Much Ado About Nothing: Technical Breaches Of Directors' Disclosure Duties In Fairford Water Ski Club v Cohoon & Anor [2021] EWCA Civ 143

• Published date: 23 August 2021
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers, Contracts and Commercial Law, Shareholders
• Law Firm: Gatehouse Chambers
• Author: Michael Levenstein

In Fairford Water Ski Club Ltd v Cohoon & Anor [2021] EWCA Civ 143, the Court of Appeal considered a highly technical breach of the duty imposed on company directors to disclose any interest in a contract or proposed contract entered into by their company. The decision considers several practical issues surrounding the duty to disclose, such as whether disclosure is effective only if given after the terms have been agreed and the board has considered whether these represent fair value; and whether disclosure at a first board meeting is effective for subsequent meetings. The case also highlights differences in the statutory frameworks applicable to the duty under the Companies Act 1985 and 2006.

Background

The Respondent was a private company ("the Club"), in which the First Appellant ("Mr Cohoon") was Chairman and one of four directors. Mr Cohoon was also a partner in an unincorporated partnership ("Watersports"), which operated a related business from a pub on the Club's premises and, through Mr Cohoon, provided management services to the Club.

The agreements between the two businesses in respect of these matters were initially on an informal basis, though Watersports received fees for the services provided and the Club received rent for Watersports's use of the pub.

However, at an AGM held in March 2006, a shareholder questioned the relationship between the Club and Watersports. The matter was discussed at a board meeting in April 2006, and all concerned were alive to the potential conflict of interest. Although the board was satisfied that the then-current payments to and from the parties represented fair value, a sub-committee of the board was formed to reconsider the basis upon which the pub was leased and the management fees paid. It was agreed that these should be arranged on an arm's length basis and that an independent valuation would be obtained as to the market value of the use and occupation of the pub.

Such independent valuation did not ultimately occur, but proposals as to new terms were made during December 2006 and considered at a further board meeting in January 2007. The minutes recorded: (i) that the meeting had been convened specifically for the purpose of discussing the Club's relationship with Watersports and Mr Cohoon; and (ii) an express acknowledgement of a potential conflict of interest on the part of Mr Cohoon for which the directors had "due regard".

At the next AGM in March 2007, the Chairman (ie, Mr Cohoon) reported on the matter and the conclusions drawn by the board in respect of new rent and management fees considered at the January 2007 meeting. Following a further board meeting in May 2007, revised terms...