Dynamo Recoveries Limited v Alexander Nix

A director’s duty under section 172 of the Companies Act 2006 is subjective, but the director must have regard to the desirability of maintaining high standards of business conduct. An honestly held belief in promoting the company’s success does not suffice if the statutory factors were not considered. Section 174 requires reasonable care, skill and diligence. The court may intervene where conduct falls outside the range of decisions reasonably available to a director, including conduct going beyond a mere error of judgment. Directors’ statutory duties do not arise before appointment. A seller negotiating an arm’s-length acquisition does not thereby assume fiduciary duties to the buyer. Causation requires a “but for” connection between breach and loss.

The claimants pursued assigned claims against Alexander Nix arising from the collapse of the Cambridge Analytica business. They alleged that, as a director of the SCL Companies, Mr Nix breached sections 172 and 174 of the Companies Act 2006 by comments made during an undercover meeting and by the company’s dealings with the Information Commissioner’s Office. Emerdata separately alleged that Mr Nix owed it duties before completion of Project Dynamo and should have disclosed the comments before Emerdata acquired the SCL business.

Mr Nix also claimed repayment of deferred consideration and sums advanced to Emerdata. The central issues were breach, causation, the existence of duties to Emerdata, and whether the advances were gifts or loans.

1. Claims by DRL. Mr Nix’s comments suggested that Cambridge Analytica could provide entrapment and honey-trap services. The court rejected his explanations that the remarks were merely hypothetical or humorous.
2. Section 172. The duty is subjective, but it includes an obligation to have regard to the desirability of maintaining high standards of business conduct. Given the nature of the services apparently offered, Mr Nix could not honestly have considered that the comments were most likely to promote the companies’ success while satisfying that obligation. He breached section 172.
3. Section 174. Although the meeting was informal and required an immediate response, Mr Nix was acting as a director in dealings with a prospective client. His comments went beyond an error of judgment and fell outside the range of decisions reasonably available to him. He breached section 174.
4. ICO dealings. The evidence did not establish that Mr Nix acted in bad faith under section 172 or outside the reasonable range under section 174. The approach was taken with detailed specialist legal advice, and the ICO’s public response was not shown to have resulted from unreasonable or uncooperative conduct.
5. Causation. The claimants failed to prove that, but for the comments, the business would not have failed. The evidence showed that the principal causes were the Facebook-data controversy, Facebook’s suspension of access, adverse publicity concerning data use, and resulting loss of customers and suppliers. The ICO claim also failed on causation.
6. Emerdata claim. Mr Nix was not shown to have been a director before the SPA was entered into, and no fiduciary relationship or shadow-director status was established. The claim failed.
7. Mr Nix’s claims. Emerdata failed to establish waiver, estoppel or discharge of the deferred consideration. The payments of US$1.545 million and US$290,000 were loans, not gifts, and those claims succeeded. Quantum and set-off issues were unnecessary to decide.