Bhullar v Bhullar [2003] is a significant Court of Appeal decision reaffirming the strict capacity-based approach to directors’ duties, particularly the exploitation of corporate opportunities.

Facts of the Case

The dispute involved a family company, Bhullar Bros Ltd (B Ltd), whose objects included acquiring investment property. Two of its directors (the appellants) also controlled another company, Silvercrest (S). While still directors of B Ltd, the appellants discovered a property called White Hall Mill, adjacent to property already owned by B Ltd. Although they conceded the acquisition would have been commercially worthwhile for B Ltd, they arranged for Silvercrest to buy it instead. Crucially, the board of B Ltd had earlier resolved to divide the family business and refrain from further property acquisitions; the appellants argued the mill was therefore not a “maturing business opportunity” the company was seeking.

Legal Issue

Whether directors breach their fiduciary duty by exploiting an opportunity that the company has formally resolved not to pursue, but which nevertheless falls within the company’s general line of business.

Judgment

The Court of Appeal held the directors were in breach of their fiduciary duties and liable to account. Jonathan Parker LJ established that:

  • Duty to communicate: the existence of the opportunity was relevant information the directors had a positive duty to communicate to the company, so it could decide for itself whether to pursue it.
  • Irrelevance of rejection: it did not matter whether the company could or would have taken the opportunity; the board’s resolution not to make further acquisitions did not absolve the directors of their duty of loyalty.
  • Conflict of interest: a reasonable person would have concluded the directors faced a “real sensible possibility of conflict” between personal interest and duty.

Significance and Legal Principles

  • Capacity-based approach: affirms the broad approach in IDC v Cooley, where liability is based on the director’s capacity and the relevance of the information, not on company loss.
  • Line of business rule: any opportunity within the company’s line of business is “off-limits” unless the director makes full disclosure and receives informed consent.
  • Strict prophylactic rule: fiduciaries cannot decide for themselves whether they may take a benefit; the company is always entitled to be informed first — even where it cannot take the opportunity due to financial distress.