This case concerns a group action brought by the shareholders of Lloyds TSB against the company and its directors in relation to Lloyds' acquisition of Halifax Bank of Scotland Plc ("HBOS") in 2008. The shareholders alleged that the communications by the directors contained material misrepresentations and omissions, and that the directors' recommendation that the shareholders approve the HBOS transaction was in breach of the duties they owed to the shareholders. The claimant shareholders argued that the duties arose because the directors had vastly superior knowledge to the shareholders, and the shareholders relied on the directors to provide them with information.
In line with established principles, on a summary judgment application, the court held that directors owe fiduciary duties to the company but do not, solely by virtue of their office of director, owe fiduciary duties to the company's shareholders. Although directors can owe fiduciary duties to shareholders, those cases are limited to where the facts demonstrate a special relationship between the directors and the shareholders, which the claimants were unable to establish. If directors owed fiduciary duties to shareholders, they would be liable to "harassing actions by minority shareholders, and exposed to a multiplicity of actions, each shareholder having his own personal claim". Moreover, if directors owed a general fiduciary duty to shareholders, not only would this place an unfair burden on them, it would also place directors frequently in a position where their duty to the company conflicts with their duty to shareholders.
The decision is not new law but rather a reaffirmation of the established principles of fiduciary duties. The case serves as a reminder that fiduciary duty is a special kind of duty reserved for a particular set of circumstances and within narrow confines. This is a welcome decision for directors and their D&O insurers alike.
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