1. Introduction

The case of Fairford Water Ski Club Ltd v. Cohoon & Anor ([2021] EWCA Civ 143) addresses the critical issue of a company director’s duty to disclose personal interests in contracts with the company. The dispute centered around Mr. Craig Cohoon, a director of Fairford Water Ski Club Ltd ("the Club"), who failed to adequately disclose his interest in a management agreement between the Club and his own partnership, Craig Cohoon Watersports ("Watersports"). The Court of Appeal's decision has significant implications for the enforcement of directors' fiduciary duties under the Companies Act.

2. Summary of the Judgment

The High Court initially ruled that Mr. Cohoon had breached his duty under section 317 of the Companies Act 1985 by failing to disclose his interest in the management agreement. As a consequence, the Club was entitled to recover management fees paid over six years. However, Mr. Cohoon appealed the decision, arguing that sufficient disclosure was made and that he should be relieved of liability under section 1157 of the Companies Act 2006 given his honest and reasonable actions.

The Court of Appeal ultimately allowed the appeal, determining that Mr. Cohoon had sufficiently disclosed his interest in compliance with section 317. Consequently, the Club’s claim for recovery of management fees was dismissed.

3. Analysis

3.1 Precedents Cited

The judgment references several key precedents that shape the understanding of directors' duties:

• Aberdeen Railway Co v Blaikie Brothers (1854): Established the principle that directors must avoid conflicts of interest and disclose any personal benefits arising from contracts with the company.
• Hely-Hutchinson v Brayhead Ltd (1967): Affirmed that failure to disclose interests renders contracts voidable.
• Guinness Plc v Saunders (1990): Reinforced that non-disclosure can lead to rescission of contracts.
• Gray v New Augarita Porcupine Mines Ltd (1952): Highlighted the necessity for directors to make declarations that fully inform their colleagues of their interests.
• Neptune (Vehicle Washing Equipment) Ltd v Fitzgerald (1996): Emphasized the procedural aspects of disclosure, including the requirement for recording disclosures in meeting minutes.
• Runciman v Walter Runciman Plc (1992): Addressed the sufficiency of disclosures within the context of broader board discussions.

These cases collectively underscore the judiciary's stringent stance on transparency and the avoidance of conflicts of interest within corporate governance.

3.2 Legal Reasoning

The core legal issue was whether Mr. Cohoon fulfilled his duty under section 317 of the Companies Act 1985 (now superseded by section 177 of the Companies Act 2006) to disclose his interest in the management agreement. The High Court found non-compliance due to inadequate disclosure, specifically the failure to declare the exact nature and amount of the management fees at the relevant board meeting.

On appeal, the Court of Appeal analyzed the requirements of section 317, emphasizing that:

• The declaration must make the board "fully informed of the real state of things."
• Disclosures must occur at board meetings and be recorded in the minutes.
• The nature and extent of the director's interest must be clear to the other directors.

The appellate judges concluded that Mr. Cohoon's disclosures at the January 2007 board meeting were sufficient, as the board was already aware of his interest in Watersports and understood the context of the management agreement discussions. Additionally, they found that the subsequent May 2007 meeting, where the fee was finalized, implicitly incorporated prior discussions, negating the necessity for repeated declarations.

3.3 Impact

This judgment reinforces the importance of clear and adequate disclosure of interests by company directors. By allowing the appeal, the Court of Appeal clarified that as long as directors sufficiently inform their colleagues about their interests in a manner that ensures informed decision-making, strict compliance with every procedural nuance is not obligatory. This establishes a precedent that balances the need for transparency with practical governance, potentially easing the administrative burden on directors provided that genuine disclosure is made.

4. Complex Concepts Simplified

4.1 Section 317 (Companies Act 1985) vs. Section 177 (Companies Act 2006)

Both sections impose duties on directors to disclose interests in contracts with their companies. While section 317 focuses on the nature of the interest, section 177 expands this to include both the nature and extent, offering more flexibility in how disclosures can be made, such as through general notices.

4.2 Restitutio in Integrum

Latin for "restoration to original condition," this equitable principle ensures that any benefits or profits derived from breaching duties must be returned to maintain fairness.

5. Conclusion

The Court of Appeal's decision in Fairford Water Ski Club Ltd v. Cohoon & Anor underscores the nuanced application of directors' disclosure duties under company law. By determining that Mr. Cohoon's disclosures met the statutory requirements, the court emphasized the balance between strict procedural adherence and the substantive understanding of directorial interests. This judgment serves as a pivotal reference for future cases involving conflicts of interest, highlighting that as long as directors provide clear and comprehensive disclosures that adequately inform their peers, they may fulfill their legal obligations even if certain procedural formalities are not exhaustively met.

Ultimately, this case reinforces the principle that transparency and informed decision-making are paramount in corporate governance, while also providing directors with some leeway in fulfilling their disclosure obligations.