Company law; directors’ duties; duty of good faith
Facts: Certain shareholders in a company (the plaintiffs) wished to sell their shares. They approached the directors and stated a price at which they were prepared to sell. This price had been arrived at by means of a market valuation. The directors agreed to buy the shares from the plaintiffs at the price asked. However, prior to buying the shares, the directors did not inform the plaintiffs that the directors were negotiating to sell the company at a higher price for the shares than the plaintiffs had asked. The plaintiffs brought an action to have the sale of their shares set aside as void, on the grounds that the defendants had breached their duty of good faith.
Issue: Had the directors breached a duty of good faith owed to the shareholders?
Decision: In the circumstances, the directors owed a duty of good faith to the company and not to the individual shareholders.
Reason: Swinfen Eady J said (at 426):
The true rule is that a shareholder is fixed with knowledge of all the directors’ powers, and has no more reason to assume that they are not negotiating a sale of the undertaking than to assume that they are not exercising any other power. … the purchasing directors were under no obligation to disclose to their vendor shareholders the negotiations which ultimately proved abortive. The contrary view would place directors in a most invidious position, as they could not buy or sell shares without disclosing negotiations, a premature disclosure of which might well be against the best interests of the company.