Neil Leslie Humphrey & Anor v Paul Craig Bennet & Anor

Summary judgment should not determine alleged breaches of directors’ duties where an informal agreement and the parties’ knowledge may realistically establish authority under sections 175 or 177 of the Companies Act 2006. The disclosure required depends upon the transaction and the company’s proposed involvement. Detailed disclosure of the vehicle used or anticipated profit may not be necessary where the company has agreed not to pursue the opportunity.

Relief under section 1157 must be specifically pleaded and may be rejected summarily. However, failure to use the statutory mechanisms for avoiding a breach does not necessarily preclude a director from having acted reasonably for section 1157 purposes. Receipt of a benefit is relevant but does not impose a definitive or additional test.

The claimant shareholders brought a derivative claim for Esprit Land Ltd against two of its directors. They alleged that the directors transferred land owned by the company, and diverted the opportunity to develop adjoining land, to a company controlled by Mr Bennett and of which Ms Murphy was also a director.

The High Court granted summary judgment against Mr Bennett for breaches of sections 175 and 177 of the Companies Act 2006 and refused him permission to rely on section 1157. In a later order it refused summary judgment against Ms Murphy and allowed her to amend her defence. Mr Bennett appealed. The claimants cross-appealed in relation to Ms Murphy. The central question was whether the proposed amended defence disclosed realistic prospects of defences under sections 175, 177 and 1157.

Appeal allowed; cross-appeal dismissed. The court set aside the summary judgment against Mr Bennett and permitted him to advance the substance of his proposed amended defence at trial.

1. Section 175. There was a realistic prospect that an alleged agreement that the company would not pursue the Ansty Road project, and that Mr Bennett and Ms Murphy could instead pursue it outside the company, amounted to the required authority. The adequacy of disclosure was fact-sensitive. The judge had been wrong summarily to treat the fuller disclosure requirements drawn from Gwembe as necessarily applicable to this alleged agreement. It was arguable that the detailed acquisition arrangements, corporate vehicle and anticipated profit were irrelevant if the company was not to participate.
2. Section 177. The sale of the company’s existing land required separate consideration. Nevertheless, section 177(6)(b) of the Companies Act 2006 excused a declaration to the extent that other directors were already aware, or ought reasonably to have been aware, of the interest. The alleged agreement, the land’s necessary role in the project, the informality of the company’s affairs and the pleaded assertion of full market value created triable issues.
3. Section 1157. A director cannot prevent summary judgment merely by invoking section 1157. The director must plead facts showing a realistic prospect that relief will be granted. But a failure to comply fully with sections 175 or 177 does not necessarily establish that the director acted unreasonably for section 1157. Nor does receipt of a benefit create a separate definitive test or invariably require an exceptionally powerful case. The statutory assessment remained fact-sensitive and should proceed to trial.
4. Ms Murphy. A director of both companies on opposite sides of a proposed transaction may be in a conflict position even without a beneficial shareholding in the second company. However, because Mr Bennett was entitled to defend the claim at trial, the same ultimate result followed for Ms Murphy. The cross-appeal therefore failed.
5. Lewison LJ additionally stressed that summary judgment should be avoided where fuller factual investigation may affect the result. That risk was present here.

• Court of Appeal (Civil Division): Allowed Mr Bennett’s appeal against summary judgment and dismissal of his proposed section 1157 defence, and dismissed the claimants’ cross-appeal concerning Ms Murphy: [2023] EWCA Civ 1433.
• High Court, Business and Property Courts in Birmingham: On 28 June 2022, granted summary judgment against Mr Bennett and ordered an account of profits. On 5 October 2022, refused summary judgment against Ms Murphy and permitted her to amend her defence.