Sharp & Ors v Blank & Ors

Directors owe fiduciary duties to the company, not ordinarily to its shareholders. A fiduciary duty to shareholders arises only where the facts establish a special relationship beyond the usual relationship between directors and shareholders, such as a personal relationship or particular transaction. Superior knowledge and reliance on information are insufficient by themselves.

Where directors invite shareholders to vote at a meeting, they may owe an equitable or fiduciary duty to provide sufficient information for an informed decision. That duty requires information and advice to be clear, comprehensible and not misleading. It does not automatically include duties to act in shareholders’ best interests, prevent loss, avoid conflicts or exercise powers for a proper purpose.

The claimants, shareholders in Lloyds, alleged that the defendant directors owed them fiduciary and tortious duties concerning Lloyds’ proposed acquisition of HBOS and recapitalisation. The defendants applied under CPR 3.4(2)(a) and CPR 24.2 to strike out or obtain summary judgment on parts of the pleading.

The defendants accepted that the directors owed an equitable duty to provide shareholders with sufficient information to make an informed voting decision, including duties not to mislead or conceal material information and to give information in clear and comprehensible terms. The issues were whether wider fiduciary duties were sustainable, whether the pleaded duty concerning the calling of the EGM was viable, and how causation was pleaded.

1. The court accepted the general principle in Peskin v Anderson that directors owe fiduciary duties to the company, but do not ordinarily owe such duties to shareholders merely because they hold office. A shareholder duty requires a special factual relationship beyond the ordinary relationship between directors and shareholders. Superior knowledge, reliance and the potential effect of directors’ decisions on shareholders were insufficient.

2. The pleaded facts established only a relationship in which directors gave shareholders advice and information so that they could vote at an EGM. That relationship supported the accepted sufficient information duty, but did not amount to an undertaking to act for or on behalf of shareholders with loyalty, to put their interests first, or to enter into transactions with them.

3. The content of a duty must be identified before deciding whether it is fiduciary. The sufficient information duty was founded on fairness in explaining proposals put to shareholders, rather than on an obligation of loyalty. It therefore did not include duties to act in shareholders’ best interests, prevent their loss, avoid conflicts, or exercise directors’ powers for a proper purpose. The proper-purpose duty was owed to the company. Paragraphs 39(1), (2), (4) and (5) were struck out under CPR 3.4(2)(a); paragraphs 39(3) and (6) remained sustainable.

4. It was permissible to plead that directors could comply with the sufficient information duty either by providing the required information or by not proceeding with the meeting. That did not establish that calling the EGM was itself a breach or that loss should be assessed as if the EGM had not occurred. Causation remained dependent on proving what would have happened if the necessary disclosure had been made, including whether the acquisition would have been abandoned or shareholders would have voted against it.

5. Paragraph 122, including paragraph 122(2), was allowed to stand. The allegations in paragraphs 121 and 127 concerning tortious and fiduciary breaches in permitting the EGM to proceed were unsustainable on the pleaded duties and were struck out. The proposed amendment to paragraph 40(5) was to clarify that the pleaded duties covered the kinds of loss claimed, rather than to plead a free-standing duty to prevent loss.

Not stated in the judgment.