The High Court has dismissed a multi-million-pound claim brought by an investor against a start-up’s leadership and its legal advisers, ruling that the commercial failure of a business during the pandemic was related to market risk rather than to actionable fraud or a breach of personal fiduciary duties.

Background:

Mr. Cohen had invested in a start-up business, Apollo BC, which had initially shown great promise, yet ultimately failed. He had even served as a director alongside the first and second defendants, Mr. Morrison and Ms. Artmonsky. By 2017, the relationship between Mr. Cohen and the other directors had deteriorated, leading to his exclusion from the day-to-day decision-making. This ostracism motivated his decision to exit the investment at a profit.

In November 2019, the parties entered into an Option Agreement, one that allowed the directors four months to purchase Mr. Cohen’s shares for $3.75m. During this period, the company secured major projects. In February 2020, Mr. Cohen sought to repudiate the original Option Agreement after receiving a revised, more optimistic business plan, believing that his shares were worth significantly more than the agreed price. The onset of the COVID-19 pandemic, however, resulted in the collapse of the company’s business model, one which had relied entirely on large public gatherings.

Despite the pandemic’s impact, further Sale and Purchase Agreements (SPAs) were signed in late 2020 at valuations as high as $6.77m, although these transactions ultimately failed to complete because no third-party buyers could be found to provide the necessary cash. Following the company’s winding up in late 2024, Mr. Cohen commenced legal action against the directors and their solicitor, Mr. Reid. He alleged that the defendants had intentionally withheld material financial information to deceive him into selling his shares at an undervalue and further that the solicitor had breached fiduciary duties by assisting in this concealment.

The legal proceedings focused on whether the defendants owed Mr. Cohen a personal duty of disclosure and if their alleged silence had caused him to lose the “chance” to sell his shares while they still held value. The company was finally wound up by the Court on 11 December 2024.

Decision:

The High Court granted reverse summary judgement and struck out the claims for deceit, conspiracy, and negligence, while allowing only a narrow contractual claim regarding the provision of documents to proceed.

The Court dismissed the claims of deceit and conspiracy primarily on the grounds of causation. The Judge found that Mr. Cohen had failed to prove he suffered a “loss of a chance” caused by the defendants’ actions. The Court ruled that the failure to sell was an “intervening commercial choice” by Mr. Cohen, as he had held out for a “fanciful” valuation. Thus, any subsequent loss of value due to Covid-19 was a market risk he had assumed, and not a direct result of the defendants’ silence.

The Court rejected the argument that Mr. Morrison and Ms. Artmonsky, or indeed the solicitor, owed Mr. Cohen personal fiduciary duties. Following the precedent in Peskin v Anderson, the Judge held that directors owe duties to the company, and not to individual shareholders. As such, there was no “special relationship” of trust in existence, especially given the openly hostile and adversarial nature of the relationship.

Implications:

This case serves as a “cautionary tale” for investors and directors alike. It reinforces the strict boundaries of English Company Law, specifically those regarding to whom a director is actually accountable when a business deal goes sour.

The most significant takeaway is the reaffirmation of the “no personal duty” rule. Many investors assume that, simply because they are part of a small, “family-style” start-up (a quasi-partnership), the other directors have a legal obligation to look out for their personal financial interests. However, even in small companies, a director’s fiduciary duty is to the corporate entity as a whole. To sue a director personally for “hiding information” from you as a shareholder, you must first prove the existence of a “special relationship”. If you are already arguing with the other directors or have your own lawyers involved, then the Court is unlikely to find that a relationship of “trust and confidence” exists.