Bishopsgate Contracting Solutions Ltd v O’Sullivan [2021] EWHC 2103 (QB)

The Claimant alleged the Defendant, who managed their business operations, breached duties as a de facto director by extending unauthorised credit to G-Force, which subsequently went into administration causing a £481,727 loss. The Court found the Defendant was not a de facto director, had no binding instruction prohibiting credit extension, and was not negligent. Claim dismissed.

Facts

The Defendant, Mr O’Sullivan, was employed by Munnelly Support Services Limited (MSSL) from 2007 and was tasked with setting up and managing the Bishopsgate Group of companies, including the Claimant, Bishopsgate Contracting Solutions Limited. The Claimant’s business involved supplying temporary workers to construction contractors. In October 2016, the Defendant authorised credit of up to £250,000 to a new client, G-Force Groundworks Limited. The debt grew to £578,072 by the time the Defendant left the business in June 2017. G-Force subsequently went into administration in August 2017, and the Claimant wrote off a debt of £481,727.

The Claimant’s Allegations

The Claimant alleged that the Defendant was a de facto director and/or agent of the Claimant and owed it duties under the Companies Act 2006 (sections 172 and 174) and at common law. It was alleged that Mr Munnelly had given an oral instruction in mid-2016 prohibiting the extension of credit to new clients without his consent, which the Defendant allegedly breached. The Claimant also alleged deliberate concealment of the situation with G-Force.

Issues

The key issues for determination were:

• Whether there was a binding instruction from Mr Munnelly prohibiting credit extensions without his consent.
• Whether the Defendant was a de facto director of the Claimant.
• Whether the Defendant breached any duties owed to the Claimant, including duties under sections 172 and 174 of the Companies Act 2006.
• Whether the Defendant deliberately concealed information from Mr Munnelly.
• Whether the Defendant was an agent of the Claimant and, if so, whether he breached any duties as such.

Judgment

Credibility of Witnesses

Mr Justice Linden found Mr Munnelly to be “a highly unreliable witness” who had discussed his evidence overnight with another witness contrary to the court’s direction, and who was evasive and untruthful. Mr Vine was found to have adopted a non-committal strategy to protect his loyalty to Mr Munnelly. In contrast, the Defendant was found to have answered questions truthfully and reliably for the most part.

The Alleged Instruction

The Court found that there was no instruction given by Mr Munnelly in the terms alleged. The Court accepted the Defendant’s evidence that any discussion following the Sea Meadows loss was a shared judgement about being more cautious with clients in the care industry specifically, not a blanket prohibition on credit to all new clients.

“I do not accept that there was the instruction alleged in the Claimant’s pleaded case or the other versions of it, which have been put forward on its behalf in the evidence. On this point I accept the Defendant’s evidence.”

De Facto Director

The Court held that the Defendant was not a de facto director of the Claimant. While the Defendant held himself out as Managing Director and had significant autonomy, he reported to Mr Munnelly who retained ultimate control. The work the Defendant performed was carried out pursuant to his contract of employment with MSSL, and he did not have the powers or functions of a director in the corporate governance sense.

“Having weighed the competing considerations and looked at matters in the round, I prefer Mr Forshaw’s submissions. In my view, the Defendant was not a de facto director of the Claimant.”

Breach of Duties

Even assuming the Defendant was a de facto director, the Court found no breach of section 172 (duty to promote the success of the company) or section 174 (duty to exercise reasonable care, skill and diligence). The Defendant acted in good faith in his dealings with G-Force and exercised reasonable judgement in extending credit and managing the subsequent debt issues. The Court found no deliberate concealment; the Defendant had informed Mr Vine of the issues and there was no duty breached by not directly informing Mr Munnelly.

Negligence

The Court rejected the negligence claim, finding that the Defendant carried out reasonable due diligence before extending credit to G-Force and made reasonable commercial judgements throughout the period in question. The Court noted:

“Assessing the evidence as a whole, then, I am not persuaded that it was unreasonable for the Defendant to enter into the agreement with G-Force, including the terms as to credit.”

Agency

While accepting the Defendant was an agent of the Claimant in the sense of affecting its legal relations with third parties, the Court found he did not exceed his authority and did not owe a personal duty of care to the Claimant that would give rise to a damages claim for economic loss.

Implications

This case provides important guidance on the determination of de facto director status, emphasising that the key question is whether the individual was truly part of the corporate governance structure with ultimate control over the relevant matters. It confirms that a senior manager with significant autonomy but who reports to and is subject to the control of a superior may not be a de facto director. The case also illustrates the difficulties in bringing claims based on alleged oral instructions without documentary evidence, and the importance of credibility assessments where witness evidence conflicts. The judgment demonstrates that courts will assess allegations of negligent business decisions with reference to the information available at the time, rather than with the benefit of hindsight.

Verdict: The Claim was dismissed. The Court found the Defendant was not a de facto director of the Claimant, there was no binding instruction prohibiting credit extension without Mr Munnelly’s consent, the Defendant was not in breach of any duties owed to the Claimant, and the Defendant did not act negligently or deliberately conceal information.

Source: Bishopsgate Contracting Solutions Ltd v O’Sullivan [2021] EWHC 2103 (QB)