INDUSTRIAL DEVELOPMENT CONSULTANTS LTD. V. COOLEY (1972) 1 WLR 443

INDUSTRIAL DEVELOPMENT CONSULTANTS LTD. V. COOLEY (1972) 1 WLR 443

 

FACTS

• The defendant, Neville Cooley, was former chief architect of the West Midlands Gas Board. In 1967 he met Mr. Howard Hicks, the chairman and managing director of a group of companies which included the plaintiff company, Industrial Development Consultants Ltd (IDC).
• The Eastern Gas Board had a lucrative project pending, to design a depot in Letchworth. Mr. Cooley was told that the gas board did not want to contract with a firm, but directly with him.
• Cooley then told the board of IDC Group that he was unwell and requested he be allowed to resign from his job on early notice. They acquiesced and accepted his resignation.
• He then undertook the Letchworth design work for the gas board on his own account. Industrial Development Consultants found out and sued him for breach of his duty of loyalty.
• By his defence the defendant denied that he was under a duty to the plaintiffs to disclose to them his conversations with the Eastern Gas Board, and he denied that the plaintiffs were entitled to the relief claimed.

 

ISSUE

• Whether Mr. Cooley had breached his fiduciary duties as a director by taking advantage of a business opportunity that should have gone to IDC?

 

HELD
The court held that Mr. Cooley had indeed breached his fiduciary duties. The reasoning was that as a director, he had a duty to act in the best interests of the company. By taking the client for his own benefit, he had put himself in a position where his personal interests conflicted with those of the company.

• Roskill J. held that even though there was no chance of IDC getting the contract, if they had been told they would not have released him. So he was held accountable for the benefits he received. He rejected the argument, that; because he made it clear in his discussions with the Gas Board that he was speaking in a private capacity.
  Cooley was under no fiduciary duty. He had ‘one capacity and one capacity only in which he was carrying on business at that time. That capacity was as managing director of the plaintiffs.’ All information which came to him should have been passed on.
  Roskill J, quoted, Parker v. MacKenna (1874) 10 Ch.App. 96, James L.J. said, at p. 124:
  “I do not think it is necessary, but it appears to me very important, that we should concur in laying down again and again the general principle that in this court no agent in the course of his agency, in the matter of his agency, can be allowed to make any profit without the knowledge and consent of his principal; that that rule is an inflexible rule, and must be applied inexorably by this court, which is not entitled, in my judgement, to receive evidence, or suggestion, or argument as to whether the principal did or did not suffer any injury in fact by reason of the dealing of the agent; for the safety of mankind requires that no agent shall be able to put his principal to the danger of such an inquiry as that.”

 

COMMENTARY
“Position on cessation of directorship—The decision in Industrial Development Consultants Ltd v Cooley,  is a reaffirmation of the belief in the Regal Standard of honesty. The managing director of a company tried to get from the Gas Board a Government contract for the company. But the Gas Board plainly told him that the Government would not allow the contract to the company, but was willing to deal with him personally. He resigned from the company, under the pretence of ill-health and then promptly obtained the contract for himself. Having earned a handsome profit, he had to face an action from the company to account for it. The court held that the managing director had acted in breach of his duty and, therefore, must account. In the Peso Silver Mines case the directors had in good faith rejected the opportunity to acquire adjacent mines and then some directors used the opportunity. Here the company greatly desired the contract and employed Cooley only in a bid to obtain it. But the fact remains that it was the Government, not Cooley, who was to blame for what had happened. The moral of the decision is that either Cooley should have refrained from the contract or executed it at his personal risk and responsibility, but all the time for the benefit of the company.”