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

A claim should be struck out where, even taking the pleaded facts at their highest, it is bound to fail. A director’s duty to disclose his own misconduct arises after the misconduct, not merely when the director intends to act improperly. A lawful sale authorised by the owner is not converted into conversion by a later failure to account for the proceeds or by the alleged state of mind at the time of sale. Conversion focuses on the defendant’s dealing with the chattel and its consistency with the claimant’s rights. The fact that an area of law is developing does not prevent strike out where the pleaded case has no reasonable prospect of success.

The claimants alleged that a joint venture vehicle owned limited-edition motor vehicles and that Evanta Motor Company Ltd was authorised to sell them as agent. Mr Anstead was a director of both Evanta and the joint venture vehicle, Antkahn Ltd. The claimants sought relief against him for breach of fiduciary duty and conversion, alleging that the vehicles were sold without an intention to account for the proceeds.

Mr Anstead applied under CPR 3.4(2)(a) to strike out those parts of the claim. The application proceeded on the basis of the proposed amended pleading and the assumed truth of the pleaded facts. The issues were whether the fiduciary-duty allegations and the conversion claim were legally sustainable.

1. Application and strike-out test. The court proceeded on the basis that the pleaded facts would be established. The challenged allegations should not be struck out unless they were bound to fail. The fact that the claims concerned developing legal principles did not make strike-out inappropriate.
2. Fiduciary duties. Mr Anstead owed fiduciary duties to Antkahn as its director, including duties under sections 171, 172 and 175 of the Companies Act 2006. The pleading under section 171 did not identify an improper exercise of power. It alleged only a failure to require Evanta to sell as Antkahn’s agent, while positively asserting that Evanta did so. The section 172 complaint confused the alleged remedy or accounting obligation with the breach and did not explain how Mr Anstead himself owed the asserted duty to account.
3. Under section 175, the claim that Mr Anstead had failed to disclose misconduct was inadequately formulated. The court accepted in general terms that a director may owe a duty to disclose his own misconduct, applying Item Software (UK) Ltd v Fassihi and others [2004] EWCA CIV 1244. That duty arises after misconduct has occurred. There was no authority for a duty to disclose an intention to act improperly in advance. The proposed causation amendment therefore could not cure the defect.
4. The conflict-of-interest case was also artificial. The parties knew that Mr Anstead was a director of Evanta and regulated the relationship between Evanta and Antkahn through the joint venture agreement. The pleaded fiduciary-duty claims against Mr Anstead were bound to fail.
5. Conversion. On the pleaded case, Evanta was authorised to sell the vehicles as Antkahn’s agent and was performing its contractual obligation by doing so. The sale was therefore not inconsistent with Antkahn’s rights. A later failure to account, and an alleged intention not to account at the time of sale, did not negate the owner’s consent or retrospectively make the authorised sale unlawful. Conversion focuses on the acts undertaken in dealing with the chattel, rather than subjective state of mind. The claim against Mr Anstead stood or fell with the conversion claim against Evanta.
6. The allegations against Mr Anstead were struck out. Permission to amend was refused, Mr Anstead was removed as second defendant, and consequential amendments and directions were left to be addressed when the judgment was handed down.