Dissenting director in breach of contractual and fiduciary duties

Cases

Today the High Court gave judgment in Stobart Group Ltd v Tinkler [2019] EWHC 258 (Comm), a high profile boardroom dispute at the FTSE 250 company involving its former CEO.  As the judge put it: “Reduced to basics, the essential questions stem from what became a confrontation between the majority on the company’s main board, on the one hand, and, on the other, a dissenting director who has generated support from shareholders”.

Following his decision to step down as CEO, Mr Tinkler was an executive director at the company, and over the course of late 2017 and the first half of 2018 became disgruntled with the senior leadership of the company.

A number of conversations took place in early 2018 between Mr Tinkler and various shareholders, leading to a point by May 2018 at which Mr Tinkler was actively and openly campaigning for the company’s Chairman, Mr Ferguson, to be replaced.  On 14 June 2018 the Board (acting by committee) resolved to dismiss Mr Tinkler as an employee, and under a term in his Service Agreement consequently to remove him as a director.

At the company’s AGM shortly thereafter, though, Mr Tinkler was elected back onto the Board by shareholders.  The other directors re-elected to the Board at the AGM acting unanimously used a power within the company’s Articles to remove him the next day.

By these proceedings the company sought declarations that Mr Tinkler had been validly and lawfully dismissed as an employee and removed as a director, as well as financial remedies for various breaches of duty by Mr Tinkler; while Mr Tinkler sought inverse declarations that he had been unlawfully dismissed/removed, was still a director and employee, and that four of the company directors had been acting in breach of their duties to the company.

The court found that a number of actions taken by Mr Tinkler during that the first half of 2018 amounted to serious breaches of his fiduciary duties (as a director) and contractual duties (as an employee).  He had thus been lawfully and validly dismissed as an employee and (twice) removed as a director.  Those breaches were:

  • speaking to the company’s significant shareholders and criticising the Board’s management and the group’s business and agitating for the removal of Mr Ferguson;
  • improperly sharing confidential information;
  • writing to shareholders and company employees regarding his dispute with the other directors; and
  • orchestrating a ‘petition’ and letter to the Board from senior staff.

The judgment sets out principles as to the actions required of a ‘dissenting director’, who is duty-bound to exercise independent judgment, but does so as part of a collegiate board.  The judge described the position of the dissenting director as follows:

“413 In my judgment, the authorities cited to me by each side support the unsurprising proposition that the duty to exercise independent judgment is one that operates upon each director in the context of him operating as a member of the board of directors. This obligation comes with the office of director and does not carry with it some kind of entitlement or licence for an individual director to go off and do his own thing, independently of the board, in relation to matters that fall within the sphere of management of the company’s business. It is only as a member of the board that the director has been entrusted within information about management matters in the first place. Therefore, any discussion by him of those matters with shareholders should either be in the presence of the rest of the board or with the prior approval of the board…

414 The individual director should therefore (as appropriate) raise, debate, reflect upon and then decide upon his own position on such matters at the level of the board, either as part of the majority or as a dissenting voice. Only by doing so will he facilitate his fellow directors’ compliance with their own duties to exercise an independent judgment and to act in the best interests of the company. The duty upon each director to exercise an independent judgment exists in order to support the board’s management of the company’s business in an efficient and competent manner. By invoking it to justify what might be, or border upon, freelance activity on his part, a director is likely to hinder rather than contribute to the board’s management of the business.”

Richard Leiper QC and Daniel Isenberg appeared for the company, instructed by Rosenblatt Limited. Media coverage of the judgment can be found here, here and here.