Who do directors owe duties to?

To the company as a whole, not to individual shareholders.

Must directors disclose confidential negotiations to sellers of shares?

Not in general. In Percival v. Wright, directors were not required to disclose ongoing sale talks to individual shareholders.

Can directors buy shares from shareholders?

Yes, directors may buy shares from shareholders, provided there is no fraud, misrepresentation, or special duty owed.

Why is this case important?

It sets the general rule on directors’ fiduciary duties: the duty runs to the company, not to individual members.

Does this rule have exceptions?

If a special relationship of trust arises (e.g., advising a shareholder), a duty to that shareholder may arise on the facts.

Percival v. Wright

Percival v. Wright (1902)

Easy classroom-style explainer: directors’ duties run to the company, not to individual shareholders.

High Court of Justice (ChD) 1902 (1902) 2 Ch 421 Company Law • Directors’ Duties Reading Time: ~5 min Author: Gulzar Hashmi India

Quick Summary

Some shareholders asked the company to help sell their shares. A few directors bought those shares at a fair, independently valued price. At the same time, the board was quietly negotiating a possible sale of the whole company. The sellers later claimed the directors should have told them. The Court held: directors owe duties to the company, not to individual shareholders. No duty to disclose arose on these facts.

Issues

Do directors owe fiduciary duties to individual shareholders when buying their shares?
Were the directors obliged to disclose ongoing negotiations to sell the company?

Rules

Directors’ fiduciary duties are owed to the company as a whole, not to specific shareholders.

Directors may buy shares from shareholders without disclosing confidential company negotiations, absent a special duty or deceit.

A special duty can arise in specific relationships (e.g., where directors actively advise or act as agents for the shareholder).

Facts (Timeline)

Timeline collage: share sale request and company sale negotiation

Sellers’ Request: Shareholders of Nixon’s Navigation Co. asked the company secretary to find buyers for their shares.

Purchase by Directors: Some directors bought the shares at £12 10s per share based on an independent valuation.

Parallel Talks: The board was in confidential talks to sell the whole company, which could have raised the share value if completed.

Claim: Sellers alleged breach of fiduciary duty for non-disclosure of the negotiations.

Arguments

Plaintiffs (Shareholders)

Directors owed them a duty to disclose material facts, including sale negotiations.
Buying without disclosure was unfair and breached fiduciary duty.

Defendants (Directors)

Duties are owed to the company, not to individual members.
No special advisory relationship; sellers approached the company and named their price.

Judgment

Held: By Swinfen Eady J, directors’ fiduciary duties are to the company, not to individual shareholders. On these facts, there was no duty to disclose the negotiations.

No unfair dealing was shown: the sellers approached the directors and stated their price.

Ratio

Directors are not trustees for individual shareholders. Unless a special duty arises, directors who buy shares need not disclose confidential company negotiations.

Why It Matters

Sets the baseline rule on to whom directors owe duties.
Guides insider transactions between directors and shareholders.
Clarifies when disclosure duties might arise (only with special facts).

Key Takeaways

Duty is to the company, not to individuals.

No automatic duty to disclose negotiations when buying shares.

A special relationship can change the duty analysis.

Mnemonic + 3-Step Hook

Mnemonic: “C–N–S” — Company first • No duty to individuals • Special duty only on special facts.

Company: Fiduciary duty runs to the company.
No Duty: No default duty to each shareholder.
Special: Duty arises only if directors assume a special advisory role.

IRAC Outline

Issue: Did directors breach fiduciary duty by not telling sellers about negotiations to sell the company?

Rule: Directors owe duties to the company, not to individual shareholders, unless a special duty arises.

Application: Sellers approached the company; price was independently valued; no special advisory relationship existed.

Conclusion: No breach. Directors had no duty to disclose the negotiations on these facts.

Glossary

Fiduciary Duty: A duty of loyalty and care owed by directors to the company.
Special Relationship: A fact situation where directors take on an advisory/agent role for a shareholder, creating extra duties.
Disclosure: Telling material facts. In share purchases, duty to disclose depends on the relationship and facts.