De Sena & Anor v Notaro & Ors

A shareholder has no right, on a consensual company demerger, to receive assets proportionate to the percentage of shares held. The shareholder is entitled only to what can be negotiated with the other participants. A commercial negotiation, even if forceful or unequal, does not constitute actual undue influence without proved improper or illegitimate pressure or coercion. A director owes fiduciary duties to the company, not ordinarily to a fellow shareholder; such duties require a special factual relationship involving an undertaking or assumed responsibility to act for the shareholder’s benefit. Professional advisers retained by the company do not ordinarily owe a parallel duty of care to a shareholder who knows they act for the company and declines independent advice.

The claimants challenged a 2011 demerger of a family-owned corporate group. The first claimant, a shareholder and former director of the holding company, transferred her shares and received assets through the second claimant, a company formed for that purpose.

Claims against the first and second defendants alleged undue influence, breach of fiduciary duty and unjust enrichment. Claims against the accountant and solicitor defendants alleged breach of contract, fiduciary duty and negligence. The central issues were whether the demerger had been procured by improper pressure, whether the first claimant was entitled to assets equivalent to her shareholding, and whether the professional advisers owed her or the second claimant personal duties.

1. Claims dismissed. All claims against all defendants failed.
2. The first claimant’s case was one of actual undue influence. It required proof of overt improper or illegitimate pressure or coercion. The first defendant’s brusque and forceful conduct amounted to hard commercial negotiation, not actionable pressure. The first claimant was an experienced businesswoman who knew she could refuse the transaction and had been told to obtain independent advice.
3. A shareholder does not own the company’s assets. On a consensual demerger, the shareholder has no right to a proportionate allocation of those assets or to a “fair” share value. The relevant entitlement is what the shareholder negotiates with the purchaser or other shareholders. The alleged 15% discount therefore did not establish an undervalue.
4. The first defendant owed fiduciary duties to the company, but no fiduciary duties to the first claimant merely because he was her fellow director and shareholder, or because the company had family characteristics. No special relationship involving an undertaking to act for her benefit was established. The company was not a quasi-partnership for this purpose.
5. The accountant acted for the company, not for the first claimant or the second claimant. Applying the assumption-of-responsibility, threefold and incremental approaches, there was no sufficient proximity or fairness to impose a duty of care. The solicitor’s role was similarly limited to preparing documents for an agreed transaction. In any event, the alleged breaches would not have caused loss.
6. The claims in unjust enrichment were consequential on the failed undue-influence claim. The judge provisionally observed that enrichment caused by a transaction set aside for undue influence might raise difficult questions concerning whether the enrichment was unjust, but expressed no concluded view.
7. Even if undue influence had been established, rescission would not have been appropriate because relevant parties were absent, the transaction could not readily be unwound, restitution had not been offered, the claimants had affirmed the transaction by dealing with transferred properties, and there had been prejudicial delay.