Regal (Hastings) Ltd v Gulliver [1942]: Director Profits Case

Regal (Hastings) Ltd v Gulliver [1942] UKHL 1 is a landmark decision in UK company law concerning the duties of directors.

Here are the details of the case:

Date: 20 February 1942

Citation: [1942] 1 All ER 378, [1942] UKHL 1, [1967] 2 AC 134

Jurisdiction: United Kingdom, House of Lords

Judges: Viscount Sankey, Lord Russell of Killowen, Lord Macmillan, Lord Wright, Lord Porter

Areas of Law: Company Law, Equity and Trusts, Fiduciary Duties of Directors, Conflict of Interest

Background: Regal (Hastings) Ltd v Gulliver

Regal (Hastings) Ltd, the plaintiff, was a cinema company. It wanted to expand by acquiring two more cinemas.

To facilitate this, Regal formed a subsidiary company called Hastings Amalgamated Cinemas Ltd with a capital of £5,000.

Regal could only invest £2,000. To raise the remaining £3,000, Regal’s directors and its solicitor (Garton) each subscribed for 500 shares.

Shortly after, all shares in the subsidiary were sold at a significant profit — around £2 16s 1d per share. The directors and solicitor personally gained from this.

Issue

Regal (now under new management) sued its former directors and solicitor, demanding that the profits from the sale of those shares be returned to the company.

Court’s Findings in Regal (Hastings) Ltd v Gulliver

The House of Lords held that four of the five directors (Bobby, Griffiths, Bassett, Bentley) were liable to account for the profits they made.

They had gained by reason of, and in the course of, their position as fiduciaries (i.e., directors of Regal).

They personally profited from a business opportunity that came their way because of their role as directors.

It did not matter that:

• They acted honestly and in good faith,
• Regal could not afford the shares,
• They didn’t act fraudulently or with malice,
• The company didn’t suffer any financial loss.

They used inside knowledge and position acquired through their role as directors to make a personal profit, without shareholder approval. They must have obtained consent from the shareholders.

Also, the Court found that Gulliver (the Chairman) was not liable. He didn’t take shares for himself; he arranged for third parties to take them and made no personal profit.

Garton (Solicitor) was also not liable. Because he acted at the request and with the consent of the board.

Why is this case important?

This case crystallised a core rule of fiduciary duty — that personal gain from one’s fiduciary position is strictly prohibited without informed consent from those to whom the duty is owed (e.g., shareholders).

It is widely cited in cases about corporate governance, director misconduct, and fiduciary accountability.

You may refer to the full text of the case here:

https://www.bailii.org/cgi-bin/format.cgi?doc=/uk/cases/UKHL/1942/1.html

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