United States: Fiduciary Duties Of Dissenting Directors And Their Boards – Stobart v Tinkler

In Stobart v Tinkler [2019] EWHC 258 (Comm), the high court has taken an extremely restricted view of the freedom of a dissident director to take his case outside the boardroom. At the same time, the court largely endorsed the freedom of the board to silence that director with respect to public statements.

Background

Mr Andrew Tinkler, who was a founder and a large (7%) shareholder of public company Stobart Group Limited (the "Company"), stepped down as CEO of the Company in June 2017 but remained an executive director.

In the months leading up to the Company's 2018 AGM, the relationship broke down between Mr Tinkler and the independent chair of the board, Mr Ferguson. The Company's board sided with Mr Ferguson. Both Mr Tinkler and Mr Ferguson sought to have the other removed prior to the AGM. Both were re-elected at the AGM, but the following day the other directors removed Mr Tinkler as director by board action.

Findings

The relevant fiduciary duty law was that of Guernsey, but it was accepted that those duties are "fundamentally the same" as those established by the English common law (as codified in England by the Companies Act 2006).

The court found Mr Tinkler breached his fiduciary duties in a number of ways:

  • Private Discussions with Shareholders. In conversations that the board thought were to sound out large shareholders on his plans to resign from the board, Mr Tinkler aired his various grievances against the board and chairman in particular. The court found Mr Tinkler's actions in "briefing against the board" by holding unauthorized private conversations with a subset of shareholders breached his fiduciary duty to act in the best interests of the Company.
  • Public Communication with Shareholders. Mr Tinkler wrote a "misleading" and "disgraceful" open letter to shareholders that described his own view of the board. The Company accepted that Mr Tinkler was entitled as a shareholder to write to other shareholders, but his letter was written in his capacity as "Executive Director" as well as shareholder. In particular, the court disapproved of the director going "straight to shareholders" with what he said were corporate governance concerns, rather than raising them with the board, and considered this further "briefing against the board" a breach of his duty of loyalty.
  • Public Communication with Employees; Organizing Employee Action. Mr Tinkler distributed that letter to the Company's employees and, it was held, orchestrated additional executive support for his cause. As the employees had no vote at the AGM, the court found these actions to have been done "to undermine the workforce's confidence in their management" and to constitute a breach of a director's duty of loyalty.
  • Sharing Confidential Information. Mr Tinkler shared confidential budget information about a Company project with a third party who was a friend, potential investor/buyer for the project and potential replacement non-executive chairman for the Company. In addition to a breach of his service agreement, the court found this was a breach of his duty to act in good faith and in the best interests of the Company.

Mr Tinkler generally failed to show breach of duty against the majority directors in undertaking their defensive action against him. Notably:

  • Formation of a Board Committee to deal with Dissent. The Board established a sub-committee to discuss and deal with the conduct of Mr Tinkler. It included neither Mr Tinkler nor Mr Ferguson, but did include the other continuing directors. As it happened this meant the full board delegated its power on this matter to a subcommittee comprised entirely of directors on Mr Ferguson's "side". This committee determined to fire Mr Tinkler and remove him from the board. The court found the committee was properly constituted and entitled to take these actions. It found no breach of duty, and notably no conflict of interest, on the basis that a director holding a view on a matter did not mean that he was conflicted as to that matter.
  • Public Communication with Shareholders. The majority Board made two public shareholder communications, the first minimal and factual, the second more argumentative and "inflammatory". The court found the second disclosure "unwise and inappropriate" and, it seems, potentially misleading given the characterization of some of the events it referred to, but nonetheless found it was not a breach of fiduciary duty because (i) each of the majority directors genuinely believed it was in the best interests of the Company and (ii) the disclosure was not such that "no reasonable director would have agreed to it".
  • Transferring Treasury Shares to the EBT prior to a crucial AGM vote. The Board authorized two transfers of treasury shares to an Employee Benefit Trust. Mr Tinkler claimed these transfers were a breach of the directors' duty to use their powers for a proper purpose. The directors acknowledged they had two purposes in mind, one being to ensure the EBT could satisfy share awards and the other being to increase the likelihood of Mr Ferguson being re-elected, on the assumption that the trustee would follow the majority board (and ISS) recommendation. The finding of the court was that the first transfer, slightly larger than necessary to satisfy upcoming vesting of share awards, was done with the "primary purpose" of ensuring the EBT could satisfy those awards, and that transfer was therefore consistent with their duty. The second transfer, however, satisfied no immediate need for shares and the court found the primary purpose was to affect the shareholder vote on the election of the chairman, and this action was therefore in breach of the duty to use powers for a proper purpose. It was irrelevant to that decision that they complied with the separate (and subjective) duty to act in the Company's best interest.
  • Using Directors' Power to Remove Mr Tinkler as Director, the day after his election by the AGM. The court found no breach of duty in immediately overriding the decision of the shareholders, and removing Mr Tinkler as a director under board powers in the articles of the Company. In reaching the conclusion this was no breach of duty the court noted that "their duties were owed to the Company, not to the 51.44% of shareholders who had voted in favour of Mr Tinkler's election". The court noted that the directors "just could not understand" the views of a particular large shareholder (a significant proportion of the majority), and it may be that the court considered the shareholders' decision was on the basis of misinformation received. This point was not developed, however, and the decision on the issue was that the board could use the power in the articles to remove a director as they believed it to be in the best interests of the Company, notwithstanding the shareholder support expressed the previous day.

Takeaways

The decision in Stobart v Tinkler is relevant to the directors of public and private companies incorporated in England and Wales as well as those incorporated in Guernsey.

  • A dissident director who is also a shareholder must be careful in public communications to make clear that he is writing as a shareholder and not a director.
  • A director should not disclose confidential information without express permission from the Board.
  • A dissident director should refrain from taking any steps that can subsequently be considered as damaging the company.

A dissident director running for re-election should demand that the company disclose whether it will abide by the shareholder vote or ignore it and remove the director. Alternatively, the dissident should solicit shareholders to amend the relevant documents to prohibit the action taken by the Board in this case.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions