Dawson International plc v Coats Patons plc [1991] BCC 276

Citation: Dawson International plc v Coats Patons plc [1991] BCC 276

Rule of thumb: How strict are directors’ duties at common law – can directors be sued for not making profits? No. Directors have massive discretion on how they manage the company at common law – it is hard to hold them to account for breach of duty. Directors are best controlled through the company ‘Articles of Association’ because it is so difficult to sue them for breach of duty at common law.

Background facts:

Parties argued:

Judgment:

This affirmed 2 different important principles in company law that are often relied upon. Firstly, this case affirmed the stakeholder principle - that directors do not just have a short term duty to act only in the best interests of current shareholders. They have a short, medium and long term duty to act in the best interests of the company, which means all stakeholders in the company, rather than just current shareholders. This case can always be relied on to ensure that directors generally cannot be sued for deciding not to distribute dividends to shareholders as they can always generally be able to argue that they are overall acting in the best interests of all stakeholders. Secondly, this case affirmed the ‘statements of intention’ principle - where a director says that they intend to do something in the future they are not bound to do so, as this is deemed to be a ‘statement of intention’ rather than something the director must follow by the contract law principles of personal bar/estoppel. Directors can in other words appear good willed about their intentions for the future, but then not go ahead with them, ‘the alleged fiduciary duty of directors to current shareholders as sellers of those shares must not be confused with their duty to consider the interests of shareholders in their discharge of their duty to the company. What is in the interests of current shareholders who are sellers of those shares may not necessarily coincide with what is in the interests of the company. The creation of parallel duties could lead to conflict. Directors have got one master, the company’, Lord Cullen, ‘... recommendation entails or implies that the person making the recommendation believes that what he is recommending is good or appropriate. If a future recommendation is contemplated, this belief must also be in the future. To bind one-self to do something which is dependent on one’s future beliefs, or even to bind oneself to believe something in the future, is no doubt possible in law. But where it is suggested that someone has done this, I would be inclined to be slow in putting such a construction upon their words and deeds. And more specifically, if someone has thus bound themselves, I think it is clear that any such contract, or the rules regulating its enforcement, would have to allow for the possibility that the person who has bound himself to make the recommendation quite simply cannot do so in good faith, for want of the necessary belief in it’, Lord Prosser at 300

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Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.