Newsletter 42

Monday 1 July 2024

Dear Subscriber,

I hope you had a great weekend. Please see below for the question, the answer to the previous question and associated resources. This is the web version of this newsletter.

Question: John is a small business owner who has recently received a claim form from Sarah, a former customer, alleging breach of contract and seeking compensation for losses. John, unfamiliar with the civil procedure process, did not respond to the claim form in time. As a result, Sarah obtained a default judgment against him. John now wishes to contest the default judgment, arguing that he never received proper notice of the claim due to an address error.

Which of the following steps must John take to successfully apply to set aside the default judgment under the Civil Procedure Rules (CPR)?

1.       John must prove that he had a valid defence to the claim.

2.       John must show that the claim form was served improperly and that he acted promptly upon discovering the default judgment.

3.       John must demonstrate that Sarah’s claim is frivolous and without merit.

4.       John must provide evidence that he was out of the country when the claim form was served.

5.       John must agree to settle the claim out of court to have the judgment set aside.

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Study Material: For more on the topic of this week’s question see the video linked here and if you are looking* for a relevant title, see here. Free Study Planner: You can download our SQE1 Study Planner for the January 2025 exam by clicking here.

Answer and feedback to last week’s question: InnovateTech Ltd. is a rapidly growing technology company with three directors: Alice, Bob, and Charlie. Recently, Alice discovered a promising new technology during a business trip that could significantly benefit InnovateTech Ltd. Instead of informing the board, Alice decided to invest in the technology through her own private company, TechVentures Ltd., without disclosing her interest to InnovateTech Ltd. Meanwhile, Bob, as the finance director, has been approving large expenditures without seeking board approval, claiming that the expenses were necessary for urgent projects. Charlie, the third director, is unaware of both Alice’s and Bob’s actions.

Subsequently, InnovateTech Ltd. faces financial difficulties due to Bob’s unapproved expenditures and misses out on the new technology opportunity because Alice’s private company secured the investment. Charlie, upon discovering these issues, seeks to initiate legal action. Which of the following best describes legal tools to protest the behaviour of Alice and Bob?

1.       Alice has breached her duty to avoid conflicts of interest and her duty to act within powers, while Bob has breached his duty to exercise reasonable care, skill, and diligence.

2.       Alice has breached her duty to promote the success of the company and her duty to exercise independent judgment, while Bob has breached his duty to avoid conflicts of interest.

3.       Alice has breached her duty to avoid conflicts of interest and her duty to disclose any interest in a proposed transaction or arrangement, while Bob has breached his duty to act within powers and his duty to exercise reasonable care, skill, and diligence.

4.       Alice has breached her duty to exercise reasonable care, skill, and diligence and her duty to act within powers, while Bob has breached his duty to promote the success of the company.

5.       Alice has breached her duty to avoid conflicts of interest and her duty to promote the success of the company, while Bob has breached his duty to exercise independent judgment.

Correct Answer: 3. Alice has breached her duty to avoid conflicts of interest and her duty to disclose any interest in a proposed transaction or arrangement, while Bob has breached his duty to act within powers and his duty to exercise reasonable care, skill, and diligence. Alice’s breaches: Duty to avoid conflicts of interest (Section 175 of the Companies Act 2006): Alice failed to disclose her interest in the new technology investment to the board of InnovateTech Ltd. and instead invested through her own private company, TechVentures Ltd. This creates a conflict of interest, as she took advantage of a business opportunity that could have benefited InnovateTech Ltd. Duty to disclose any interest in a proposed transaction or arrangement (Section 177 of the Companies Act 2006): Alice was required to disclose her interest in the new technology investment to the board, which she failed to do.

Bob’s breaches: – Duty to act within powers (Section 171 of the Companies Act 2006): Bob approved large expenditures without seeking board approval, which is likely outside the scope of his authority as finance director. Duty to exercise reasonable care, skill, and diligence (Section 174 of the Companies Act 2006): Bob failed to exercise the necessary care, skill, and diligence by approving significant expenditures without proper authorization, contributing to the financial difficulties faced by InnovateTech Ltd. These breaches highlight the importance of directors adhering to their duties to ensure the proper governance and success of the company. Charlie, as a fellow director, can seek legal action against Alice and Bob for their respective breaches of these duties.

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You will hear from me again soon.

All the best

Dr Ioannis Glinavos

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