Gwembe Valley Development Company Ltd v Koshy [2004] EWCA Civ 1048

• Director did not disclose his interest in a loan transaction to other directors.

• Company entered into loan transaction, and director made a personal profit. Company found out and sued.

• Defendant argued that he was not liable for account of profits, as the liability of any director for an account of profits for self-dealing transactions was exempted by one of Articles of company.

Equitable Compensation

• Where director dishonestly fails to disclose his interest in a transaction, equitable compensation is available as a remedy.

• Liability of directors for loss caused by non-disclosure of an interest in proposed transaction is strict

  • As soon as director conceals his interest, is breach of duty

• However where company would still have entered transaction even if director had disclosed interest, can be no claim for equitable compensation.

  • I.e. as company has suffered no loss

Exemption

• The self-dealing rule itself cannot be excluded.

• Thus Defendant was only exempted from liability if he actually disclosed his interest to the directors.

Facts

• Is probable that company would have entered transaction nonetheless had they known of Defendant’s interest.

• Therefore equitable compensation is not appropriate remedy.

• Better remedy is account of profits received by Defendant.