Court of Appeal overturns finding of non-contractual agency within family business

11 February, 2019

The Court of Appeal handed down a reserved judgment on Friday 8 February 2019 in Dinglis Management Ltd. & another v. Dinglis Property Ltd. [2019] EWCA Civ 127 after a hearing over three days in October 2018. David Richards, Asplin and Jonathan Baker LJJ allowed both appeals against the decision of HHJ Simon Barker QC (sitting as a judge of the Chancery Division): (i) an appeal by one family-owned company (DML) on the question of its liability to account to another family-owned company (DPL) for rents received by DML under tenancies it granted to third parties in respect of DPL’s properties; and (ii) an appeal by DPL’s director on the question of his liability for breach of statutory/fiduciary duty.

The first instance judge characterised the legal relationship between DML and DPL as one of agency, with DPL (property owner) being undisclosed principal and therefore a party (as landlord) to the underlying tenancies granted on its behalf by DML. This characterisation was held to be inconsistent with the “agreed purpose” behind the creation and interposition of DML as a ‘legal buffer’ between DPL and tenants of its residential properties: “If there had been an express agreement for an agency relationship, the fact that it defeated the underlying purpose would be nothing to the point. But this is a case in which the court is asked to place a legal analysis on the parties’ relationship by a process of inference from the facts.

This decision illustrates the importance of objective context or matrix, including the underlying intentions of individuals and common purpose behind family-owned corporate structures, when seeking to determine whether a non-contractual or implied relationship of principal and agent exists as a matter of law. The Court of Appeal observed that “this was a family business run informally as between family members, which did not need to be conducted or operated through formal contractual arrangements” and, as such, it was not necessary “to impose a formal legal relationship [or] fit a legal grid over a family situation”.

Download the judgment

Stephen Houseman QC and Iain Quirk, instructed by Ben Horack of Ingram Winter Green LLP, appeared for the appellants in the Court of Appeal.