Popely v Popely [2019] EWHC 1507 (Ch)

A double derivative action brought by John Snr's sons against their uncle Ronald, alleging he fraudulently transferred Casterbridge's assets to himself or his family's trust, depriving them of their 30% entitlement. The court dismissed all claims, finding no fraud, breach of fiduciary duty, or de facto directorship established.

Facts

This case arose from a long-running family dispute between brothers John Henry Popely (John Snr) and Ronald Albert Popely concerning assets from a timeshare business in Northern Cyprus and Kent. Casterbridge Properties Limited was established to market timeshare weeks, with shares held 70% by Ronald’s Mars Trust and 30% by John Snr’s Blue Ridge Trust.

The claimants, John Snr’s sons John Jnr and Andrew, brought a double derivative action alleging that Ronald transferred Casterbridge’s assets to benefit himself or his family, thereby defrauding the Blue Ridge Trust beneficiaries of their 30% share.

The Three Claims

The claimants advanced three heads of claim: (1) the ‘cash claim’ alleging Ronald caused improper payments totalling at least £4,194,397 from Casterbridge to Mars Trust; (2) the ‘Vendor Rights claim’ alleging fraudulent transfer of management rights at the Longbeach Resort; and (3) the ‘profits claim’ seeking an account of profits allegedly taken by Ronald.

Issues

The key legal issues were: (1) whether Ronald was a de facto director of Casterbridge, giving rise to fiduciary duties; (2) whether he caused improper payments in breach of such duties; (3) whether any breach was fraudulent, as required under section 21 of the Limitation Act 1980 to avoid time-bar.

Judgment

His Honour Judge Hacon dismissed all three claims.

De Facto Directorship

Applying principles from Revenue and Customs Commissioners v Holland [2010] UKSC 51 and Smithton Ltd v Naggar [2014] EWCA Civ 939, the court found that Ronald was not acting as a de facto director. The judge held:

“An act cannot be simultaneously carried out both in the capacity of a shadow director and a de facto director.”

Since Ronald gave instructions to the sole director (Corporate Directors through Mr Jeeves), his acts were those of a shadow director, not a de facto director.

Cash Claim

The court found the cash claim was not established. The evidence regarding payments between Casterbridge and Mars Trust was inadequate, with payments flowing in both directions. The claimants failed to prove that sums paid by Casterbridge exceeded debts owed to Mars Trust.

Fraud

Applying Armitage v Nurse [1998] Ch 241 and Ivey v Genting Casinos [2017] UKSC 67, the court found fraud was not established. As the judge stated regarding the test for dishonesty:

“When once his actual state of mind as to knowledge or belief as to facts is established, the question whether his conduct was honest or dishonest is to be determined by the fact-finder by applying the (objective) standards of ordinary decent people.”

The facts surrounding the payments were left unexplored, making it impossible to determine Ronald’s knowledge or belief or to assess dishonesty objectively.

Implications

This case provides useful guidance on several matters: (1) the distinction between de facto and shadow directors, confirming that an act done as a shadow director cannot simultaneously be an act as de facto director; (2) the requirement for dishonesty to establish fraudulent breach of trust under section 21(1)(a) of the Limitation Act 1980; and (3) the importance of proper pleading and evidence in derivative claims, particularly where limitation defences require proof of fraud.

The judgment emphasises that claimants must precisely identify the acts alleged to render someone a de facto director and cannot rely on impressionistic arguments that an individual was the company’s directing mind.

Verdict: All three claims (the cash claim, Vendor Rights claim, and profits claim) were dismissed. The claimants failed to establish that Ronald was a de facto director of Casterbridge, that he committed any breach of fiduciary duty, or that any such breach was fraudulent.

Source: Popely v Popely [2019] EWHC 1507 (Ch)