Ceredigion Recycling and Furniture Team v Derek Clifford Pope & Ors.

Remedies for breach of directors’ fiduciary duties are not codified and may include restoration of company property, equitable compensation, damages and an account of profits. Where directors have misappropriated or converted existing company property, the appropriate relief is ordinarily restorative. The directors cannot reduce that relief by relying on a counterfactual that the property would have been paid away lawfully in any event. The court may order restoration in specie, together with compensation for associated payments and the costs of restoration. Relief remains flexible and depends on the facts, but speculative evidence of hypothetical remuneration does not justify reducing restorative relief.

The claimant company had previously obtained judgment against its former directors for breach of fiduciary duties arising from the transfer of its principal property into their personal pension arrangements and the subsequent leaseback. The substantive judgment, [2021] EWHC 1783 (Ch), was upheld on appeal, [2022] EWCA Civ 22. The disposal hearing concerned the appropriate relief, including whether the property should be restored, whether rental payments should be repaid, and whether credit should be given for hypothetical lawful pension or remuneration payments and a settlement received from other defendants.

1. The court ordered the property to be returned to the company, so that the lease merged in the freehold title. Mr Pope and Ms Cann were also liable for the rental payments made under the leaseback arrangement, with interest and the costs of restorative relief.

2. Remedies for breach of directors’ duties include ordinary civil remedies, restoration of company property, equitable compensation and an account of profits. The distinction between substitutive relief and reparative compensation is material. Substitutive relief restores property wrongfully misapplied and is measured by the property or its objective value. Reparative relief addresses loss caused by the breach.

3. On the particular facts, the transfer of the company’s principal asset and the assumption of a substantial rental liability constituted conversion and misappropriation of existing company property. The relief was therefore restorative. The defendants could not rely on a counterfactual that lawful pension or remuneration payments would otherwise have been made.

4. In any event, the evidence did not permit a proper assessment of such hypothetical payments. The directors had agreed their own remuneration, had not calculated any alleged underpayments when making the pension contributions, and had had sufficient opportunity to address the issue. Any potential claims relating to professional advice were matters between the directors and the professional defendants.

5. The settlement agreement allocated £293,803.36 to liability-related sums and £206,196.64 to legal costs. The court accepted that allocation and declined to permit the defendants to go behind it. The parties were invited to file an agreed draft order, or written submissions on matters not agreed, within 14 days.

• High Court (Chancery Division): substantive judgment for the claimant for breach of fiduciary duties, [2021] EWHC 1783 (Ch).
• Court of Appeal: appeal by the first and second defendants dismissed, [2022] EWCA Civ 22.
• High Court (Chancery Division): disposal hearing resulting in restorative relief in the present judgment.