#6894 - Guinness V. Saunders - Restitution of Unjust Enrichment BCL

Guinness v. Saunders

Facts

My Lords, the appellant, Mr. Ward, admits receiving 5.2m., the money of the respondent company, Guinness, at a time when Mr. Ward was a director of Guinness. Payment of this sum to Mr. Ward was, he says, remuneration authorised by Mr. Saunders, Mr. Roux and Mr. Ward, who formed a committee of the board of directors of Guinness. It is admitted by Mr. Ward that payment was not authorised by the board of directors. In these proceedings Guinness claim 5.2m. from Mr. Ward and in this application Guinness seek an order for immediate payment on the grounds that the articles of association of Guinness and the facts admitted by Mr. Ward show that the payment to Mr. Ward was unauthorised and must be repaid.

In these present proceedings, Mr. Ward pleads that in consideration of Mr. Ward 'providing advice and services' to Guinness during the currency of the offer (which he refers to as 'the bid') Guinness agreed, in the event of the success of the bid, to pay to Mr. Ward a sum equivalent to 0.2 per cent. of the ultimate value of the bid. The agreement is said to have been entered into by Mr. Saunders, Mr. Ward and Mr. Roux on behalf of Guinness and Mr. Ward on his own behalf. It is said that Mr. Saunders orally agreed about 19 February 1986, and that Mr. Roux orally agreed about the beginning of May 1986, and that the agreement was made or evidenced by an invoice delivered to Guinness by a company now admitted to be controlled by Mr. Ward.

Provisions of Guiness’ AoA:

90. The board shall fix the annual remuneration of the directors provided that without the consent of the company in general meeting such remuneration (excluding any special remuneration payable under article 91 and article 92) shall not exceed the sum of 100,000 per annum....

91. The board may, in addition to the remuneration authorised in article 90, grant special remuneration to any director who serves on any committee or who devotes special attention to the business of the company or who otherwise performs services which in the opinion of the board are outside the scope of the ordinary duties of a director.

Holding

Lord Templeman

AoA precludes an award of Quantum Meruit

My Lords, the short answer to a quantum meruit claim based on an implied contract by Guinness to pay reasonable remuneration for services rendered is that there can be no contract by Guinness to pay special remuneration for the services of a director unless that contract is entered into by the board pursuant to article 91. The short answer to the claim for an equitable allowance is the equitable principle which forbids a trustee to make a profit out of his trust unless the trust instrument, in this case the articles of association of Guinness, so provides. The law cannot and equity will not amend the articles of Guinness. The court is not entitled to usurp the functions conferred on the board by the articles.

Equity forbids a trustee to make a profit out of his trust. The articles of association of Guinness relax the strict rule of equity to the extent of enabling a director to make a profit provided that the board of directors contracts on behalf of Guinness for the payment of special remuneration or decides to award special remuneration. Mr. Ward did not obtain a contract or a grant from the board of directors. Equity has no power to relax its own strict rule further than and inconsistently with the express relaxation contained in the articles of association.

Applying Restitutio Integrum would amount to enforcing an ultra vires contract

It was submitted on behalf of Mr. Ward that Guinness, by the committee consisting of Mr. Saunders, Mr. Ward and Mr. Roux, entered into a voidable contract to pay remuneration to Mr. Ward and that since Mr. Ward performed the services he agreed to perform under this voidable contract there could be no restitutio integrum and the contract cannot be avoided. This submission would enable a director to claim and retain remuneration under a contract which a committee purported to conclude with him, notwithstanding that the committee had no power to enter into the contract. The fact is that Guinness never did contract to pay anything to Mr. Ward. The contract on which Mr. Ward relies is not voidable but non-existent.

In the present case Mr. Ward was a director, there was a conflict between his interest and his duties, there could be no contract by Guinness for the payment of remuneration pursuant to article 91 unless the board made the contract on behalf of Guinness and there was no question of approval by directors or shareholders. As at present advised, I am unable to envisage circumstances in which a court of equity would exercise a power to award remuneration to a director when the relevant articles of association confided that power to the board of directors. Certainly, the circumstances do not exist in the present case.

Mr. Ward seeks an order of the court which would entitle him to remuneration without the authority of the board. The order would be a breach of the articles which protect shareholders and govern directors and would be a breach of the principles of equity to which I have already referred.

Lord Goff

Relaxed principle of restitutio integrum

But it has long been the law that, as a condition of rescission of a voidable contract, the parties must be put in statu quo; for this purpose a court of equity can do what is practically just, even though it cannot restore the parties precisely to the state they were in before the contract. The most familiar statement of the law is perhaps that of Lord Blackburn in Erlanger v. New Sombrero Phosphate Co. (1878) 3 App.Cas. 1218, when he said, at p. 1278:

'It is, I think, clear on principles of general justice, that as a condition to a rescission there must be a restitutio in integrum. The parties must be put in statu quo. . . . It is a doctrine which has often been acted upon both at law and in equity.'

However on that basis Guinness could not simply claim to be entitled to the 5.2m. received by Mr. Ward. The contract had to be rescinded, and as a condition of the rescission Mr. Ward had to be placed in statu quo. No doubt this could be done by a court of equity making a just allowance for the services he had rendered; but no such allowance has been considered, let alone made, in the present case.

Quantum Meruit award

Plainly, it would be...