In a recent decision of the English High Court, Sir Nicholas Warren has clarified the circumstances in which the trustees of a settlement may be made subject to a share purchase order in an unfair prejudice petition.
In Re Bankside Hotels Ltd, the trustees of an offshore trust held 50% of the shares in a company. The petitioner alleged that the settlor of the trust had acted in breach of his duties as director, to the benefit of other entities connected to him and contrary to the company’s interests. The trustees were not alleged themselves to have played any part in the conduct of the company’s affairs – or even to have been aware of it. Nor had they or the trust benefited from the settlor’s alleged breaches of duty.
Striking out the claim to a share purchase order against the trustees, Sir Nicolas Warren found that just because the settlor of a trust holding 50% of the shares in a company is guilty of unfairly prejudicial conduct in relation to that company as a director of it, that does not mean that the trustees of the settlement are thereby automatically themselves responsible for or implicated in such conduct or exposed to relief being granted against them in an unfair prejudice petition, regardless of whether they were themselves guilty of or implicated in that conduct. Absent any knowledge or constructive knowledge of the facts giving rise to the complaint of unfairly prejudicial conduct, he held, it is not enough, in order to establish the connection required between trustees sought to be made liable and the conduct complained of, that the trustees never manifested any interest in the company.
A lesson can be learnt from a trick which was missed by the petitioner in Re Bankside. Before presenting his unfair prejudice petition, he never wrote to the trustees raising with them his concerns about how the company’s affairs were being run and asking them to take steps to address them. Had he done so, and had the trustees refused to help, then he could potentially have relied on that refusal as constituting unfairly prejudicial conduct by the trust itself. But he could not fix the trust with liability for a director’s alleged wrongdoings of which it was unaware simply by asserting that, had it been aware of it, and had its trustees had been asked to take steps to remedy it, they would have refused to do so. Responsibility for unfairly prejudicial conduct arises from a shareholder’s actual conduct, not from hypothetical conduct which never actually happened.
Daniel Lightman QC acts for the respondents in Re Bankside.
Daniel Lightman QC