Boardman v. Phipps

"Boardman v. Phipps" [1967] 2 AC 46 is an English trusts law case concerning the duty of loyalty and the duty to avoid conflicts of interest.

Facts

Mr Boardman was the solicitor of a family trust. He and a beneficiary, Tom Phipps, went to a shareholders general meeting of company (a textile company with factories in Coventry and an Australian subsidiary) where the trust held shares. They realised together that they could turn the company around. They asked a trustee (Mr Fox) and he seemed to say it would be okay for them to invest. They bought a majority stake. But they did not obtain the fully informed consent of all the beneficiaries. The company did very well, making them a lot of money, and also money for the trust. But then John Phipps, another beneficiary, sued for their profits, because they had put themselves in a conflict of interest position.

Judgment

The majority of the House of Lords (Lords Cohen, Guest and Hodson) held that there was a possibility of a conflict of interest, and so Tom and Mr Boardman would have to account for their profits. However they could be generously remunerated for their services to the trust.

Dissent

Lord Upjohn held that there should Tom and Mr Boardman should not be liable because a reasonable man would not have thought there was any possibility of a conflict of interest.

cquote|"It is perhaps stated most highly against trustees or directors in the celebrated speech of Lord Cranworth L.C. in "Aberdeen Railway v. Blaikie", 136 where he said:

"And it is a rule of universal application, that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect."

The phrase "possibly may conflict" requires consideration. In my view it means that the reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in a conflict."

ee also

*Corporate law
*Business judgment rule

*"Keech v. Sandford" (1724) 2 Sel Cas Ch 16
*"Whelpdale v. Cookson" (1747) 1 Ves Sen 9
*"Regal (Hastings) Ltd v. Gulliver" [1967] 2 AC 134n
*"Industrial Development Consultants v. Cooley" [1972] 1 WLR 443
*"Bhullar v. Bhullar" [2003] 2 BCLC 241

Notes