The Court of Appeal (Civil Division) handed down judgment in the Case of O’Donnell v Shanahan and another [2009] EWCA Civ 751 on 22nd July 2009. In an application under section 459 of the Companies Act 1985, Ms O’Donnell applied to the court for an order that the respondents purchase her shares in Allied Business & Financial Consultants Limited (‘the company’) for a fair value, on the ground that she had been unfairly prejudiced by their purchase of an investment property called Aria House in breach of their fiduciary duties as directors of the company.

The property was purchased through a company incorporated as Harlequin Resources Limited, of which the respondents were 50% shareholders. The respondents had agreed to the purchase with the aim of salvaging the transaction after their original client had backed out. Using information from a report obtained on behalf of and paid for by their former client the respondents saw the property as a good investment opportunity.

Reversing the decision of the judge, the Court of Appeal held that the directors had acted in breach of the ‘no conflict’ and ‘no profit’ rules by failing to obtain Ms O’Donnell’s approval prior to the purchase and failing to account for any profit made. The Court held that the scope of business exception set out in Aas v Benham [1891] 2 Ch. 244 was not relevant to the rules governing fiduciaries and directors of a company, but applied only in circumstances where the extent of the directors’ duties are restricted to those set out in the partnership deed. Applying Keech v Sandford, Sel. Cas. Ch. 61 the applicant only has to establish “that what the directors did was so related to the affairs of the company that it can properly be said to have been done in the course of their management and in utilisation of their opportunities and special knowledge as directors;” and “that what they did resulted in a profit to themselves.”

The Court remitted to the trial judge the issue of whether the failure to account to the company for the profit had unfairly prejudiced Ms O’Donnell as a member of the company.