A case has relaxed the strict rule, established in 1902, that a director owes no fiduciary duty to individual shareholders but only to the whole company.
Three brothers were shareholders in a BMW dealership. Keith held ordinary shares and ran the business. The other two brothers held redeemable preference shares. By 1992, Keith was the only director of the company and the only shareholder in touch with BMW. The company was doing badly.
At meetings in 1992, Keith represented to his brothers that BMW was threatening to withdraw the dealership because it was worried about contingent liabilities and his brothers’ holdings of preference shares. BMW had made no such threats, though it had expressed concern at the company. BMW recognised that selling the dealership was an option to the brothers, but was not requiring it. On the basis of Keith’s exaggerated and coloured accounts, the brothers agreed to sell their shares to him for £1.
The dealership was not sold, and the company returned to profitable trading. The brothers asked for their preference shares back, but Keith refused. The company was sold in 1996 creating a profit of almost £770,000. The brothers sued for breach of contract, misrepresentation and breach of fiduciary duty.
The precedent established in Percival and Wright [1902] was that a director owed no fiduciary duty to an individual shareholder. In the present case, the judge noted that this precedent had not been followed in a New Zealand case in 1977, and had been criticised by a UK judge in a 1992 case. To uphold the 1902 precedent against the brothers in this case would lead to absurdity. In special circumstances, a company director owes a fiduciary duty to individual shareholders.
Platt v Platt. 2 BCLC 745 [1999]
[2000]