Appropriate law is place of incorporation

The law of the place of incorporation of a company applied to the duties inherent in the office of director. It was irrelevant that any alleged breach of duty was committed, or the loss occurred, in some other jurisdiction.

The Court of Appeal so held (Lady Justice Arden dissenting in part) in a reserved judgment dismissing the appeal of the claimant, Base Metal Trading Ltd, a company incorporated in Guernsey, from Mr Justice Tomlinson on October 22, 2003 who dismissing its claim against Ruslan Shamurin for damages for breach of a common law, equitable and/or implied contractual duty of care by entering into speculative trades, working from Moscow, on the London Metal Exchange on its behalf, held that the proper law of each claim was Russian law.

Mr Charles Hollander, QC for the company; Mr John Jarvis QC and Mr James Evans for the director.

Lord Justice Tuckey said that the claim in equity was at the forefront of Base Metal Trading’s appeal. The question for the judge was whether, despite the great similarity between the tort and equity claims, a different choice of law was appropriate for the claim in equity. He held that it was not.

Mr Hollander’s starting point was that matters concerning the constitution of a company had to be governed by the law of the place of its incorporation: see Dicey & Morris, The Conflict of Laws (13th edition (2000) vol 2, rule 154(2), paragraph 30-020).

Paragraph 30-024 noted that there was a dearth of authority, but the cases at least established that the law of the place of incorporation determined whether directors had been validly appointed, who were the corporation’s officials authorised to act on its behalf and that the law of country of incorporation should also determine the extent of the duties of the directors.

Mr Jarvis submitted, that the issue of Mr Shamurin’s equitable duty of care to Base Metal Trading was not a question of its constitution or internal management and the judge was not bound to characterise it as such.

His Lordship reluctantly concluded that he must accept Mr Hollander’s submissions on that issue. The equitable duty arose from and only from the director’s relationship with the company. If it did not relate to the constitution of the company, it must relate to its internal management.

A director’s duties to his company were inextricably bound up with those matters and must therefore be governed by the place of the company’s incorporation.

The judge had been right to conclude that Russian law was the proper law of the claim in tort, Guernsey law was the proper law of the claim in equity.

The judge had been right to conclude that Base Metal Trading had failed to establish any breach of duty by Mr Shamurin and the appeal would be dismissed.

Lady Justice Arden, concurring, but dissenting on the question of breach of duty, said that the question of the liability of a director by virtue of his office fell within the category of company law issues described in article 1(2)(e) of the Rome Convention, incorporated into English law by the Contracts (Applicable Law) Act 1990.

The matters mentioned in that company law exclusion were aspects of company law, which, under generally accepted principles of conflict of laws in the member states, were considered to be governed by the law of the place of incorporation.

Mr Justice Newman delivered a judgment concurring with Lord Justice Tuckey.

Court of Appeal published November 1, 2004
Base Metal Trading Ltd v Shamurin
Before Lord Justice Tuckey, Lady Justice Arden and Mr Justice Newman
Judgment October 14, 2004