Fairford Water Ski Club Ltd v Cohoon [2021] EWCA Civ 143

A company director was alleged to have failed to declare his interest in a management agreement between his company and a firm he partnered. The Court of Appeal held that sufficient disclosure had been made at board meetings where the conflict of interest was expressly acknowledged, and the appeal was allowed.

Facts

Fairford Water Ski Club Ltd (‘the Club’) was a private company operating a water ski club. Craig Cohoon (‘Craig’) was both chairman and director of the Club and a partner in Craig Cohoon Watersports (‘Watersports’), which provided management services to the Club. In 2007, a management agreement was concluded whereby Watersports would manage the Club’s site for an annual fee of £35,000, whilst paying £20,000 rent for premises.

The relationship between the Club and Watersports had been discussed at board meetings in 2006 and 2007, with the potential conflict of interest arising from Craig’s position being expressly acknowledged. The Club later brought proceedings claiming, among other things, that Craig had failed to declare the nature of his interest in the management agreement as required by section 317 of the Companies Act 1985.

Issues

Primary Issue

Whether Craig had sufficiently disclosed his interest in the management agreement at a board meeting as required by section 317 of the Companies Act 1985.

Secondary Issues

If there was non-compliance, whether the court should exercise discretion under section 1157 of the Companies Act 2006 to relieve Craig from liability, and whether the claim was time-barred.

Judgment

The Court of Appeal allowed the appeal, holding that Craig had made sufficient disclosure of his interest in the management agreement.

Lord Justice Males, delivering the lead judgment, explained the requirements of section 317:

“There is no precise formula that will determine the extent of detail that is called for when a director declares his interest or the nature of his interest. The amount of detail required must depend in each case upon the nature of the contract or arrangement proposed and the context in which it arises. His declaration must make his colleagues ‘fully informed of the real state of things’.”

The Court found that the board meeting of 4 January 2007 satisfied the disclosure requirements. The minutes recorded that the meeting was convened specifically to discuss the relationship between the Club and Watersports, and that:

“In these discussions, due regard was taken of the potential conflict of interest, that arises due to CC’s position.”

Lord Justice Males stated:

“The nature (and if necessary, the nature and extent) of Craig’s interest in the new management agreement was already known to the other directors and so was obvious. For all practical purposes, as all concerned understood, Craig was Watersports.”

Regarding the subsequent May 2007 meeting, the Court held this could not be viewed in isolation from earlier discussions:

“What had been said there was effectively incorporated into the discussion at the May meeting, without needing to be repeated. To have stated yet again that Craig had a conflict of interest would have ‘served no conceivable purpose’ and ‘would have been mere incantation’.”

Implications

This case provides important guidance on the interpretation of directors’ disclosure duties under section 317 of the Companies Act 1985. It establishes that disclosure requirements are context-dependent and that where a director’s interest is obvious and known to all board members, formal repetition at subsequent meetings is unnecessary. The judgment also clarifies that section 317 is concerned with disclosure of the director’s interest, not with whether the contract represents good value for the company. The case demonstrates the courts’ reluctance to impose purely technical requirements where the underlying purpose of the statutory provision has been satisfied.

Verdict: Appeal allowed. The Club’s claim in respect of fees paid under the management agreement was dismissed. The Club was held liable to Watersports for nominal damages for wrongful termination of the management agreement.

Source: Fairford Water Ski Club Ltd v Cohoon [2021] EWCA Civ 143