Thursday 21 November 2019

UK: England and Wales: the extent of the duties owed by shadow directors

Mr Justice Trower delivered judgment earlier this week in Standish v The Royal Bank of Scotland Plc [2019] EWHC 3116 (Ch). The decision is noteworthy because of the discussion it contains concerning the application of section 170(5) of the Companies Act 2006, which provides that the "general duties [in sections 171 to 177 of the Act] apply to a shadow director of a company where and to the extent that they are capable of so applying". Mr Justice Trower stated (paras. [55] to [57]): 
It is therefore quite clear that section 170 of the 2006 Act cannot be read as imposing the full range of fiduciary duties owed by a de jure director on somebody merely because they have acquired the status of a shadow director. Put another way, because the status of shadow directorship can be acquired through the giving of instructions that are limited to only some part of a company's activities or affairs, there can be commensurable limitations on the nature and extent of the duties that they will thereby owe.

It also follows that the extent of any fiduciary duty owed by a person who is in the position of being a shadow director will reflect the extent and nature of the instructions that he gives. Those acts of instruction are the basis of the relationship between him and the company (and its de jure directors). Fiduciary duties flow from relationships and it necessarily follows that when shadow directorship (and nothing else) is relied on as the source of the fiduciary duty, it is only those acts of instruction which can form the foundation for any fiduciary duties that he may owe.

Thus, where any instructions are pervasive and all-encompassing, extending over the full range of the directors' decision-making, it is possible that the shadow director may owe fiduciary duties across the entire range of the company's activities. In other instances, the extent and nature of the instructions may be more restricted, being limited to particular aspects of the company's business or affairs. It seems to me that it follows that, where there is no relationship between the instruction and the act or omission of which complaint is made, it would be wrong in principle for any fiduciary duty to be owed. There is no principled basis on which a person whose shadow directorship arises out of unrelated matters ought thereby to be treated as having committed a breach of duty".

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