Buckingham Homes Ltd v Rutter

The court dismissed the claim against the former directors. The judge concluded that the resolutions recorded in the minutes of 16 December 2009 bound the claimant (Mr Ross) because he either attended or, having become aware of and acted on the decisions thereafter, could not properly deny approval (the Duomatic principle). Key contested transactions (the £150,000 loan to a related company, the grant of a long lease of part of the property and payments of sale proceeds to Barclays) were held not to have caused loss to PADS for substantive reasons: the loan was in the company’s commercial interests and was repaid; any profit from developing the part of the property would in practice have been routed through a special purpose vehicle and not retained by PADS; and the sums applied to Barclays amounted to "realised Equity Value" distributable to RP shareholders under the restructuring note. The judge also held that, even if breaches were proved, the directors acted honestly and reasonably and would have been excused under section 1157 Companies Act 2006.

This is a first instance claim by PADS (Buckingham Homes Limited) against four former directors alleging breaches of duty arising from decisions taken in late 2009 and applied in the following years. The claimant alleged three principal heads of complaint: (i) an unauthorised £150,000 loan by PADS to PRCA&P in February 2010, (ii) an unauthorised grant of a long lease of part of PADS' freehold property to 32, Victoria Road Limited in 2011 thereby losing a development opportunity, and (iii) the unauthorised application of sale proceeds (totalling £343,231.97) to discharge liabilities to Barclays which the claimants said were not PADS’ liabilities.

The court framed the principal issues as: whether the 16 December 2009 minutes and resolutions were valid and binding on Mr Ross; whether the £150,000 loan was authorised and/or in PADS' interests and whether it caused loss; whether the lease to 32VRL caused loss to PADS or the loss of a substantial chance of profit; and whether the application of sale proceeds to Barclays was unauthorised or caused loss to PADS. The court also considered defences of acquiescence, laches, causation and sought relief for the directors under s1157 CA 2006.

The judge found that Mr Ross was bound by (or had effectively approved) the 16 December 2009 resolutions (applying the principle in Re Duomatic and related authority). The £150,000 loan was held to have been made in PADS’ commercial interest (it enabled letting which improved borrowing and marketing prospects) and was repaid, so no loss was shown. The grant of the long lease to 32VRL did not cause loss to PADS because, on the evidence, any development profit would have been channelled through a special purpose vehicle (SMD) and not retained by PADS; the claimant therefore failed on causation and quantification of any loss or loss of a substantial chance. The sums paid to Barclays were treated as "realised Equity Value" of the property properly distributable to RP shareholders and the conduct was, in any event, within the ambit of what the RP shareholders could lawfully decide. Finally, the court held that, even if breaches of duty had been established, the directors acted honestly and reasonably and would have been excused under s1157 CA 2006. The claim was dismissed and judgment was entered for the defendants.

Claim dismissed. The court held that the resolutions recorded in the minutes of 16 December 2009 bound the claimant (Mr Ross) or were effectively approved by him; the £150,000 loan was in PADS’ commercial interests and was repaid so caused no loss; the grant of a long lease to 32VRL did not cause a compensable loss to PADS because any development profits would have been realised through an SPV rather than by PADS; the payments of sale proceeds to Barclays represented realised equity value available to RP shareholders and did not cause loss to PADS; and if any breach were established the directors acted honestly and reasonably such that relief under section 1157 Companies Act 2006 would have been appropriate. Accordingly the claim fails and judgment is for the defendants.