Percival v Wright [1902] 2 Ch 421

Facts

  • Shareholders sold their shares to the company’s directors.
  • At the time of the sale, the directors were aware of ongoing discussions regarding the sale of the company's assets, which could have increased the value of the shares.
  • The shareholders were not informed about these discussions and sold their shares at a lower price.
  • The shareholders subsequently sued the directors, claiming breach of fiduciary duty due to the non-disclosure of information.

Issues

  1. Whether company directors owe fiduciary duties to individual shareholders during private share transactions.
  2. Whether directors were obligated to disclose information about the company’s affairs affecting share value in personal transactions with shareholders.

Decision

  • The Court of Appeal held that directors' fiduciary duties are owed to the company as a whole, not to individual shareholders.
  • Directors, acting as agents of the company, are not agents of individual shareholders.
  • The court found no obligation on directors to disclose information to shareholders when purchasing shares in a personal capacity.
  • The directors did not breach their fiduciary duties in the transactions in question.

Legal Principles

  • Directors’ primary fiduciary obligations are to the company as a separate legal entity, not to individual shareholders.
  • The principle supports the separate legal personality doctrine.
  • Exceptions to this rule may arise where a special relationship exists between a director and a shareholder, or where a shareholder relies on a director for specific information.
  • Subsequent case law has identified circumstances, such as close reliance or direct advice, where duties to individual shareholders may arise.

Conclusion

Percival v Wright firmly established that directors generally owe their fiduciary duties to the company rather than to individual shareholders, shaping the core rules of company law. Exceptions to this general rule have been recognized in later cases, but directors’ primary responsibility remains to act in the company’s interests.

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