Satyam Enterprises Ltd v Burton & Anor  EWCA Civ 287 was an appeal by the company (formerly JVB Five Properties Ltd) against a judgment of Mr James Pickering, sitting as a deputy High Court judge, dismissing its claim against its former director and shareholder for compensation for an alleged transaction at an undervalue. The claim was that the first defendant, who at the material time was JVB5’s sole director and shareholder had caused it to transfer various properties to the second defendant, JVB Seven Properties Ltd, another company of which he was sole director and shareholder. JVB5’s case was that the transfer, having been effected at an undervalue, also constituted a breach of the first defendant’s duties as director. It also claimed separately against JVB7 for non-payment of the purchase price.
At first instance the judge dismissed the claim, primarily on the ground that the properties were, both before and after the transfer, held on trust for a third party, so all that had been transferred was a bare legal title, which meant that the company had suffered no loss; he held in the alternative that beneficial ownership of the properties rested with the company. That being the case, the transfer on terms whereby the company did not benefit, did involve a breach of his duty. However, the deputy judge found that the director had been acting on behalf of the third party on whose behalf he held the shareholding in the company, so he had a defence based on ratification under the Duomatic principle (under which anything a company’s members can do by resolution can also be done informally if all members consent).
The director in his defence had not taken issue with the company having been the legal and beneficial owner up to the date of the transfer, or with the transfer having passed the legal and beneficial ownership either, and it was the approach the deputy judge took in the light of the pleaded case that lay at the root of the appeal: the judge, it was contended, had decided the case on a basis that had not been pleaded or canvassed before him.
The Court of Appeal allowed the appeal on the pleading ground, holding,
“In the present case, the possibility that the [properties] were held on trust for Mr V Sharma does not appear to have been even canvassed by the Judge during the hearing, but, as far as we know, first emerged fully-formed in the Judgment. That, for the reasons given by Dyson LJ in [Al-Medenni v Mars UK Ltd  EWCA Civ 1041], was not a course that was open to him. Judges may sometimes think – and may even sometimes be right – that their own theory better fits the facts than that of either party, but if it is wholly outside the scope of the pleaded issues, that is nothing to the point, and to decide a case on a basis that has not been explored in evidence or addressed in submissions is likely to leave at least one, if not both, parties with a profound and justified sense of unfairness.”
“In my view the judge was not entitled to find for the claimant […]. It is fundamental to our adversarial system of justice that the parties should clearly identify the issues that arise in the litigation, so that each has the opportunity of responding to the points made by the other. The function of the judge is to adjudicate on those issues alone.”
The court went on to find that it could not determine whether the judge's secondary basis for dismissing the claim was well-founded or not because of findings of fact he had not made. “In those circumstances I think we have no choice but to remit the case to the High Court for a further hearing to resolve the matters left unresolved by the Judgment. I would also direct that it be heard by a different judge”.
It may be said that the case stands alone on its facts, which is true; but it is also a reminder of the need to plead the case you intend to make at trial and stick to it at trial (save to the extent that last minute amendments may be allowed). Lewison LJ was also critical of the undisciplined approach of the respondent, which he described as an “attempt to cobble together yet another unpleaded and unargued case,” which he described as “misconceived.