Court of Appeal scuppers businessman's effort to sue solicitors for negligence

INDEMNITY: Companies Act did not give director's resolution force of board decision

A director who invalidly assigned himself the right to sue the company's solicitors has failed in his attempt to pursue the claim.

The Court of Appeal, by majority, upheld the decision to strike out Geoffrey Smith's action against now-defunct Ipswich firm Henniker-Major & Co.

Mr Smith had formed a property development joint venture with three others.

However, he claimed that two fellow directors carried out through a separate company the first deal which was to be handled by the joint venture.

Henniker-Major acted for both companies.

Some years later, Mr Smith convened a board meeting which he alone attended and passed a resolution assigning himself the right to sue the solicitors.

In court, it was common ground that he could not validly hold the board meeting on his own, even though Mr Smith thought he could.

East Anglian firm Mills & Reeve, acting for the Solicitors Indemnity Fund, sought to strike out the action and Mr Justice Rimmer agreed, saying it had no real prospect of success.

The Court of Appeal ruling turned on section 35A of the Companies Act 1985, which provides for the power of directors to bind the company in respect of third parties and whether Mr Smith counted as a third party.

It said this was a point of general importance.

Lord Justice Carnwath said: 'I do not see how he can rely on his own error to turn his own decision, which had no validity of any kind under the company's constitution, into a decision of the board.

I see nothing in section 35A, however purposefully interpreted, to give it that magical effect.'

Norwich firm Fosters acted for Mr Smith.

Partner Karim Mohamed said his client was disappointed at the outcome and that a petition for leave to appeal to the House of Lords was being considered.

Mills partner Guy Hodgson said this was 'a bad claim through and through'.

Negligence was denied and it was also argued that Mr Smith had suffered no loss.

Mr Mohamed pointed out that there had been no decision on the underlying claim for negligence.

'I do not think it is correct or accurate or appropriate for Mills & Reeve to comment on the underlying matters,' he said.

Neil Rose