Post by Howard Roberts

The cases from last year about the strict nature of liability for breach of fiduciary duty continue to impact cases lower down. The Court of Appeal had little difficulty in applying robust analysis to the facts in Song & Zhao v Smith & Others [2026] EWCA Civ 719, which concerned an unfair prejudice petition. The petition arose from a breakdown in a joint venture between Sg and Sm, carried on through a group of property development companies (Group). The parties operated as quasi-partners, with Sg providing funding and Sm managing construction works via Group's subsidiaries. Sg withdrew his director's loan in early 2022 — primarily to fund a London property purchase — the relationship irretrievably broke down by July 2022. Sg petitioned under s.994 of the Companies Act 2006, alleging misappropriation of Group funds and diversion of business opportunities. The trial judge dismissed the petition in its entirety. On appeal, the CA addressed five grounds. The principal issue concerned Sm's decision to pursue two post-breakdown refurbishment contracts — at Holton Road and Albany Road, Cardiff — via newly incorporated companies, rather than the Group. The CA applied the Supreme Court's restatement of the profit rule in Recovery Partners GP Ltd v Rukhadze [2025] UKSC 10. The CA confirmed it is no defence to a claim for breach of fiduciary duty that the company could not itself have exploited the opportunity. That includes where the company was insolvent/the parties' had inability to cooperate. However, the CA drew a critical distinction between the two projects: - Holton Road was already an asset with a maturing development opportunity so Sm's diversion of the associated building contract was a breach of duty capable of constituting unfair prejudice. - Albany Road, by contrast, was a future opportunity only. Sm was entitled to pursue it for himself ,once the joint venture had terminated. The CA remitted the Holton Road issue for further determination. The CA directed a threshold hearing on whether the Petitioners had a real prospect of showing that the project generated profits sufficient to render their shares valuable. The appeals on grounds 4 and 5 (unequal salaries and company profitability) were dismissed.