The Importance of Directors' Fiduciary Duties

The scope of certain fiduciary duties has been analysed by the Court of Appeal in Philip Towers v Premier Waste Management Limited [2011] EWCA Civ 923.  In this case, a company director (D) loaned equipment from a customer without disclosing this to the company or seeking its approval.  That customer invoiced the company for the use of the equipment and D was held liable to account for a breach of his fiduciary duties.

On appeal, it was held that D had breached his fiduciary duties, specifically the duty of loyalty and the duty to avoid conflicts of interest.  Despite there being no evidence that the company had suffered any loss or that it would have taken the opportunity itself, the duty to avoid conflicts was held to prevent D from "disloyally depriving the company of the ability to consider whether or not it objected to the diversion of an opportunity offered by one of its customers away from itself to the director personally".  His appeal was therefore dismissed and his costs order of nearly £8,000 was upheld.

This case is a reminder of the importance of fiduciary duties for directors and other senior employees.  If in doubt, directors should err on the side of caution and always disclose any personal business or arrangements that have any connection with the company.  Companies should also ensure that their directors are fully aware of their fiduciary duties, ideally setting out what those duties are in their directors' letters of appointment or service agreements.