Popely & Anor v Popely & Ors

A person is a de facto director only where, viewed objectively, he forms part of the company’s corporate governing structure and assumes functions which impose the fiduciary duties of a director. Mere influence or involvement in management is insufficient. The question is fact-sensitive and must be assessed in relation to the particular acts relied upon.

An individual may simultaneously be a de facto and shadow director, but a particular act cannot be performed in both capacities. Directions or instructions to the de jure directors are acts done as a shadow director. For limitation purposes, fraud requires dishonesty. The court must establish the defendant’s actual knowledge or belief and then apply the objective standards of ordinary decent people.

The claimants, John Anthony Popely and Andrew Popely, brought a double derivative action concerning assets and rights associated with timeshare resorts. They alleged that Ronald Anthony Popely, acting as a de facto director of Casterbridge Properties Ltd, fraudulently caused company assets to be diverted for his or his family’s benefit, in breach of fiduciary duty.

The claims concerned alleged cash diversions, Vendor Rights and profits. The court also had to determine whether Ronald acted as a de facto director, whether the alleged acts breached fiduciary duties, and whether fraud had been proved so that the claims avoided limitation under the Limitation Act 1980.

1. The claim was dismissed. None of the cash, Vendor Rights or profits claims was made out.
2. The court adopted the principles in Revenue and Customs Commissioners v Holland [2010] UKSC 51 and Smithton Ltd v Naggar [2014] EWCA Civ 939. Whether a person is a de facto director is an objective question of fact and degree. The court must examine the company’s corporate governance, the defendant’s actual acts and their cumulative effect. Management involvement or influence alone is insufficient.
3. The relevant inquiry is act-specific. An act is directorial only if, within the company’s governance structure, it could be done only by someone acting in the capacity of a de jure director. If the person had another capacity in which he could properly act, the act is not de facto directorship.
4. The court accepted the distinction between de facto and shadow directors under the Companies Act 2006. A person may hold both statuses, but a particular act cannot be simultaneously performed in both capacities. Instructions to the de jure directors are shadow-director acts. The alleged payments to Mars Trust were therefore not acts done by Ronald as a de facto director.
5. Even assuming breach of fiduciary duty, fraud was not established. Under Armitage v Nurse [1998] Ch 241, dishonesty is required. Applying Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67, the court had to ascertain Ronald’s actual knowledge or belief and then assess honesty by ordinary standards. The evidence did not permit either conclusion.
6. The Vendor Rights claim failed because no obligation of Long Beach Cyprus to pay Casterbridge was proved. The profits claim failed for lack of evidence of profits and, in any event, because breach of fiduciary duty and fraud were not established.

First-instance decision. The judgment records earlier procedural steps in the long-running litigation, including jurisdiction and substitution orders, but no appeal from a lower court decision was determined in this judgment.