Percival v Wright [1902] 2 Ch 421
Court: High Court
Facts: Shareholders in Nixon’s Navigation Co. wished to sell their shares and asked the company’s secretary to find buyers. Some directors bought these shares at £12.10 per share, a price based on an independent valuation. Subsequently, it was revealed that the directors had been negotiating to sell the entire company, which would have increased the value of the shares significantly had the sale been completed. The plaintiff shareholder sued, alleging:
Directors typically do not owe fiduciary duties to individual shareholders, but in this case, they were in a position of trustees for the sale due to the imminent sale of the company.
The failure to disclose the ongoing negotiations constituted a breach of fiduciary duty.
Issue: Was the failure to disclose ongoing negotiations a breach of fiduciary duty to the individual shareholders?
Held: Claim dismissed. The court found that no fiduciary duty was owed by the directors to the shareholders in this context.
Key Judicial Statement: Swinfen Eady J stated, “It was strenuously urged that, though incorporation affected the relations of the shareholders to the external world, the company thereby becoming a distinct entity, the position of the shareholders inter se was not affected, and was the same as that of partners or shareholders in an unincorporated company. I am unable to adopt that view.”
“I am therefore of opinion that 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.”
💡 Leveluplaw: Directors are not required to disclose ongoing negotiations to shareholders when buying shares from them, as their duty is to the company as a whole rather than individual shareholders. The fiduciary duty is owed to the company, and in the absence of a special relationship, directors are not considered trustees for individual shareholders.