Summary

The sole director and shareholder of a company in liquidation had breached his fiduciary duties to the company by misapplying its money and had breached the Companies Act 2006 s.175 by putting himself in a position where he had an interest that conflicted with its general interests.

Facts

The claimant (G), a company in liquidation, alleged that the first defendant (X), its sole director and shareholder, had breached his fiduciary duties and the Companies Act 2006 s.175, and that the second to sixth defendants had dishonestly assisted him.

G was a holiday tour operator which bought seats from airlines to carry its customers. The second defendant (B) had an indirect interest in 50 per cent of the shares of an airline (V) and the third defendant (O) was another airline. G bought seats on V and O's flights. Subsequently, B and O entered into separate deals with X and paid him substantial sums of money to buy 50 per cent of his shares in G. After G went into liquidation it brought the instant claim against X, alleging that he misapplied its money and acted in breach of his fiduciary duties as a director. As X had left the jurisdiction and the likelihood of recovering any monies from him was remote, G's main claims were against the other defendants for dishonest assistance. B and O, however, maintained that they had lost a substantial amount of money themselves as a result of X's fraudulent activity and G's claim should be struck out because the fraud of a director was to be attributed to the company of which he was the sole directing mind and beneficial owner, in accordance with the principle in Stone & Rolls Ltd (In Liquidation) v Moore Stephens (A Firm) [2009] UKHL 39, [2009] 1 A.C. 1391.

G submitted that (1) X had breached his fiduciary duties by misapplying its money when he caused it to transfer money to V and to O to facilitate the payments that they were contractually bound to make to him; (2) X had breached s.175 by putting himself in a position where he had an interest that conflicted with its general interests because the purpose of the B and O deals was to enable him to make a personal profit from the fact that V and O wanted a commitment that it would continue to purchase flight seats from them; (3) the other defendants dishonestly assisted X.

Held

(1) X had breached his duty to G in the deal with B by misapplying G's money when he caused it to pay deposits which were not genuine in that B had no intention of repaying the money, and in the deal with O when he caused G to make a payment where there was no legal obligation to do so and the payment was not in G's interests but only in X's and O's interests. Nor could X approve the misapplication of G's fund in his capacity as sole shareholder, because once a company became insolvent, the director no longer owed duties solely to the shareholder but also to the creditors of the company, Vivendi SA v Richards [2013] EWHC 3006 (Ch), [2013] B.C.C. 771 applied (see paras 86, 91, 114, 180 of judgment). (2) X had breached his duty under s.175 in diverting to himself G's opportunity to obtain consideration from V and O in return for it making a commitment to purchase minimum numbers of seats on flights in future seasons (paras 108, 111, 180). (3) The fact that X defrauded not only G, but also B and O, did not prevent G pursuing the claim against them. Whether the conduct of a director created a personal liability on the part of the company depended on the context in which the issue arose: as between the company and the defrauded third party, the company was not to be treated as the victim of the wrongdoing but as one of the perpetrators; however, where the company itself sought compensation for a breach of fiduciary duty owed to it by the director, as between it and the director, the company was the victim of the wrong and the director could not defeat that claim by attributing his own wrongful conduct to the company, Stone & Rolls distinguished, Bilta (UK) Ltd (In Liquidation) v Nazir [2013] EWCA Civ 968, [2014] Ch. 52 applied. V and O had dishonestly assisted X's breaches of fiduciary duty, and the assistance given by V was in fact given by B. The fact that the wrongful conduct which B and O were alleged to have assisted dishonestly was a breach of fiduciary duty by X did not mean that B and O could not be liable to G for such assistance; there was no justification for restricting liability to trustees in charge of trust property, JD Wetherspoon Plc v Van de Berg & Co Ltd [2009] EWHC 639 (Ch), [2009] 16 E.G. 138 (C.S.) and Fiona Trust & Holding Corp v Privalov [2010] EWHC 3199 (Comm), (2011) 108(3) L.S.G. 17 applied. V and O's conduct was sufficient to amount to assistance of X to misapply G's money and to divert the opportunity to earn consideration for entering into a long-term seat purchase commitment from G. And the assistance was dishonest: there was abundant evidence that B was fully aware that it was involved in a transaction that was thoroughly dishonest and O had likewise been dishonest, Twinsectra Ltd v Yardley [2002] UKHL 12, [2002] 2 A.C. 164 applied (paras 121, 123, 128-129, 131, 146, 152, 180).

Judgment for claimant