Sharma v Sharma [2013] EWCA Civ 1287

A director of a dental company acquired dental practices for herself rather than for the company. The Court of Appeal held she was not in breach of fiduciary duty because shareholders had acquiesced at a family meeting with full knowledge of the material facts. Silence in the circumstances amounted to consent.

Facts

Anushika Sharma was sole director of Aspire Dental Care Ltd (ADC), a company set up in 2007 to acquire dental practices. The other shareholders were her husband Sunny, his mother Kesh, and brother Raj, each holding 25% of shares. At a family meeting in July 2007, it was agreed that Anushika would run ADC as she saw fit. During this meeting, Anushika raised the possibility of acquiring some dental practices in her own name, outside the corporate structure.

Anushika subsequently acquired five dental practices for herself or her own company (ADCUK) after ADC was established, whilst also acquiring five practices for ADC. Following matrimonial breakdown and divorce proceedings, questions arose about whether these acquisitions constituted breach of fiduciary duty.

Issues

The central issue was whether Anushika, as director of ADC, acted in breach of her fiduciary duty and/or statutory duty under section 175 of the Companies Act 2006 by acquiring dental practices for her own benefit rather than for ADC. If so, whether the shareholders had consented to or acquiesced in her proposed conduct.

Judgment

The Court of Appeal dismissed the appeal, upholding the trial judge’s decision that Anushika had not breached her duties.

Shareholder Consent and Acquiescence

Jackson LJ formulated the applicable principles:

“If the shareholders with full knowledge of the relevant facts consent to the director exploiting those opportunities for his own personal gain, then that conduct is not a breach of the fiduciary or statutory duty.”

“If the shareholders with full knowledge of the relevant facts acquiesce in the director’s proposed conduct, then that may constitute consent. However, consent cannot be inferred from silence unless: (a) the shareholders know that their consent is required, or (b) the circumstances are such that it would be unconscionable for the shareholders to remain silent at the time and object after the event.”

The Court accepted Anushika’s evidence that at the July 2007 meeting, Kesh expressly stated it would be acceptable for Anushika to acquire practices in her own name, whilst advising on tax consequences. Regarding Sunny and Raj’s silence, Jackson LJ held:

“The factual circumstances of this case are such that silence amounted to consent.”

This was because they invariably deferred to Kesh’s business decisions, disagreement would have been unusual requiring them to speak up, and it would be unconscionable to keep quiet initially, receive substantial shareholdings, and only raise objections after Anushika had purchased multiple practices.

Full Disclosure

The Court rejected arguments that Anushika failed to make full disclosure:

“She made clear the essential fact that she would acquire some dental practices for the company and some in her own name. This was a relatively informal meeting between family members… All the material facts were clearly put before the Sharma family.”

“For the purposes of propositions (ii) and (iii) full knowledge of the relevant facts does not entail an understanding of their legal incidents. In other words the shareholders need not appreciate that the proposed action would be characterised as a breach of fiduciary or statutory duty.”

Implications

This case clarifies the application of the Duomatic principle to director’s fiduciary duties, establishing that informed shareholder acquiescence can release a director from duties that would otherwise apply under section 175 of the Companies Act 2006. It confirms that silence can constitute consent where circumstances make it unconscionable to object later, and that shareholders need not understand the legal characterisation of facts as constituting breach of duty, provided they know the material facts themselves. The decision is particularly relevant for family-run companies where informal agreements are common.

Verdict: Appeal dismissed. The Court of Appeal upheld the trial judge’s decision that Anushika did not act in breach of her fiduciary or statutory duty as a director of ADC by acquiring dental practices for herself, as the shareholders had acquiesced with full knowledge of the material facts.

Source: Sharma v Sharma [2013] EWCA Civ 1287