Carey Street Investments Limited & Anor. v Grant Timothy Brown & Anor.

A fraudulent breach of fiduciary duty requires dishonesty. The claimant must prove that the fiduciary knowingly acted contrary to the relevant interests, or was recklessly indifferent to them. A breach is not fraudulent merely because it was deliberate, careless, inadequately investigated or motivated partly by tax considerations.

Blind-eye knowledge requires a firmly grounded suspicion of specific facts and a conscious decision not to confirm them. The absence of an explanation, valuation or document may be relevant, but does not by itself establish dishonesty.

An employee appointed as a director of another company acts in the capacity of director when exercising directorial powers. The employer is not thereby vicariously liable for those acts.

The claimants, two companies now in liquidation, alleged that their former director, Grant Brown, dishonestly breached his fiduciary duties by transferring properties to parent companies at undervalue, approving an unlawful dividend, authorising management fees and retrospective interest, and leaving part of a purchase price outstanding. They also alleged that Equity Trust was vicariously liable, a shadow director or a de facto director.

The claims concerned events in 2004–2006 but were issued in 2020. The claimants therefore relied on Limitation Act 1980, section 21, which removes the limitation period for fraudulent breaches of trust. The central issue was whether the alleged breaches were fraudulent.

1. Claims dismissed. The claimants failed to prove that Mr Brown acted dishonestly. The extended limitation period in section 21 of the Limitation Act 1980 therefore did not apply.
2. Fraudulent breach of fiduciary duty requires dishonesty. Applying Armitage v Nurse and Ivey v Genting, the relevant inquiry was Mr Brown’s actual knowledge or belief, followed by the objective standards of ordinary, decent people. Blind-eye knowledge required a firmly grounded and targeted suspicion, together with a conscious decision not to investigate.
3. Mr Brown breached duties by failing to obtain independent valuations and by failing to investigate some arrangements adequately. Those shortcomings amounted to carelessness or failures to take proper precautions, not knowing or reckless conduct contrary to the interests of the companies. The court rejected the submission that absence of an up-to-date valuation or alternative explanation compelled a finding of dishonesty.
4. In relation to the dividend, the balance sheet available to the board could constitute interim accounts. The accounts were defective because they omitted provision for tax on the property transfer, but Mr Brown honestly believed that the share subscription agreement neutralised that liability. His approval of the dividend was therefore not fraudulent.
5. Tax reduction was a relevant factor in assessing motivation, but knowledge that a transaction reduced tax did not establish dishonesty where the director believed the underlying payment, valuation or charge was justified.
6. Equity Trust was not vicariously liable for Mr Brown’s directorial acts. Following Kuwait Asia Bank v National Mutual Life Nominees Ltd and Uavend Properties Inc v Adsaax Ltd, appointment during employment did not mean that the subsequent exercise of directorial powers occurred in the course of employment.
7. Equity Trust was neither a shadow director nor a de facto director. The claimant companies’ boards considered proposals, received supporting material and made their own decisions. Equity Trust did not assume the status and function of a director.
8. The court also assessed valuation evidence in case liability had been established, valuing New Court at £65,179,584 and Ludgate House at £87,665,000. No compensation order arose because the claims failed.