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Item Software v Fassihi

[2004] EWCA Civ 1244

Case summary last updated at 22/01/2020 16:47 by the Oxbridge Notes in-house law team.

Judgement for the case Item Software v Fassihi

D was director of C. C was in a distribution agreement with Isograph.  When C tried to renegotiate its terms with Isograph on more favourable terms, D approached Isograph with idea of establishing new company to take over distribution agreement; however at same time, D encouraged C to take aggressive stance in negotiations. Negotiations fell through, and Isograph entered new agreement with D. When C heard this, alleged D had not complied with duty to act bona fide in interests of company (pre-2006 law) by failing to disclose his misconduct to C. Held:
·       Fiduciary duty to act bona fide in interests of company require D to disclose his own or others’ misconduct to company.
·       Policy reasons support this extension of duty of loyalty:
Ø  Is economically efficient, as it means that company does not have to expend resources investigating directors’ conduct
Ø  Helps shareholders monitor activities of directors
Ø  Helps directors comply with their duty of oversight (e.g. Re Barings)
Ø  All directors’ duties are essentially extension of duty of directors not to benefit themselves at expense of corporation
–       Thus not unnatural to extend duty of loyalty in this way
·       D had breached rule against diversion of corporate opportunity.
·       Thus on facts, is no way D could have complied with his duty top act in best interests of company without telling C of his plans to steal the contract from them.

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