In a case involving shipping insurance, the English Court of Appeal made some interesting remarks regarding the role played by the sole nominee director of a special purpose company. If the director exercises no independent judgment, makes no decisions, and is contractually obliged to act on the instructions of the decision-maker operating the underlying business or in terms of underlying contracts, the director may not be considered part of the management of the company for the purposes of entering into an agreement.
The question was whether the company had made a fair presentation of the risk to its insurers under the English Insurance Act. The questions arose out of the fact that serious criminal charges had been brought against the SPV company that was the registered owner of the insured vessel. He was sole director on a similar nominee basis of a number of other ship-owning SPVs within the shipping group. Criminal charges were brought against a shipowner and public figure as well as the sole nominee director. It was not alleged that the nominee director was guilty of the charges. The insurer’s suggested that the fact of the charges had been brought was a material circumstance that ought to have been disclosed to them in accordance with the insured’s duty of fair presentation and that they were entitled to avoid the insurance policy.
Under the Insurance Act “senior management” means individuals who play significant roles in the making of decisions about how the insureds activities are to be managed or organised. Identification of the individuals who comprise senior management is a question of fact.
Although the company’s constitutional documents gave the nominee director extensive powers as sole director, president, secretary, and treasurer of the company, that was a matter of form rather than substance. It is necessary to identify the company’s activities, to identify the individuals who make decisions about how those activities are to be managed and organised, and to consider the significance of each individual’s role in such decision-making. The company’s activities consisted of owning and operating the vessel for profit with all that went with it. The nominee director played no part in those activities and had no role in the making of decisions about them. The nominee director had no decision-making role and simply did what he was told. The court rejected the submission that the sole director of a corporate insured with no employees will always be part of the company’s senior management. There were other persons who carried out senior management roles on behalf of the company.
Although the decision relates to a specific definition of “senior management” in the UK Insurance Act, the court’s observations are relevant for determining the role of any director of an SPV in dealing with third parties.