Axel Threlfall v ECD Insight Ltd and Another

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Lewison,Lord Justice Tomlinson,Lord Justice Richards
Judgment Date29 October 2013
Neutral Citation[2013] EWCA Civ 1444
Docket NumberCase No: A2/2013/0043+(A)

[2013] EWCA Civ 1444

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

(MRS JUSTICE LANG)

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Richards

Lord Justice Tomlinson

and

Lord Justice Lewison

Case No: A2/2013/0043+(A)

Between:
Axel Threlfall
Applicant
and
ECD Insight Ltd & Another
Respondents

Mr Clive Freedman QC and Mr Sam Neaman (instructed by Pennington Manches LLP) appeared on behalf of the Applicant

Mr Peter Shaw and Mr Conn MacEvilly (instructed by Glenn Whitney, by Direct Access) appeared on behalf of the Respondents

(As Approved)

Lord Justice Lewison
1

Between February 2003 and September 2008 Mr Threlfall was employed by ECD. He brought an action for breach of contract against ECD and its sole director and shareholder, Mr Whitney. In his action Mr Threlfall alleged that ECD was in breach of contract. The contract in question was his contract of employment, which he said had been varied by agreement by him and Mr Whitney. Mr Threlfall said he was entitled to a 20% share in the equity of ECD, share dividends, a termination payment and a bonus payment. ECD denied the claim and counter-claimed, alleging breaches by Mr Threlfall of his obligations of fidelity and also of restrictive covenants in his contract of employment. Mr Whitney was joined as a party to the action, because any order in Mr Threlfall's favour for specific performance of his entitlement to the 20% equity would have either required a transfer of shares by Mr Whitney himself or would have had to have taken the form of requiring ECD to issue and allot shares to him, thus diluting Mr Whitney's sole shareholding.

2

The trial took place before Lang J, who handed down judgment on 17 December 2012. Her judgment is at [2012] EWHC 3543 (QB) and is reported at [2013] IRLR 185. Her main conclusions can be summarised as follows: (1) the contract of employment was varied, as Mr Threlfall alleged. (2) Under the varied contract Mr Threlfall was entitled to the claimed share in the equity of ECD or, at his option, payment in lieu. (3) Mr Threlfall was also entitled to dividends but not to the claimed termination payment or bonus. (4) ECD was in breach of contract in not having given effect to these entitlements. (5) Mr Threlfall was in breach of his obligation of fidelity but ECD had suffered no loss. (6) Mr Threlfall was not in breach of the restrictive covenants contained in his contract of employment.

3

There is no appeal against any of the judge's conclusions on these substantive issues. In order to give effect to her decision, the judge made an order by which judgment for Mr Threlfall was entered against ECD for the sums of money specified in the order, Mr Threlfall having elected to take payment rather than shares in specie. Judgment for ECD was entered against Mr Threlfall for nominal damages for breach of the obligation of fidelity, but apart from that both the claim and the counter-claim were dismissed.

4

Mr Threlfall's victory was a Pyrrhic one, because less than a month later ECD went into insolvent liquidation. The issue arising on this appeal relates only to the judge's order for costs. Before coming to that, I will set out some of the judge's factual finding about ECD and Mr Whitney.

5

Mr Whitney was the founder of ECD, which was incorporated in May 2001. The company's share capital consisted of 100 shares of £1, all of which were held by Mr Whitney. Regular and substantial dividend payments were made to Mr Whitney, totalling about £489,000-odd between April 2003 and June 2011. Mr Whitney was ECD's only director and he actively controlled it. There was no formal management structure below Mr Whitney; and although he discussed management issues, clients, strategy and finance and other business issues with others, decisions were always made by Mr Whitney. Mr Whitney also controlled ECD's foreign subsidiaries.

6

The judge's overall conclusion was that, first, "Mr Whitney ran ECD as a private company of which he was the sole director and shareholder and therefore not accountable to anyone else" and, second, that Mr Whitney exercised "absolute control over ECD." Mr Whitney gave evidence at the trial. The judge rejected his evidence on a number of issues, including the nature of ECD's business and his future plans for it. In particular, on the question whether Mr Threlfall's entitlement to an equity stake had been varied by agreement, the judge did not find Mr Whitney's evidence credible, conflicting as it did with all the contemporaneous documents. She also rejected his evidence on a number of other issues. A judge's conclusion that a witness's evidence is not credible, rather than simply preferring one recollection to another, is a strong finding. Mr Freedman QC is quite correct in submitting that, seen in context, it is tantamount to a finding of dishonesty.

7

The judge concluded that there was a binding agreement between Mr Threlfall and "Mr Whitney as principal shareholder and managing director" for an increase in Mr Threlfall's equity stake. She also found that "Mr Whitney was seeking to resile from the agreement he made… because the financial implications of doing so were damaging both to ECD and to himself personally." As Mr Freedman again rightly submitted, this provides the context in which the incredible evidence was given. It was given by Mr Whitney in order to further, amongst other things, his own personal financial interests.

8

It was in this context...

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8 cases
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    ...repudiation issue) and which it funded had been rejected by the judge. She relies in particular on the decision of this court in Threlfall v ECD Insight Ltd [2013] EWCA Civ 1444; [2014] 2 Costs L.O. 129, where, by analogy with a non-party costs order, the director of the defendant company ......
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    ...further illustrate why Mr Cunningham's submission is not sustainable. As explained by Lewison L.J. in Threlfall v. ECD Insight Ltd [2013] EWCA Civ 1444: 'If a non-party costs order is made against a company director, it is quite wrong to characterise it as piercing or lifting the corporate......
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    ...with legal rights and obligations but with a broad discretion which it will seek to exercise in a manner that will do justice. In Threlfall v ECD Insight Ltd [2013] EWCA Civ 1444 Lewison L.J. said: "13. If a non-party costs order is made against a company director, it is quite wrong to......
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    ...hand and funding on the other are separated by 'and/or'. Thus it is not the case that both elements need to be present." 8 In Threlfall v ECD Insight Ltd [2013] EWCA Civ 1444, [2014] 2 Costs LO 129 at [13] Lewison LJ added: "If a non-party costs order is made against a company dir......
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