Instant Access Properties Ltd v Prosser

The court analysed extensive factual and documentary material and held that the claimant liquidators had not proved breaches of fiduciary duty, dishonest assistance, conspiracy, negligent advice or fraudulent trading. Key legal questions concerned the scope of directors' duties (as expressed in the Companies Act 2006 wording), the status and duties of de facto and shadow directors, the rule against self-dealing and the duty not to obtain a benefit from a third party, and whether the transfer pricing provisions (Schedule 28AA to the Income and Corporation Taxes Act 1988) or tax-evasion motives rendered the arrangements unlawful.

Principal grounds: the judge found (i) the commercial arrangements between IAP, Leadenhall and Darrencrest were not sham transactions and the offshore companies provided services and consideration such that IAP did not give away commissions for "no or no adequate consideration"; (ii) the principal defendants, Mr Rosser and Mr Moore, were shadow directors in respect of some IAP activities but the evidence did not establish that they (or the de jure director, Mrs Gifford) dishonestly or fraudulently breached fiduciary duties; (iii) advisers (tax and legal) were not shown to have been negligent or to have dishonestly assisted breaches; (iv) fabricated and back-dated documents were created by some participants (notably Mrs Gifford) but those falsified documents did not produce loss to creditors or HMRC and did not support a successful section 213 claim.

The case concerned IAP, a property-marketing company that between 2003 and 2008 received large commissions on sales of overseas residential properties and shared those commissions with two offshore companies, Leadenhall and Darrencrest. The liquidators alleged these arrangements were a fraud on IAP and HMRC, contending that the de jure director (Mrs Gifford) and the alleged de facto/shadow directors (Mr Moore and Mr Rosser) caused diversion of IAP revenue to offshore companies for no or inadequate consideration and for tax-evasion purposes. The claimants also sued professional advisers for negligence, dishonest assistance and conspiracy, and advanced a contribution claim under section 213 Insolvency Act 1986.

Nature of the proceedings and relief sought

• The proceedings were first instance, brought by IAP (in liquidation) and its liquidators for: equitable compensation/damages for breaches of fiduciary duty, an account of profits, relief under section 213 Insolvency Act 1986, dishonest assistance, conspiracy, and professional negligence. The pleadings relied in part on alleged fraud and deliberate concealment to meet limitation issues.

Issues framed

• whether Mr Moore and/or Mr Rosser were de facto or shadow directors and, if so, what fiduciary duties they owed;
• whether the agreements (notably the 26 November 2003 Leadenhall agreement and subsequent restructurings) were for no or inadequate consideration or otherwise in breach of directors' duties;
• whether benefits were obtained from third parties by reason of being a director (Regal principle) or whether conflicts/self-dealing were undisclosed;
• whether professional advisers acted negligently or dishonestly assisted any breaches;
• whether false or back-dated documents demonstrated fraud or fraudulent trading attracting section 213 liability; and
• limitation issues and whether any alleged breaches were fraudulent or concealed so as to postpone limitation.

Court’s reasoning and disposition

The judge made detailed factual findings: IAP, Leadenhall and Darrencrest operated under genuine contractual arrangements; the offshore entities provided or organised property sourcing, liaison with developers, and administration; the 50/50 commission sharing was the outcome of commercial negotiation and advice and was not shown to be valueless consideration; and the alleged motive of tax evasion did not amount to demonstrated fraud on HMRC. The court accepted that some documents had been deliberately back-dated or manufactured (notably by the company secretary) and that some memoranda contained spin or inaccuracies, but concluded these fabrications were not relied upon by third parties to IAP's detriment and did not create an actionable fraud that would revive otherwise time-barred claims. On shadow-director liability the court found both Mr Rosser and Mr Moore were shadow directors in relation to some IAP matters but, on the facts, they did not assume fiduciary obligations in a way that made them liable for the pleaded wrongs; even if certain technical nondisclosures had occurred they would have been matters that a de jure director could have been relieved from under the statutory relief, and it would be inappropriate to impose a stricter result on shadow directors in the absence of dishonesty. The advisers were not shown to have been negligent or dishonest.

Outcome: All claims failed and the claims were dismissed.

The claims are dismissed. The court found that although Mr Moore and Mr Rosser were shadow directors in respect of some IAP activities, the factual evidence did not establish breaches of fiduciary duty, dishonest assistance, conspiracy, professional negligence or fraudulent trading. The challenged agency and commission arrangements were not sham, the offshore companies provided consideration, the alleged tax-motivated fraud was not proven, and fabricated documents, while dishonest, did not create loss or a successful claim under section 213. Limitation issues were accordingly not determinative because the substantive allegations failed.