Regal (Hastings) Ltd v Gulliver
Rule established
Directors must account for any profit made by virtue of their position; the no-profit rule is strict and applies irrespective of whether the company could have obtained the profit itself or suffered any loss.
Facts
- Regal (Hastings) Ltd owned a cinema and wished to acquire two additional cinemas through a subsidiary company.
- The subsidiary needed capital of £5,000 but Regal could only provide £2,000.
- The directors personally subscribed for the remaining shares in the subsidiary.
- When all shares in both companies were later sold, the directors made a profit on their personal shareholdings.
- The new owners caused Regal to sue the former directors to account for their profit.
Issue
- Whether directors who make a profit by reason of their fiduciary position must account for it to the company, even where they acted honestly and the company could not itself have obtained the benefit.
Held
- The House of Lords held that the directors were liable to account for the profit. The profit was obtained by reason of the fiduciary relationship: they were only in a position to acquire the shares because of their directorship. The rule is inflexible: a fiduciary who obtains a benefit by virtue of his position must surrender it to the principal, regardless of good faith, absence of loss, or the company's inability to have seized the opportunity.
Ratio Decidendi
The no-profit rule requires that a director must not make a personal profit from the use of corporate property, information, or opportunity that comes to him by virtue of his position. This duty is strict and prophylactic: it does not depend on dishonesty, loss to the company, or the company's capacity to exploit the opportunity. The rationale is deterrence: fiduciaries must be held to the highest standard to prevent even the temptation of placing personal interest above duty.
How to use it in an exam
- This is the definitive authority on the "no-profit rule" applicable to directors. Deploy in any question on fiduciary duties, corporate opportunities, or secret profits. Contrast with Boardman v Phipps (1967) for trustees and Industrial Development Consultants v Cooley for the corporate opportunity doctrine. Essential for establishing that the rule operates regardless of good faith or absence of harm.
- Key quotable line: "The rule is that a director must account for profit acquired by reason of his fiduciary position, regardless of fraud, good faith, or the company's loss."
Source
Source: [1967] 2 Appeal Cases 134
This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.