Aberdeen Railway Co v Blaikie bros (1852) HL(Sc) .
Citation:Aberdeen Railway Co v Blaikie bros (1852) HL(Sc) .
Rule of thumb:Rule of thumb: What happens if a director enters a contract with a company he has a financial interest in? The Court held that where a director enters a company into a contract with another company or organisation which he has an interest in then the contract is voidable.
Background facts:
The basic facts of this case were that Aberdeen Railway Company needed a lot of new chairs, and they contracted with Blaikie Brothers to provide them. The chairman of Aberdeen Railway Company who procured this contract also owned a share in Blaikie Brothers. The British Railway Company thought they obtained a poor deal in what they paid for the chairs. After initially taking delivery of some chairs they refused to take delivery of the rest.
Judgment:
When the matter made it to Court, the Court held that the British Railway Company were entitled to reduced the contract due to the conflict of interest their chairman had when it was entered.
Ratio-decidendi:
"it may sometimes happen that the terms on which a trustee has dealt or attempted to deal with the estate or interest of those for whom he is a trustee, have been as good as could have been obtained from any other person - they may even at the time have been better. But still so inflexible is the rule that no inquiry on that subject is permitted. The English authorities on this head are numerous and uniform... (Mr Blaikie’s) personal interest would lead him to an entirely opposite direction, would induce him to fix the price as high as possible. This is the very evil against which the rule in question is directed, and here I see nothing whatever to prevent its application... no one, having [fiduciary] 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". Lord Cranworth L.C.
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.