EUROSAIL-UK 2007-4BL PLC & ORS. v WILMINGTON TRUST SP SERVICES (LONDON) LIMITED & ANOR.

A person cannot become a de facto director merely by unilaterally declaring an intention to assume that office. De facto directorship depends on actually acting as a director and participating at the relevant level in the company’s governing structure. Formal requirements for appointment as a de jure director must also be satisfied. Where proceedings are purportedly commenced without authority on behalf of a company, and the claim has no substantive legal or factual foundation, the court may strike out the claim. In an exceptional case outside the norm of commercial litigation, costs may be ordered on the indemnity basis.

The defendants applied to strike out claims brought in the names of four corporate claimants and a fifth company, Keycards Holdings Inc. The claim depended on assertions that individuals and a company had become de facto directors, or otherwise obtained authority to control the claimant companies, through notices and unilateral acts.

The claimants were not represented. The court considered whether the alleged appointments could confer authority to commence proceedings, whether the statement of case disclosed reasonable grounds under Civil Procedure Rules 1998, rule 3.4(2), and the appropriate costs order.

1. Strike-out. The claims were struck out. The alleged de facto appointments were legally impossible because a person cannot make himself a director simply by asserting that he is prepared to assume the office.
2. The court approved and applied the principles stated by Miles J in BMF Assets No 1 Ltd v Sanne Group Plc. A de facto director is a person who actually acts as a director and participates at the relevant level in the company’s governing structure. The concept is a basis for imposing liability despite the absence of formal appointment; it is not a mechanism for unilateral self-appointment.
3. Even if the contrary argument were realistically arguable, the alleged de jure appointments could not be effective because the formal requirements in Articles 70 and 71 of the relevant articles of association had not been satisfied.
4. The purported signatory had no actual or other authority to act for the claimant companies. The claims therefore lacked substantive merit and had not been properly issued. The statement of case disclosed no reasonable grounds for bringing or defending the claim within rule 3.4(2) of the Civil Procedure Rules 1998.
5. The fifth claimant was ordered to pay the defendants’ costs of the application and proceedings on the indemnity basis. The proceedings were outside the norm of commercial litigation for the purposes of the Excelsior test, and the absence of authority independently justified indemnity costs.
6. On assessment, proportionality had no role. The relevant questions were whether the work was reasonably carried out and whether the sums claimed were reasonable. Counsel’s hearing fee was reduced from £15,000 to £10,000; the composite Grade A hourly rate was assessed at £650 and the paralegal rate at £200.