was a busy practising chartered accountant who obviously could not have considered it; no one from start to finish ever suggested that Tom, who was running the family concern of Phipps & Son Ltd would be willing to undertake this arduous task on behalf of the trustees; (c) the trustees had no money available for the purchase of further shares.
I think that one question and answer at the trial of the action during the brief cross-examination of Mr Fox is important on an aspect of the case with which I must deal, so that I shall set it out in full:
"Q. When Mr. Boardman and Mr. Phipps decided to make an offer for the shares themselves did they ask your consent on behalf of the trust or anything like that?
"A. I do not know that they asked my consent. I was only too glad. Here was I holding eight thousand shares, a minority interest in a company where the directors were unfriendly, and, having had experience in other cases of the weakness of the Companies Act with regard to minority shareholders, as soon as I could see the prospect of getting friendly directors and friendly shareholders I was only too glad."
I may here add, and it is a matter equally fundamental, that on the evidence there never was any suggestion at any subsequent stage that Mr Fox or any other trustee would ever have contemplated any purchase of further shares. The reasons given above applied throughout the history right down to the end in 1959.
So chapter 1 closes and chapter 2, phase 1, begins with an offer to all shareholders on 24 January 1957, by the appellants to purchase their shares at the price of £2 5s cash. The offer was conditional on the acceptance by holders of at least fifteen thousand five hundred shares. Though they portrayed themselves as representing the Phipps trust, it is quite clear that the offer was by these two personally. Indeed, I cannot see that it matters whether the offer could have been construed as made on behalf of the trustees; only those to whom it was addressed could have complained and it was, for the reasons already mentioned, clear that the appellants had no authority to make any offer on behalf of the trustees and did not intend to do so. Then there followed counter offers by the Harris group and in a well-known pattern in take-over bids the appellants finally offered £3 a share. In response to this and their earlier offer they received acceptances in respect of 2,925 shares only. Naturally the acceptance of these offers was not made unconditional. It should be stated here that though this offer was formally made to the trustees in respect of their shareholding, it is common ground that in these offers and the later offers in 1958/9 it was never intended that it should be accepted. So phase 1 closes.
Phase 2 of chapter 2 opens on 26 April 1957, when in this state of deadlock Mr Boardman wrote to Mr Smith suggesting that a
"possible solution might, therefore, be to divide the group so that the Harris family and the directors own the whole of one part, and the Phipps interests own the balance ... "
This led to very complicated and protracted negotiations until the late summer or early autumn of 1958, but I can deal with them quite shortly assuming, as I am prepared to do, everything against the appellants.
Throughout this period it is obvious that the appellants were representing themselves as acting on behalf of the trustees though in fact they had no authority to do so. This is obvious not only from the vast mass of correspondence when Mr Boardman, who wrote all the letters on behalf of himself and his co-appellant, made it clear that he was so acting, but also from the fact that, if negotiations had fructified into definite proposals, they could not have been accepted by the appellants but only by the trustees. The trustees would then have had to consider the matter and if they approved in principle they would have had to obtain the consent of the court; probably, too, some petition to the Companies Court would also have been necessary to sanction a reconstruction of the company.
Throughout phase 2, therefore, it is perfectly clear that the appellants were obtaining by reason and by reason only of their purportedly representing the biggest minority holding in the company, that is the trustees' eight thousand shares, a great deal of information about the company. How much information they obtained is set out in the judgment of Wilberforce J ([1964] 2 All ER at p 205), though in connection with the question whether Mr Boardman had in a certain letter made a full disclosure to the respondent of information he had obtained, a point not now relevant:
"Secondly, it wholly failed to make available or to indicate the existence of the mass of knowledge which Mr. Boardman had accumulated. Let us just see what the information was. The information which he had by March, 1959, consisted of, amongst other things, the following: ... the 1956 balance sheet; ... information as to the company's site in Australia and the Australian turnover, ... and the information as to the Nuneaton site, obtained in May, 1957 ... . the information through looking round the Nuneaton premises in June, 1957; ... the company's valuation of all fixed assets, the site plan of the Coventry the rest, obtained in Novenber, 1957; ... the valuation of the Australian fixed assets obtained at the same time; ... the certificate of Smith that no special features existed affecting values, given at the same time; ... the Jackson-Stops & Staffs' valuation based on information supplied by the company and based on a visit to the company's premises accompanied by a director; ... the chairman's statement that £42,000 had been spent on new plant since 1954; ... the figures as to the company's external liabilities given in May, 1958; ... the information allocating assets and liabilities to separate factories, August 1958; information regarding future purchases and sales and as regards the position of executives, August, 1958; ... the accountants' meeting on profits and turnover, and the trading profits for the last five years coupled with Mr. Fox's analysis made towards the end of 1958; the chairman's assurance that no material alteration had taken place on those figures; ... the Australian accounts for the years 1957 and 1958 ... "
It will be seen from this that Mr Fox himself, acting not as trustee, but as accountant to the appellants, made detailed analyses of the profits of the company for five years, so obviously he knew exactly what was going on.
Counsel for both parties agreed that phase 2 really merged or slid into phase 3. Both the Phipps and Harris families were getting tired of this war of attrition and negotiations seemed to be getting nowhere. Mr Smith and Mr Boardman had a meeting on 13 August 1958, when the suggestion was made that the appellants should buy sixteen thousand shares of the Smith side at £5 a share and then sell the Coventry business to that side for £50,000, but this was not acceptable to the appellants. After further discussion Mr Smith in a letter of 13 October 1958, resurrected the idea of the appellants making an offer for the whole of the remaining share capital of the business and a little later suggested £5 a share. It was in consequence of this that Mr Fox made the analysis of profits already mentioned in the judgment of Wilberforce J ([1964] 2 All ER at p 205). Finally, after more negotiations the appellants, on 10 March 1959, purchased 14,567 shares held by Mr Smith and his friends for £4 10s per share and after a visit to Australia in April, 1959, they purchased at the same price a further 4,494 shares in the company making them the holders of 21,986 out of the twenty-two thousand shares outside the trust holding of eight thousand. At the same time the conditional acceptance of the 2,925 shares bought at £3 a share in 1957 was made unconditional. The purchase price was raised by the appellants through financial circles in London and the whole of the costs of these protracted negotiations, including of course the visit to Australia, were borne by the appellants. Not one penny was charged or sought to be charged to the trustees.
In these circumstances the respondent rather surprisingly seeks to hold the appellants accountable to him for his five-eighteenths share of the 21,986 shares so purchased, on the footing that the appellants are constructive trustees of these shares for and on behalf of the trust. So I turn to the relevant law on which this claim is based, but start by stating what is not in dispute, that the conduct of the appellants and each of them has never been anything except utterly honest and above board in every way. If they or either of them are accountable, it is because of the operation of some harsh doctrine of equity on consciences completely innocent in every way.
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 that the rule is best stated in Bray v Ford by Lord Herschell, who plainly recognised its limitations ([1895-99] All ER Rep at p 1011; [1896] AC at p 51):
"It is an inflexible rule of the court of equity that a person in a fiduciary position, such as the plaintiff'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 LC, in Aberdeen Ry Co v Blaikie Brothers ([1843-60] All ER Rep at p 252) 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 interests 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 well-known 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 ([1942] 1 All ER at p 383). 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 Amalgamated 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 the 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 since Keech v Sandford that the inability of a 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 of 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 or 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 on the observations of their lordships in the Regal case.
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 ([1943-60 All ER Rep at p 252) which 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 the Regal case 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.
Two further matters must be mentioned. First, that Tom was at all material times merely a residuary legatee of an undivided aliquot share of his father's estate: as such he was prima facie under no fiduciary relationship to the trustees or his co-beneficiaries (Kennedy v De Trafford. There must be special circumstances, therefore, to place him in such a relationship. However, in the rather peculiar circumstances of this case and by refusing the offer made to him in the Court of Appeal to sever from Mr Boardman, I think that he must have elected to be treated on the same footing as Mr Boardman.
Secondly, as to the position of Mr Boardman himself. There is no doubt that from time to time he acted as solicitor to the trust and to the family and he was therefore throughout in a fiduciary capacity at least to the trustees. Whether he was ever in a fiduciary capacity to the respondent was not debated before your lordships and I do not think that it matters. I think again, that some of the trouble that has arisen in this case, it being assumed rightly that throughout he was in such a capacity, is that it has been assumed that it has necessarily followed that any profit made by him renders him accountable to the trustees. This is not so. A solicitor who acts for a client from time to time is no doubt rightly described throughout as being in a fiduciary capacity to him, but that means fundamentally no more than this, that if he has dealings with his client, eg, accepts a present from him or buys property from him, there is a presumption of undue influence and the onus is on the solicitor to justify the present or purchase (see, for example, McMaster v Byrne ([1952] 1 All ER 1362 at p 1368). That principle has no relevance to the present case. There is no such thing as an office of being solicitor to a trust (Saffron Walden Second Benefit Building Society v Rayner ((1880), 14 ChD 406 at p 409) per James LJ). Though these remarks of James LJ ((1880), 14 ChD at p 409) were admittedly obiter they represent the law. It is perfectly clear that a solicitor can if he so desires act against his clients in any matter in which he has not been retained by them provided, of course, that in acting for them generally he has not learnt information or placed himself in a position which would make it improper for him to act against them. This is an obvious application of the rule that he must not place himself in a position where his duty and his interest conflict. So in general a solicitor can deal in shares in a company in which the client is a shareholder, subject always to the general rule that the solicitor must never place himself in a position where his interest and his duty conflict; and in this connexion it may be pointed out that the interest and duty may refer (and frequently do) to a conflict of interest and duty on behalf of different clients, and have nothing to do with any conflict between the personal interest and duty of the solicitor, beyond his interest in earning his fees.
My lords, the judgments of Wilberforce J ([1964] 2 All ER at p 199) and Lord Denning MR ([1965] 1 All ER at p 851; [1965] Ch at p 1011) and Pearson LJ ([1965] 1 All ER at p 858; [1965] Ch at p 1021) proceeded on the footing that by acting as self-appointed agents the appellants placed themselves in a fiduciary capacity to the trustees and became accountable accordingly. That they were never in fact agents has been demonstrated by Lord Denning ([1965] 1 All ER at p 851; [1965] Ch at p 1011) in his judgment and I desire to add nothing thereto except to say that I agree with him. As I have already pointed out, however, it seems to me that this question whether this assumption of office leads to the conclusion that the appellants were accountable requires a closer analysis than it has received in the lower courts.
This analysis requires detailed consideration:
- 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 (see Re Coomber, Coomber v Coomber.
- 2.
- Once it is established that there is such a relationship, that relationship must be examined to see what duties are thereby imposed on the agent, to see what is the scope and ambit of the duties charged on him.
- 3.
- Having defined the scope of those duties one must see whether he has committed some breach thereof 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.
Before applying these principles to the facts, however, I shall refer to the judgment of Russell LJ ([1965] 1 All ER at p 864; [1965] Ch at p 1031) which proceeded on a rather different basis. He said ([1965] 1 All ER at p 864, letter F; [1965] Ch at p 1031):
"The substantial trust shareholding was an asset of which one aspect was its potential use as a means of acquiring knowledge of the company's affairs, or of negotiating allocations of the company's assets, or of inducing other shareholders to part with their shares. That aspect was part of the trust assets."
My lords, I regard that proposition as untenable.
In general, information is not property at all. It is normally open to all who have eyes to read and ears to hear. The true test is to determine in what circumstances the information has been acquired. If it has been acquired in such circumstances that it would be a breach of confidence to disclose it to another, then courts of equity will restrain the recipient from communicating it to another. In such cases such confidential information is often and for many years has been described as the property of the donor, the books of authority are full of such references; knowledge of secret processes, "know-how", confidential information as to the prospects of a company or of someone's intention or the expected results of some horse race based on stable or other confidential information. But in the end the real truth is that it is not property in any normal sense, but equity will restrain its transmission to another if in breach of some confidential relationship.
With all respect to the views of Russell LJ ([1965] 1 All ER at p 864; [1965] Ch at p 1031), I protest at the idea that information acquired by trustees in the course of their duties as such is necessarily part of the assets of trust property which cannot be used by the trustees except for the benefit of the trust. Russell LJ ([1965] 1 All ER at p 864, letter h; [1965] Ch at p 1031) referred to the fact that two out of three of the trustees could have no authority to turn over this aspect of trust property to the appellants except for the benefit of the trust; this I do not understand, for if such information is trust property not all the trustees acting together could do it for they cannot give away trust property.
We heard much argument on the impact of the fact that the testator's widow was at all material times incapable of acting in the trust owing to disability. Of course trustees must act all of them and unanimously in matters affecting trust affairs, but they never performed any relevant act on behalf of the trust at all; I quoted Mr Fox's answer earlier for this reason. At no time after going to the meeting in December, 1956, did Mr Boardman or Tom rely on any express or implied authority or consent of the trustees in relation to trust property. They understood rightly that there was no question of the trustees acquiring any further trust property by purchasing further shares in the company, and it was only in the purchase of other shares that they were interested.
There is, in my view, and I know of no authority to the contrary, no general rule that information learnt by a trustee during the course of his duties is property of the trust and cannot be used by him. If that were to be the rule it would put the Public Trustee and other corporate trustees out of business and make it difficult for private trustees to be trustees of more than one trust. This would be the greatest possible pity for corporate trustees and others may have much information which they may initially acquire in connexion with some particular trust but without prejudice to that trust can make it readily available to other trusts to the great advantage of those other trusts.
The real rule is, in my view, that knowledge learnt by a trustee in the course of his duties as such is not in the least property of the trust and in general may be used by him for his own benefit or for the benefit of other trusts unless it is confidential information which is given to him (i) in circumstances which, regardless of his position as a trustee, would make it a breach of confidence for him to communicate to anyone, for it has been given to him expressly or impliedly as confidential; or (ii) in a fiduciary capacity, and its use would place him in a position where his duty and his interest might possibly conflict. Let me give one or two simple examples. A, as trustee of two settlements X and Y holding shares in the same small company, learns facts as trustee of X about the company which are encouraging. In the absence of special circumstances (such, for example, that X wants to buy more shares) I can see nothing whatever which would make it improper for him to tell his co-trustees of Y who feel inclined to sell that he has information that this would be a bad thing to do. Another example: A as trustee of X learns facts that make him and his co-trustees want to sell. Clearly he could not communicate this knowledge to his co-trustees of Y until at all events the holdings of X have been sold for there would be a plain conflict, reflected in the prices that might or might possibly be obtained.
My lords, I do not think for one moment that Lord Brougham in Hamilton v Wright ((1842), 9 Cl & Fin at p 124), quoted in the speech of my noble and learned friend, Lord Guest, was saying anything to the contrary; one has to look and see whether the knowledge acquired was capable of being used for his own benefit to injure the trust (my italics). That test can have no application to the present. There was no possibility of the information being used to injure the trust. The knowledge obtained was used not in connexion with trust property but to enhance the value of the trust property by the purchase of other property in which the trustees were not interested.
With these general observations on the applicable principles of law let me apply them to the facts of this case.
Chapter 1. At this stage the appellants went to the meeting with the object of persuading the shareholders to appoint Tom a director; admittedly they were acting on behalf of the trustees at that meeting. It is the basis of the respondent's case that this placed the appellants in a fiduciary relationship which they never after lost or, as it was argued, it "triggered off a chain of events" and gave them the opportunity of acquiring knowledge so that they thereafter became accountable to the trustees. From this it must logically follow that in acquiring the 2,925 shares they became constructive trustees for the trust.
My lords, I must emphatically disagree. The appellants went to the meeting for a limited purpose which failed. Then the appellants' agency came to an end. They had no further duties to perform. The discussions which followed showed conclusively that the trustees would not consider a purchase of further shares. So, when chapter 2 phase 1 opened, I can see nothing to prevent the appellants from making an offer for shares for themselves, or, for that matter, I cannot see that Mr Boardman would have been acting improperly in advising some other client to make an offer for shares (other than the eight thousand) in the company. In the circumstances, the appellants' duties having come to an end, they owed no duty and there was no conflict of interest and duty, they were in no way dealing in trust property. Further, of course, they had the blessing of two trustees in their conduct in trying to buy further shares.
So had phase 1 of chapter 2 been successful I can see nothing to make them constructive trustees of the shares they purchased for the trust. Consider a simple example. Blackacre is trust property and next to it is Whiteacre; but there is no question of the trustees being interested in a possible purchase of Whiteacre as being convenient to be held with Blackacre. Is a trustee to be precluded from purchasing Whiteacre for himself because he may have learnt something about Whiteacre while acting as a trustee of Blackacre? I can understand the owner of Whiteacre being annoyed but surely not the beneficial owners of Blackacre, they have no interest in Whiteacre and their trustees have no duties to perform in respect thereof.
It is phase 2 of chapter 2 that gives rise to difficulty. If that phase had come to a successful conclusion one of two things would have happened. The appellants would have had to communicate everything they knew to the trustees; the latter might then have ratified their actions and proceeded to carry out the proposals provisionally agreed between the appellants and Mr Smith. No doubt old Mrs Phipps would have had to be removed from her position as a trustee. Had all this happened cadit quaestio. But supposing the trustees had decided against the proposals. The appellants' agency not having been ratified they never became agents. Admittedly they had learnt much about the company but on this hypothesis they had communicated that information to the trustees who decided to make no use of it.
I will assume that at this stage the appellants remained in a general fiduciary capacity to the trustees in the McMaster v Byrne sense as described above, but what particular fiduciary duties remained on the appellants? Surely their particular relationship came to an end, and why should they not be entitled to use that information for the purchase of shares in the company if the trustees were not interested? I can see nothing to prevent the appellants making use of it, for there is no longer any conflict between duty and interest. They have performed their duty. This is in marked contrast to Keech v Sandford where the beneficiary was interested, and to the facts in Regal where the directors acted so as to deprive their beneficiary of a profit in respect of property of which the beneficiary had contemplated the purchase and which the directors as trustees should have preserved at all costs. However, we know this did not happen and phase 3 started.
My lords, I believe the only conflict between the duty and interest of the appellants that can be suggested is that, having learnt so much about the company and realised that in the hands of experts like Tom the shares were a good buy at more than £3 a share, they should have communicated this fact to the trustees and suggested that they ought to consider a purchase and an application to the court for that purpose. This, so far as I can ascertain, was suggested for the first time in the judgment of Lord Denning MR ([1965] 1 All ER at p 857, letter f; [1965] Ch at p 1020). Had this been an issue in the action this might have been a very difficult matter, but it never was. There is no sign of any such case made in the pleadings: but what is much more important is that from start to finish in all three courts there was no suggestion of this in argument on behalf of the respondent; and what is most important of all, there is no suggestion in cross-examination of either of the trustees or of the appellants that the latter were under any such obligation. Mr Fox must in fact have known all about these negotiations and the value of the shares at this time. In these circumstances can it really be asserted that by failure (if, indeed, they did so fail; we simply do not know) formally to tell the trustees that the shares were worth more than had previously been thought the appellants had placed themselves in a position where their interest might possibly conflict with their duty.
For my part, unless the trustees, which means in fact the active trustee Mr Fox, had communicated some change of policy as to the purchase of further shares, I cannot conceive why the appellants should have thought themselves under any duty to communicate to the trustees the fact that they, the appellants, were prepared to pay £4 10s for the shares, for that is all that had happend over the intervening chapter 2 phase 2 negotiations. That does not mean that the shares would have been worth purchasing by the trustees at £4 10s for no court would have sanctioned that purchase unless Tom was willing to enter into a contract to run the company for a period and, of course, he need not have done so. In principle I cannot see any difference between this situation and the end of chapter 1. It was nice for the trustees to know that the appellants were willing to expend more of their own money in buying the non-trust shares in pursuance of the general scheme to get rid of the Smith faction but had no further relevance. However this may be, all this was an issue, as I have said, never explored.
My lords, it would, in my opinion, be most unjust to the appellants to draw any inference against them in such circumstances without giving them any opportunity of explaining the situation as it really occurred in 1958. We do not know what would have been said on this point in the witness box, but it is not unlikely Mr Fox would have said: "I knew all about it but I was still inflexibly opposed to a purchase of more shares. All along I hoped the appellants would buy them." Had he said that, it would seem to me perfectly clear that there would be no possible conflict between the appellants' duty and interest. I cannot condemn the appellants unheard on this point.
Apart from that, what was the position? The appellants were able to offer a greatly increased price in phase 3 by reason of the knowledge they had acquired but they were not acquiring trust property or, so far as the evidence goes, any property which the trustees had any idea of purchasing. The inference I draw is that the trustees were still giving their blessing to the idea that the appellants should purchase the majority holding so that it should be in friendly hands.
As a result of the information they acquired, admittedly by reason of the trust holding, they found it worth while to offer a good deal more for the shares than in phase 1 of chapter 2. I cannot see that in offering to purchase non-trust shares at a higher price they were in breach of any fiduciary relationship in using the information which they had acquired for this purpose. I cannot see that they have, from start to finish, in the circumstances of this case, placed themselves in a position where there was any possibility of a conflict between their duty and interest, except in respect of the one matter which I have considered and rejected on the facts of this case. While I have not answered my earlier analysis specifically, I think that I have done so in the course of this judgment except No 4 which, in my view, does not arise.
I have dealt with the problems that arise in this case at considerable length but it could, in my opinion, be dealt with quite shortly. In Barnes v Addy, Lord Selborne LC said ((1874), 9 Ch App at p 251):
"It is equally important to maintain the doctrine of trusts which is established in this court, and not to strain it by unreasonable construction beyond its due and proper limits. There would be no better mode of undermining the sound doctrines of equity than to make unreasonable and inequitable applications of them."
That, in my judgment, is applicable to this case.
The trustees were not willing to buy more shares in the company. The active trustees were very willing that the appellants should do so themselves for the benefit of their large minority holding. The trustees, so to speak, lent their name to the appellants in the course of prolonged and difficult negotiations and, of course, the appellants thereby learnt much which would have otherwise been denied to them. The negotiations were in the end brilliantly successful. How successful Tom was in his reorganisation of the company is apparent to all. They ought to be very grateful.
In the long run the appellants have bought for themselves with their own money shares which the trustees never contemplated buying and they did so in circumstances fully known and approved of by the trustees. To extend the doctrines of equity to make the appellants accountable in such circumstances is, in my judgment, to make unreasonable and inequitable applications of such doctrines.
I would allow the appeal and dismiss the action.