Peskin & Anor v Anderson & Ors

Factual and Procedural Background

This appeal arises from an order made by Judge Neuberger on 7 December 1999 under CPR Part 24, summarily dismissing claims for damages for breach of duty brought by approximately 355 former full members of a proprietary club ("the Club") against the Committee of the Club and its holding company ("the Company"). The claims concerned the failure of these former members to receive benefits from the de-mutualisation and sale of the Club's motoring services business, which occurred after their membership had ceased between 9 July 1995 and 28 March 1998.

The Club was owned by the Company, which was incorporated as a company limited by guarantee. Full members of the Club were members of the Company, whose board of directors constituted the Committee managing the Club. Membership was annual and could cease by resignation or non-payment of subscription.

Following negotiations and schemes of arrangement approved by the court in mid-1998, the Club and Company underwent de-mutualisation, resulting in the sale of the motoring services business and substantial distributions to members who remained on 8 July 1998. The former members who had ceased membership prior to that date did not receive any such benefit and brought claims alleging breach of fiduciary duties by the Committee and directors for failing to disclose plans and proposals related to the de-mutualisation and sale.

The judge dismissed the claims on the basis that they had no real prospect of success, and refused permission to amend the Statement of Claim. Permission to appeal was subsequently granted by a single Lord Justice.

Legal Issues Presented

1. Whether the claims by former members alleging breach of fiduciary duties by directors and the Committee have a real prospect of success such that they should proceed to trial.
2. Whether directors owed fiduciary duties to individual members of the Company, including duties of disclosure regarding plans for de-mutualisation and sale of the motoring services business.
3. Whether the directors acted ultra vires by incurring expenditure related to the de-mutualisation and whether this gave rise to a duty to disclose such ultra vires acts to members.
4. Whether special circumstances existed to impose fiduciary duties on directors to disclose to members the intentions and negotiations concerning the disposal of company assets and de-mutualisation plans.
5. Whether directors failed to disclose personal benefits they or their associates stood to gain from the de-mutualisation and sale, constituting breaches of fiduciary duty to members.

Arguments of the Parties

Appellants' Arguments

• The directors owed fiduciary duties to the individual members, requiring disclosure of plans, discussions, and proposals about the de-mutualisation and sale of the motoring services business.
• The directors acted ultra vires by incurring expenditure to facilitate de-mutualisation despite an express prohibition in clause 4 of the Company's Memorandum forbidding distribution of assets to members, and thus breached fiduciary duties by failing to disclose such ultra vires conduct.
• The duty to disclose ultra vires intentions and acts to members exists regardless of special circumstances, to prevent members being misled and to allow them to seek injunctions or ratify such acts.
• The directors failed to disclose personal benefits and conflicts of interest, including bonuses and preferential treatment in membership admissions, which should have been disclosed to all members.
• Had the claimants been properly informed, they would have remained members and benefited from the distribution following the sale.

Respondents' Arguments

• Directors do not owe fiduciary duties to individual members or shareholders generally, only to the company itself, absent special circumstances.
• Expenditure incurred to change the Company's Memorandum and remove prohibitions on distributions was lawful and reasonably incidental to achieving a legitimate corporate purpose.
• No fiduciary duty to disclose ultra vires intentions or acts to individual members exists in the absence of special factual relationships.
• The alleged personal benefits to directors do not establish fiduciary duties owed to members, and the factual allegations are insufficient and strongly disputed.
• The claimants resigned membership voluntarily and uninfluenced by any disclosure or non-disclosure by directors, and no specific transaction was in contemplation at the time.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began with the established principle that directors generally owe fiduciary duties to the company, not to individual shareholders or members, unless special circumstances exist. The appellants failed to demonstrate such special circumstances here, as there was no direct contact, negotiation, or reliance between directors and individual members sufficient to impose fiduciary duties of disclosure.

The court rejected the appellants' contention that the directors acted ultra vires by incurring expenditure related to the de-mutualisation scheme, holding that expenditure on legal and professional costs reasonably incurred in changing the Company's Memorandum and removing prohibitions was lawful and incidental to a legitimate corporate purpose. The prohibition in clause 4 did not prevent the company from seeking to remove that clause by lawful means, including court-approved schemes of arrangement.

The court further held that no fiduciary duty arose to disclose ultra vires intentions or acts to individual members, as such duties are owed to the company and not to members absent special factual relationships. The appellants' argument that non-disclosure of ultra vires acts deprived members of the opportunity to seek injunctions or ratify such acts was dismissed as speculative and unsupported by pleaded facts.

Concerning alleged personal benefits to directors and conflicts of interest, the court found the allegations insufficiently particularised and not materially advancing the claim that directors owed fiduciary duties to members. Even if established, such personal benefits would not create duties to disclose to all members in the absence of special circumstances.

The court emphasized that the appellants voluntarily ceased membership without influence from directors and that no specific transactions were in contemplation at the time of resignation. Thus, the claimants could not rely on non-disclosure to establish breach of fiduciary duty.

Accordingly, the court concluded that the claims had no real prospect of success and were properly dismissed at this preliminary stage under CPR Part 24.

Holding and Implications

The court DISMISSED THE APPEAL, affirming the summary dismissal of the claims for breach of fiduciary duty.

The direct effect is that the claims by former members against the Committee and directors for non-disclosure related to the de-mutualisation and sale will not proceed to trial. No new legal precedent was established, and the decision confirms the general principle that directors owe fiduciary duties primarily to the company, not to individual members, absent special circumstances. The judgment clarifies the law regarding ultra vires expenditure and directors' duties in the context of corporate restructuring and member distributions.