KB-2023-003510 - [2025] EWHC 1755 (KB)

As I read that decision, and in accordance with my understanding of the law, it is not the case that a breach of section 172 gives rise to a right of action by a party injured by a breach of contract on the part of a company. Rather, what is being said is that when one is exploring the issue of whether an officer or employee has or has not acted bona fideand within the scope of his authority, so as to expose him or her to liability in accordance with the rule in Said v Butt for procuring a breach of contract on the part of the company, it is not irrelevant to take account of whether the director in question has or has not complied with section 172. As I understand it, the proposition is that if the director has acted contrary to the duty of good faith imposed by section 172, that is relevant to the issue of whether he or she has not acted bona fide and within the scope of authority and, therefore, is potentially liable for procuring a breach of contract.

Mr Dowding, in particular, latches onto the reference in section 172 amongst the matters which have to be considered to “the interests of the company’s employees”, and to the company’s alleged reliance on a noncontractual payment in lieu of notice.

Mr Dowding’s argument, as I understand it, is to the effect that he should have been allowed to work out his notice period. Had he been allowed to do that, he would have been able, during the continuation of that notice period, to exercise certain rights of an employee, which would have included share option rights. Reliance on a payment in lieu of notice had the effect of giving him significant financial entitlements to which he would otherwise have been entitled if he had worked out his notice, but brought his employment to an end earlier such that he could not exercise those further rights. That was contrary to his interests as one of “the company’s employees” and, therefore, that was contrary to the obligation to act in good faith in section 172, and therefore either by itself or as a background matter supports Mr Dowding’s case that the director in question, in this case Mr Shah, was not acting bona fide and was not within the scope of his authority and, therefore, can be made liable for inducing breach of contract.

In my judgment, that line of argument is not sufficiently plausible to warrant any of these paragraphs in the Particulars of Claim remaining in them. There is no clear allegation in these paragraphs that Mr Shah acted in bad faith or outside the scope of his authority. If there was, there would be a big question mark over the extent to which it would be right to allow that allegation to stand in light of the fact that the Employment Tribunal has covered either all or very much of this ground and has come to a completely contrary conclusion. The idea that steps of the kind complained of, taken by a company, which are contrary to the interests of an individual employee would or even plausibly might place a director in breach of section 172 is, in my judgment, far-fetched. There must be many instances in which the financial interests of a company and the financial interests of an individual employee are at loggerheads.

Very broadly, at least in financial terms, the less the employer company pays the employee, the more that is in the interests of the company, and vice versa: the more the company pays him or her, the greater that is in the employee’s interests and the less that is in the interests of the company. If every time a director took a step under the umbrella of acting on behalf of the company which an individual employee found financially or in some other way unappealing, the director would be open to an accusation of acting in breach of duty to the company, it would produce, as far as I could see, utter chaos. I think that line of argument is plainly without foundation.

Within these paragraphs, in any event, there is a revisiting of issues that have already been determined in other contexts. To give but one example, paragraph 158 relates to an allegation of a false assertion about salary and bonus terms which, in fact, is not a false assertion. These are two of the issues which the Tribunal decided and which, in line with the Tribunal’s decision, I have struck out in other paragraphs. Therefore, this is an attempt to revisit under the secondary guise of a claim for inducement of breach of contract an allegation of breach of contract which is itself without foundation.

I do not consider that it is proportionate, in light of the amount of time that these applications have already taken and the hour of day that has been reached, for me to endeavour to go over each and every one of the remaining paragraphs that are sought to be attacked under this head. I hope and I believe what I have said is enough to dispose of all of them.

I do not think it is appropriate for Mr Shah to remain a figure in this particulars of claim in the guise in which he presently is.

Further, although this is by no means determinative, it is right to point out that the surviving claims of Mr Dowding will go forward to trial and that his remedies will be available against the company. There is no suggestion that I can see that Mr Dowding will gain anything extra by having Mr Shah in as a further defendant to the company in respect of those claims which will properly be going forward. It is, of course, the law that if somebody has claims against two people, proper viable claims that are appropriate to go to trial, the fact that remedies will be available against either one of them is not a bar, generally speaking, to bringing claims against the other as well. It is also right to say that it is possible that a corporate defendant may at the end of the day not have the resources to meet a claim which it is possible that an individual director defendant may have the means to meet, although there is no evidence in front of me to suggest that is the case in this particular instance. As I say, that is not determinative.

The fact is that, on the material I have, as far as I can see, Mr Dowding will lose nothing by not being able to pursue claims against Mr Shah, because all of his properly arguable claims are available against the company and, as far as I am aware, there is no question of the company not having the financial means to meet them if they succeed at trial. So to the extent that any form of discretion or broad considerations of fairness and justice come into play, those factors also militate in favour of the strike-out application.

However, the main reasons are those I have already given: there simply is not a proper case to go to trial under any of these paragraphs as against Mr Shah as a defendant.