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Shareholders not unfairly prejudiced when director pursued business opportunities for his own benefit
The Court of Appeal has held that shareholders in a company did not suffer unfair prejudice when one of the company’s directors pursued property investment opportunities rather than offering them to the company or its subsidiaries.
What happened?
Song and anor v Smith and ors [2026] EWCA Civ 719 concerned a joint venture between two individuals – Mr Song, who provided the finance for investment and development projects, and Mr Smith, who arranged for the development of properties with a view to an onward sale.
Mr Song and Mr Smith were both directors in the holding company of the joint venture group. They also each held 40% of the company’s shares, with their respective spouses each holding 10%.
In due course, the relationship between the two individuals deteriorated, and Mr Song stopped providing finance for further projects.
Mr Smith continued to finished projects in progress through the joint venture. However, he subsequently pursued two new opportunities through separate companies incorporated specifically for that purpose using his own source of finance. He did not bring these opportunities to the joint venture company for consideration.
Mr Song brought proceedings against Mr Smith, claiming that:
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by pursuing opportunities of a kind that fell within the joint venture’s business (and not presenting them to the joint venture), Mr Smith had breached his duties as a director and a fiduciary; and
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as a result, Mr Song had suffered unfair prejudice as a shareholder of the company.
Mr Smith claimed that, by withdrawing finance from future projects, Mr Song had brought the joint venture to a close, allowing Mr Smith to pursue opportunities in the future for his own account.
What did the court say?
The court referred to the cardinal rule that a fiduciary must not make a personal profit out of their position, instead divulging all profits and opportunities to their principal.
In the case of company directors, this has been set out specifically in section 175 of the Companies Act 2006. This states that a director of a company must avoid a situation in which they have (or can have) a conflict of interest, and that this applies in particular to the exploitation of property, information or opportunity.
This duty applies to a person after they cease to be a director of a company if they became aware of the information or opportunities in question while they were a director.
The court agreed that, by withholding future funding, Mr Song had brought the joint venture to an end.
But that did not impact on Mr Smith’s duties as a director. Mr Smith had remained a director of the companies within the joint venture group and, at the same time, “was exploiting for his own benefit opportunities of the same kind that the [joint venture group] was formed to exploit”.
However, the court did not state in explicit terms whether Mr Smith had in fact breached those duties, although it did note that some of the opportunities he had exploited should have been left to the joint venture to pursue, whilst others he had been free to engage in.
Instead, the judges examined whether, if Mr Smith had breached his duties, this automatically resulted in unfair prejudice to Mr Song.
They concluded that it did not. Mr Song and Mr Smith had effectively formed a “quasi-partnership”, founded on the understanding that Mr Song would provide finance and Mr Smith would deploy that finance on projects. When Mr Song ceased to provide finance, that basis fell away.
Given Mr Song’s “refusal to cooperate”, it was not unfairly prejudicial to him for Mr Smith to pursue opportunities which the joint venture could have pursued had Mr Song continued to fund it. Mr Song had “walked away” from the venture and could “hardly complain of unfairness”.
What does this mean for me?
This is a good reminder of the constraints individual directors are under. It is possible to understand Smith’s desire to pursue opportunities himself when funding had been cut off, but it was not open to him to exploit opportunities that had previously belonged to the joint venture.
The rule against a director making a profit for their own benefit is a core facet of the law of fiduciary relationships, and the courts will enforce it strictly without readily making exceptions.
Conversely, the court’s decision on the unfair prejudice petition is also understandable. The court retains a wide discretion to decide whether to award relief for unfair prejudice. In this case, the court did not need to exercise that discretion, finding that the prejudice to Mr Song was not unfair, given his refusal to cooperate any longer.
The key point is that a party seeking relief for unfair prejudice will need to carefully examine their own behaviour to evaluate the likelihood of success.
In this case, arguably the more appropriate course of action would have been proceedings for breach of directors’ duties. That action would need to have been brought by the joint venture company itself, although, in some circumstances, shareholders can seize control of the proceedings on behalf of the company. However, any monetary remedy would have belonged to the company itself and so would, presumably, have been shared between Mr Song and Mr Smith.
Other items
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Company law reform. Companies House has published its third progress report on the implementation of reforms to company law made by the Economic Crime and Corporate Transparency Act 2023. The report covers changes made over the last 12 months, including the introduction of mandatory identity verification for company directors and persons with significant control (PSCs).
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Trust Registration Service. In May 2026, we reported that the Government had published draft regulations that would increase the scope of offshore trusts that are required to register with and provide details to HMRC’s Trust Registration Service (TRS), as well as to expand public access to that information. These regulations (which also make other changes) have now been made and the relevant provisions will come into force on 30 June 2026.
Access the Money Laundering and Terrorist Financing (Amendment) Regulations 2026
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