R v R & Ors

A freezing order may include an injunction restraining competition with a family company where the respondent has an appropriate cause of action against him. Under [2013] EWHC 3006 (Ch), a shadow director will normally owe fiduciary duties of good faith and loyalty to the company. Those duties require him to act in the company’s interests rather than his own separate interests when giving directions or instructions. Operating a competing business may therefore constitute a breach of fiduciary duty. The injunction should be maintained where the business competes with the company. If it does not compete, the injunction does not restrain its operation.

The application arose on the return date of a freezing order made by Roderic Wood J. Most proposed adjustments to the order were agreed or deferred. The remaining issue concerned paragraph 20, which restrained the husband from engaging in businesses competing with the family company or soliciting its customers.

The wife alleged that the husband was competing deliberately and thereby depreciating a matrimonial asset. The husband denied both the alleged competition and the legal basis for the injunction. The central issue was whether the injunction could properly be continued under section 37 of the Senior Courts Act 1981, given the absence of an express contractual basis or other apparent cause of action.

1. The injunction was properly made and remained in force. The language of paragraph 20 could not readily be brought within section 37(2) of the Matrimonial Causes Act 1973. The relevant power was instead section 37 of the Senior Courts Act 1981.
2. An injunction under section 37 of the 1981 Act could be granted in the Family Division only where the circumstances would, in principle, permit equivalent relief in another Division of the High Court. An appropriate cause of action was therefore required.
3. The husband had acknowledged in his evidence that he was a shadow director of the family company. The court accepted and adopted Newey J’s analysis in Vivendi SA & Another v Murray Richards & Another [2013] EWHC 3006 (Ch), including the conclusion that shadow directors commonly owe fiduciary duties to the company, including duties of good faith and loyalty when giving directions or instructions.
4. On that basis, the husband owed a fiduciary duty to act in the interests of the family company rather than in his own separate interests. Operating a competing business, whether personally or through another corporate entity, was on its face a breach of that duty.
5. The injunction was limited to a business which competed with the family company. If the alleged business did not compete, the order imposed no restraint on its operation. If it did compete, continuation of the injunction was justified.