UTB, LLC v Sheffield United Ltd

A director must exercise powers in good faith for the company’s interests and must not use them to advance personal interests at the company’s expense. A conflict arising from accepting office in a client or prospective client requires informed consent. A breach does not establish loss without proof of causation; a loss-of-chance analysis still requires the breach to have materially caused the lost opportunity. A duty to disclose misconduct arises where the director’s general duty of loyalty requires disclosure, but there is no automatic duty to confess every breach. Damages must reflect proven loss, and speculative future profits or unproved expenditure cannot be recovered.

The supplied judgment concerns claims by Wey Education Plc and Zail Enterprises Ltd against their director and employee, Zenna Atkins. The claimants alleged breaches of fiduciary, statutory and contractual duties, including disloyal manipulation of the governance of an academy trust, conflicts of interest, interference with consultants, deletion of company records, misleading communications and loss of business opportunities.

The court considered whether particular acts breached the duty to act in the companies’ interests and, if so, whether they caused recoverable loss. The central issues included the validity and purpose of appointments to the trust, the effect of accepting a directorship of Tottenham University Technical College, the scope of any duty to disclose misconduct, and the proof required for loss-of-chance and damages claims.

1. The claimants established breaches of duty in relation to the appointment of additional members and directors of TMET, the subsequent concealment and defence of those appointments, the acceptance without consent of a directorship of TUTC, the email encouraging consultants to dissociate themselves from Zail, post-suspension communications and conduct, misuse of Companies House access, deletion and concealment of company emails, and the misleading account of the Mauritian contract.

2. The court found that Dr Atkins had power to act as Zail’s sole director when she passed the October resolution. The alleged appointment of Mr Bridges had not been validly made by the relevant date. That did not justify the purpose for which the power was used. The appointments were made to transfer effective control of TMET from Zail to Dr Atkins and her associates, contrary to the interests of Wey and Zail.

3. Accepting a directorship of TUTC created a conflict because TUTC was, or was intended to become, a client of Zail. The appointment required the consent of the board of Wey or Zail. The breach did not, however, cause the alleged loss of future TUTC work. The evidence did not show what role Dr Atkins played in TUTC’s later decisions.

4. Following Item Software v Fassihi [2004] EWCA Civ 1244, the court held that there is no universal, independent duty requiring a director to confess every breach. Disclosure may be required as part of the general duty of loyalty where the conduct is secret and self-interested. Dr Atkins was required promptly to disclose the resolutions and appointments made in relation to TMET. Her delay was a breach, but it justified only an award equivalent to approximately one month’s salary and benefits.

5. The claimants recovered £10,300 plus VAT in respect of the capacity grant, subject to credit for any amount already paid. Other claimed losses, including the Bristol schools contracts, TUTC work and unauthorised fees, were not proved to have been caused by the breaches or to constitute recoverable loss. Management-time losses were recoverable in principle where properly proved, applying R&V Versicherung AG v Risk Insurance and Reinsurance Solutions AG (No3) [2006] EWHC 42 (Comm), and the court awarded the amount assessed.

6. There was judgment for the claimants for the damages assessed. The parties were invited to agree the resulting order.