A Khan Design Ltd & Anor v Evanta Motor Company Ltd & Anor

The court considered an application by the second defendant to strike out parts of the particulars of claim under CPR 3.4(2)(a) as disclosing no reasonable grounds against him. The pleaded claims against the second defendant alleged breaches of fiduciary duties said to arise under sections 171, 172 and 175 of the Companies Act 2006 and alleged joint liability for conversion. The judge held that the pleaded case conflated lawful acts (sales by an agent under a joint venture) with a subjective intention not to account and therefore failed to identify a legal breach by the director. The court found there was no duty to account on the facts pleaded, that any duty to disclose misconduct arises only after misconduct has occurred (relying on Item Software (UK) Ltd v Fassihi), and that the conversion pleading was defective because the sales were authorised by the joint venture. Consequently the allegations against the second defendant were bound to fail and were struck out.

This is a first instance application to strike out elements of a particulars of claim. The claim arises from a joint venture to manufacture and sell a limited number of motor vehicles styled as Zagatos. The claimants were A Khan Design Limited and Antkahn Limited; the defendants were Evanta Motor Company Limited and Mr Anthony Richard Anstead. Antkahn alleged that Evanta was its agent to sell Zagatos, that Evanta and Mr Anstead failed to account for proceeds of sale, and that Mr Anstead breached fiduciary duties and/or was jointly liable in conversion.

The relief sought (as relevant to the application) included: an account of monies received by Evanta; an account of monies received by or on behalf of Mr Anstead procured by breach of fiduciary duty; and damages for conversion or an account of profits against Evanta and Mr Anstead.

The court framed the principal issues as whether the pleaded particulars disclosed a breach of fiduciary duty by Mr Anstead under sections 171, 172 and 175 of the Companies Act 2006, whether there was a duty on Mr Anstead to account, whether there was a duty to disclose an intention to act improperly in advance, and whether sales authorised by an agent could properly found a claim in conversion.

The judge analysed each head of claim. With section 171 the court observed the allegation was that Mr Anstead failed to require Evanta to act as agent, yet the pleading elsewhere affirmatively pleaded Evanta sold as agent. Under section 172 the court found the pleading conflated remedy with breach and did not adequately identify how the duty to promote the company was breached. Under section 175 the court found the conflict allegations artificially pleaded and noted the commercial context in which the parties tacitly accepted the inter-company relationship and potential conflicts. The court accepted the general principle from Item Software that a director has a duty to disclose misconduct but held that such a duty arises after misconduct, not as an obligation to disclose a contemplated future breach. On conversion the judge held that where Evanta acted under authority as agent the act of sale was not necessarily wrongful and the pleading conflated the act of sale with a subjective intention not to account; that combination did not sufficiently plead conversion. The court therefore concluded the pleaded claims against Mr Anstead were bound to fail, refused permission to amend the particulars, struck out the allegations against Mr Anstead and ordered his removal as a defendant. The court recorded that Evanta had subsequently entered administration but that this had no bearing on the strike out order.

The court allowed the second defendant's strike-out application in respect of the particulars that advanced claims against him. The judge held the pleaded allegations of breach of fiduciary duty (under sections 171, 172 and 175 of the Companies Act 2006) and of joint liability in conversion were legally deficient and bound to fail because they conflated authorised sales by an agent with a subjective intention not to account, failed to identify a duty to account on the facts pleaded and misapplied the duty to disclose misconduct. Permission to amend was refused and Mr Anstead was removed as second defendant.