Corporate Matters — January 2014: dealing with conflicted directors

A recent Court of Appeal decision has lessons for both solicitors and non-executive directors on how to manage conflict situations.

In Newcastle International Airport Ltd v Eversheds LLP, the defendant solicitors, Eversheds, had been instructed to draft the terms of new employment contracts for two executive directors of the claimant, Newcastle International Airport Ltd (NIAL). These instructions were the product of a meeting between the executive directors and the chair of the Remuneration Committee. Eversheds provided finalised drafts to the chair of the Remuneration Committee for signing following negotiations with the two directors. The contract contained terms that allowed for substantial bonuses and, in one case, a release from certain restrictive covenants that had been part of the directors’ existing contracts. When the full extent of the bonus liability became apparent, NIAL sued Eversheds, arguing that the solicitors were negligent in taking instructions from the same executive directors on the provisions of the service agreements without consultation with the Remuneration Committee.

The High Court disagreed. The court found that the chair of the Remuneration Committee had ‘held out’ that the directors were specifically authorised to communicate with Eversheds direct on NIAL’s behalf. Once this apparent authority as agent was established at the outset, Eversheds was under no obligation to continually check with NIAL that the agent had actual authority to act on particular provisions of the draft contracts…

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