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It is commonly said that directors owe duties to their company, but not to the company’s shareholders, and in broad terms this observation is correct. However, directors do owe shareholders a general duty to provide them with sufficient information to enable them to make decisions, and in exceptional cases may also owe shareholders far-reaching fiduciary duties.
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When directors’ duties are spoken of, the reference is usually to the statutory duties set out in the Companies Act 2006, amongst them the duty to promote the success of the company, the duty to exercise reasonable care and skill and the duty to avoid situations in which the director’s interests conflict with those of the company. It is stated expressly in section 170(1) of the Act that these duties are owed to the company.
Directors do, however, owe shareholders a duty to provide them with sufficient information to enable them to make decisions on an informed basis (Re RAC Motoring Services Ltd  1 BCLC 307; Gething v Kilner  1 WLR 337).
As to whether directors owe any fiduciary duties to shareholders, the courts have long started from the premise that this question should be answered in the negative. In the leading case on the point, Percival v Wright  2 Ch 421, directors purchased shares from the company’s shareholders without informing them that a third party was interested in purchasing the company’s business on terms which would value its shares at considerably more than the sale price. The court declined to find that the directors owed the shareholders a fiduciary duty to disclose the discussions with the third party and refused to set aside the sale.
It is also well established, however, that the general rule that directors do not owe fiduciary duties to individual shareholders is not absolute. The key case is the Court of Appeal’s decision in Peskin v Anderson  1 BCLC 372, in which Mummery LJ confirmed that the fact that a director owes duties to the company does not preclude him from also owing duties to individual shareholders. He stressed, however, that a fiduciary duty to shareholders will arise only if there is a “special factual relationship between the directors and the shareholders in the particular case”. Essentially, the question is whether the director has expressly or impliedly taken responsibility for acting in a shareholder’s interests. Certainly, a director who acts as a shareholder’s agent in relation to the sale of the latter’s shares will owe him a duty of loyalty, but a duty can arise in other situations, too. It may be found, for example, in the context of a family company in which the shareholders rely on the directors for information and advice (Platt v Platt  2 BCLC 745; Coleman v Myers  2 NZLR 225). In discussing the nature of the relationship which may result in a director owing a duty to a shareholder, Mummery LJ commented in Peskin v Anderson as follows:
“There are, for example, instances of the directors of a company making direct approaches to, and dealing with, the shareholders in relation to a specific transaction and holding themselves out as agents for them in connection with the acquisition or disposal of shares; or making material representations to them; or failing to make material disclosure to them of insider information in the context of negotiations for a take-over of the company’s business; or supplying to them specific information and advice on which they have relied. These events are capable of constituting special circumstances and of generating fiduciary obligations, especially in those cases in which the directors, for their own benefit, seek to use their position and special inside knowledge acquired by them to take improper or unfair advantage of the shareholders.”
It will always be a question of fact in the particular case as to whether a sufficiently special relationship exists between a director and a shareholder. There is no list, as such, of the types of relationship which will give rise to a fiduciary duty.
Sharp v Blank  EWHC 3220 (Ch)
The decision in Sharp v Blank concerned an application by directors of a company to strike out a claim by shareholders that the directors owed them certain fiduciary duties.
The company in question was Lloyds TSB plc, and the proceedings related to its acquisition of Halifax Bank of Scotland plc in 2009. Specifically, the shareholders claimed that, in advising them to approve the acquisition, the directors owed them various fiduciary duties and various duties of care in tort. As far as the former were concerned, the shareholders claimed that the directors owed them the following duties:
The directors accepted that they owed the shareholders the last two of these duties (which the judge regarded as being part of the duty to provide shareholders with sufficient information), but invited the court to strike out the claim that they were subject to the first four duties.
Nugee J began his discussion of the relevant legal principles by observing that although directors owe fiduciary duties to their company, “in general the directors do not, solely by virtue of their office of director, owe fiduciary duties to the shareholders, collectively or individually”. He then noted that there were instances in which a court had, nevertheless, concluded that a director owed fiduciary duties to shareholders and that such cases were based on the existence of, in Mummery LJ’s words, a “special factual relationship”. Having reviewed the relevant decisions, he set out his understanding of the law as follows:
“It seems to me … that this special relationship must be something over and above the usual relationship that any director of a company has with its shareholders. It is not enough that the director, as a director, has more knowledge of the company’s affairs than the shareholders have: since they direct and control the company’s affairs this will almost inevitably be the case. Nor is it enough that the actions of the directors will have the potential to affect the shareholders – again this will always, or almost always, be the case. On the decided cases the sort of relationship that has given rise to a fiduciary duty has been where there has been some personal relationship or particular dealing or transaction between them.”
He added that in practice the cases in which a duty had been found to exist tended to involve certain common features, namely:
On the facts before him, Nugee J concluded that there was no special relationship between the directors and the shareholders such as to give rise to any duty beyond the duty to provide sufficient information. It was not enough, in his view, that the directors of Lloyds TSB plc knew more about the company than the shareholders and had advised them to approve the acquisition.
A final point of interest in the case was the suggestion on behalf of the shareholders that the sufficient information duty was fiduciary in nature, and so in any case incorporated the core fiduciary obligations, including a duty to act in the shareholders’ interests. The judge expressed grave doubts as to whether the duty was, indeed, fiduciary in nature, characterising it as being based on fairness rather than loyalty, and declined to hold that it encompassed the usual fiduciary duties.
Whilst the decision in Sharp v Blank does not significantly develop the law in this area, it serves as a useful reminder of the extent to which a director may owe duties directly to shareholders, and Nugee J’s comments on the sufficient information duty are of particular interest. In the light of the case, the present state of the law may be summarised as follows.
Directors certainly need to understand that they owe their statutory duties under the Act to the company, and not to its shareholders. Equally, however, they should not be blind to the fact that they owe a general duty to shareholders to provide them with sufficient information to enable them to make informed decisions, and, depending upon the circumstances, may also owe them wider fiduciary duties. Bearing in mind the fact that directors may also owe shareholders a duty of care under tort law (indeed, the directors in Sharp v Blank accepted that they owed the shareholders such a duty), it will be apparent that a director who wishes to minimise his potential exposure to liability in respect of his conduct of the company’s affairs needs to look well beyond his core duties to the company.