Carey Street Investments Limited (in liquidation) & Anor v Grant Timothy Brown & Anor

For a claim against a director to avoid ordinary limitation under the Limitation Act 1980, the breach of fiduciary duty must be fraudulent. A failure to obtain an up-to-date independent valuation, or to investigate proposed charges, may amount to a breach of duty without dishonesty. Dishonesty turns on the director’s actual knowledge or belief and the objective standards of ordinary decent people; awareness that a transaction reduces tax does not by itself prove fraud. An appellate court should not interfere with factual or evaluative findings merely because it might have reached another conclusion. Intervention requires an identifiable error or a conclusion that no reasonable judge could reach.

The claimants, two companies in liquidation, appealed against the dismissal of claims against their former director, Grant Brown, and Equity Trust (Jersey) Limited, a trust and company services provider. The claims concerned undervalue transfers of properties, a dividend, management charges, interest and an outstanding balance. Equity Trust was also alleged to be vicariously liable or a shadow or de facto director.

Because the claims were brought long after the relevant events, they depended on section 21 of the Limitation Act 1980, which required a fraudulent breach of fiduciary duty. The central issues were whether the Deputy High Court Judge was entitled to find that Mr Brown honestly believed the transfer prices and charges were justified, despite the absence of up-to-date independent valuations and the tax consequences, and whether those findings could properly be challenged on appeal.

The appeal was dismissed. Lord Justice Newey gave the leading judgment, with Lady Justice Asplin and Lord Justice Popplewell agreeing.

1. The limitation issue was whether Mr Brown had committed fraudulent breaches of fiduciary duty. The parties proceeded on the basis that the dishonesty approach in Ivey and Armitage was materially the same. A breach involving lack of care or failure to investigate does not engage section 21 of the Limitation Act 1980 unless it was dishonest.
2. The Court of Appeal applied the restrained approach to factual and evaluative findings stated in Henderson, Fage, R (R) and In re Sprintroom. It could not interfere merely because another judge might have reached a different conclusion. An identifiable error, a failure to consider material evidence, a gap in reasoning or a conclusion no reasonable judge could reach was required.
3. The Judge’s conclusion had to be read as a whole. The absence of up-to-date independent valuations was a significant factor but was not conclusive of dishonesty. The pleadings, the proposed list of issues and the opening submissions gave the claimants adequate notice that honesty might be established through evidence other than formal valuations. Rule 16.5 of the Civil Procedure Rules 1998 did not relieve the claimants of proving dishonesty.
4. The Judge was entitled to find that Mr Brown believed £65 million was the market value of New Court and £78 million was the market value of Ludgate House. His awareness of tax considerations, rising property prices and the absence of independent valuations did not require a finding of dishonesty or blind-eye knowledge. The Judge was also entitled to consider the inherent likelihood of dishonesty in the circumstances, as discussed in Armitage.
5. The dividend ground failed because it depended on Mr Brown knowing that New Court had been transferred at an undervalue. Although the interim accounts were defective for omitting corporation tax, the Judge was entitled to find that Mr Brown did not appreciate the defect and, even if he had, expected the share subscription agreement to meet the liability.
6. The findings that Mr Brown regarded the management charges and retrospective interest as justified and appropriate were open to the Judge. Awareness that the proposals reduced taxable profits could coexist with an honest belief that the charges were justified. The conduct could amount to lack of care rather than dishonesty. The remaining grounds, including those concerning Equity Trust and valuation, therefore did not need to be determined.

• Court of Appeal (Civil Division) — Appeal dismissed on 22 May 2024.
• High Court of Justice, Business and Property Courts, Business List (ChD) — The Deputy High Court Judge dismissed the claims in a judgment dated 28 April 2023, reported at [2023] EWHC 968 (Ch).