This case is authority for the principle that a company director cannot allow his duty to the company to conflict with his personal interests, a duty that is now in statutory form (s175 of the Companies Act 2006).
The company (“Regal”) operated a London cinema. The defendant was one of its directors, who proposed to the members of the company that it purchase two other cinemas. This opportunity was declined. Accordingly, the directors resigned their position and set up another company (“Amalgamated”). Amalgamated purchased the cinemas with a view to selling them back to Regal, and operated them successfully over the next few years. As a consequence, the value of the directors’ shares in Amalgamated increased.
The new directors of Regal then brought a claim on behalf of the company against Gulliver and the other former directors to require them to account to Regal for this profit, arguing that this was an opportunity they had obtained as a result of their position as directors of Regal. Gulliver replied that the profit had been made as a result of his own effort and acumen, there had been no impropriety on his part, and Regal should not benefit from an opportunity which they had declined to take up in the first place.
While accepting these arguments, the House of Lords (by a bare majority of 3 to 2) found that as the opportunity to purchase the cinemas had arisen as a result of his directorship of Regal, Gulliver had a duty to account for the profit he had made, regardless of the fact that Regal had declined this opportunity. The case therefore demonstrates the strictness of the prohibition on conflicts of interest irrespective of the intentions of the directors.