Base Metal Trading Ltd. v Shamurin

A director’s equitable duty of care to a company is governed by the law of the company’s place of incorporation. It is an incident of the office of director and of corporate internal management, even where the director’s employment contract and the alleged misconduct are connected with another country.

Common-law and equitable duties may nevertheless be subject to different choice-of-law rules. A claimant may also pursue concurrent contractual and tortious claims, subject to any contractual exclusion of the tort claim. An agreed policy of hedging does not, without more, imply a prohibition on speculative futures trading. A breach of duty based on speculation therefore requires proof of an express or properly implied restraint or other lack of authority.

BMTL, a Guernsey company, sued its former managing director, Mr Shamurin, for losses caused by speculative metal-futures trading on the London Metal Exchange. Mr Shamurin, a Russian national, carried out BMTL’s business from Moscow. The claim was framed in contract, tort and equity. It was common ground that the claims were not actionable, or were time-barred, under Russian law.

Tomlinson J in the Commercial Court dismissed the claim. He held that Russian law governed each claim and expressed the tentative view that no breach of duty had been proved even under English or Guernsey law. BMTL appealed. The central issues were the proper law of the tort and of a director’s equitable duty of care, and whether the agreed hedging policy prohibited speculation.

Disposition

By a majority, the Court of Appeal dismissed the appeal. Lord Justice Tuckey gave the principal judgment, with which Mr Justice Newman agreed. Lady Justice Arden agreed on the applicable law but dissented on breach of duty.

1. Tort and concurrent claims. Russian law governed the tort claim. The alleged wrongdoing was the decision in Moscow to speculate and the giving of instructions accordingly. The brokers’ execution of trades in London and the London bank account did not require the conclusion that the tort was substantively committed there. There was no basis for applying the exception to double actionability.

   The court also rejected the respondent’s alternative arguments. A tortious or equitable duty arising from an assumption of responsibility is not thereby a contractual obligation within the Rome Convention. English law permits concurrent claims in contract and tort, and the existence of a contract affects the tort claim only if, properly construed under its governing law, it excludes or restricts that claim.

2. Equitable duty of a director. The court held that Guernsey law governed the equitable duty of care. That duty arose from Mr Shamurin’s office as director and was inseparable from BMTL’s constitution and internal management. The law of incorporation governs such duties. Lady Justice Arden additionally held that this conclusion was reinforced by the company-law exclusion in article 1(2)(e) of the Rome Convention, and by the need for consistent corporate regulation.

3. No breach established. The majority held that BMTL had not proved an obligation prohibiting speculation. An agreement to hedge the price risk on physical trades did not ordinarily amount to an implicit agreement that no other futures trading could occur. The company’s broad objects did not determine the issue, but the parties’ informal and unrestricted dealings did not establish the alleged restraint. The claim failed on this ground.

4. Dissent. Lady Justice Arden would have allowed the appeal and ordered damages to be assessed. In her view, the issue was whether the board had conferred authority to speculate, not whether BMTL had proved a restraint. She considered that the evidence supported authority only for hedging transactions.

• Court of Appeal (Civil Division): dismissed BMTL’s appeal in [2004] EWCA Civ 1316. It held that Guernsey law governed the equitable duty of a director, but upheld the dismissal because no breach of duty had been proved.
• Commercial Court: Tomlinson J dismissed BMTL’s claim. He held that Russian law governed the contractual, tortious and equitable claims, and indicated that no breach would in any event have been established under English or Guernsey law.