Sharp & Other Claimants Listed in the GLO Register v Blank & Ors

Directors’ general duties are owed to the company, not individually to its shareholders. A director is not liable merely because a commercial judgment later proves wrong. The question is whether a reasonably competent director, having regard to the company, the director’s functions, the information available and the time available, could reasonably have taken the decision.

A market announcement does not ordinarily create a personal duty of care from each director to each shareholder. A shareholder circular must, however, provide a fair, candid and reasonable account sufficient to enable an informed decision. The circular should have disclosed HBOS’s emergency bilateral funding and Lloyds’ facility to HBOS. Those breaches did not cause loss because neither termination, collapse nor rejection of the transaction was proved.

The claim was brought by Lloyds shareholders against five former Lloyds directors and Lloyds Banking Group plc. The claimants alleged that the directors negligently recommended Lloyds’ acquisition of HBOS and failed to disclose material information concerning HBOS’s funding, impairments, capital requirements and restructuring risks.

The recommendation and disclosure cases concerned the Announcement, the Revised Announcement, investor presentations and the shareholder Circular. The judgment records an earlier strike-out decision by Nugee J at [2015] EWHC 3220 (Ch). The central questions were whether the directors owed the alleged personal duties, whether the recommendation and Circular were defective, and whether any breach caused the claimants’ losses.

1. Disposition. The claim was dismissed. The recommendation case failed because a reasonably competent chairman or executive director of a large bank could reasonably have regarded the acquisition as beneficial in the circumstances known in October and November 2008. The directors’ view was a permissible commercial judgment, not negligence.
2. The governing standard was objective but context-sensitive. The court considered the company’s size and nature, the functions allocated to directors, the available information and time, and the directors’ reasonable reliance on specialist employees and advisers. The standard did not require the court to substitute its own commercial judgment. The principles in Re City Equitable Fire Insurance Co [1925] Ch 407, Dovey v Cory [1901] AC 477 and Green v Walkling [2008] BCC 256 were applied with the statutory context of sections 172 and 174 of the Companies Act 2006.
3. The directors did not owe individual shareholders a duty of care in respect of the market announcements or presentations. The company was a separate person, and the announcements performed regulatory and market-information functions rather than providing personal investment advice. The directors nevertheless remained subject to duties of honesty and care owed to Lloyds.
4. The equitable sufficient-information duty required a fair, candid and reasonable explanation of the business before the meeting. It did not require disclosure of every fact considered by the directors or every fact capable of affecting a vote. The focus was HBOS as part of the enlarged group, although material weaknesses in HBOS could not be ignored.
5. Two breaches were established. The Circular should have disclosed the existence of the Bank of England’s bilateral emergency funding for HBOS and the existence of Lloyds’ facility of up to £10 billion for HBOS. The latter did not need to be disclosed as a material contract with all its terms. The omission also made inaccurate the directors’ statement that they had taken all reasonable care to ensure that the Circular contained no material omission.
6. The breaches were not causative of loss. The board would have continued to recommend the transaction. A controlled, contextualised disclosure would probably have produced only a mildly negative market reaction. It was not proved that the transaction would have collapsed or that the requisite shareholder majority would have voted against it.

This was a first-instance trial in the High Court. The judgment records an earlier strike-out decision by Nugee J at [2015] EWHC 3220 (Ch), but no appeal from that decision is described.