Company A (Respondent) v. Appellant — House of Lords Judgment (8 February 1990)

Factual and Procedural Background

During Company A’s contested takeover of another public company, the Appellant (a non-executive director) received £5.2 million from Company A. The payment was approved only by a three-member committee comprising the Appellant, the Defendant (Company A’s chief executive) and Individual A (another director); it was never authorised by the full board.

Company A sued to recover the money, asserting that its Articles of Association allow only the board to grant “special remuneration” to a director. The Vice-Chancellor (Judge Browne-Wilkinson) ordered immediate repayment; the Court of Appeal (Judge Fox, Judge Glidewell and Judge Lawton) affirmed on 10 May 1988. The Appellant petitioned the House of Lords, which heard argument over six days and delivered judgment on 8 February 1990.

Legal Issues Presented

1. Does Company A’s board have exclusive authority under Articles 90 and 91 to award special remuneration to a director, thereby invalidating the committee’s payment?
2. Can the Appellant rely on implied or ostensible authority, Article 100(D), quantum meruit, an equitable allowance, or section 727 of the Companies Act 1985 to retain the money?
3. Is restitution required because the Appellant holds the funds on constructive trust for Company A?

Arguments of the Parties

Appellant’s Arguments

• The committee (or the Defendant acting under delegated authority) could approve the fee under the Articles.
• Article 100(D) permits directors to charge professional fees; the Appellant’s services as a business consultant fell within that provision.
• Even if authority is lacking, equity should grant a quantum meruit or equitable allowance for valuable services rendered.
• The contract was at most voidable; because services were performed, rescission and restitution are impossible.
• Section 727 empowers the court to excuse any breach, allowing the Appellant to keep all or part of the payment.

Respondent’s Arguments

• Only the full board may grant special remuneration; committee approval is void.
• Article 100(D) applies only to true professional services (e.g., legal advice), not duties intrinsic to a director’s role.
• No valid contract existed; the money is recoverable for total failure of consideration and under constructive-trust principles.
• Equity and section 727 cannot override the Articles or core fiduciary duties.

Table of Precedents Cited

Court’s Reasoning and Analysis

Authority Under the Articles. Article 91 restricts special remuneration to decisions of the full board. Neither the definition of “board” in Article 2 nor the delegation power in Article 110 can enlarge a committee’s authority.

Professional-Fees Exception. Article 100(D) covers fees for professional work (e.g., legal services). The Appellant’s negotiating services were part of his director’s duties and therefore outside Article 100(D).

No Binding Contract. Because the committee lacked power, the purported agreement was void ab initio; thus the £5.2 million was paid without consideration.

Equitable Claims. Quantum meruit and equitable-allowance doctrines cannot override explicit constitutional limits designed to protect shareholders. The court distinguished Boardman on the ground that awarding an allowance here would encourage conflicts of interest.

Statutory Relief. Section 727 allows exemption from liability, not authorisation of remuneration contrary to the Articles. It therefore affords no defence.

Constructive Trust. The Appellant held the money as constructive trustee and must restore it. Assuming good faith does not alter the fiduciary prohibition against unauthorised profits.

Holding and Implications

APPEAL DISMISSED; lower-court orders affirmed.

The Appellant must repay the £5.2 million and bear the Respondent’s costs.

Implications: The decision reinforces the strict fiduciary rule that director remuneration beyond routine fees must comply with company constitutions. Committees or individual directors cannot bypass board approval, and courts will not grant quantum meruit or equitable allowances that conflict with express provisions. Although the judgment applies settled principles, it serves as a clear warning to corporate officers that unauthorised payments will be clawed back irrespective of purported value delivered.