Fairford Water Ski Club Ltd v Cohoon & Anor

Factual and Procedural Background

This appeal concerns whether a company director failed to sufficiently disclose his interest in a management agreement entered into in 2007 between the company and a firm of which the director was a partner, and the appropriate consequences of any such failure. The company, a private members' club owning a lake and surrounding land, entered into a management agreement with the director's partnership for site management services. The director was chairman and a director of the company and partner in the management firm. The company claimed repayment of management fees paid under the agreement on the basis that the director had failed to disclose his interest as required by company law.

The trial judge found that the director did not adequately disclose his interest under section 317 of the Companies Act 1985, entitling the company to recover fees paid during the six years prior to proceedings. The director appealed, arguing that sufficient disclosure was made and that, even if not, he should be relieved of liability under section 1157 of the Companies Act 2006 due to acting honestly and reasonably. The company cross-appealed, contending that no limitation period applied and it was entitled to recover fees over the full 10-year period.

The Court of Appeal heard the appeal and cross-appeal following permission granted by the High Court and the Court of Appeal.

Legal Issues Presented

1. Whether the director complied with the duty to disclose his interest in the management agreement under section 317 of the Companies Act 1985.
2. If there was a failure to disclose, what are the appropriate legal consequences and remedies available to the company?
3. Whether the company is entitled to recover management fees paid over the full 10-year period or only those within the six years prior to proceedings, considering limitation periods.
4. Whether the director should be relieved of liability under section 1157 of the Companies Act 2006 for breach of duty.
5. Whether the company’s claim was to recover trust property, affecting limitation application.

Arguments of the Parties

Appellants' Arguments

• The director's interest as principal partner in the management firm was sufficiently disclosed at a January 2007 board meeting where the relationship was expressly discussed.
• The directors at the May 2007 board meeting were aware of this disclosure and the relationship, making any further disclosure unnecessary.
• The general notice provisions in section 317(3) allow for broad disclosure, so a detailed disclosure of contract terms or fees was not required.
• The judge’s view that an independent valuation of the lease was necessary was not part of the company’s case and no evidence suggested the rent was below market rate.
• The absence of an independent valuation did not invalidate the disclosure or the agreement.

Respondent's Arguments

• The critical question is when the terms of the contract were sufficiently clear to require disclosure.
• Disclosure must occur when the contract terms, including the fee, have been settled, which was at the May 2007 board meeting.
• Earlier discussions in January 2007 were too general to satisfy the disclosure requirement under section 317.
• The absence of a specific disclosure at the May 2007 meeting meant non-compliance with the statutory duty.
• The company contended that no limitation period applied if the claim related to recovering trust property, entitling recovery over the full 10 years.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analysed the statutory requirements of section 317 of the Companies Act 1985, which mandates that a director interested in a contract must declare the nature of that interest at a directors' meeting, with strict compliance required. The court identified six relevant principles, including that the extent of detail depends on the contract's nature and context, disclosure must be made at a board meeting, and that the purpose is to ensure directors are fully informed of the real state of affairs.

The court found that the disclosure made by the director at the January 2007 board meeting was sufficient. This meeting was convened specifically to discuss the conflict of interest arising from the director's dual role. The minutes recorded explicit acknowledgement of the potential conflict, and the board took due regard of it. Although the final fee was not settled until the May 2007 meeting, the nature of the director's interest was clearly known and understood by all directors at the earlier meeting.

The court rejected the trial judge's view that an independent valuation of the lease rent was necessary for valid disclosure, noting that this point was not part of the company's pleaded case and that the directors were aware no such valuation had been obtained but proceeded with full knowledge of the conflict. The absence of a valuation did not affect compliance with the disclosure duty.

Furthermore, the court reasoned that the May 2007 meeting could not be viewed in isolation, as it followed earlier discussions where the conflict was disclosed. Repeating the disclosure at the May meeting would have served no purpose and would have been mere formality.

Given these considerations, the court concluded that the director complied with his disclosure obligations under section 317, and thus the company was not entitled to rescind the management agreement or recover fees on the basis of non-disclosure.

The court also noted that because the duty arose before 1 October 2008, section 317 applied rather than the Companies Act 2006 provisions, which would have been more lenient regarding disclosure where directors are already aware of the interest.

Consequently, the issues of relief under section 1157 of the 2006 Act and the limitation period arguments did not arise for determination.

Holding and Implications

The Court of Appeal allowed the appeal.

The court held that the director had made sufficient disclosure of his interest in the management agreement in compliance with section 317 of the Companies Act 1985. Therefore, the company’s claim for repayment of management fees on the basis of non-disclosure was dismissed.

Additionally, the company was found liable to pay nominal damages to the management firm for wrongful termination of the agreement. The court did not address broader issues such as relief under section 1157 or limitation periods, as these became moot.

The decision means that the management agreement remains valid and enforceable, and no recovery of fees on grounds of non-disclosure is permitted. No new precedent altering the legal principles was established; rather, the court applied established statutory interpretation and case law to the facts.