The mental element in claims for breach of fiduciary duty

April 2012 - In the recent case of Mortgage Express v Abensons [2012] EWHC 1000, HHJ David Cooke has considered in detail the mental element required for a claim for breach of fiduciary duty. Dan Stacey of Hailsham Chambers acted for the successful Appellant/Defendant (Abensons).

The issue arose in the context of an application by Mortgage Express to amend to allege "deliberate breach of fiduciary duty" when more than 6 years had elapsed from the date when the cause of action arose. Mortgage Express alleged that there had been deliberate concealment and/or deliberate commission of a breach of duty.

Abensons' case was that it had a reasonably arguable limitation defence which the granting of the amendments would prejudice (an amendment if granted is deemed to be made on the date of the original proceedings under s 35(1) of the Limitation Act 1980). Therefore the appropriate course of action was to issue fresh proceedings: Welsh Development v Redpath [1994] 1 WLR 1409; Paragon v Thakerar [1999] 1 All ER 400.

The Master had held that the amendments should be allowed as - in short - the limitation defence to "deliberate commission of a breach of duty" was no different to the substantive defence to "deliberate breach of fiduciary duty". Therefore no actual prejudice would be sustained by Abensons, as in making out its defence to deliberate breach of fiduciary duty, it would of necessity have succeeded on its denial that there was deliberate concealment under s 32 of the Limitation Act 1980.

Abensons' argument was that this was to elide the two criteria, where the mental element for breach of fiduciary duty was not clear on the authorities, and did not invariably require proof of deliberateness. The judgment held that there was no such requirement (particularly in allegations of "actual conflict") and therefore there would be prejudice in allowing the amendments.  So he refused the amendments, and ordered that the costs of the appeal be the Defendants.

The Judge also dealt briefly with the question of "reasonable discoverabilty" and the adequacy of the relevant pleading.

The judgment raises interesting and difficult issues which often arise when breach of fiduciary duty is alleged as to:

• how a claimant proves breach of fiduciary duty (and what advantages it gains from succeeding on the point),
• what the relevant mental element is for a claim of breach of fiduciary duty, and
• what the addition of the word "deliberate" adds to the cause of action (aside from allowing a claimant to argue that there should be no deduction for contributory negligence).

To find out more about Dan's practice, please visit www.hailshamchambers.com or contact the Clerking Team E. clerks@hailshamchambers.com or T. 020 7643 5000.