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Misfeasance claim when a relationship ends

Company directors in conflict – equity versus misfeasance.

In a case that could have resulted in a misfeasance claim under different circumstances, a former couple clashed in court over a share purchase agreement. Lawtel recently reported the Court of Appeal decision of the case of Stephen Dawson v Laura Bell (2016). It is an interesting case that looks at a situation when a business – and personal – relationship had ended.

The Details of This Case

The claimant, Stephen Dawson and the defendant, Laura Bell, had been directors of their business and also romantically involved. After both their professional and personal relationships had ended, they were parties to the share purchase agreement that led to their original case and the appeal that followed.

Mr Dawson was appealing the dismissal of his claim against Miss Bell, which arose as they attempted to sever their business relationship; their company was not insolvent. As per the share agreement, Miss Bell should have paid £47,500 for Mr Dawson’s shares in their business. However, she did not do so on the basis that Mr Dawson had overpaid himself £54,000 in dividends from the company without her knowledge.

The claimant also alleged that he was subjected to illegitimate pressure and duress to agree to sell his shares in the business to Miss Dawson, but his claim for damages relating to this failed. The Court of Appeal agreed that there was nothing unusual about the share purchase agreement and that Mr Dawson had been able to read it, understand it and take advice about it if necessary.

The Misfeasance Claim Failed

The claim by Mr Dawson failed because both the original judge and the Court of Appeal judges found that it was not just and equitable under section 2(1) of the Civil Liability (Contribution) Act 1978 for Miss Bell to pay a share of what Mr Dawson owed to the company.

The justices found that even though Miss Bell knew of this unlawful use of company funds (and, in breach of her own duty to the company, had failed to put a stop to it) that justice and equity did not require her to contribute to the claimant’s liability to reimburse the company in respect of the amounts misappropriated for his own exclusive benefit.

Misfeasance claims against directors

This case is of interest because if the company had been insolvent, and the liquidators had brought a misfeasance claim against both of the directors, then the outcome may have been different. In addition, where the monies under the share purchase agreement had not been paid then a liquidator may well take a more robust view in finding both of the directors personally liable for taking monies out of the company or not paying monies due to the company on a joint and several basis.

If you are facing proceedings by a liquidator, then it is always better to seek independent legal advice sooner rather than later. In our experience, the quicker we are contacted by directors facing misfeasance claims against them, the more likely it is that we can assist.

If you are facing a misfeasance claim, contact us or call us on 0121 200 7040 for a free initial discussion to see if we can help.

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