Aberdeen Rail Co v Blaikie [1843-1860] All ER Rep 249: Lord Upjohn, was it really "so well settled"?

For those not in the know, Aberdeen Rail is seen by most as accepting that the director's duty of loyalty is made up of one rule, the no-conflict rule, and the no-profit rule is merely ancillary to it. Other academics argue that the two rules are separate.

I must agree that the former stance is the truth - not merely because this case and the case of Boardman v Phipps in the House of Lords confirmed it. As stated in the title, Lord Upjohn stated that the principle laid down in Aberdeen Rail by Lord Cranworth was "so well settled" - as it is theoretically likely that two rules would be detrimental to the economy but also increase shareholder litigation.

If directors believe they cannot make any profit out of information that comes there way by virtue of their position, they would become reluctant to serve on any other board in the same industry and with more industries becoming intertwined may be even reluctant to serve on more than one board in general. As to opening up the doors to shareholder litigation, if a shareholder can sue for profits made out of any information received by virtue of their capacity as a director is would be difficult to say when and when not he is acting as a director.

With that said, on recent historical reading regarding the development of a fiduciaries' (a basic definition being someone in a position of trust charged with handling another's property e.g. a director/solicitor/trustee) duty of loyalty, it is hard to believe that Lord Cranworth would reject a separate no-profit rule, and a recent Court of Appeal case of Re Allied Business has also confirmed the existence of a separate rule.

Lord Cranworth stated that 'And it is a rule of universal application, that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect.’

From this it has been implied that the case rejects a no-profit rule as separate from the no-conflict rule.

Lord Cranworth however, was a strong supporter of the utmost strict nature of the duty of loyalty. If he were to be asked at the time on his view one may assume - as easily as other have done that his judgment confirms one rule - that he would approve two rules.

This could cast a shadow of the legitimacy of a lot of supporters of the single rule, but it is still supported that the correct approach is a single rule as outlined above. Cases that a 2005 article written by David Kershaw (In Legal Studies 'Does it matter how the law thinks about corporate opportunities) cites as confirming one rule would then all lack the necessary emphasis to support one rule. Since Boardman hangs off the Aberdeen Rail judgment both cases would be thrown in to questionable legitimacy as to their support. The other case of Item Software v Fassihi is by Kershaw's own omission doubtful as to whether it actually supports one rule. 

Further historical reading needs to be done to verify Lord Cranworth's approach, but with the recent decision of Re Allied Business it is likely that is story is far from over. 

I am presenting research on this topic at the UEA research seminar series in November 'The Never Ending Story: A Fiduciaries No-Profit Analysis' and am also working on a publication based on this research.