Sharma v Sharma

This appeal concerned whether a director of a dental company breached her fiduciary and statutory duties by acquiring dental practices for herself (and her wholly owned company) rather than for the company. The court applied the Companies Act 2006 (in particular section 175) and established that a director who exploits an opportunity which arises in her role is in breach unless the shareholders with full knowledge of the material facts consent or acquiesce. The court held that the judge’s factual findings that, at a July 2007 family meeting, the shareholders (Anushika, Sunny, Kesh and Raj) were told that some future acquisitions might be made by Anushika personally and that Kesh expressly approved this course, were permissible findings of fact. The silence of Sunny and Raj in those circumstances amounted to acquiescence. The Court of Appeal therefore upheld the judge’s conclusion that there was consent/acquiescence and dismissed the appeal.

This dispute arose in financial remedy proceedings in the Family Division and was resolved on preliminary issues. The core question was whether the sole director of Aspire Dental Care Ltd (ADC), Anushika, breached her fiduciary or statutory duty by acquiring several dental practices for herself or her wholly owned company instead of for ADC.

Background and parties:

• Anushika (director) and three family shareholders (Sunny, Kesh and Raj) each held 25% of ADC. ADC was established after a July 2007 family meeting to acquire and operate dental practices.
• After formation ADC acquired several practices; Anushika (or her company ADCUK) acquired other practices, some before and some after ADC’s formation.

Procedural posture: The preliminary issues were decided by Mr Justice Simon ([2012] EWHC 2529 (Fam)) in September 2012; Sunny, Kesh and Raj appealed to the Court of Appeal challenging the judge’s finding that Anushika had not breached duty because the shareholders had consented or acquiesced. The Court of Appeal heard the appeal and dismissed it.

Nature of relief sought: The appellants sought to establish that Anushika breached fiduciary/statutory duties (Companies Act 2006 s.175) and that the disputed practices should be held on trust for ADC; alternatively they challenged the factual finding of consent/acquiescence or sought relief under section 1157 of the Companies Act 2006.

Issues framed:

• Whether the July 2007 meeting and subsequent conduct constituted consent or acquiescence by the shareholders to Anushika acquiring some practices personally.
• Whether paragraph 50 of Anushika’s witness statement (describing Kesh’s approval and the absence of objection by Sunny and Raj) was a reliable factual basis for the judge’s decision.
• Whether full disclosure of material facts had been made such that any consent would be effective.
• Whether relief under section 1157 should be granted if there was a breach.

Court’s reasoning: The Court of Appeal summarised the applicable law (including Aberdeen Railway Co v Blaikie Brothers, Boardman v Phipps, Re Duomatic, Re Home Treat, Gwembe Valley and EIC Services) and applied the Duomatic/acquiescence principles. It accepted the trial judge’s findings that Kesh had expressly permitted Anushika to acquire practices in her own name subject to tax considerations (paragraph 50 of the witness statement) and that Sunny and Raj, who deferred to their mother, remained silent. Given the family context, the favourable nature of the deal to the family, and the expectation that Sunny and Raj would speak if they objected, the court concluded their silence amounted to consent. The court held that full legal understanding of duties was not required for effective consent; material facts had been disclosed. Because consent/acquiescence was established the complaint of breach did not succeed and issues of remedy did not require determination.

Appeal dismissed. The Court of Appeal upheld the trial judge’s factual findings that at the July 2007 family meeting the shareholders with knowledge of the material facts had consented or acquiesced to Anushika acquiring some practices in her own name. The silence of Sunny and Raj, given the family context and their deference to their mother, amounted to consent; full disclosure of the relevant facts had been made and the statutory duty under section 175 of the Companies Act 2006 did not therefore result in liability in respect of the disputed acquisitions.

Appeal to the Court of Appeal (Civil Division) from the High Court of Justice, Family Division (Mr Justice Simon). First-instance judgment: Anushika Sharma v Jagesh Kumar Sharma and others [2012] EWHC 2529 (Fam). This appeal is reported as [2013] EWCA Civ 1287.