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

The claimants alleged that Mr Brown, an Equity Trust employee and director of the claimant companies, breached fiduciary duties by approving transfers of UK properties and payments at undervalue with the purpose of evading corporation tax. The claimants relied on s 21 Limitation Act 1980 to disapply limitation, arguing that any breaches were fraudulent. The court applied the legal tests for fraudulent breach of fiduciary duty (Armitage v Nurse principles and the subjective-objective test for dishonesty from Ivey), and considered whether Equity Trust was liable vicariously or as a shadow or de facto director.

The judge found abundant documentary material but no reliable evidence that Mr Brown had actual or blind-eye knowledge that the transfer prices were below market or that he deliberately refrained from obtaining valuations to conceal such knowledge. The court concluded that, although Mr Brown and his team took shortcuts and failed to obtain valuations they ought to have obtained, any breaches were negligent or improper rather than dishonest. Because the breaches were not fraudulent for the purposes of s 21 Limitation Act 1980, the limitation defence stands and the long-outstanding claims are time-barred. The claims against Equity Trust for vicarious, shadow-director or de facto director liability also fail, since no fraudulent breach by Mr Brown was made out and the employer/employment capacity issues were resolved against vicarious liability in these circumstances.

This is a first-instance Chancery Division judgment concerning claims by two insolvent UK companies, Carey Street Investments Limited (CSI) and 245 Blackfriars Road Property Investments Limited (BRP), against their former director Grant Timothy Brown and Equity Trust (Jersey) Limited. The claimants alleged breaches of directors' fiduciary duties between 2004–2006 in relation to: (i) the transfer of New Court (CSI) and Ludgate House (BRP) to Jersey parent companies at alleged undervalue; (ii) payment of management fees and interest; and (iii) a dividend and an outstanding part of the purchase price. They asserted the breaches were fraudulent so as to disapply limitation under s 21 Limitation Act 1980 and sought equitable compensation approaching £26m.

Nature of the claim/relief sought: equitable relief/compensation for alleged breaches of fiduciary duties by a director and by the trustee/employer (Equity Trust) via vicarious or direct liability as shadow or de facto director.

Issues framed by the court:

• Whether Mr Brown’s conduct amounted to a fraudulent breach of fiduciary duty for the purposes of s 21 Limitation Act 1980 (i.e. dishonest conduct as defined by authority);
• whether any relevant valuations or interim accounts existed and whether Mr Brown had actual or blind-eye knowledge;
• whether Equity Trust was vicariously liable or was a shadow or de facto director; and
• valuation of New Court and Ludgate House for quantification if liability were made out.

Court’s reasoning and conclusions: the judge applied established authorities on fraudulent breach of trust and directors’ duties, including the subjective assessment of belief followed by the objective standard of dishonesty. The documentary record and witness evidence (notably Mr Brown’s unreliable but not found to be dishonest testimony) were analysed. The court found that contemporaneous documentation showed valuation enquiries and that advisers and Buckingham influenced valuation judgments; the purported DTZ letter post-dated the CSI board decision; interim balance sheet material likely existed and a share subscription agreement was in place to address tax exposures. On motive, there was no evidence Mr Brown gained personally or had reason to risk his career to act dishonestly. The judge found breaches of duty in the sense of carelessness or failure to follow best practice, but not fraudulent dishonesty. Consequently s 21 did not apply and the claims were time-barred. Equity Trust was not vicariously liable nor a shadow or de facto director on the facts. Valuation expert evidence was considered for completeness but no liability arose.

The court dismissed the claims in their entirety.

The claim is dismissed. The court held that although the director acted carelessly and shortcuts were taken, the claimant companies failed to prove that Mr Brown committed a fraudulent (i.e. dishonest) breach of fiduciary duty within the meaning of s 21 Limitation Act 1980. As no fraudulent breach was established, limitation applied and Equity Trust had no vicarious or direct liability as shadow or de facto director on the facts found.