Mr Justice Nugee has today handed down a judgment in the Lloyds/HBOS group litigation, which concerns the acquisition in 2009 by Lloyds TSB plc of Halifax Bank of Scotland plc (HBOS). An Extraordinary General Meeting of Lloyds shareholders was called to approve, and a significant majority did approve, the proposed acquisition on 19 November 2008. Before the EGM the directors of Lloyds published a Circular to shareholders. In the group litigation it is alleged by about 5% of Lloyds shareholders that the Circular (and various other communications made by the then directors of Lloyds) contained material misrepresentations and omissions and that the directors were accordingly in breach of tortious and fiduciary duties which they owed to the Claimants. The Defendants to the claims are Lloyds itself and five of the directors.
The Defendants applied to strike out the Claimants’ allegation that the directors owed them a series of broad fiduciary duties, including: a duty to act in good faith; a duty to act in the best interests of the Claimants and to prevent them from suffering loss; a duty not to place themselves in a position where their duties to the Claimants conflicted with their personal interests; and a duty to act for a proper purpose. In particular, the Defendants relied upon the well established principle that the directors of a company owe fiduciary duties to the company and in general do not owe such duties to individual shareholders. Although the case law makes clear that there are exceptions to this general principle, the Defendants argued that the Claimants had not identified any special circumstances which even arguably gave rise to such fiduciary duties being owed directly by the directors of Lloyds to the shareholders in the period leading up to the EGM.
Having reviewed the relevant English and Commonwealth authorities, Mr Justice Nugee acceded to the Defendants’ application. He held that directors do not owe fiduciary duties to a company’s shareholders by reasons of the mere fact of being a director, but only do so where on the facts of the particular case a special relationship existed between the director and the shareholders, such as some personal relationship or a particular dealing or transaction between them. In this case, the Claimants had failed to plead any special relationship between the directors and the shareholders of Lloyds other than the facts that the directors had superior knowledge to the shareholders and were giving the shareholders advice and information to enable them to decide how to vote at the EGM. The only duty which Mr Justice Nugee held arose in such circumstances (which had been accepted by the Defendants) was an equitable duty on the part of the directors to provide the shareholders with sufficient information to make an informed decision at the EGM. That duty did not include all the usual attributes of fiduciary duties. Specifically, there was nothing in the case which indicated that the directors had in any sense undertaken to act on behalf of the shareholders in such a way as to give rise to a duty of loyalty (that being the hallmark of a fiduciary relationship).
The judgment is here.
Helen Davies QC and Tony Singla are acting for the Defendants in the litigation, instructed by Herbert Smith Freehills.