Company directors owe what are called ‘fiduciary duties’ to their company. This requires the director’s actions to be guided by the interests of the company, to disclose their activities and to act honestly by accounting to the company for any profits that they earn in course performing their duties.
In the case of Rukhadze-v-Recovery Partners GP Limited, the claimant was an asset recovery company which invested in under-utilised or undervalued assets. The company brought a claim against three former directors and others alleging that they had misused confidential information to conclude valuable contracts with a prominent business family from Georgia. The directors were ordered to repay the profits in the sum of approximately $170 million less an allowance of 25% to compensate them for the time they had spent identifying and realising the opportunity.
The directors appealed to the Supreme Court and argued that they should only be ordered to reimburse the company for the difference between the profits earned from the deal and the profits they might have earned if there had been no breach of fiduciary duty if they had approached the company and agreed terms which would have allowed them to use the information.
The appeal was rejected and it is not open to directors to argue that they should be entitled to a substantial share of profits derived from breaches of fiduciary duty on the basis that the company might have agreed terms. The fiduciary duties imposed on directors to be open about their dealings and to account for profits were considered to be of paramount importance because they require directors as well as others in fiduciary relationships such as agents and trustees to perform their duties to the highest standards.
Alexander Haddad works in the Litigation Department. If you have any issues regarding directors or fiduciary duties, he can be contacted on 0203 892 6805 or by email at ahaddad@nockolds.co.uk.