In the first case, Mr Towers was a director of Premier Waste Management Limited (Premier). Premier was a customer of a Mr Ford, who ran a small plant hire business. Premier also sometimes sold items of plant to Mr Ford.
Mr Towers was carrying out building work on a property he owned. He needed a small digger and dumper truck. Another employee of Premier, Mr Rafter, asked Mr Ford for the loan of these machines as a favour. Mr Ford lent the machines, which were then used by Mr Towers for around six months. The machines were subsequently left at Mr Towers' property until five years later when Mr Ford asked for them to be returned to him.
By this point, the machines were old and in bad condition. While Mr Towers carried out some repair work on them himself, the digger was in need of new tracks. Mr Rafter arranged for these to be fitted and had the invoice for the work sent to Premier - apparently on the understanding that Premier would be reimbursed. When Mr Towers found out about this, he complained that the invoice should not have been sent to Premier at all. Premier then invoiced Mr Ford for an amount reflecting that the repair work meant he was getting back machines in better condition than when they had been lent out originally.
Mr Ford then invoiced Premier for five years' hire of the two machines. Premier claimed for this in turn against Mr Towers and Mr Ford (but the company settled with Mr Ford). The claim against Mr Towers was for breach of his director's duties to promote the best interests of Premier, and not to make secret personal profits from Premier's business or receive benefits from third parties. These are now covered by sections 172, 175 and 176 Companies Act 2006.
It appears that none of those involved had given any thought to Premier's position in what they may have seen as simply a private deal between themselves. The Court of Appeal, however, had no hesitation in upholding the first instance decision that Mr Towers was in breach of duty. He had taken advantage of a business relationship of Premier's to obtain a personal benefit; namely the free loan of equipment. Not only that, but he had taken no steps either to notify Premier of what was happening or to seek approval for it.
In addition, Mr Towers had also deprived Premier of the opportunity to hire the two machines for its own purposes. It was irrelevant that Premier had never had any need or wish to hire them. Premier had suffered loss, in the form of the payment for new tracks, which was only later repaid to it. But again, this was irrelevant; even if there had been no financial loss to Premier at all, the breach of duty would still be made out.
As a result, Mr Towers was ordered to pay Premier the market rate of hiring the machines for the six months during which he actually used them (just over £5,000 plus interest). This sum bore no relation to the amount paid by Premier for the new tracks; it was not compensating Premier for financial loss, but cancelling out the personal gain made by Mr Towers by having the machines on loan for nothing.
The Court of Appeal ruled that the decision was unaffected by whether or not Mr Towers, as opposed to Mr Rafter, arranged the original loan with Mr Ford. It was not necessary to enquire if those involved had acted dishonestly. Mr Towers had allowed his personal interests to conflict with those of Premier. Premier, like all companies, was entitled to absolute loyalty from its directors in every respect. The relatively small amount involved was also unimportant; the duties are strict and do not only apply where larger amounts are involved.
Giving the leading judgment, Lord Justice Mummery commented that, when ruling on events arising before the codification of directors' duties "It is unrealistic to ignore the terms in which the general statutory duties have been framed for post-2006 Act cases. They extract and express the essence of the rules and principles which they have replaced."
The second case was somewhat different, involving a much longer history, more household names and a great deal more money. A summary of the facts as found by the High Court is as follows.
In 1998, Theo Paphitis, now well-known from TV's "Dragons' Den", was a director and major shareholder of what later became the Ryman group of companies. An opportunity arose to acquire the "La Senza" lingerie business. Although this would have made a good fit with an existing lingerie business owned by the Ryman group, it was decided that the Ryman group should not acquire La Senza. This was because at that time, La Senza's poor financial performance would have had a negative impact on the Ryman group's results.
La Senza's owner then made a fresh approach, offering to sell its controlling shareholding for £1, subject to the buyer taking over numerous financial obligations under equipment leases and similar contracts. However, the Ryman group board still did not want to buy La Senza. Instead, Mr Paphitis used a new shelf company, Xunely, to make the acquisition, aided by loans of up to £1.8 million and other assistance from the Ryman group. All these arrangements were discussed during a late-night meeting of the Ryman board, attended by three of its five directors. The arrangements were approved and Xunely completed the acquisition. Some of the other Ryman directors also joined the board of Xunely and/or later acquired shares in it.
As it turned out, the Ryman board meeting was invalid, because notice of the meeting was not given to one of the directors. However, a few days later a further board meeting (attended by four directors, including the two who had missed the invalid meeting) reviewed and confirmed the arrangements. These included arms' length arrangements, whereby La Senza would pay for management and administrative services and for occupation of part of Ryman's premises.
One of Ryman's other shareholders, the claimant Mr Kleanthous, raised a number of queries as to why Xunely rather than Ryman had acquired La Senza. However, it was only after Xunely sold La Senza for more than £100 million in 2006 that legal proceedings were commenced. The claimant applied for leave to bring a derivative action, i.e. an action in the name of Ryman, against Mr Paphitis and the other directors. They were alleged to have had conflicts of interest in relation to the La Senza acquisition, from which some of them obtained personal benefits. They had, it was said, diverted a very valuable business opportunity away from Ryman.
The High Court refused to allow the derivative action to proceed. The arrangements whereby Ryman had agreed to assist Xunely to acquire La Senza had been entirely open and had been disclosed to the Ryman board. This was in line with the company's articles of association. The board minutes recorded the reasons why it was decided that Ryman should not acquire La Senza itself and the board had approved the acquisition by Xunely. There was nothing to indicate that, in the light of the facts as known at that time, the decision to allow Xunely to acquire La Senza was made other than on proper grounds.
So, a few thousands against hundreds of millions of pounds, but a different result. This appeared to turn largely on whether or not the transactions in question were appropriately disclosed to, and approved by, the board of the relevant company.