(1) John Anthony Popely (2) Andrew Popely v (1) Ronald Anthony Popely (2) Cosmos Trust Ltd (3) Casterbidge Properties Ltd (2019)
A "double derivative" claim by the beneficiaries of the trust which held a minority shareholding in a company failed where the claimants could not show that the defendant had acted as a de facto director of the company or that he had acted fraudulently.
The claimants brought a double derivative action to recover assets to which the third defendant company was said to be entitled.
The first defendant (D1) had developed timeshare properties in the UK and in Northern Cyprus. The third defendant (D3) was set up in 1997 as an offshore company which was to buy timeshare weeks at the properties and sell them to another company, which would market them to the public. A local registration agent held 70 of the 100 shares in D3 as nominee for D1 and 30 for D1's brother (J). In 1998 each of the brothers assigned their shares to trusts set up for the benefit of their respective families. The sole director of D3 was a corporate director registered in St Vincent. The claimants were J's sons and beneficiaries under the trust. They had obtained permission to bring a double derivative action to pursue claims on behalf of D3, on the basis of a cause of action derived from J via the second defendant trustee. The claimants' case was that in 1998 and 1999 D1 had transferred D3's assets to the benefit of himself or his family and thereby, both fraudulently and in breach of his fiduciary duty to D3, deprived the beneficiaries under J's trust of their entitlement to 30% of those assets. They said that at all material times D1 was a de facto director of D3 which gave rise to a fiduciary duty to the company.
De facto director - When determining whether an individual was a de facto director of a company the overall question was whether the individual was part of the corporate governing structure of the company and whether he assumed a role in the company which imposed on him the fiduciary duties of a director, Revenue and Customs Commissioners v Holland  UKSC 51 and Smithton Ltd (formerly Hobart Capital Markets Ltd) v Naggar  EWCA Civ 939 followed. That was a question of fact and degree, but merely being involved in the management of the company or exercising a degree of influence over its decision making was not in itself enough. An act would qualify as an act done in the capacity of a de facto director if the corporate governance of the company required an act of that nature to be done only by someone having the capacity of a de jure director. It was possible for an individual to be simultaneously a de facto director and a shadow director of a company, but an act could not be simultaneously carried out both in the capacity of a shadow director and a de facto director, Carlyle Capital Corp Ltd v Conway (38/2017 Royal Court of Guernsey) applied. That was because "shadow director" was defined in the Companies Act 2006 s.251 and the legislative provisions had to be treated as exhaustive in respect of the circumstances in which liability as a shadow director could be imposed and as preventing the court from extending the principles of de facto directorship to those situations. The St Vincent corporate director was the sole director of D3. On the balance of probabilities, payments by D3 to D1's trust were caused by D1, but it did not follow that the instructions to make such payments were given by D1 in the capacity of a de facto director. The claimants' evidence did not clearly show the nature of the payments or the corporate governance of D3. Furthermore, if D1 caused the corporate director to authorise the payments to the trust, those were acts of a shadow director and not a de facto director. Since D1 had not acted as a de facto director, the payments could not have been in breach of duty (see paras 77-96 of judgment).
Fraud - The claimants' action would be statute-barred unless they could show fraud under the Limitation Act 1980 s.21. Not every breach of fiduciary duty involved fraud; the claimants needed to prove dishonesty, Armitage v Nurse  Ch. 241 followed. When dishonesty was in issue the court had first to ascertain the actual state of the individual's knowledge or belief as to the facts, Ivey v Genting Casinos UK Ltd (t/a Crockfords Club)  UKSC 67 followed. In the instant case, it was impossible on the evidence to reach any view as to D1's knowledge or belief as to the facts surrounding the payments. Fraud was not established (paras 97-106).