De Sena & Anor v Notaro & Ors

The claim concerned a family-company demerger of 28 April 2011 and allegations that the first defendant procured the first claimant’s surrender of her Holdings shares by undue influence and/or breach of fiduciary duty, with consequential claims against the second defendant for unjust enrichment and against the third- and fourth-defendant professional advisers for breach of fiduciary duty and negligence.

The court applied the ordinary tests for actual undue influence (requiring proof of overt improper pressure) and for the existence and scope of fiduciary duties, and analysed the circumstances in which professional advisers may owe duties to individual shareholders (assumption of responsibility, proximity/threefold test and incremental approach). The court also considered evidential rules on adverse inferences from missing witnesses and the admissibility and scope of expert evidence, in particular accountants' expert evidence on demergers.

On the facts the judge found no evidence of the sort of overt coercion or illegitimate pressure necessary to establish actual undue influence, no special relationship giving rise to fiduciary duties owed by the first defendant to the first claimant, and no basis to impose duties of care or fiduciary obligations on the third or fourth defendant towards the claimants in relation to the demerger. The expert accounting reports on accountants’ liability were excluded as inadmissible on scope and expertise grounds. The claims were dismissed.

The claimants (Carmela De Sena and Meltor Developments Ltd) alleged that a family-company demerger effected on 28 April 2011 was procured by undue influence and breaches of fiduciary duty by the first defendant (her brother), that the transferee company (the second defendant) was unjustly enriched, and that the third- and fourth-defendant professional firms (accountants and solicitors) were in breach of fiduciary duty and negligent in the documentation and tax clearance process.

• Nature of proceedings: first-instance High Court trial of a multi-party claim arising out of a demerger of a private family group.
• Reliefs sought: setting aside the sale/demerger or equitable compensation; restitution for alleged unjust enrichment; damages for negligence and breaches of fiduciary duty.

The court framed the principal issues as (i) whether the first claimant established actual undue influence or coercion by the first defendant; (ii) whether the first defendant owed fiduciary duties to the first claimant (or whether the company was a quasi-partnership) and, if so, whether they were breached; (iii) whether the third and fourth defendants owed fiduciary duties or a duty of care to the claimants in respect of the demerger and whether any breach caused loss; (iv) whether the second defendant was unjustly enriched; and (v) evidential issues including adverse inference from non-called witnesses and the admissibility/scope of expert accounting evidence.

Court’s reasoning in brief:

1. The judge emphasised that the first claimant bore the burden of proving actual undue influence and that presumed undue influence was not relied on. Examining contemporaneous documents, diary entries and witness evidence, the judge concluded the demerger resulted from hard commercial negotiation between experienced family directors and shareholders rather than from overt improper pressure or coercion; accordingly undue influence was not proved.
2. On fiduciary duty the court held that simply being a director or having a family relationship did not by itself create fiduciary duties owed to a fellow shareholder; a special factual relationship or identifiable assumption of responsibility was required. The facts did not establish such a relationship between the first defendant and the first claimant, nor a quasi-partnership that would import partner-like fiduciary obligations.
3. Against the professional defendants the judge applied the familiar tests for duty of care (assumption of responsibility, the foreseeability/proximity/just-and-reasonable triad and the incremental approach). The accountants and solicitors were retained by the company to implement a demerger and, objectively, did not assume responsibility to give the individual claimants the sort of personal, protective advice asserted; the court declined to impose novel duties in the circumstances. The judge also excluded large parts of the claimants’ expert accounting reports on scope and expertise grounds.
4. Remedies were further constrained by practical obstacles to restitutio in integrum (many non-party stakeholders, subsequent dealings, rents and sales, and delay/affirmation), and by laches.

Result: the court dismissed the claims against all defendants.

The claim is dismissed. The judge found no sufficient evidence of actual undue influence or coercion and no special factual relationship giving rise to fiduciary duties by the first defendant to the first claimant; the professional advisers were acting for the company and did not assume personal duties to the claimants, and the expert accounting evidence on accountants’ liability was excluded for lack of admissible expertise and inappropriate scope. Practical obstacles, laches and affirmation further militated against unwinding the demerger.