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A director's
contractual, equitable and tortious duties of care to his company can
each be governed by the laws of different jurisdictions. While the Rome
Convention 1980 may govern the law applicable to the director's contractual
obligation, a tortious duty will be imposed by the law of the country
where the substance of the tort is committed. An equitable duty will
depend on the law of the jurisdiction where the company is incorporated.
BMTL, a
Guernsey company, claimed damages against Mr Shamurin, its former director
and employee, for breach of his tortious and equitable duties of care
by entering into speculative trades on the London Metal Exchange (LME)
on its behalf.
BTML was
incorporated in Guernsey as a vehicle for the export of non-ferrous
metals from Russia. Although its registered office was in Guernsey,
it did not carry on any business there other than of an administrative
nature. The company formation documents stated that the central management
and control of BTML's business would be exercised in Russia. Apart from
when Mr Shamurin travelled abroad, the business was conducted entirely
from BTML's Moscow office. BTML had bank accounts in London but these
were operated from Moscow.
The Rome
Convention 1980 provides that, if a contract does not stipulate the
law by which it is to be governed, the applicable law will be that of
the country with which the contract is most closely connected. It was
accepted that Mr Shamurin's contract of employment with BTML was governed
by Russian law (which did not permit a claim). BTML argued, however,
that the Rome Convention dealt only with contractual obligations; it
had no application to the tortious and equitable duties imposed on directors
by English law, and Mr Shamurin could be sued for breaches of these
duties. The Court of Appeal agreed with this interpretation, distinguishing
a contractual obligation from tortious and equitable ones on the basis
that the former is voluntarily entered into by agreement; tortious and
equitable duties are imposed by law, even though they may arise from
a voluntary assumption of responsibility.
It therefore
fell to be decided where the alleged tortious breach of Mr Shamurin's
duty of care had been committed. If in England, then a claim under English
tort law could be made; if in Russia, there would be no tort as Russian
law did not impose such a duty of care. The Court of Appeal held that
the correct approach was to look back over the whole series of events
constituting the tort and ask where in substance the cause of action
arose. The alleged wrongful acts (the decision by Mr Shamurin to speculate
and to give instructions to LME brokers accordingly) all took place
in Russia. While Mr Shamurin's instructions were executed by brokers
in London, those instructions came from Moscow. Further, although BTML
suffered the initial financial loss through its trading account in London,
this loss would in reality be felt in Russia. As such, the 'tort' had
been committed in Russia and no cause of action followed.
Regarding
the claim for a breach of Mr Shamurin's equitable duty of care to BTML,
the Court of Appeal held that a director's equitable duties to his company
were inextricably bound up with the company's internal management. Given
that a company's internal management is governed by the law of the jurisdiction
in which the company was incorporated (Guernsey), this same law must
apply to the director's equitable duties. Mr Shamurin therefore owed
the equitable duty of care to BTML imposed by English law.
On the
facts, however, Mr Shamurin had not breached this duty. There was nothing
in BTML's objects or Mr Shamurin's contract of employment which forbade
Mr Shamurin from speculating. The existence of an agreement between
Mr Shamurin and the other directors that Mr Shamurin could open metal
trading accounts with LME brokers to hedge against BTML's exposure to
metal prices did not mean that Mr Shamurin was precluded from also speculating.
An agreement to do something does not usually equate to an implicit
agreement not to do anything else.
While two
of the three Court of Appeal Judges (Arden LJ dissenting) appear to
suggest that a director may do all except what he is forbidden from
doing, this principle should not be taken too far. Important in the
Court's decision was the fact that BTML's directors did not at any time
act in a way which suggested that they were conscious of their duties
to the company and the powers which they exercised on its behalf. Tuckey
LJ stated that it was very difficult to determine what powers had been
conferred on Mr Shamurin: he was BTML's managing director and had general
responsibility for its activities outside Russia. Where a director's
duties are clearly defined, actions beyond those duties may put him
in breach of his duty to the company.
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