Thane Investments Ltd & Ors v Tomlinson & Ors

A director’s service agreement is not necessarily subject to the same approval requirement as remuneration paid to a director in that capacity. Summary judgment cannot be based on an assumption that the distinction is immaterial. The legal status of the agreement must be determined on the facts.

A claim against a director for payments made to another director requires proper analysis of statutory liability, including whether liability depends on knowledge of invalidity, and of any statutory relief. A quantum meruit counterclaim remains available for trial where it has not been struck out, subject to proper particularisation. The appeal was allowed and the whole matter remitted for trial.

Thane Investments Ltd & Ors v Tomlinson & Ors appealed from a decision of a Deputy High Court Judge dated 9 May 2004. That decision concerned an appeal and cross-appeal from Master Price’s judgment dated 28 October 2003.

The dispute arose from service agreements between two companies and their directors. The issues relevant to this appeal were whether the agreements were void or voidable without approval in general meeting, whether one director was liable for payments made to another director, and whether the director had a quantum meruit counterclaim. The central question was whether those issues had properly been determined summarily.

The Court of Appeal, in a judgment delivered by Carnwath LJ with Sedley and Ward LJJ agreeing, allowed the appeal and remitted the whole matter to the Chancery Division for trial.

1. Service agreement. The lower court had proceeded on the assumption that the articles required directors’ remuneration to be approved in general meeting and that the same limitation applied to remuneration under a service agreement. The court held that this distinction was not self-evidently immaterial. Counsel conceded that the point could not properly be resolved by summary judgment. The precise significance of the distinction, and the status of the agreement on the facts, required investigation at trial.
2. Liability for payments. The claim against the director included sums paid to a fellow director under an agreement said to be void or voidable. The lower court had given insufficient reasoning concerning the relevance of the director’s state of mind. Section 322A of the Companies Act 1985 appeared to provide powerful support for liability despite lack of knowledge of the invalidity, but the applicable law required fuller examination.
3. Relief. Section 727 of the Companies Act 1985, concerning relief from the consequences of negligence, required consideration if relied upon. The limitations of that provision included the narrow view taken in Guinness plc v Saunders [1992] AC 363, although its dependence on the facts was not clear. Applicability depended on the overall merits.
4. Counterclaim. The quantum meruit counterclaim had not been struck out. It could be advanced at trial, provided it was properly particularised.

The appeal was allowed, with costs here and below to be assessed and no interim payments.

• Court of Appeal (Civil Division): Appeal allowed and the whole matter remitted to the Chancery Division for trial.
• High Court, Chancery Division: On 9 May 2004, a Deputy High Court Judge decided an appeal and cross-appeal from Master Price against the appellant on the material issues.
• Master Price: Judgment dated 28 October 2003; the judgment gives no further details of the order.