This article focuses on the judgment in respect of the Third Defendant, Bishop Fleming ('BH'), a firm of accountants, who were retained to act on the de-merger and HHJ Paul Matthew's decision in respect of the alleged breach of fiduciary duty and negligence.
S Notaro Holdings Ltd ("the Company") was a family business run by four siblings who were shareholders. Carmela De Sena ("the First Claimant") and her brother Joseph Notaro ("the First Defendant") worked together for many years with the First Defendant acting as managing director. As time went by, the First Claimant alleged that the First Defendant became more controlling in his conduct towards her and others and eventually, it was agreed that there would be a demerger of the Company and the assets would be split up between the shareholders.
The First Claimant alleged breach of fiduciary duty and negligence by BH in effecting the demerger. Her claims were based on the premise that BH, which had been appointed to advise the Company, was also acting for her personally.
Breach of fiduciary duty
The First Claimant alleged that a "fiduciary relationship of trust and confidence" had developed between herself and BH. She argued that BH's presence at shareholder meetings and the fact that it had prepared papers for purposes of the demerger indicated that it was acting for the First Claimant personally as against the interests of the Company and other shareholders.
HHJ Matthews considered this allegation in light of the judgment of Millett LJ in Bristol & West Building Society v Mothew in which Millet LJ considered the content of the fiduciary obligations:
- “A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets."
HHJ Matthews interpreted this passage to mean that it is the content of the fiduciary obligations rather than the genesis that matters. Millett LJ had not meant that whenever there is a relationship of trust and confidence there must be a fiduciary obligation, or, worse, that all the obligations owed in that relationship are fiduciary obligations.
- “A fiduciary relationship does not arise where, because one of the parties to a relationship has wrongly assessed the trustworthiness of another, he has reposed confidence in him which he would not have done had he known the true intentions of that other. In ordinary business affairs persons who have dealings with one another frequently have confidence in each other and sometimes that confidence is misplaced. That does not make the relationship a fiduciary one. A fiduciary relationship exists where one party is in a position of reliance upon the other because of the nature of the relationship and not because of a wrong assessment of character or reliability.”
HHJ Mathews therefore concluded that it was not enough to show that a relationship of trust and confidence existed for a fiduciary obligation to arise. The more important fact is the nature of the obligations owed.
HHJ Matthews held that it was a common occurrence for a company's accountants to give generic advice to shareholders of a company, which is their client. This does not mean they have given up their primary allegiance to the company and shareholders know this to be the case.
Furthermore, in March 2011, a partner at BH had recommended that the First Claimant obtain independent advice before going ahead with the demerger. On this basis, even if such fiduciary obligations had existed, BH were not in breach of these having clearly advised the First Claimant to seek independent advice. Additionally, as to allegations that BH had manipulated the property values of any assets assessed for the demerger, it was found that these had been decided jointly by the First Claimant and BH and thus no fiduciary duty was breached.
The First Claimant also argued that BH owed a duty of care which was based on (1) the background relationship of trust and confidence between the parties and (2) an assumption of responsibility by the BH to advise the First Claimant on the sale of her shares.
In dismissing the claim, HHJ Matthews applied three tests discussed by Lord Bingham in the case of Customs & Excise Commissioners v Barclays Bank plc, as follows:
- Whether the defendant assumed responsibility for what he said and did vis-à-vis the claimant, or is to be treated by the law as having done so;
- The threefold test:
a. Whether loss to the claimant was a reasonably foreseeable consequence of what the defendant did or failed to do;
b. Whether the relationship between the parties was one of sufficient proximity; and
c. Whether in all the circumstances it is fair, just and reasonable to impose a duty of care on the defendant towards the claimant.
- The incremental test which states that the law should develop novel categories of negligence incrementally, which means if a duty of care is imposed, it should be no more than an incremental development of types of duties already imposed by the Court.
HHJ Matthews held that since BH was acting for the Company, it could not have assumed responsibility towards the First Claimant. Although the Judge accepted that it was reasonably foreseeable for BH's actions or inactions to cause loss to the First Claimant, the relationship between the two was not one of sufficient proximity, nor was it fair, just and reasonable to impose such a duty. The First Claimant had been told to seek independent advice and the fact that she chose not to did not mean that she should be able to claim that the Company's professional advisers owed her, as an individual shareholder, a duty of care. Furthermore, holding that the BH owed a duty of care to an individual shareholder when it was appointed to advise the Company would not be an incremental development of the law. Rather, HHJ Matthews held, that this would be "revolutionary".
Therefore, BH could not be found negligent as it did not owe the First Claimant a duty of care.
This judgment provides some comfort to accountants that the Court will not be quick to impose a duty of care on them, owed to individual shareholders, where they are retained by a Company. HHJ Matthews' detailed judgment has emphasised that each matter should be considered on a case by case basis, examining the nature of obligations owed by the professionals to shareholders, as not all obligations will be fiduciary in nature.
It is also not enough for there to be a relationship of trust and confidence for a finding that a fiduciary duty was owed by the accountant. The imposition of a duty of care will depend on the Judge being satisfied that a number of tests have been met and ultimately, considering whether in all the circumstances, it would be fair, just and reasonable to impose such a duty.