A director’s refusal to perform an obligation for tactical, personal reasons is a breach of fiduciary duty.
The High Court has considered the appropriate remedy for such action in Beake and another v Chapman and another [2023] EWHC 1986 (Ch).
London South West SW Ltd was incorporated in July 2019 to develop and sell residential flats at Thames Street, Kingston upon Thames, which it held under a 999-year headlease. The redevelopment involved creating 26 residential flats, of which the company had granted 25 leases to individual flat owners.
The applicants were appointed joint administrators of the company in January 2023 on application of the administrators of two secured creditors of the company. At that time, Flat 2 was the only flat not sold. An offer had been accepted in November 2022 but the sale had yet to complete.
In March 2023 a contract for sale was agreed between the company, the joint administrators and the buyers and a draft lease circulated for signature. Jamie Chapman, the first respondent and sole director of both the company and the management company, refused to sign the lease on behalf of the management company and sought to use it as a bargaining chip in claims against him by the secured creditors.
The applicants were forced to seek a court order requiring Chapman to execute the lease on behalf of the management company. Chapman’s request for an adjournment of a hearing on 16 June 2023 was granted on his undertaking to deliver a copy of the lease executed by the management company to the applicants’ solicitors by 21 June 2023. He delivered a copy of the lease in the wrong form after the deadline. At the relisted hearing on 22 June 2023 Chapman sought a further adjournment.
The court decided that the matter was sufficiently urgent to warrant immediate disposal as there was a significant risk that the company would lose the buyers for flat 2 if the matter was adjourned. Their withdrawal would be likely to cause loss to the insolvent estate. It was unlikely that their offer would be matched or beaten now that the company was in administration.
There were no persuasive reasons for an adjournment. Chapman had not put forward any legitimate basis for refusing to execute the lease, which was a conscious tactical decision, taken for his own personal purposes. This was a plain breach of the fiduciary duties he owed to both companies. Chapman was ordered to execute and deliver up the lease by 26 June 2023 and to pay the applicants’ costs.
Louise Clark is a property law consultant and mediator
