Aberdeen Railway Co v Blaikie Bros (1854) 1 Macq 461
Company law; directors’ duties; duty to avoid a conflict of interest
Facts: Aberdeen Railway Co agreed to purchase a quantity of iron seats from Blaikie Bros, a partnership that manufactured such products. At the time of contracting, one of the directors of Aberdeen Railway was also a partner of Blaikie Bros. Aberdeen railway brought an action against Blaikie Bros to avoid the contract on the grounds that the director who was also a partner of Blaikie Bros had a conflict of interest which had not been disclosed.
Issue: Did the director who was a partner in the other contracting party have a conflict of interest?
Decision: In the circumstances, there was a conflict of interest, and the contract could be avoided.
Reason: As a director of Aberdeen Railway, the director should have sought to purchase the goods from Blaikie Bros at the lowest possible price. However, as a partner of Blaikie Bros, he should have sought to sell the goods at the highest possible price. The director’s duty to the Aberdeen Railway was therefore clearly in conflict with his simultaneous duty to Blaikie Bros. It did not matter that the contract was concluded on ostensibly fair terms: the conflict of interest made the contract avoidable.