Neutral Citation Number: [2009] EWCA Civ 751
Case No: A3/2008/2229
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Mr Richard Sheldon QC (sitting as a Deputy High Court Judge) 
[2008] EWHC 1973 (Ch) 
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 22/07/2009
Before :

LORD JUSTICE WALLER
LORD JUSTICE RIMER 
and
LORD JUSTICE AIKENS 
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Between :

	MARY O’DONNELL	Appellant	
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	(1) JOHN JOSEPH SHANAHAN
(2) JAMES ANTHONY LEONARD	Respondents	

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(Transcript of the Handed Down Judgment of
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Mr Andrew Clutterbuck (instructed by Cripps Harries Hall LLP) for the Appellant
Mr Max Mallin (instructed by Butcher Burns) for the Respondents

Hearing date: 31 March 2009
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Judgment

Lord Justice Rimer : 
Introduction
1.	This appeal, by Mary O’Donnell, is against an order dated 7 August 2008 made by Richard Sheldon QC sitting as a Deputy High Court Judge in the Chancery Division. He thereby dismissed the petition presented by Ms O’Donnell under section 459 of the Companies Act 1985 (now section 994 of the Companies Act 2006) for an order that the respondents, John Shanahan and James Leonard, buy her shares in Allied Business & Financial Consultants Limited (‘the company’) at a fair value. That value was one that she said should be calculated on the basis that certain diversions of company income and business opportunity and other alleged wrongdoing had not occurred or that the company should be treated as having their benefit. Ms O’Donnell and the two respondents are shareholders and directors of the company. The petition claimed that the respondents’ conduct of the affairs of the company had unfairly prejudiced Ms O’Donnell’s interests as a member.
2.	The petition raised five allegations of unfairly prejudicial conduct of which four were pursued at the trial. They all failed and on this appeal, brought with the permission of the judge, Ms O’Donnell seeks to make good just one of them. It is the allegation that Ms O’Donnell was unfairly prejudiced by the respondents’ acquisition in 1999 of an investment property called Aria House through another company in which they were together 50% shareholders. It is said that they acquired it in breach of their duties as directors of the company.
3.	On the appeal, as below, Mr Clutterbuck represented Ms O’Donnell and Mr Mallin represented the respondents. Three issues were argued on the appeal: (i) whether the respondents were in breach of the ‘no profit’ rule applicable to a company’s directors in taking up the Aria House opportunity, the assumption for the purposes of the appeal being that the opportunity was a profitable one; (ii) whether, in taking it up, they were in breach of the ‘no conflict’ rule; (iii) whether, if the respondents were in breach of either rule, Ms O’Donnell was entitled to relief under section 459: the arguments there centred on whether she had acquiesced in the breaches and on whether, if she had not, she had proved ‘unfair prejudice’.
4.	Following an 11-day trial, the judge delivered a meticulous judgment that was a model of care and thoroughness (now reported at [2009] 1 BLC 328). He made clear findings of fact, which have made our task easier, and dealt with difficult questions of law. To deal with the issues raised by the appeal and the respondents’ notice, it is necessary to summarise the facts he found in relation to the background in general and the Aria House transaction in particular. The judge was concerned only to decide whether the company’s affairs had been conducted in a manner prejudicial to the interests of Ms O’Donnell as a member. Had he decided that issue in Ms O’Donnell’s favour, the relief to which she was entitled was to be decided at a subsequent hearing.
The facts
A. General background
5.	In the 1980s Ms O’Donnell, Mr Shanahan, Mr Leonard and Paul Murtagh were each branch managers with the Bank of Ireland. During 1988 and 1989 they all left the bank to devote themselves to the affairs of the company, which was incorporated in 1988. By October 1989 all four were shareholders, each owning 25 shares with a nominal value of £1 each. All were also directors. The company’s business was to provide clients with financial advice and assistance, including arranging bank loans, mortgages and insurance. Its memorandum of association empowered it to carry on ‘the business of financiers, bankers, financial agents’ and like activities and to carry on ‘any other trade or business which can, in the opinion of the Board of Directors, be advantageously carried on by the Company ….’ It operated as a quasi-partnership company on the basis of a relationship of trust and confidence between the shareholders. The judge found that there was an implicit understanding that they would work substantially full time for it; but he also found that there was a flexibility in its operations such that nobody would have cause to complain if time off was occasionally taken, or non-competitive business activities were engaged in, provided the work required for the company’s business was done.
6.	The company originally operated from an office in Penge in south east London but in October 1989 it moved to an office in 25 North Audley Street, London W1. In the 1990s it operated for a time from Suite 3, Scott’s Sufferance Wharf, 1 Mill Street, London SE1. In about 1997 it moved its office to a space above the Charles Dickens pub at 160 Union Street, London SE1, from which it then operated at all times. It rented that office from a separate property partnership carried on by Mr Shanahan and Mr Leonard. 
7.	Mr Shanahan and Mr Leonard originally concentrated their corporate efforts in arranging commercial loans although they also arranged some residential mortgages. They spent much time out of the office getting in clients. Ms O’Donnell was responsible for administration, residential mortgages and insurance queries. Mr Murtagh wrote life and term assurance in connection with loan proposals but he resigned in 1990 in acrimonious circumstances, following which Ms O’Donnell took over his work. He had no further involvement in the company’s affairs. He did, however, retain his 25 shares, which is why he was a respondent to the petition, although he took no part in the proceedings other than as a witness for Ms O’Donnell. The judge, however, found his evidence to be largely irrelevant and coloured by a manifest vindictiveness against Mr Leonard, apparently fuelled by the latter’s refusal to give him a reference when he left the company. In September 1990 the company issued 2,500 further shares to each of the three other shareholders. During the following decade its activities diversified into arranging the purchase and sale of businesses, acting as agents for banks and building societies, placing investments and deposits for clients and providing advice on financial and business restructuring. These activities were mainly handled by Mr Shanahan and Mr Leonard. 
8.	Between 1990 and 2007 the company’s annual turnover ranged from £79,538 to £57,903, the peak figure being £204,577 in 2001 and being in most years between £100,000 and £200,000. Following Mr Murtagh’s departure, its profits were shared equally between Ms O’Donnell, Mr Shanahan and Mr Leonard and they were usually shared out when made. In addition to their drawings as directors’ remuneration, the three would on occasion divide up cash payments received by the company without passing it through its books. The company never built up any material capital. Its business declined from about 2002 onwards. Once the current dispute between the shareholders broke out, word of it spread quickly around the close knit Irish community with the result that the business effectively dried up. In 2006 Ms O’Donnell found employment elsewhere and the company is now insolvent and dormant.
9.	The judge was required to consider four transactions in which Mr Shanahan and Mr Leonard engaged that were said by Ms O’Donnell to amount to unfairly prejudicial conduct. Each was said to have been in breach of the understanding formed between the parties when the company was established, in breach of the respondents’ duties as directors and a betrayal of the relationship of trust and confidence. All allegations were denied by the respondents, who also claimed that Ms O’Donnell had acquiesced in the matters of which she complained.
10.	The judge made some general comments about the witnesses. Their evidence, often relating to matters happening years ago, was greatly influenced by the documents, which they had used to reconstitute their claimed knowledge in the light most favourable to them. There was considerable bitterness between them, which was particularly apparent in Ms O’Donnell’s evidence. Her complaint was that she had left her secure job with the bank in 1989 to take up the prospect of a better future with the company, but she now claimed to be in a financially worse position than if she had stayed with the bank. She found it galling that Mr Shanahan and Mr Leonard had, by contrast, emerged with secure financial futures. Her evidence was full of recrimination against them, attributing their financial wellbeing to wrongs committed against her. The judge said she had staked her limited wealth on the petition; it was, he said, so far as her financial future was concerned, ‘the last roll of the dice’. He accepted that there was some truth in the assertion that Mr Shanahan and Mr Leonard were dominant personalities, which went some way to explaining why Ms O’Donnell did not complain at an earlier stage of the activities challenged in the petition. But, said the judge: 
‘[19] … at the same time I need to bear in mind that [Ms O’Donnell] clearly has, and had, an inquisitive mind and is, and was, far from naïve in matters of business. She is not quite the innocent which Mr Clutterbuck sought to suggest.’
11.	The judge also treated the evidence of Mr Shanahan and Mr Leonard with caution. Mr Shanahan engaged in a selective reliance on the documents and even had a poor recollection of recent events. Mr Leonard’s evidence was also tainted by reconstituted recollection. Aspects of the Aria House transaction involved elements of impropriety, as Mr Shanahan admitted, and Mr Leonard made an unconvincing attempt to distance himself from them: the judge found he knew more about the transaction than he admitted.
12.	A relevant backdrop to the Aria House transaction was that from 1986 onwards Mr Shanahan and Mr Leonard were involved in property investment and development on their own account. Whilst at the bank, they traded in property through Kerwick Properties Limited, as they continued to do throughout the relevant period. In 1993 they formed a property partnership with Dennis and John McCarthy, whom they bought out in 1998 (it was that partnership that owned the Charles Dickens pub above which was the company’s office). The judge found that Ms O’Donnell was aware of these property activities and that she also arranged insurance on most of the properties in which the respondents were dealing. She made no complaint about these activities, nor until shortly before the current proceedings were contemplated did she suggest either that they were incompatible with the respondents’ role in the company or that any of the property acquisitions should have been channelled through the company. The judge found that these property acquisitions did not constitute any breach of the understandings between the shareholders when the company was established.
13.	The judge also made findings about the property dealings of the company and its pension fund. In 1988, before Ms O’Donnell had joined it, the company acquired the Penge property, which was intended to be its permanent office. It was used for that purpose for a short time, but was found to be inconvenient and the company relocated to North Audley Street at about the time that Ms O’Donnell joined. The Penge property was retained as a rented investment but proved to be troublesome and was sold in 1999 for £65,000. The dealings in relation to that property were the only company dealings that could be described as property investment. The only other property matter I should mention is that the shareholders decided at an early stage to establish a self administered pension fund scheme, into which they transferred their pension rights accrued at the bank. In about 1990 commercial office property at Scott’s Sufferance Wharf was purchased by it with a view to its being used by the company. Ms O’Donnell had the smallest pension entitlement of the three, and had the opportunity to buy into fund at a cost of £14,087, which would have given her parity with the others. She declined to do so and took out a separate investment saving plan. The judge found that, in contrast to the entrepreneurial spirit of the respondents, Ms O’Donnell had little interest in or inclination towards risky property ventures.
B. The Aria House transaction
Mr Walsh’s proposed purchase
14.	In early 1999 Patrick Sulaiman telephoned Mr Shanahan and told him that he had a property he wished to sell and that he understood that Mr Shanahan might have clients who would be interested in buying. Mr Sulaiman did not mention the company and there is no evidence that he was aware of its existence. The property was the fifth floor of Aria House, above the Players Theatre. Mr Shanahan visited it and thought that clients of the company might be interested. Mr Sulaiman shortly afterwards became a company client. 
15.	Mr Shanahan’s original belief was that Mr Sulaiman owned Aria House. Meetings with him revealed that he did not. It was owned by two offshore companies, Cordelia Holdings Ltd and Sulaiman Trading Ltd. Trading owned the freehold and head lease of the building, and Cordelia owned the lease of the fifth floor, which the judge said was by far the more valuable interest. Mr Sulaiman was in the midst of a divorce, his wife coming from a wealthy Indonesian family. As part of the divorce settlement, he was to receive a payment out of the sale proceeds. He had instructed Richard Peat & Co, solicitors, to act for the vendors; and Taylor Joynson Garrett, solicitors, had been instructed to act for Mrs Sulaiman and her family interests. Although Mr Shanahan knew of the interests of the offshore companies, he believed, and the judge accepted, that Mr Sulaiman had authority to give instructions on their behalf.
16.	Mr Shanahan thought that Matthew Walsh might be interested in buying the fifth floor. He had met him in 1993, when Mr Walsh had sought his advice on a property matter and had mentioned he might be interested in buying properties. Mr Shanahan regarded Mr Walsh as a client of the company and approached him in March 1999 about the Aria House opportunity. Mr Walsh was only interested in buying if the fifth floor could be converted to residential use. He made clear to Mr Shanahan his interest in so converting its use. 
17.	Mr Walsh and Mr Sulaiman shook hands on the transaction at a price of £1.35m. On 31 March 1999 Mr Shanahan wrote to Mr Sulaiman on company notepaper, describing Mr Walsh as the company’s client and confirming his offer in that sum. Discussions followed between Mr Walsh and Mr Shanahan as to how the purchase could be financed and Mr Walsh provided a list of his assets, including substantial offshore assets. Mr Shanahan arranged a meeting in early April 1999 at the company’s offices, attended by Mr and Mrs Walsh, Mr Shanahan, Ms O’Donnell and Mr Bailey, who was a director of ECS International Ltd, an Isle of Man company. Mr Bailey explained how the property could be acquired by an Isle of Man company, whose shares would be held by an Isle of Man trust. Mr Walsh gave instructions for the purchase to go ahead on this basis, the details to be arranged by Mr Shanahan and Mr Bailey. A relative of Mr Walsh was to be the settlor. Harlequin Resources Limited was incorporated in the Isle of Man as the vehicle for the purchase (‘HRL IoM’).
18.	Mr Shanahan progressed the transaction for Mr Walsh. The purchase was a major one, solicitors needed to be instructed and Mr Leonard suggested, and Mr Shanahan agreed, that Jacobsens should be instructed to act for Mr Walsh. There was a meeting with them in early April 1999 attended by Mr Shanahan, Mr Leonard, Neil Jacobsen (a partner) and Stephanie Kirwan (an assistant solicitor). Background information was provided to Jacobsens, who were alerted to the prospect of being formally instructed by Mr Walsh. The judge found that Mr Walsh had authorised Mr Shanahan to sort out the mechanics of the transaction. 
19.	On 12 April 1999 Mr Shanahan wrote on company notepaper to Richard Peat & Co (copied to Jacobsens, Taylor Joynson Garrett, Mr Bailey and Mr Sulaiman) confirming the terms of the purchase offer and naming the purchaser as HRL IoM. On 14 April 1999 he wrote to Mr Sulaiman on company notepaper in terms not copied to anyone. He referred to their telephone conversation that day and confirmed: 
‘… that the offer for the long leasehold of the 5th floor to also include the freehold of The Playhouse on behalf of our client Harlequin Resources Limited is £1,350,000 plus £100,000 payment for fixtures and fittings. Our commission for arranging the sale will be £30,000 which will be payable from the £100,000 which will be payable on exchange of contracts.’
20.	No reference to the £100,000 payment had been made in the letter of 12 April, which Mr Shanahan could not explain. His explanation of the £100,000 was that this had been agreed ‘pretty much from the outset’ and it was not suggested that Mr Walsh was unaware of it. It was a payment (regarded by Mr Shanahan as generous) to be made to Mr Sulaiman for what he claimed was equipment and partitioning in Aria House that he owned personally. As for the £30,000 fee to the company, to be paid out of that £100,000, Mr Shanahan accepted that Mr Walsh did not know of that arrangement. In his view that was a matter exclusively between Mr Sulaiman and the company. His evidence was that the £100,000 would be paid in cash or by banker’s draft, that the £30,000 payment to the company would also be paid in cash and would (in accordance with the company’s custom in relation to cash receipts) be distributed between himself, Mr Leonard and Ms O’Donnell without its receipt troubling the company’s books. 
21.	Mr Shanahan prepared some loan proposals by HRL IoM for the purchase price, which he sent to two banks. On 23 April 1999 Matthews & Goodman wrote to Mr Shanahan referring to an agreed fee of £3,000 for a valuation report that they produced on 6 May 1999 following an inspection on 29 April 1999. The report was described as ‘prepared on behalf of’ the company and for the attention of Mr Shanahan. The conclusions were to the effect that planning consent could probably be obtained for a residential development for a limited number of flats but that the property also lent itself well to refurbishment for office use. They valued the property on various bases ranging from between £1.3m and £1.6m to £2.15m. The report referred to outline plans to convert the property into five flats, being plans that Mr Walsh had provided to Mr Shanahan which he had passed to Matthews & Goodman. Mr Shanahan read the report and considered the proposed purchase a good investment opportunity, a view the judge thought it likely he would have conveyed to Mr Walsh. On 13 May 1999 Anglo Irish Bank wrote to Mr Shanahan proposing terms of a bank facility for HRL IoM’s purchase. Exchange of contracts was expected to take place the following week. The judge found that nothing appeared to have been done by this stage about the raising by Mr Walsh of the £100,000 to be paid to Mr Sulaiman, but Mr Shanahan’s evidence was that he did not regard this as a problem.
Mr Walsh pulls out of the transaction
22.	What happened on 17 May 1999 was described by the judge as ‘something of a bombshell’. Mr Walsh spoke to Mr Shanahan on the telephone and withdrew from the transaction. At Mr Shanahan’s request, he agreed to pay the fees incurred by the company, Matthews & Goodman and Jacobsens. The judge found that Mr Walsh pulled out because he had cold feet about the purchase.
Who else might be interested?
23.	Mr Shanahan and Mr Leonard promptly held a meeting at the company’s office to consider whether they could salvage the deal by finding another company client who might be interested in buying. Ms O’Donnell was not at the meeting, but was in the office and was aware of the problem in relation to the transaction. There was a thought that John Holleran, a company client, might be interested and Mr Leonard telephoned him on 17 May 1999.
24.	Mr Holleran visited Aria House the same day, accompanied by Mr Shanahan. During the telephone call and/or visit he was told of the collapsed deal and that the price was £1.35m plus £100,000 for fixtures and fittings, out of which latter the company was to receive £30,000 by way of vendor’s commission. The following day Mr Holleran put a proposal to Mr Shanahan and Mr Leonard at a meeting with them that he and his brother Joseph would take a 50% stake in the Aria House purchase if Mr Shanahan and Mr Leonard would take the other 50% stake. Mr Holleran explained that the venture was too big for him to take on alone and he knew they had experience in property dealings. Mr Holleran was also not prepared to pay the £30,000 commission to the company: he was only interested if the price (to be funded by the four co-venturers) was £1.35m and the payment for the fixtures and fittings was reduced to £70,000. Mr Holleran’s evidence was that Ms O’Donnell was present at the meeting at which he presented his proposal and that although she did not participate in the discussions, she would have had to be asleep not to have heard the discussions.
25.	Mr Shanahan and Mr Leonard agreed to Mr Holleran’s proposal. This was, the judge found, the first occasion they had considered they might be involved personally in the Aria House purchase. In making his decision to agree to the proposal, Mr Shanahan accepted that he had relied on the Matthews & Goodman report and on the feedback from the banks with regard to the financing of the transaction. These matters were discussed at the meeting with Mr Holleran.
26.	Time was perceived to be of the essence so that the deal with the vendor was not lost. At the meeting Mr Shanahan made the suggestion that the purchaser could be an English company, also called Harlequin Resources Limited, provided there was not already a company of such name, which a call to his accountant established there was not. Mr Shanahan instructed the accountant that same day to incorporate a company under that name, and it (‘HRL’) was incorporated the next day. The Holleran brothers were appointed directors and each of the four co-venturers was issued with 25 shares. Jacobsens was told of the change of identity of the purchaser to HRL and the draft contracts were amended to show its registered address.
27.	Jacobsens were also informed that Mr Walsh was no longer involved in the purchase. He had agreed to pay all the wasted costs of his proposed purchase and Jacobsens issued an invoice on 18 May 1999 for their fees in respect of the ‘abortive’ acquisition. On 21 May 1999 Mr Shanahan visited Mr Walsh and collected three cheques from him (drawn by his company Brentford Commercial Limited) in favour of Jacobsens (£10,398.71), Matthews & Goodman (£3,566.13) and the company (£3,000). When collecting them, Mr Shanahan did not tell Mr Walsh that the purchase was still going ahead, let alone that he and Mr Leonard would (through HRL) be purchasers. Nor did he tell him that the work (or much of it) that Mr Walsh was being asked to pay for would be used (and that the Matthews and Goodman report had already been used) for the purpose of HRL’s purchase. Mr Shanahan did not tell Mr Walsh any of this because he thought he would object. He admitted in cross-examination that his use of the Matthews & Goodman report and the adoption of much of Jacobsens’ work – for which Mr Walsh was paying – and the concealment of all this from Mr Walsh was ‘slightly improper’. Mr Leonard also accepted that it was wrong for them to get Mr Walsh to pay for the Matthews & Goodman report without telling him of their involvement in the purchase, although he saw nothing wrong in getting Mr Walsh to pay for Jacobsens’ work to date, from at least part of which he and Mr Shanahan were deriving benefit. The judge found that the £3,000 fee charged by the company which Mr Walsh paid was a proper fee for the company’s work. 
28.	Mr Walsh now dropped out of the story. The four co-venturers made equal contributions to (i) the deposit of £135,000, and (ii) the £70,000 required to be paid to Mr Sulaiman, both payments being due on the exchange of contracts. The £135,000 deposit was recorded in HRL’s books as directors’ loans. The £70,000 payment was not recorded at all. One of the documents Mr Shanahan generated (of which Mr Leonard was aware) was an invoice addressed to Mr Sulaiman for £30,000 in respect of professional fees and a letter dated 25 May 1999 from the company addressed to him acknowledging the receipt of £30,000 ‘in respect of Agency Sales Commission re the sale of [Aria House].’ As I have said, Mr Holleran had refused to fund a payment to Mr Sulaiman enabling the payment of any such fee and these documents were a dishonest piece of window dressing that Mr Shanahan admitted he had a hand in. His explanation for them was that when Mr Sulaiman was told he was only going to get the net amount of £70,000, he wanted a receipt for the £30,000. In fact, the documents were not handed over to Mr Sulaiman when contracts for HRL’s purchase were exchanged on 26 May 1999. The judge did not accept Mr Shanahan’s explanation for the documents and found that the more likely one was that Mr Shanahan and Mr Leonard had not wanted to draw Mr Sulaiman’s attention to the change of purchaser (or to the change of the deal as regards the £30,000) and so had generated them in case Mr Sulaiman raised the matter of the £30,000 fee at the point of exchange. In the event, he did not. 
29.	The net result was that the company was £30,000 worse off than if the original Walsh deal had gone through. That £30,000 would have been split between Ms O’Donnell, Mr Shanahan and Mr Leonard. Mr Shanahan and Mr Leonard recognised that the new deal worked an injustice on Ms O’Donnell. As far they were concerned, they were each obliged to pay £7,500 less towards the overall purchase price than was payable under the original deal. Had Mr Sulaiman paid the £30,000 that was originally proposed, the three shareholders would have received £10,000 each. Whether in the long term Messrs Shanahan and Leonard would be winners or losers under the new deal would depend on the success of the purchase. But Ms O’Donnell was an immediate loser and so they later agreed to compensate her.
30.	HRL changed its name to SLH Properties Limited (‘SLH’) on 11 June 1999. On 18 June 1999 NatWest offered a facility to SLH to enable it to complete the purchase, with limited guarantees from each co-venturer. Completion was on 8 July 1999. On 26 September 2003 SLH bought the freehold of Aria House for £1.
What did Ms O’Donnell know of SLH’s purchase of Aria House?
31.	The judge was unconvinced by Ms O’Donnell’s evidence by which she distanced herself from knowledge of the purchase. The office was small and given her inquisitive mind the judge regarded it as inconceivable that she was oblivious of what was going on. One of her tasks in the company was to deal with the post; and correspondence relating to the Aria House transaction was sent to Mr Shanahan at the company’s address, including correspondence addressed to SLH. The judge made no finding that Ms O’Donnell read and understood it but did find that Mr Shanahan and Mr Leonard made no attempt to conceal their involvement in the purchase after Mr Walsh dropped out.
32.	The judge found it difficult, however, to know what Ms O’Donnell knew and when. He found that she was present at the meeting with Mr Walsh when the Isle of Man structure was discussed and she knew the essentials of the transaction before Mr Walsh pulled out. What she knew about the following events was more controversial. He found that she knew of Mr Shanahan’s and Mr Leonard’s involvement in the transaction shortly after 17 May 1999: she was in the office at the early meeting with Mr Holleran and he found that ‘she must have been aware, at least in general terms, that [they] were to become involved’. There were also several further meetings with Mr Holleran at the company’s office before completion and the judge accepted Mr Holleran’s evidence that Ms O’Donnell was usually present in the office. The judge found unconvincing her denial that she had seen pre-completion correspondence relating to the transaction but he also said that such of that correspondence as he had seen did not show clearly that Mr Shanahan and Mr Leonard had a personal interest in the purchase.
33.	Whilst finding, therefore, that Ms O’Donnell was aware of Mr Shanahan’s and Mr Leonard’s interest in the acquisition of Aria House after 17 May 1999, he also found that there were matters of which she was not aware. She did not know that Mr Walsh had paid the Matthews & Goodman and Jacobsens’ invoices, nor did she know the circumstances in which those payments were obtained. She was not aware of the reliance placed by Messrs Shanahan and Leonard on the Matthews & Goodman report or on the work that Jacobsens had done, all such work having been paid for by Mr Walsh. Nor was she aware of the reliance that Messrs Shanahan and Leonard placed on the responses from the banks. She did not know of steps taken to conceal from Mr Sulaiman the change of purchaser from HRL IoM to HRL. She did not know of the incorporation of HRL.
34.	She did, however, know that the £30,000 fee was no longer payable by Mr Sulaiman. She regarded the fee as substantial. She knew that the company would have received this money on exchange of contracts with Mr Walsh. Its non-receipt under the new deal was discussed between the exchange of contracts (on 26 May 1999) and completion (on 8 July 1999). Mr Shanahan and Mr Leonard agreed to compensate her for the loss of her share of the £30,000 fee although there was a delay in doing so. She was paid £2,000 in May 2000 and £7,000 in October 2000, both by cash payments out of cash receipts by the company which were unrecorded in its books. Ms O’Donnell denied in her evidence that the payments were by way of compensation as aforesaid but the judge found that they were both paid and accepted by her as such compensation. The £9,000 represented under-compensation (she would have received £10,000 if the Walsh deal had gone through) but she did not complain of this until shortly before presenting the petition in November 2006. Nor until then did she raise any complaint about the involvement of Mr Shanahan and Mr Leonard in the purchase even though on her own case she had known of it since at least July 1999.
35.	The judge found as a fact that, when Aria House was purchased in 1999, the company could not have participated in such a purchase without funding from its shareholders. Mr Holleran’s evidence was that he would have had no objection if the company had been the co-venturer. Whilst Ms O’Donnell’s evidence was that she could have raised sufficient sums to participate in the transaction, the judge had:
 ‘[125] … no doubt that she would not in fact have been prepared to take on the risk to herself personally which the acquisition of Aria House would have entailed. She had no appetite for property investment and was generally conservative in her approach to risk. More specifically I find that she would not have been prepared to put her home at risk or been willing to undertake the significant guarantee liabilities involved in enabling the Aria House transaction to go ahead.
[126]	For these reasons, if relevant to the issues I have to decide, I find as a fact that had the opportunity of being involved in the acquisition of Aria House been presented to the Company or to [Ms O’Donnell] personally, the Company and/or [Ms O’Donnell] would not have been willing to accept the opportunity. The Company clearly could not have proceeded with [the] acquisition without the participation of Mr Holleran (and his brother). For the Company to have become involved as the co-venturer with Mr Holleran and his brother under the proposal made by Mr Holleran, (i) [Ms O’Donnell] would have had to undertake guarantee liabilities which I find she would not have been prepared to enter into; and/or (ii) shareholder funding would have been required which would have involved [Ms O’Donnell] putting up one third of the funds which the Company would have had to provide and I find that she would not have been willing to do this.’
C. The judge’s judgment
36.	The judge cited section 459(1) of the Companies Act 1985:
‘A member of a company may apply to the court by petition for an order under this Part on the ground that the company’s affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or of some part of its members (including at least himself), or that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.’
37.	Ms O’Donnell’s complaint was that the respondents’ acquisition of their interest in Aria House was so unfairly prejudicial. It was said that it involved a breach by them of each of the ‘no conflict’ and ‘no profit’ rules to which fiduciaries such as directors are subject. The judge observed that the distinction between the two rules has not always been rigidly observed but he dealt with them as separate rules. The former rule is encapsulated in the speech, from which the judge cited, of Lord Cranworth in Aberdeen Railway Co v. Blaikie Brothers (1894) 1 Macq 461, at 471:
‘And it is a rule of universal application, that no one, having [fiduciary] duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom is bound to protect.
So strictly is this principle adhered to, that no question is allowed to be raised as to the fairness or unfairness of a contract so entered into.’
38.	The judge referred to the qualification of that expression of the principle by Lord Upjohn in Boardman and Another v. Phipps [1967] 2 AC 46, at 124B-D, to the effect that: 
‘The phrase “possibly may conflict” requires consideration. In my view it means that the reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in a conflict.’
39.	Warren J took up that point in Wilkinson v. West Coast Capital and others [2005] EWHC 3009 (Ch), at paragraphs [252] and [253], where he instanced a case in which a director of a company selling fashion clothing could hardly be in breach of the ‘no conflict’ rule if he took a stake in a farm machinery company since there would be no ‘real sensible possibility’ of conflict. It would, however, be different if the fashion company had been actively considering diversification into farm machinery.
40.	As for the ‘no profit’ rule, the judge directed himself that the essence of the principle, which he derived from Lewin on Trusts, 18th Edition, para. 20-26, was that (and I have expanded the quotation):
‘… If a trustee or other fiduciary without authority makes a profit directly or indirectly from the use of property subject to the trust or other fiduciary relationship, or in the course of the fiduciary relationship and by reason of his fiduciary position, then he is not permitted to retain the profit. This is so whether the person sought to be made liable acted in good faith or bad faith; whether or not the making of the profit involved skill and risk taking on the part of that person; even though the profit could not or would not have been obtained for the beneficiaries of the fiduciary relationship; and even though the beneficiaries have not been prejudiced by, and might even have benefited from, the transaction entered into by that person. …’
41.	The consequence of the breach of either rule is or may be that the fiduciary is required to account for the profit made by him by such breach. The case before the judge was that the respondents had breached both rules.
42.	The judge engaged in a full discussion of the authorities in paragraphs [172] to [204] and came to his conclusions as to whether the respondents’ acquisition of their interest in Aria House involved a breach of either rule. As to whether they breached the ‘no conflict’ rule, he said:
‘[208] I find that there was no breach by [Mr Shanahan and Mr Leonard] of the no conflicts rule. As Mr Clutterbuck accepted, the scope of the Company’s business is relevant to the application of the rule. The Company’s business was, in essence, the provision of financial and business advice and assistance. I find that the acquisition of properties for investment was not in fact within the scope of the Company’s business. [Ms O’Donnell] does not pursue any complaint to the effect that the property investment business carried on by [Mr Shanahan and Mr Leonard] should have been channelled through the Company. It is true that the Company’s objects clauses were sufficiently wide to allow the directors to diversify into property investment, but it does seem to me that the language used by Warren J in Wilkinson (at para 253 cited at para [179] above) is particularly relevant in this context. With one exception referred to below, there is no evidence to suggest that it was ever contemplated by the directors that the Company might diversify into property investment. I take into account that the Company was embarking on a novel estate agency function in agreeing to act for Mr Sulaiman in connection with the sale of Aria House. But this is some way removed from the directors of the Company contemplating diversification into property investment on the part of the Company itself. Nor do I think it correct for Mr Clutterbuck to submit that the Company was the vehicle for the participants to engage in any activity which might present an opportunity to make a profit. This is quite inconsistent with the property investment activities being pursued by [Mr Shanahan and Mr Leonard] of which no complaint is made. It does seem to me that in these circumstances there was no ‘real sensible possibility’ of a conflict in [Mr Shanahan and Mr Leonard] acquiring an interest in Aria House as a property investment.
[209] The only feature which has given rise to some doubt on my part is the Penge property. It is true that the Penge property was in the event retained as an investment by the Company but it was not acquired as such: the intention was to use the property as the Company’s offices. In these circumstances, and in the absence of any evidence to suggest that the directors of the Company contemplated that the Company might, apart from the Penge property, diversify its business to include property investment, I do not consider that this feature should cause me to reach a different conclusion on the application of the no conflict rule.’
43.	In arriving at his conclusion on the ‘no conflict’ allegation, the judge had regard to the consideration that Mr Shanahan felt an element of ‘guilt’ about the SLH acquisition. His finding was that all that he felt guilty about was the loss of the £30,000 commission as a result of the Holleran proposal, in particular Ms O’Donnell’s loss of her share of it. The judge said of that:
‘[211] … A feeling of guilt as to this aspect of the manner of the acquisition does not in my view support the inference that there was a conflict arising from the fact of acquiring an interest in Aria House. This conclusion can be tested on the hypothesis that the Holleran proposal had matched exactly the terms which had originally been acceptable to Mr Walsh, which would have resulted in the payment of the £30,000 commission. If, under that hypothesis, there would have been no breach of the no conflict rule, I do not think that the loss of the commission brings the fact of [Mr Shanahan’s and Mr Leonard’s] interest in the acquisition within the rule. In any event, once Mr Walsh withdrew, the Company (and [Ms O’Donnell]) faced the prospect of losing the commission unless the deal could be salvaged. The possible element of conflict in [Mr Shanahan and Mr Leonard] agreeing to the loss of the Company’s commission was remedied by [Ms O’Donnell’s] acceptance of the payments of £9,000 as compensation for her share of the lost commission. As to the other aspects of the manner of the acquisition which [Mr Shanahan and Mr Leonard] accepted involved elements of impropriety (such as the obtaining of the cheques from Mr Walsh and the false invoice for £30,000), I do not consider, in the light of my findings concerning these matters, that these support the inference that [Mr Shanahan and Mr Leonard] believed that they had a conflict as directors of the Company in acquiring an interest in Aria House.’
44.	The judge turned to the question of whether the respondents were in breach of the ‘no profit’ rule, one he approached on the assumption that the acquisition of Aria House may have been profitable. He concluded that they were not in breach of that rule either. Ms O’Donnell’s case was that the opportunity to buy Aria House was a maturing business opportunity, and the respondents had access to confidential information about it (the Matthews & Goodman report and the banks’ responses). They had such access only in their capacity as directors of the company, which capacity had also given them the opportunity to make use of Jacobsens’ work for Mr Walsh.
45.	The judge rejected the submission that the opportunity to buy Aria House was a maturing opportunity for the company. The company acted in the matter as no more than an estate agent (acting for both buyer and seller) and there was at no time a suggestion that the company might itself buy. Whilst the opportunity to buy Aria House admittedly came to the respondents in their capacity as directors of the company, that opportunity fell outside the scope of the company’s business and so the taking up of the opportunity involved no breach of the ‘no profit’ rule. It made no difference that the information they obtained as aforesaid was confidential: the confidence was owed to Mr Walsh, not the company. As the judge explained:
‘[224] To take an extreme example, if a director of a company whose objects were limited to the production of newspapers received in his capacity as director information in confidence from a third party about a new medicine which he then sought to exploit for himself, the third party would have claims against the director and probably also the company, and the company would be likely have a claim against the director for any losses to which it had thereby been exposed. The director might well have to account to the third party for any profits made as a result of the misuse of the confidential information. But I doubt whether the company would be able to claim an account of profits from the director: the information did not “belong” to the company but to the third party and the company was the repository of confidential information for the more limited use of its own business. It would seem odd for a director in these circumstances to be exposed to a liability to account for profits to both the third party and the company. …
[229] The information which was used by [Mr Shanahan and Mr Leonard] was confidential: but the duty of confidentiality was owed to Mr Walsh. The information “belonged” to him, not the Company. The use to which the information was put by [Mr Shanahan and Mr Leonard] was outside the scope of the Company’s business (in the sense described above). As Lindley LJ said [in Aas v. Benham [1891] 2 Ch. 244, at 256], it is “not the source of the information, but the use to which it is applied which is important in such matters”.’
46.	Central to the judge’s reasoning in rejecting the case under both the ‘no conflict’ and the ‘no profit’ rules was his finding that the acquisition by the respondents of their interest in Aria House was of a nature falling outside the scope of the company’s business. That was the key to the judge’s conclusion. The authority that so influenced the judge, and was central to the argument before us, was this court’s decision in Aas v. Benham [1891] 2 Ch 244.
47.	The facts were that the defendant, Mr Benham, was a partner in a firm of shipbrokers. He played a part in the formation of a company for the building of ships, using information obtained as a partner in the firm. He received remuneration for his services in forming the company and was made a director. His partners claimed an account of his profits and salary earned in connection with the company. Kekewich J held him accountable but this court reversed his decision on the basis that the business of the company did not compete with and was beyond the scope of the business of the partnership. He was not therefore required to account. Lindley LJ said, at 255:
‘The answer, however, to this claim is short and conclusive. It was no part of the business of H. Clarkson & Co to promote or reconstruct companies, nor to advise them how to improve the management of them. All such matters are quite foreign to the business of H. Clarkson & Co. … He never was in fact acting for his firm in this matter, nor did his partners ever suppose he was, or treat him as so acting. Nor is it true in fact that Mr Benham or the company for which he was acting ever derived any benefit from his connection with the firm of H. Clarkson & Co. It is clear law that every partner must account to the firm for every benefit derived by him without the consent of his co-partners from any transaction concerning the partnership or from any use by him of the partnership property, name or business connection; but the facts of this case do not bring it within this principle. It is equally clear law that if a partner without the consent of his co-partners carries on business of the same nature as, and competing with that of the firm, he must account for and pay over to the firm all the profits made by him in that business, but the facts of this case do not bring it within that principle. Dean v. MacDowell (1878) 8 Ch. D. 345 shews that a partner is not bound to account to his co-partners for profits made by him in carrying on a separate business of his own, unless the case can be brought within one or other of the two principles to which I have alluded, even if he carries on such separate business contrary to one of the partnership articles. As regards the use by a partner of information obtained by him in the course of the transaction of partnership business, or by reason of his connection with the firm, the principle is that if he avails himself of it for any purpose which is within the scope of the partnership business, or of any competing business, the profits of which belong to the firm, he must account to the firm for any benefits which he may have derived from such information, but there is no principle or authority which entitles a firm to benefits derived by a partner from the use of information for purposes which are wholly without the scope of the firm’s business, nor does the language of Lord Justice Cotton in Dean v. MacDowell warrant any such notion. By “information which the partnership is entitled to” is meant information which can be used for the purposes of the partnership. It is not the source of the information, but the use to which it is applied, which is important in such matters. To hold that a partner can never derive any personal benefit from information which he obtains as a partner would be manifestly absurd. Suppose a partner to become, in the course of carrying on his business, well acquainted with a particular branch of science or trade, and suppose him to write and publish a book on the subject, could the firm obtain the profits thereby obtained? Obviously not, unless, by publishing the book, he in fact competed with the firm in their own line of business.’
48.	Bowen LJ said, at 257:
‘I think that when Lord Justice Cotton [in Dean v. MacDowell] said that a partnership was entitled to the profits which arose out of information obtained by one of the partners as a partner, he was speaking of information to which the partnership was entitled in the sense in which they are entitled to property. I think you can only read the sentence in which the expression occurs in that way. It is as follows: “Again, if he makes any profit by the use of any property of the partnership, including, I may say, information which the partnership is entitled to, there the profit is made out of the partnership property.” The language, like all Lord Justice Cotton’s language, is perfectly precise and neat. He is speaking of information which a partnership is entitled to in such a sense that it is information which is the property, or is to be included in the property of the partnership – that is to say, information the use of which is valuable to them as a partnership, and to the use of which they have a vested interest. But you cannot bring the information in this case within that definition.’
49.	A similar principle, also in the context of a commercial partnership, was applied in the decision of the Privy Council in Trimble and Another v. Goldberg [1906] AC 494 (without reference to Aas v. Benham). The judge’s conclusion was that the principle underlying the decision in Aas v. Benham was equally applicable to the determination of the scope of a director’s fiduciary duties to his company. He held that it was necessary to have regard to the scope of the company’s business not just in relation to the application of the ‘no conflict’ rule (as Mr Clutterbuck had accepted) but also in relation to that of the ‘no profit’ rule (which he had not). Whilst he found that the opportunity to buy Aria House came to the attention of Mr Shanahan and Mr Leonard in their capacity as directors of the company, it was one that was outside the scope of the company’s business and so their exploitation of it involved no breach of the ‘no profit’ rule.
50.	Having reached those conclusions, the judge made no decision on whether (had his conclusions been different) there had been any relevant acquiescence by Ms O’Donnell in the respondents’ acquisition of Aria House. That would depend on hypothetical situations which, on his findings, did not arise. 
The appeal 
51.	We had elaborate written and oral submissions. Mr Clutterbuck’s submission was that, accepting (as he does) the judge’s findings of fact, the judge was wrong to conclude that there was no breach of either the ‘no conflict’ or the ‘no profit’ rules. Mr Mallin submitted the contrary and that in any event Ms O’Donnell was precluded by her acquiescence in the Aria House acquisition from now claiming that it constituted unfairly prejudicial conduct to her interests as a member of the company. Mr Cluttterbuck disputed that argument.
The ‘no profit’ rule
52.	Subject to the Aas v. Benham ‘scope of business’ point, to which I will come, I would regard this as a plain case in which Mr Shanahan and Mr Leonard had (without the company’s informed consent) adopted for their private benefit a business opportunity that came to them in their capacities as directors of the company with the consequence that they would in principle be accountable to the company for any profit derived from it. The prime mover of the two in the Aria House matter as a whole was Mr Shanahan, but neither the judge nor the argument before us drew any distinction between the roles of the two respondents. 
53.	Mr Sulaiman’s engagement of the company (acting by Mr Shanahan) to find a purchaser of Aria House was the company’s first venture into estate agency. That shows that by 1999 the categories of its activities were not closed. All that Mr Shanahan then learnt about Aria House and its virtue as an investment opportunity derived from information he obtained as a director of the company in seeking such a purchaser: in particular, the Matthews & Goodman report, the interest of the banks and Jacobsens’ work. It may be that Mr Shanahan and the company owed duties of confidence to Mr Walsh with regard to the use of this information, and Mr Walsh might legitimately have complained about its appropriation by others. But as between Mr Shanahan and the company, the latter had the better right to its use than the former because it was information obtained by Mr Shanahan in the course of acting as a director of the company. When Mr Walsh withdrew from the purchase, it was this information that Mr Shanahan used in acting on behalf of the company in seeking a substitute purchaser; and when the opportunity arose for the respondents to participate personally in the purchase, it was this information that they used in making their decision. 
54.	In my judgment, this was obviously a case in which, once that opportunity arose, the respondents could not properly make use of the information they had so obtained in deciding to take up the opportunity for their own benefit. That was because they had obtained the information in the course of acting as directors of the company; and the opportunity also came to them in such course. As I shall explain, I consider that the opportunity led the respondents straight into a breach of ‘no conflict’ rule. But quite apart from this, it was one that they ought obviously to have made known to the company. In practice, that meant that they needed to discuss it with Ms O’Donnell. If the company was not interested in taking up the opportunity, its members could consent to its being taken up by the respondents personally. As the respondents did not offer the opportunity to the company, but took it up personally, they engaged in a transaction that rendered them liable to account under the ‘no profit’ rule.
55.	The authorities relating to trustees’ and directors’ duties to account for profit earned in consequence of a breach of the ‘no profit’ rule are legion, they all appear to me to point to the same conclusion and none appears to qualify the liability to account by reference to whether the impugned transaction was (in the case of an alleged breach by a director) within or without the scope of the company’s business. The principle of accountability by directors in breach of the rule derives from the strict rule affecting trustees, the leading case in the latter field being Keech v. Sandford Sel. Cas. Ch. 61. In that case it had been impossible for the trustee to obtain a renewal of the trust’s lease for the beneficiary, but the trustee was nevertheless held accountable for then renewing it for himself. It may be thought odd that a strict principle of that nature, which fathered the like principle of accountability applicable to directors, can enable a director to answer a claim under the ‘no profit’ rule by asserting that the impugned transaction was unimpeachable because it was not the kind of transaction the company ordinarily engaged in. That is to ignore the point that the rationale of the ‘no conflict’ and ‘no profit’ rules is to underpin the fiduciary’s duty of undivided loyalty to his beneficiary. If an opportunity comes to him in his capacity as a fiduciary, his principal is entitled to know about it. The director cannot be left to make the decision as to whether he is allowed to help himself to its benefit.
56.	The authorities relating to directors’ accountability not only do not support the ‘scope of business’ exception in relation to the ‘no profit’ rule, they are contrary to it. They show that the principle is a rigorous one. In Parker v. McKenna (1874) 10 Ch. App. 96, the directors of a bank acquired for themselves, and made a profit on, certain shares the subject of a new issue that were not taken up by the bank’s shareholders. Lord Cairns LC said, at 118:
‘The Court will not inquire, and is not in a position to ascertain, whether the bank has or has not lost by the acts of the directors. All that the Court has to do is to examine whether a profit has been made by an agent, without the knowledge of his principal, in the course and execution of his agency, and the Court finds, in my opinion, that these agents in the course of their agency have made a profit, and for that profit they must, in my opinion, account to their principal.’
James LJ said, at 124:
‘… it appears to me very important, that we should concur in laying down again and again the general principle that in this Court no agent in the course of his agency, in the matter of his agency, can be allowed to make any profit without the knowledge of his principal; that that rule is an inflexible rule, and must be applied inexorably by this Court, which is not entitled, in my judgment, to receive evidence, or suggestion, or argument, as to whether the principal did or did not suffer any injury in fact by reason of the dealing of the agent; for the safety of mankind requires that no agent shall be able to put his principal to the danger of such an inquiry as that.’
57.	According to James LJ, therefore, nothing less than the ‘safety of mankind’ depends on the rigorous application of the ‘no profit’ rule. How, it might be asked, is it consistent with that for the profiteer to claim, as do the respondents, that the company would not have taken advantage of the acquisition opportunity because it was outside the scope of its business? In Furs Ltd v. Tomkies (1936) 54 CLR 583, Rich, Dixon and Evatt JJ affirmed in their joint judgment in the High Court of Australia, at 592:
‘… the inflexible rule that, except under the authority of a provision in the articles of association, no director shall obtain for himself a profit by means of a transaction in which he is concerned on behalf of the company unless all material facts are disclosed to the shareholders and by resolution a general meeting approves his doing so or all the shareholders acquiesce. An undisclosed profit which a director derives from the execution of his fiduciary duties belongs in equity to the company. It is no answer to the application of the rule that the profit is of a kind which the company itself could not have obtained, or that no loss is caused to the company by the gain of the director. It is a principle resting upon the impossibility of allowing the conflict of duty and interest which is involved in the pursuit of private advantage in the course of dealing in a fiduciary capacity with the affairs of the company….’ 
58.	The like rigorous approach is also to be found in the speeches in the House of Lords in Regal (Hastings) Ltd v. Gulliver [1967] AC 134. Lord Russell of Killowen said (at 143E, 144G, 145F, 149G): 
‘Nevertheless, they may be liable to account for the profits which they have made, if while standing in a fiduciary relationship to Regal, they have by reason and in course of that fiduciary relationship made a profit. ….
The rule of equity which insists on those, who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides; or upon such questions or considerations as whether the profit would or should otherwise have gone to the plaintiff, or whether the profiteer was under a duty to obtain the source of the profit for the plaintiff, or whether he took a risk or acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made. The profiteer, however honest and well-intentioned, cannot escape the risk of being called upon to account.
The leading case of Keech v. Sandford Sel. Cas. Ch. 61 is an illustration of the strictness of this rule of equity in this regard, and of how far the rule is independent of these outside considerations ….
Did such of the first five respondents as acquired these very profitable shares acquire them by reason and in course of their office as directors of Regal? In my opinion, when the facts are examined and appreciated, the answer can only be that they did. …
It was contended that these cases were distinguishable by reason of the fact that it was impossible for Regal to get the shares owing to lack of funds, and that the directors in taking the shares were really acting as members of the public. I cannot accept this argument. It was impossible for the cestui que trust in Keech v. Sandford to obtain the lease, nevertheless the trustee was accountable. The suggestion that the directors were applying simply as members of the public is a travesty of the facts. They could, had they wished, have protected themselves by a resolution (either antecedent or subsequent) of the Regal shareholders in general meeting. In default of such approval, the liability to account must remain.’
59.	In the same case, at 153E, Lord Macmillan posed the relevant issue as being one of fact:
‘The plaintiff company has to establish two things: (i) that what the directors did was so related to the affairs of the company that it can properly be said to have been done in the course of their management and in utilisation of their opportunities and special knowledge as directors; and (ii) that what they did resulted in a profit to themselves.’
And Lord Wright said, at 154F:
‘What the respondents did, it was said, caused no damage to the appellant and involved no neglect of the appellant’s interests or similar breach of duty. However, I think the answer to this reasoning is that, both in law and equity, it has been held that, if a person in a fiduciary relationship makes a secret profit out of the relationship, the court will not inquire whether the other person is damnified or has lost a profit which would otherwise he would have got. The fact is in itself a fundamental breach of the fiduciary relationship.’
60.	Those statements, of high authority, appear to me to exclude the making of the ‘scope of business’ inquiry that the judge made in this case. Once he had found, as he did, that the opportunity to buy Aria House came to the respondents’ attention in their capacity as directors of the company acting on the company’s business and using information they also obtained in the course of so acting, that was the end of the point. In principle, subject to any defences that might be available (acquiescence, for example), the respondents would have been liable to account to the company for any profit they made by their purchase. Their proper course was to obtain the company’s informed consent to their private venture. They did not do that.
61.	What of Aas v. Benham? That was a decision of a strong court, binding upon us, and showing that, in the context of a commercial partnership, the strict duties of accountability in accordance with the principles of, for example, Parker v. McKenna and Regal (Hastings)Ltd v. Gulliver will not apply in a case in which partnership information has been used by the defendant partner for the purpose of a separate business of a nature beyond the scope of the partnership business.
62.	Aas v. Benham was not cited in Regal (Hastings) Ltd v. Gulliver, but it was cited in Boardman and Another v. Phipps [1967] AC 46, a case involving a successful claim against the appellants that they were accountable to a trust on the basis that, as agents of the trustees, they had obtained information that they then used to buy shares for themselves. The appellants argued (inter alia) that their case was akin to Aas v. Benham in that the purchase of the shares was ‘wholly outside the scope of any agency undertaken for the trustees’ ([1967] AC 46, at 66C). The test was said to be whether the information could have been used by the principal for the purpose for which it was used by the agent; and if the answer was no, the information was not the principal’s property ([1967] AC 46, at 71A). The counter-argument was that Aas v. Benham was ‘distinguishable as being a very special case for a partner is only in a fiduciary position in relation to matters within the ambit of the partnership business.’ ([1967] AC 46, at 70A).
63.	Viscount Dilhorne, in the minority in the House of Lords, would have allowed the appellants’ appeal. He did not question the statements of principle in Regal (Hastings) Ltd v. Gulliver and held the appellants to be in a fiduciary relationship towards the trust. On the facts, however, he concluded that there was no possibility of a conflict between their interests and those of the trust and, after citing Aas v. Benham with apparent approval, said that the acquisition of the shares was outside the scope of the trust and the appellants’ agency. Lord Cohen, in the majority in favour of dismissing the appeal, referred to Regal (Hastings)Ltd v. Gulliver and was of the view that the appellants were caught by the principles there explained, having obtained the relevant information as a result of their agency for the trustees. He expressed his opinion that an agent is liable to account for profits made out of trust property if there is a possibility of conflict between his interest and his duty to his principal. He made no reference to Aas v. Benham. Lord Hodson, also in the majority, regarded the case as turning on the principle of accountability by a fiduciary explained in Regal (Hastings) Ltd v. Gulliver. The appellants were in a fiduciary position and had used information obtained by them as agents for the trustees to take the opportunity to make the profit that they did. He referred to the reliance placed on Aas v. Benham, the argument being that the purchase of the shares was outside the scope of the fiduciary relationship between the appellants and the trustees. He said of that argument ([1967] AC 46, at 108A):
‘The case of partnership is special in the sense that a partner is the principal as well as the agent of the other partners and works in a defined area of business so that it can normally be determined whether the particular transaction is within or without the scope of the partnership.
It is otherwise in the case of a general trusteeship or fiduciary position such as was occupied by Mr Boardman, the limits of which are not readily defined, and I cannot find that the decision in the case of Aas v. Benham assists the appellants, although the purchase of the shares was an independent purchase financed by themselves. Aas v. Benham was a case depending on the alleged relationship of principal and agent as it exists between one partner and another. There was no such relationship here but the position of an agent is relevant and the expression “self-appointed agent” used by the learned judge is a convenient way to describe someone who, assuming to act as agent for another, receives property belonging to that other so that the property is held by the self-constituted agent as trustee for such other. Such a case was Lyell v. Kennedy (1889) 14 App. Cas. 437. Thus the learned judge found that the appellants were in the same position as if they had been agents for the trustees in the technical sense for the purpose of using the trust shareholding to extract knowledge of the affairs of the company and ultimately to improve the company’s profit-earning capacity.’
64.	Lord Guest, also in the majority, regarded the appellants’ liability to account as covered by the principles explained in Regal (Hastings) Ltd v. Gulliver. He referred ([1967] AC 46, at 117F) to the reliance placed by them on Aas v. Benham:
‘… where it was said that before an agent is to be accountable the profits must be made within the scope of the agency (see Lindley LJ). That, however, was a case of partnership where the scope of the partners’ power to bind the partnership can be closely defined in relation to the partnership deed. In the present case the knowledge and information obtained by Boardman was obtained in the course of the fiduciary position in which he had placed himself. The only defence available to a person in such a fiduciary position is that he made profits with the knowledge and assent of the trustees.’
65.	Lord Upjohn was in the minority in favour of allowing the appeal. He referred ([1967] AC 46, at 123D) to the fundamental rule of equity that a person in a fiduciary capacity must not make a profit out of his trust which is part of the wider rule that a trustee must not place himself in a position where his duty and his interest may conflict. He referred to its expression in Bray v. Ford [1896] AC 44, at 51, to Lord Cranworth’s speech in Aberdeen Railway v. Blaikie 1 Macq. 461, at 471 (adding the qualification as to the meaning of ‘possibly may conflict’ which I cited earlier when explaining the decision of the judge) and to Regal (Hastings) Ltd v. Gulliver, which he regarded as containing a helpful restatement of the principles. His view on the facts was that the information the appellants had acquired as agents for the trustees was not property of the trust, that it could be used by them and that there was no possibility of its being used to injure the trust. He made no reference to Aas v. Benham. 
66.	Following Boardman v. Phipps, expressions of the principle of accountability explained in Regal (Hastings)Ltd v. Gulliver can be found explained, in similarly rigorous terms, in Kak Loui Chan v. Zacharia (1984) 154 CLR 178, at 198 and following, which again makes the point that ‘it is immaterial that there was no absence of good faith or damage to the person to whom the fiduciary obligation was owed.’ 
67.	Coming to my conclusions on the ‘no profit’ case, in my judgment the answer to the reliance placed by the judge and (before us) by Mr Mallin on Aas v. Benham is that it is of no relevance in considering the extent and application of the ‘no profit’ and ‘no conflict’ rules so far as they apply to fiduciaries such as trustees and directors. By way of an introduction to the reason why, it is helpful to consider Lord Browne-Wilkinson’s observations in Henderson and Others v. Merrett Syndicates Ltd and Others [1995] 2 AC 145, at 206:
‘The phrase “fiduciary duties” is a dangerous one, giving rise to a mistaken assumption that all fiduciaries owe the same duties in all circumstances. That is not the case. Although, so far as I am aware, every fiduciary is under a duty not to make a profit from his position (unless such profit is authorised), the fiduciary duties owed, for example, by an express trustee are not the same as those owed by an agent. Moreover, and more relevantly, the extent and nature of the fiduciary duties owed in any particular case fall to be determined by reference to any underlying contractual relationship between the parties. Thus, in the case of an agent employed under a contract, the scope of the fiduciary duties is determined by the terms of the underlying contract.’
68.	The point about Aas v. Benham is that it concerned the fiduciary duties owed by a partner whose duties were circumscribed by the contract of partnership. The extent of Mr Benham’s fiduciary duties was determined by the nature of the partnership business, which was expressly limited by the terms of the partnership agreement. The consequence was that if he used partnership information for any purpose that fell within the scope of the partnership business, he was required by the fiduciary obligations to which the contract subjected him to account to the firm for any profits so made; but his fiduciary obligations did not require him similarly to account to the firm for any profits made by the use of such information for a purpose that was beyond the scope of the business of the partnership. To those familiar with the wider obligations of accountability to which trustees and directors are subject, the decision in Aas v. Benham may at first sight appear to reflect a surprisingly narrow approach. But the explanation is that a trustee’s and director’s fiduciary duties are not similarly circumscribed by the terms of a contract. That distinction was squarely recognised by Lord Hodson in Boardman v. Phipps, and also, I consider, by Lord Guest. The explanation for the decision in Aas v. Benham was correctly summarised in the respondents’ submission to the House of Lords that I have earlier cited ([1967] AC 46, at 70A). 
69.	By contrast with Mr Benham’s position, directors of companies occupy what Lord Hodson in Boardman v. Phipps called a ‘general trusteeship or fiduciary position’. By that he was referring to those occupying a position whose fiduciary obligations are not circumscribed by contract. In his argument for the appellants in Boardman v. Phipps, Mr Arthur Bagnall QC, in distinguishing the appellants’ case from that of the directors in Regal (Hastings)Ltd v. Gulliver, submitted that the directors ‘were at all times directors of the company and therefore they were in a fiduciary capacity which was unlimited’ ([1967] AC 46, 65G). Submissions do not always reflect the law so much as what the advocate might wish the law to be. But I would regard it as correct to characterise the nature of a director’s fiduciary duties as being so unlimited and as akin to a ‘general trusteeship’. In my judgment, the decision in Aas v. Benham provides no assistance in determining the nature and reach of the ‘no profit’ rule so far as it applies to trustees and directors. In particular, in the present case, the scope of the company’s business was in no manner relevantly circumscribed by its constitution: it was fully open to it to engage in property investment if the directors so chose. The resolution of Ms McDonnell’s claim in the present case was and is not assisted by reference to Aas v. Benham. The relevant authorities are those relating to the fiduciary duties of directors, of which Regal (Hastings) Ltd v. Gulliver is the leading one.
70.	The statements of principle in the authorities about directors’ fiduciary duties make it clear that any inquiry as to whether the company could, would or might have taken up the opportunity itself is irrelevant; so also, therefore, must be a ‘scope of business’ inquiry. The point is that the existence of the opportunity is one that it is relevant for the company to know and of which the director has a duty to inform it. It is not for the director to make his own decision that the company will not be interested and to proceed, without more, to appropriate the opportunity for himself. His duty is one of undivided loyalty and this is one manifestation of how that duty is required to be discharged.
71.	This was a case in which, in the course of acting as directors on behalf of the company in an estate agency capacity, the respondents obtained information relating to the virtue of Aria House as an investment and were given the opportunity of personally sharing in the opportunity of purchasing it. It may have been improbable that the company could or would want or be able to take up the opportunity itself. But the opportunity was there for the company to consider and, if so advised, to reject and it was no answer to the claimed breach of the ‘no profit’ rule that property investment was something that the company did not do. Nor, until Mr Sulaiman telephoned Mr Shanahan, did the company do estate agency work. There was no bright line marking off what it did and did not do.  
72.	In my judgment the judge came to the wrong conclusion on the ‘no profit’ rule. I consider that, in principle, the respondents’ acquisition of their interest in Aria House exposed them to a claim for an account of profits by the company.
The ‘no conflict’ rule
73.	I can take the ‘no conflict’ rule more shortly. The judge concluded that there was no breach of it and I have explained why. In my judgment, however, there was a breach of it. The respondents became engaged in the Aria House affair in their capacity as directors of the company whose function was, as agent for Mr Sulaiman, to find a purchaser. They found Mr Walsh and brokered a deal under which, on exchange of contracts, £30,000 vendor’s commission was payable to the company by Mr Sulaiman. 
74.	When the Walsh deal fell through, the respondents, still as directors and acting on behalf of the company, were anxious to find a substitute purchaser, one who would ideally simply slip into Mr Walsh’s shoes and buy on like terms (with HLR being later used as the purchasing company, with the apparent intention of confusing Mr Sulaiman into believing that the purchaser was the same company as HLR IoM). The respondents appear to me to have conducted themselves generally in relation to this matter with a marked lack of business scruple and they (and the company) may well have breached various duties owed to Mr Walsh. Mr Clutterbuck made much of that but I do not regard it as at the forefront of relevance on the ‘no conflict’ point. As it seems to me, the simple point is that once the substitute Holleran arrangement was arrived at, the respondents were faced with the prospect that he was not prepared to agree to the payment of the £100,000 that would enable Mr Sulaiman to pay the company the £30,000 commission or any commission. He was only prepared to agree to the payment to Mr Sulaiman of the net £70,000. That made no difference as far as Mr Sulaiman was concerned. The only loser was the company. Under the substitute deal that the respondents brokered, one in which they were now personal participants, they also agreed with Mr Holleran that the company should no longer have its commission. When contracts were exchanged on 26 May 1999, it did not get any commission. Nor was it to be entitled to any in the future.
75.	That feature of the new deal appears to me to have placed the respondents in a conflict between their personal interests (to achieve a purchase in concert with Mr Holleran, who had made his position clear about the commission payment) and the company’s interests (to receive a proper reward for brokering the substitute deal). The respondents simply sacrificed the company’s interests and preferred their own. The company had not authorised them to do that. As directors their duty was to achieve a proper reward for the company for negotiating a sale of Aria House. In my judgment that feature alone of the substitute deal meant that the respondents were in a state of conflict of interest and duty when, through HRL, they entered into the purchase contract on 26 May 1999. It is nothing to the point that some time after the exchange of contracts they agreed to and did compensate Ms O’Donnell for losing out on her share of a £30,000 commission. That may have redressed the wrong she had so suffered and it is no doubt relevant to the respondents’ claim that Ms McDonnell acquiesced in their purchase. It did not, however, retrospectively prevent the acquisition by the respondents (through HRL) of their interest in Aria House from being one entered into breach of the ‘no conflict’ rule. 
76.	I therefore respectfully disagree with the judge on his conclusion that the ‘no conflict’ rule was not breached in this case.
Is Ms O’Donnell entitled to relief under section 459?
77.	It follows that I regard the respondents’ acquisition in 1999 of their interest in Aria House as having involved a breach of their fiduciary duties owed to the company. The complaint in the petition about the Aria House transaction was that its acquisition was an opportunity belonging to the company and that, in acquiring it in the way they did, the respondents were in breach of fiduciary duties (i) to act only in the company’s best interests, (ii) not to place themselves in a position of a conflict of interest and (iii) not to take for themselves business opportunities that were properly those of the company. The essence of those allegations has, I consider, been made good. 
78.	The respondents’ notice raised the assertion that, even assuming success by Ms O’Donnell thus far, she still did not make good a case that the proved breaches of duty unfairly prejudiced her interests as a member of the company. The assertion that they deprived the company of its own opportunity of acquiring an interest in Aria House failed on the facts, because the judge found that the company could not and would not have taken the opportunity up. Thus (lost commission apart) the breaches of duty deprived the company of nothing; and Ms O’Donnell can hardly complain about the lost commission because she was paid and accepted a sum approximating to her share of it. Whilst the consequences of the respondents’ breaches of duty may have been to subject them to a duty to account to the company for their profit (if any) on the acquisition, there was no allegation that they had failed to do so, and no case was sought to be made that any such failure had unfairly prejudiced Ms O’Donnell as a member. Mr Mallin also submitted that, given that Ms O’Donnell’s knew in the summer of 1999 of the acquisition and yet still waited some eight years before presenting her petition, the just conclusion is that she has acquiesced in it and in the respondents’ breaches of duty. He said it followed that it was and is inequitable to allow her now to assert that the acquisition amounted to the appropriation of an opportunity belonging to the company.
79.	As to the last point, Mr Clutterbuck’s submission was that there can have been no acquiescence by Ms O’Donnell because, by analogy with the principles applicable to a claimed acquiescence by a beneficiary in a breach of trust, it is familiar law that before there can be such an acquiescence the beneficiary must have a full knowledge of the facts. On the judge’s findings, however, there was no disclosure by the respondents either to the company or to Ms O’Donnell of all the material facts: in particular, she did not know of the respondents’ breaches of duty towards Mr Walsh, or of their reliance on the Matthews & Goodman report, on Jacobsens’ work and on the positive responses to the proposed acquisition by the banks. I accept Mr Clutterbuck’s submission that in these circumstances Ms O’Donnell’s claim cannot be regarded as precluded by acquiescence.
80.	That leaves the balance of Mr Mallin’s points. I have concluded that they do not justify the final closing of the door on Ms O’Donnell’s case. I accept that, to the extent that it was part of her case that the respondents’ conduct with regard to the Aria House opportunity prevented the company from taking up the opportunity itself, the company lost nothing. But if, as I consider, the respondents were under a duty to account to the company for any profit they earned on the acquisition, their failure to do so would have been damaging to the company and might, in consequence, also have been unfairly prejudicial to Ms O’Donnell as a member. It is true that this is not quite how the case is pleaded. But the prayer to the petition does ask, by way of further or alternative relief, for an account of profits in favour of the company; and it would, in my view, be unrealistic not to regard the failure to account as implicitly forming part of the complaints raised by the petition. Mr Clutterbuck submitted in his reply that the respondents’ retention of money belonging to the company must be unfairly prejudicial to Ms O’Donnell.
81.	I do not feel able, on the material before us, to accept that last submission unquestioningly. First, there was, I understand, no evidence before the judge as to whether the respondents have made any profit on the Aria House acquisition: the case was argued on the assumption that they have. Second, the company is insolvent and so it does not follow that any accounting to it will benefit Ms O’Donnell as a member. There has been no finding of fact in relation to these matters. That is, I emphasise, no criticism of the judge. Once he had come to the conclusions that he did on the Aria House aspect of the case, these matters did not call for further inquiry. 
Disposition
82.	The question thus arises: what should this court do with this appeal? In the circumstances I have summarised, I consider that the fair course would be for the court to allow the appeal and to remit to the judge the trial of the issue whether the failure by the respondents to account to the company for the profit (if any) enjoyed by them on the Aria House acquisition has unfairly prejudiced Ms O’Donnell as a member of the company; and, if yes, to what (if any) relief she is entitled. That issue will, it seems to me, be likely to involve an inquiry into a wide range of factual matters that have not yet been investigated; but, as indicated, it will not be open to the respondents to assert acquiescence by Ms O’Donnell in any breaches of duty by the respondents. 
Lord Justice Aikens :
83.	I agree.
Lord Justice Waller :
84.	I also agree.