Re Duomatic [1969] 2 Ch 365

Facts: The case of Re Duomatic is an example of how s 1157 operates in practice. The articles of Duomatic Ltd prescribed that director’s remuneration had to be approved by the members. Mr Elvins was a director of the company and held the majority of the ordinary shares. Directors received salaries every year without prior authorisation and then, at a general meeting, members had to approve it. In the precedent year, Mr Elvins received a salary without any approval by the general meeting.

Issue: Did Mr Elvins act dishonestly and breached his fiduciary duties?

Held: Buckley J held that Mr Elvins did not act dishonestly. He had acted reasonably and ought fairly to be relieved of liability to repay the agreed final year’s salary. However, judge held that Mr Elvins was liable for another breach of duty: Mr Elvins and a co-director wished to dismiss a third director, Mr Hanly, with whom they had a disagreement. Mr Hanly said that he was going to sue the company and Mr Elvins, in order for Mr Hanly to not sue the company, offered him severance payment of £4000. This was illegal because as Buckley J argued, Mr Elvins should not have agreed to this payment without seeking legal advice to discover whether Mr Hanly actually had any claim against the company. Since he had not sought legal advice, Mr Hanly had not acted reasonably and ought not to be excused.

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