Towers v Premier Waste Management Ltd [2011] EWCA Civ 923

Court: Court of Appeal

Facts: Mr. Towers, a former director of Premier Waste Management Ltd, accepted a personal loan of plant and equipment from Mr. Colin Ford, a customer of the company, in 2003 without informing the company’s board. The loan was not disclosed, and the plant and equipment were returned in 2008 after Mr. Ford invoiced the company for their hire. The company sued Mr. Towers to recover the benefit he obtained from the loan, which was settled between the company and Mr. Ford. The claim against Mr. Towers continued in court. The judge ordered damages reflecting the benefit Mr. Towers received based on the rate Mr. Ford intended to charge the company.

Issue: Whether Mr. Towers' failure to disclose the personal loan constituted a breach of his duty under section 176 of the Companies Act 2006, which prohibits accepting benefits from third parties without company consent.

Held: The appeal was dismissed. Mr. Towers was found to have breached his duties by failing to disclose the personal loan, which was considered a benefit from a third party without informing the company.

Key Judicial Statement: Mummery LJ remarked: “The applicable duties are of a director’s loyalty to the company and the duty to observe the no conflict principle, which embrace a duty not to make a secret profit for himself. The no conflict duty extends to preventing Mr. Towers from disloyally depriving the company of the ability to consider whether or not it objected to the diversion of an opportunity offered by one of its customers away from itself to the director personally.” “The ‘commercially sensible’ defences set up by Mr. Quiney to the breach of the undivided loyalty duty also miss the point: the strict no loyalty and no conflict duties were breached by Mr. Towers. The absence of evidence that the Company would have taken the opportunity, or has in fact suffered any loss, or that Mr. Towers or Mr. Ford had any corrupt motive or that, if there had been no free loan, Mr. Towers would have hired that sort of equipment in the market; the fact that the value of the benefit to Mr. Towers was small and that Mr. Ford received no benefit from it; the fact that Mr. Rafter and not Mr. Towers dealt directly with Mr. Ford and was the prime mover: none of those matters supported the contention that there was no breach of the duty of loyalty or the no conflict duty.”

💡Leveluplaw: Directors must not accept benefits from third parties without the company's knowledge and consent. The failure to disclose such benefits constitutes a breach of duty, regardless of whether the benefit was substantial or whether the company suffered any actual loss.