The High Court has held that where directors give shareholders information to enable them to decide how to vote, that engages a duty to provide sufficient information, but does not, in the absence of a special relationship, impose wider fiduciary duties on the directors to the shareholders.

Facts

The case arose from claims brought by Lloyds shareholders against its directors in connection with Lloyds' acquisition of HBOS and its recapitalisation. The claims concerned the directors' advice and recommendations to Lloyds shareholders and the completeness and accuracy of the information provided to them to enable them to decide how to vote. The claimants alleged that the directors had breached various fiduciary duties which they owed to the claimants, including the duties to act in good faith and for a proper purpose, to act in the best interests of the claimants and to advise them clearly.

The directors accepted that they were under a duty to provide claimants with sufficient information to enable them to make an informed decision on how to vote in relation to the transactions. However, they applied to have the other claims against them for breach of fiduciary duty struck out. Their argument was that directors of a company do not in general owe fiduciary duties to the company's shareholders, and there was nothing in the facts relied on to warrant the conclusion that the directors owed the claimants anything other than the duty to provide sufficient information.

Decision

The court noted that it is well established that, although a director of a company can owe fiduciary duties to the company's shareholders, he does not do so merely by being a director. There has to be some "special factual relationship" over and above the usual relationship of a director with the company's shareholders. It is not enough that the director, as a director, has more knowledge of the company's affairs than the shareholders have. Nor is it enough that the actions of the directors will have the potential to affect the shareholders. Typically, such a special relationship has been found to exist where there had been a personal relationship or particular dealing or transaction between the director and shareholders.

The court found that, on the facts, a duty to provide sufficient information was engaged. This includes a duty not to mislead or hide material information, and a duty to give advice and information in clear and readily comprehensible terms. However, there was nothing which came close to a relationship in which the directors had in a more extended sense undertaken to act for the shareholders in a fiduciary capacity giving rise to other fiduciary duties. The court therefore ordered various parts of the particulars of claim to be struck out.

Comment

The decision is not new law but a useful reminder of the basic principle that, absent a special relationship, directors do not owe shareholders fiduciary duties. In the context of a large listed company that special relationship will be difficult to establish.

Sharp and others v. Blank and others [2015] EWHC 3220

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