Standish & Ors v The Royal Bank of Scotland Plc & Anor

The appeal concerned a strike-out of a shareholders' conspiracy claim which relied on the allegation that a bank subsidiary and its employee, as a shadow director, breached fiduciary duties so as to procure two restructurings that diminished the claimants' share value. The court applied the usual strike out test (Richards v Hughes) and considered whether the pleaded particulars established a real prospect of proving that a shadow director owed fiduciary duties in respect of, and had caused, the matters complained of.

The court held that the law treats fiduciary duties of a shadow director as arising from and limited by the instructions or directions by which the shadow directorship is constituted (see Companies Act 2006 s.170(5) and s.251). Accordingly there must be a relationship between the instructions said to constitute shadow directorship and the act or omission complained of. On the facts as pleaded, no such relationship was sufficiently alleged: the company and shareholders had agreed the restructures as a commercial response to banking pressure and there were no pleaded instructions by the shadow director that caused those restructures. The Chief Master was therefore entitled to strike out the claim.

Background and parties. The claimants were nine individuals (members of the Standish family and others) who were shareholders in Bowlplex Ltd. The defendants were The Royal Bank of Scotland plc (the bank) and SIG Number 2 Ltd (formerly West Register Number 2 Ltd), an indirect bank subsidiary. The claimants alleged a conspiracy between the bank, West Register and an employee of West Register (Mr Kamildeep Sondhi) to obtain 80% of the company by unfair means via two restructurings (the First and Second Restructures) and a company voluntary arrangement. The claim was that the claimants’ losses were the diminution in value of their shares caused by those restructures.

Nature of the proceedings and relief sought. These proceedings were an appeal from Chief Master Marsh’s order of 30 July 2018 refusing permission to amend, striking out the particulars of claim and claim form and dismissing the claim. The claimants sought to resist strike out and to run their conspiracy claim based principally on an allegation that Mr Sondhi and/or West Register, as shadow directors, breached fiduciary duties which constituted the unlawful means of the conspiracy.

Procedural history. The Chief Master struck out the claim. Falk J refused permission to appeal on paper. Fancourt J gave limited permission to appeal ([2019] EWHC 1125 (Ch)), allowing two narrow grounds to proceed to this court (one of which the claimants later abandoned).

Issues for decision. The central issues were (i) whether a shadow director can owe fiduciary duties in respect of matters unrelated to the instructions or directions which make him a shadow director; (ii) whether the particulars pleaded in the amended particulars of claim (APoC) sufficiently showed a link between the instructions said to constitute shadow directorship and the breaches of fiduciary duty alleged; and (iii) whether the claim had a real prospect of success such that it should not be struck out.

Court’s reasoning and subsidiary findings.

• The court accepted the agreed strike-out test that a claim should only survive where it has a real prospect of success (Richards v Hughes).
• The court treated the pleaded facts in the APoC as true for present purposes.
• It held as a matter of principle that fiduciary duties of a shadow director derive from the relationship created by the instructions or directions which made him a shadow director (Companies Act 2006 s.170(5); s.251). Where those instructions are limited in subject matter, any fiduciary obligations will normally be limited to that subject matter. A shadow director is not to be treated as owing fiduciary duties across unrelated aspects of the company’s affairs merely by virtue of shadow directorship.
• Applying that principle, the court concluded the APoC did not sufficiently plead a causal or relational link between the instructions relied on to establish shadow directorship (for example insisting on the appointment of Mr Cooper or later dismissal of Mr Tracy Standish) and the alleged breaches of fiduciary duty that produced the Second Restructure and the claimed losses. The APoC did not plead that any of those instructions caused the board to enter the Second Restructure, and some relevant acts (for example the dismissal of Mr Tracy) post-dated the restructure.
• The Chief Master’s conclusion that the company and shareholders had agreed the restructures of their own free will in response to commercial pressure from the bank was inconsistent with an allegation that the restructures were caused by instructions of the shadow director.

Conclusion. Because there was no adequately pleaded relationship between the instructions said to constitute the shadow directorship and the breaches alleged, the Chief Master was right to strike out the proceedings. The appeal was dismissed.

The appeal is dismissed. The court held that fiduciary duties of a shadow director arise from and are limited by the instructions or directions that constitute the shadow directorship, so a pleaded causal or relational link is required between those instructions and the alleged breach. The amended particulars did not plead such a link and the Chief Master was entitled to strike out the claim.

Chief Master Marsh refused permission to amend, struck out the particulars of claim and claim form and dismissed the claim (30 July 2018). Falk J refused permission to appeal on the papers. Fancourt J gave limited permission to appeal on 20 February 2019 ([2019] EWHC 1125 (Ch)), allowing two narrow grounds to proceed; one of those grounds was later abandoned by the claimants.