Dynamo Recoveries Limited v Alexander Nix

The claimants (Dynamo Recoveries Limited and Emerdata Limited) sued Alexander Nix for breaches of director's duties said to arise under sections 172 and 174 of the Companies Act 2006 and (in the alternative) equivalent fiduciary duties, and alleged that those breaches caused the collapse of the Cambridge Analytica business. The judge analysed the subjective s.172 duty and the objective duty of care in s.174, applying authorities such as Regentcrest and ClientEarth, and considered the covert Channel 4 recordings and Cambridge Analytica's dealings with the Information Commissioner. The court held that the defendant breached both s.172 and s.174 by the comments he made at a January 2018 meeting (the "Meeting") about entrapment and honeytraps, but found no breach in his conduct of the interaction with the Information Commissioner. Crucially, the claimants failed to prove causation on a "but for" basis: the adverse publicity and suspension by Facebook arising from concerns about the GSR/Facebook data, and the subsequent loss of customers and suspension from data platforms, were the dominant causes of the company's collapse. The Emerdata claim that Nix owed duties to it prior to completion of Project Dynamo was rejected. The judge found for Mr Nix in respect of two further sums he advanced to Emerdata in April–May 2018 (characterised as loans), but did not proceed to quantum on the claimants' asserted damages as causation had not been established.

This is a first instance Commercial Court judgment arising from competing claims linked to the collapse of the Cambridge Analytica group. The principal parties were Dynamo Recoveries Limited and Emerdata Limited (as assignees of the companies which traded as Cambridge Analytica) and Alexander Nix (former CEO of Cambridge Analytica). The litigation addressed director's duties, alleged misrepresentation (largely abandoned at trial), dealings with the Information Commissioner and factual causation of the group's collapse.

Background and procedural posture:

• Cambridge Analytica's business model involved data collection and political targeting; controversies over data obtained via Global Science Research (GSR) and press reporting had been ongoing since 2015.
• In January 2018 Project Dynamo completed and Emerdata became the purchaser of the SCL/Cambridge Analytica businesses. Shortly afterwards highly publicised media reports and Channel 4 undercover footage were broadcast, and the ICO sought and executed a warrant.
• DRL (assignee) and Emerdata sued Mr Nix for breaches of directors' duties (sections 172 and 174 Companies Act 2006) and for misrepresentation; the misrepresentation claim was abandoned during closing. Mr Nix counterclaimed for unpaid consideration and sums advanced to Emerdata.

Nature of the claims and relief sought:

• Claimants sought equitable compensation and damages for alleged breaches of fiduciary and statutory duties, relying on the view that Mr Nix's remarks and his approach to the ICO precipitated the company's collapse.
• Mr Nix sought payment of deferred consideration and repayment of sums he had transferred to Emerdata (alternatively characterised as loans).

Issues framed by the court:

1. Did Mr Nix breach his duties under s.172 (duty to promote company success) and s.174 (care, skill and diligence) by (a) comments at the Meeting and/or (b) obstructive dealings with the ICO in March 2018?
2. If breach established, did the breaches cause the collapse of the business (causation and remoteness)?
3. Did Mr Nix owe separate duties to Emerdata prior to completion of Project Dynamo?
4. On the counterclaim, were sums transferred to Emerdata (April/May 2018) loans repayable by Emerdata, and had any waiver/discharge or estoppel arisen in respect of deferred consideration?

Concise account of reasoning:

• The court accepted the subjective test for s.172 and the objective negligence standard for s.174, and applied authorities including Regentcrest, ClientEarth and Extrasure.
• On the Meeting, the judge concluded that the edited broadcast and the words used were susceptible to the natural inference that Mr Nix was describing services Cambridge Analytica could provide or had provided (entrapment, honeytraps). The judge rejected Nix’s explanations that the remarks were purely hypothetical or mere banter. On those findings the judge held that those comments breached both s.172 (because a director acting in good faith must have regard to the desirability of maintaining a reputation for high standards of business conduct) and s.174 (the conduct fell outside the range of reasonable conduct for a director dealing with a potential client).
• As to the ICO dealings, the judge reviewed the contemporaneous correspondence and expert legal advice, found that the company offered cooperation and that the ICO's conduct was heavily influenced by the revived GSR/Facebook data concerns and media attention. The court found no breach of s.172 or s.174 by Mr Nix in relation to the ICO engagement.
• On causation the judge applied the "but for" test and concluded that the primary cause of the company's collapse was the revived concerns about GSR/Facebook data, the suspension by Facebook, the ICO investigation and the resulting loss of clients and suppliers; those events would have undermined the business irrespective of Mr Nix's Meeting remarks or any different conduct vis-à-vis the ICO. Consequently the claimants failed to establish that the defendant's breaches caused the loss and the court did not award the equitable compensation sought; quantum was not determined.
• The alleged duty to Emerdata prior to completion was rejected: the court did not find a fiduciary relationship or that Nix was a director or shadow director of Emerdata prior to completion and therefore no separate pre-completion duty to Emerdata arose as pleaded.
• On the counterclaim, the judge rejected Emerdata's defences of waiver, estoppel and discharge of the deferred consideration by implication. The judge held that two later transfers (c. US$1,545,000 and US$290,000) were loans (not gifts) and found for Mr Nix on those sums.

Wider observations: the judgment emphasises the subjective nature of s.172, the separation between fiduciary loyalty and negligence duties, and the central importance of causation in loss claims against directors where multiple adverse events and media reporting are in play.

First instance: The court found that Mr Nix breached duties under section 172 and section 174 of the Companies Act 2006 by the comments he made at the January 2018 Meeting (entrapment and honeytrap remarks). The court found no breach of those duties in relation to Mr Nix's dealings with the Information Commissioner. Crucially, the claimants failed to prove that those breaches caused the collapse of the Cambridge Analytica business on the necessary "but for" basis; the dominant causal factors were the revived GSR/Facebook data controversy, Facebook's suspension of Cambridge Analytica, the ICO investigation and the resulting loss of customers and suppliers. Emerdata's claim that Mr Nix owed duties to Emerdata prior to completion of Project Dynamo was rejected. On counterclaim, the court held that two subsequent transfers by Mr Nix to Emerdata (on or about 23 April and 11 May 2018) were loans and awarded those sums to Mr Nix; the court did not proceed to quantify or award the broader equitable compensation claimed by the assignees since causation had not been established.