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

On a strike-out application, the court must be certain that the pleaded claim is bound to fail, assuming the pleaded facts to be true. A shadow director’s fiduciary duties arise from the directions or instructions that establish the shadow directorship. Their nature and extent therefore reflect the scope of those directions. A person is not liable merely because unrelated conduct occurred while that person had shadow-director status. The pleading must identify a sufficient relationship or causal link between the instructions founding the status and the act or omission said to breach duty. A developing area of law or allegations of unconscionable conduct does not justify a trial where the claim fails that test.

The claimants, shareholders in Bowlplex Ltd, alleged that the defendants and others had conspired to acquire equity in the company through unlawful means. The only unlawful means pursued on appeal was an alleged breach of fiduciary duty by West Register and its employee, Mr Sondhi, said to be shadow directors of Bowlplex.

The Chief Master assumed the pleaded facts to be true, refused permission to amend, struck out the particulars of claim and claim form, and dismissed the claim. Limited permission to appeal was granted on the shadow-director ground. The central issue was whether the pleaded directions and instructions which allegedly created shadow-director status had a sufficient relationship with the alleged breaches concerning the company’s restructuring.

1. Disposition. The appeal was dismissed. The court reviewed the Chief Master’s decision on the pleaded case before him. It was not a rehearing, and the claimants did not pursue permission to rely on their later draft pleading.
2. Strike-out test. The court had to assume the pleaded allegations were true and determine whether the claim was bound to fail. The possibility that the law was developing, or that the pleaded conduct appeared unconscionable, did not justify allowing the claim to proceed where that threshold was met.
3. Shadow-director duties. Under section 170(5) of the Companies Act 2006, the general directors’ duties apply to shadow directors only where and to the extent that the corresponding common-law rules or equitable principles apply. Section 251 defines a shadow director by reference to directions or instructions in accordance with which the directors are accustomed to act. The status may arise from instructions limited to particular matters. Accordingly, the duties arising from that status are correspondingly limited.
4. The instructions founding the shadow directorship form the basis of the relationship from which fiduciary duties flow. There must therefore be a sufficient relationship or causal link between those instructions and the event said to constitute a breach. A shadow director is not liable, merely by reason of status, for unrelated matters.
5. The pleading did not allege that the instructions to appoint Mr Cooper or dismiss Mr Standish caused the company to enter into the Second Restructure. The dismissal occurred after the restructuring. The pleaded case that the restructuring resulted from commercial necessity was also inconsistent with a case that the board entered into it because it had been directed to do so. The pleaded relationship was therefore insufficient.

• High Court (Chancery Division): The Chief Master refused permission to amend, struck out the particulars of claim and claim form, and dismissed the claim. The appeal was dismissed.
• High Court (Chancery Division): Fancourt J granted limited permission to appeal on the shadow-director fiduciary-duty issue in [2019] EWHC 1125 (Ch).