Directors’ Duties in Takeover Communications: Limited Personal Duty, a Breached Equitable “Sufficient Information” Duty Without Loss, and a High Bar on Causation (Sharp v Blank [2019] EWHC 3096 (Ch))

Introduction

This Chancery Division judgment—stemming from the Lloyds/HBOS merger in the teeth of the 2008 financial crisis—addresses the extent of directors’ duties to shareholders when recommending a transformational acquisition and communicating with the market. More than 5,800 Lloyds shareholders sued five former Lloyds directors (the Chairman and four executives) personally, claiming negligent recommendation and breach of equitable duty in connection with Lloyds’ acquisition of HBOS, non-disclosure of emergency liquidity assistance (ELA) to HBOS, and a bespoke interbank collateralised funding line (the “Lloyds Repo”). They sought approximately £385 million.

Norris J dismissed the claim. The Court held that the recommendation of the HBOS acquisition lay within the range of rational decisions open to a reasonably competent board in October–November 2008; that directors did not owe a duty of care to individual shareholders in market announcements or investor presentations; and that—although the equitable duty to give “sufficient information” to shareholders was breached by failing to disclose the existence of HBOS’s ELA and the Lloyds Repo—those breaches were not causative of loss. The decision is now a leading authority on:

When (and how) directors owe personal duties to shareholders in the context of takeover communications;
Materiality and disclosure standards in circulars, including central-bank liquidity support and unusual interbank funding; and
The formidable causation burden in shareholder litigation seeking damages flowing from a shareholder vote.

Summary of the Judgment

No negligent recommendation: The decision to recommend the HBOS acquisition—assessed on information reasonably available at the time, in crisis conditions—fell within the “range of reasonable responses” available to competent directors. The board’s reliance on internal work, PwC, KPMG, and sponsor banks (UBS, Merrill Lynch, Citi) was proper; and the Court would not substitute hindsight for contemporaneous judgment.
Limited personal duty to shareholders: Directors owe duties to the company, not to shareholders personally. The Court accepted a conceded duty of care only in respect of the statements and recommendations in the shareholder circular. No personal duty of care arises in general market announcements or investor presentations.
Equitable “sufficient information” duty breached, but no loss: The Court held the circular should have mentioned that HBOS was using BoE ELA and that Lloyds had provided a 10bn bespoke facility (the “Lloyds Repo”) to support funding up to completion. However, the claim still failed because disclosure would not have altered the outcome—neither the market reaction nor the shareholder vote would probably have changed. The judge also found a non‑causative misstatement that the directors had taken “all reasonable care” in preparing the circular with respect to those omissions.
Working capital and “ordinary course”: The UKLA’s waiver of a formal working capital statement was properly explained; the funding plan (SLS, guaranteed issuance, and mainstream liquidity) did not require disclosing full ELA details. The Lloyds Repo, while treated as “ordinary course” for Listing Rules Class 1 purposes after UKLA engagement, still warranted mention in the circular under the equitable “sufficient information” duty (as context), not as a fully disclosed material contract.
Causation and loss: The shareholders failed to prove that (i) the board would have terminated the deal (“Termination”), (ii) the transaction would have collapsed in the market (“Collapse”), or (iii) the EGM vote would have flipped (“Rejection”). Both the negligence and equitable claims failed on causation. The Court also signalled serious problems for the pleaded damages methods and, obiter, reflective-loss obstacles to “overpayment” type claims.

Key Holdings and Takeaways

Directors generally owe duties to the company, not to individual shareholders; a personal duty of care to shareholders arises only in limited contexts, such as the accuracy and fairness of the shareholder circular (and here, only as conceded) (Peskin v Anderson considered).
Market announcements and presentations do not, without more, create a personal duty of care by directors to shareholders (Caparo / assumption of responsibility lines applied and confined).
The equitable “sufficient information” duty requires a fair, candid and reasonable explanation of the matters on which shareholders are to decide. On the facts, ELA and the Lloyds Repo should have been mentioned (carefully and non‑inflammatorily) as part of the context—but non‑disclosure did not cause the shareholders’ loss (or any loss).
Courts will not second‑guess business judgments made under extreme uncertainty. The test is whether the board’s decision lay within the range of decisions reasonable directors could have made on the information reasonably available at the time.
Proving that an omission would have altered a shareholder vote is exceptionally demanding. Claimants must establish, on evidence, that a sufficient swing in votes would probably have occurred; the Court rejected extrapolations from a small self‑selecting sample.
Reliance on professional advice (PwC, KPMG, sponsors), and the nature and scope of due diligence achievable in a hostile market, counted strongly in the board’s favour.

Analysis

1) Precedents and Authorities Applied

Directors’ duties primarily owed to the company: Peskin v Anderson [2000] EWCA Civ 326 reaffirmed; special shareholder-facing fiduciary duties arise only in exceptional factual settings. This case confirmed no general duty runs to shareholders for announcements or presentations.
Assumption of responsibility / pure economic loss: Caparo v Dickman [1990] 2 AC 605; Williams v Natural Life [1998] 1 WLR 830; IFE Fund SA v Goldman Sachs [2007] 1 Lloyd’s Rep 264; JP Morgan v Springwell [2008] EWHC 1186 (Comm): no personal duty arises from public announcements to the market; circulars can trigger a limited duty where directors assume responsibility for accuracy.
Business judgment and standard of care: The classic cases—Overend & Gurney (1871–72) LR 5 HL 480; City Equitable [1925] Ch 407; Dovey v Cory [1901] AC 477; Re Brazilian Rubber [1911] 1 Ch 425—inform the modern s.174 Companies Act 2006 standard: the Court does not police mere errors of judgment; it asks whether the decision falls within the range open to competent directors on the facts and the time.
Disclosure: “sufficient information” duty in member communications: Re RAC Motoring Services [2000] 1 BCLC 307; Re Dorman Long [1934] Ch 635; CAS Nominees v Nottingham Forest FC [2002] 1 BCLC 613. The circular must give shareholders a fair, candid, reasonable explanation, not an encyclopaedia, nor a partial narrative.
Reliance and causation: Allied Maples [1995] 1 WLR 1602; Perry v Raleys [2019] UKSC 5—loss of chance confined. Here, Norris J insisted on proof of a probable vote swing; generalised assertions were insufficient.
Reflective loss (obiter): Although not determinative, the Court signalled that “overpayment” claims are classically company claims; individual shareholders face the reflective loss bar (see Osborne v Steel Barrel [1942] 1 All ER 634; principles widely applied).

2) Legal Reasoning

a) No negligent recommendation

The Court applied a business judgment standard filtered through contemporaneous constraints: volatility, incomplete information, regulatory time pressures, and systemic risk. It emphasised (and credited) the board’s reliance on:

External advisers (PwC, KPMG), sponsor banks (UBS, Merrill Lynch, Citi), and Linklaters;
Internal risk work by Lloyds’ Group Risk (Roughton‑Smith) and Group Strategy (Pietruska); and
The Chief Economist’s scenario work (Foley)—including probabilities around base/“credit crunch”/“1 in 25” stress and the FSA’s capital “bullet‑proofing”.

On synergies, fair value adjustments (FVAs), impairments, capital, liquidity, and working capital, the judge found the board’s assessments, sensitivities, and risk factor disclosures reasonable. Even if the board under‑estimated the speed and depth of the recession, that was not negligent in 2008 (nor outlier compared to BoE/Treasury/IMF forecasts).

b) Limited personal duty to shareholders; no duty in announcements/presentations

The Court accepted the defendants’ concession that they owed a duty of care with respect to the accuracy/fairness of statements and recommendations in the shareholder circular. But there was no personal duty in the market Announcements or investor Presentations leading up to the circular. Those are regulatory communications by the company, not personal advisory relationships between directors and each shareholder. The judge rejected attempts to convert public statements into personalised duties, applying Caparo, Williams v Natural Life, and related authorities.

c) Equitable “sufficient information” duty: breached but not causative

Two omissions mattered to the equitable “sufficient information” duty:

ELA: A fair, candid, reasonable circular should have stated that HBOS was receiving Bank of England ELA pending completion and would cease to do so on completion. The judge stressed proportionate, non‑inflammatory wording and noted that the circular’s function was to inform a vote, not to cause panic.
Lloyds Repo: The 10bn bespoke interbank facility—unusual in structure and context—should have been mentioned (as context), signalling that Lloyds was contributing to HBOS’s stability up to completion.

However, on the critical question “Would disclosure have changed anything?”, the Court held:

Disclosure would likely have caused, at most, a mild negative equity reaction (not a collapse), particularly as the circular would explain that both measures were bridging devices pending completion and would end thereafter.
The Tripartite would have ensured funding to avoid systemic failure; depositor protection was greater than in the Northern Rock episode; and the “new normal” included visible central‑bank liquidity backstops.
On-vote causation: the Court rejected the claimants’ “Rejection” chain. The 96% vote in favour (by value) would not plausibly have shifted based on these disclosures; the sample of claimant witnesses was too small and unrepresentative, and institutions commonly support management recommendations. The RiskMetrics/PIRC advisory posture also cut against a majority flip.

Accordingly, although the omissions breached the equitable duty and undermined the circular’s representation that the board had taken “all reasonable care” in relation to those matters, causation was not proved.

d) Working capital and UKLA waiver

The UKLA agreed to waive the formal working capital statement given extreme uncertainty in the markets and dependency on government programs. The Court held:

The circular explained the waiver properly and contained robust risk factors around funding/liquidity;
It was neither necessary nor sensible to disclose ELA-level detail to make a working capital statement; and
The BoE letter (post‑circular) and the sponsors’ processes demonstrated reasonable basis for the board’s assessment.

e) “Ordinary course” vs materiality and the Lloyds Repo

For Listing Rules Class 1 analysis, the UKLA, after engagement, accepted “ordinary course” treatment (no shareholder approval or immediate disclosure obligation). Yet, the Court distinguished that regulatory categorisation from what a fair, candid circular should include and held that a short contextual mention of the Lloyds Repo was required under the equitable duty. It did not require full “material contract” disclosure.

f) Damages and reflective loss (obiter)

Even if the claimants had established liability and causation, the Court found the pleaded damages models problematic and indicated that “overpayment” claims for share-for-share consideration are, classically, company claims potentially caught by the reflective loss bar. The diminution models also suffered from indexation and timing defects and did not account for systemic dislocation had the vote failed.

3) Impact and Practical Implications

For boards: The case sets a robust business-judgment standard for director recommendations in crisis M&A. Boards that document their reliance on expert advice, internal risk work, and scenario analysis—and that present balanced risk disclosures—are well‑placed to defeat negligence claims.
For circulars: The equitable “sufficient information” duty is real. Even where the Listing Rules (or UKLA waivers) do not require a disclosure, fairness may. Central-bank bilateral support and unusual interbank funding that bridge to completion may need a short contextual mention—but precision, proportionality and non‑alarmist framing are essential.
For sponsors and counsel: This judgment validates close sponsor/UKLA engagement on “ordinary course” and working capital issues; but it also signals that equitable fairness can reach disclosures beyond the Listing Rules. Build a short, neutral contextual disclosure record where material idiosyncrasies exist (e.g., bespoke repo structures, bilateral support) even if full contract disclosure is not required.
For shareholder litigation: Causation is the cliff-edge. To unwind a vote (or obtain damages), claimants must provide persuasive, representative evidence that disclosure would probably have flipped a substantial vote margin. Anecdotes, small self‑selected samples, and generic market hypotheses will not suffice.
For market communications: The Court ring‑fences public announcements and presentations from personalised director duties; the right setting for director responsibility is the shareholder circular, where directors expressly assume responsibility for fairness and accuracy.

Complex Concepts Simplified

Core Tier 1 ratio and RWAs: A bank’s capital adequacy is measured by Core Tier 1 capital (primarily ordinary shares and retained earnings) divided by risk‑weighted assets (loans weighted for credit risk). Regulators set minimums; in stress, ratios can dip but must be restored.
Impairments vs FVAs: Impairments hit profit over time as loans go bad in a downturn. FVAs are “point-in-time” fair value adjustments booked on acquisition accounting. Both ultimately affect capital, but through different channels and time profiles.
SLS vs ELA: The Special Liquidity Scheme (SLS) was a mainstream, anonymised facility swapping qualifying collateral for gilts. Emergency Liquidity Assistance (ELA) is bespoke and bilateral for immediate liquidity in extremis—often confidential to avoid stigma. In the circular, ELA needed contextual mention, but not detail.
“Ordinary course” transactions: For Listing Rules, “ordinary course” can avert Class 1 treatment. But the equitable duty may still require a neutral contextual mention if the funding is unusual or central to bridging to completion.
Reflective loss (obiter): Loss from “overpayment” (e.g., paying too much for target assets) is prima facie a loss to the company, not to individual shareholders. Shareholders generally cannot recover such loss personally.
Three causation “chains”: Claimants proposed that proper disclosure would have caused (i) the board to terminate, (ii) the deal to collapse in the market, or (iii) shareholders to reject the deal. All three chains failed on the evidence.

Conclusion

Sharp v Blank is now a touchstone for directors’ duties in the special context of M&A communications during crisis conditions. The Court held that Lloyds’ board did not act negligently in recommending the HBOS acquisition; it drew a principled line between the limited personal duty of care that directors may owe to shareholders in a circular and the absence of such duties in regulatory announcements or investor presentations; and it confirmed an equitable duty to provide “sufficient information,” which can be breached without sounding in damages absent causation.

The judgment is also a practical guide: carefully balanced circulars—grounded in expert advice, sober risk factorisation, and realistic capital/liquidity projections—will withstand forensic hindsight. Where idiosyncratic bilateral central-bank support or bespoke interbank lines underpin the path to completion, fairness may require a short, bland contextual disclosure. But claimants who seek to rewrite history must still prove that disclosure would probably have changed shareholder behaviour in sufficient numbers to alter the outcome. In this case, they could not.

Practical Pointers

Record the advice and scenarios tested (internal and external). Courts will look hard at the totality of inputs and the reasonableness of reliance.
Ensure circulars contain a fair, candid explanation of material bridging arrangements (e.g., ELA, bespoke repo facilities), without unnecessary detail or alarm.
Engage early with UKLA on working capital waivers and “ordinary course” treatments; understand that equitable fairness may still call for contextual mention.
Remember that plaintiffs must prove a probable vote swing. Build the record that shows how the recommendation would have stood even with further disclosure.