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Divorcee Triumphs in Dentistry Chain Dispute

In a fascinating interplay between company and family law, the Court of Appeal has rejected arguments that a wife breached her fiduciary duty as sole director of a burgeoning dentistry business in which her husband, his mother and brother were majority shareholders.

The company had been established during the marriage and its shares were split equally between the wife, her husband, his brother and his mother. The wife had acquired five practices on behalf of the company but had also established five surgeries in her own name or that of her corporate vehicle.

The couple were subsequently divorced and the assets of the marriage were said be worth in the region of £10 million. The dispute over ownership of the practices which the wife had acquired in her own right had given rise to ‘unremitting hostility’ between the wife and her mother-in-law, a highly successful businesswoman.

A family judge dealing with the financial fall-out from the divorce accepted that the wife or her company owned the five practices. However, her husband and his family argued on appeal that she had breached her fiduciary duty as a director by acquiring assets for her own benefit rather than for that of the family company. As 75% shareholders, they argued that they were entitled to the lion’s share of the practices

Dismissing the appeal, however, the Court noted that the result was hardly surprising in that the whole business depended on the wife’s dentistry expertise and her day-to-day management. Her husband and his family, whilst bringing with them the benefit of good credit ratings, had invested no capital and ‘no more than minimal effort’ in the venture. The wife’s view that she did not need her mother-in-law’s permission to acquire surgeries for herself was, in the circumstances, ‘perfectly understandable’.

The mother-in-law had agreed during a family meeting that, following establishment of the company, the wife would retain the right to establish new practices in her own right. The husband and his brother had remained silent on that issue; however they had ‘invariably deferred to the business decisions made by their mother’ and the Court found that they could therefore also be taken to have acquiesced.

Drawing the strings together, the Court concluded that the husband, his mother and brother had ‘with full knowledge of the material facts, acquiesced in an arrangement whereby the wife would be free to acquire some dental practices for the company and others for herself’.