Breitenfeld UK Ltd v Harold John Harrison and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Norris |
| Judgment Date | 20 February 2015 |
| Neutral Citation | [2015] EWHC 399 (Ch) |
| Docket Number | Case No: 2LS30278 |
| Court | Chancery Division |
| Date | 20 February 2015 |
[2015] EWHC 399 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Leeds Combined Court
1 Oxford Row
Leeds
LS1 3BG
Mr Justice Norris
VICE-CHANCELLOR OF THE COUNTY PALATINE OF LANCASTER
Case No: 2LS30278
Aidan Casey (instructed by Chadwick Lawrence LLP) for the Claimant
Gregory Pipe (instructed by BHP Law) for John Harrison, Gemma Harrison and Harrison Special Steels Ltd
Helen Gardiner (instructed directly) by Harold Harrison
Hearing dates: 24–27 and 30 June, 1–3 July 2014
Written Submissions 14 and 23 July 2014
The first question that arises in this case concerns the extent to which (if at all) a managing director who causes his company to enter into contracts and to undertake dealings with a newly founded company owned by his son and his daughter-in-law is liable to account to (or otherwise compensate) the company to whom he owes duties. The second group of questions relates to the liability of the son and the daughter-in-law (who are both employees of the original company and are the proprietors of the new company) to pay damages or compensation arising out of those self same dealings, through breach of contractual obligations or the commission of torts, or because they dishonestly assisted the managing director to breach his duties.
Harold John Harrison ("Mr Harrison") was the managing director of Forge-Met Steel Company Limited ("ForgeMet") a small company which operated in Sheffield as a stock holder and supplier of high grade steel for use in the engineering industry. It would purchase blocks of tool grade steel of various specifications, and then would cut that steel to the size requirements of its engineering company customers for them to machine.
ForgeMet became a wholly owned subsidiary of Schmiedetechnik Breitenfeld GmbH ("Breitenfeld") which was itself a wholly owned subsidiary of Breitenfeld Edelstahl AG ("AG"), both of which are Austrian companies. Late in the day ForgeMet changed its name to "Breitenfeld UK Limited", but in this judgment I will refer to it either as "ForgeMet" or as "the Company". Breitenfeld had one representative on ForgeMet's board: that was Mr Kurt Ternegg. But the Breitenfeld personnel who generally dealt with ForgeMet were Dr Kailbauer and Dr Hackl (and Dr Hackl replaced Mr Ternegg as a director of ForgeMet in March 2011).
Mr Harrison became the managing director of ForgeMet on the 26 January 2004; and remained such until the 30 June 2011. Mr Harrison's son John ("John Harrison") was on the 22 January 2004 employed by ForgeMet as a purchasing and sales assistant; he later became Works and Office Manager and continued as such until the 29 April 2011. John Harrison's wife ("Gemma Harrison") became employed by ForgeMet on the 1 November 2008, also as a purchasing and sales assistant; and she continued as such also until 29 April 2011. The three of them were the sole management staff.
10% of the shares in AG were held by a company called "Fortis". Fortis was in the control of Mr Herbert Buhl ("Mr Buhl"): Mr Buhl was a member of the management board of AG from 2004 until 31 December 2008: and thereafter he was a member of the supervisory board of AG until the 14 January 2010. Mr Buhl had no direct interest in ForgeMet, held no office and took no part in the management of ForgeMet: nor did he have any direct interest in Breitenfeld. Mr Buhl had a son ("Markus Buhl"): and Markus Buhl himself had a company in the steel business called "Steel Trading & Technology GmbH". From June 2010 John Harrison was looking for industrial premises in the Selby area. He was doing so in connection with a new company that he was looking to set up which it was intended that Gemma Harrison would join (and so, eventually, would Mr Harrison, albeit on a part time basis). The new company was to operate in the same line of business as ForgeMet. John Harrison sought investment for that company (including from Markus Buhl). The new company was incorporated on the 3 September 2010 as Harrison Special Steels Limited ("HSS"), with John Harrison and Gemma Harrison as its sole directors and shareholders. On the 29 November 2010 HSS took a lease of industrial premises for the term of 10 years at an initial rental (from 29 November 2010 to 28 May 2011) of £4000 per annum and thereafter at the rate of £8000 per annum subject to review (plus a service charge of £2000 per annum).
Dealings between ForgeMet and HSS started at the beginning of December 2010. It is those dealings that lie at the heart of the complaints now made by ForgeMet against Mr Harrison (as managing director), against John Harrison and Gemma Harrison (as employees) and against HSS.
In December 2010 Mr Harrison gave 6 months' notice (effective on 30 June 2011). On 28 February 2011 John Harrison and Gemma Harrison gave notice of resignation effective on 29 April 2011.
From December 2010 until May 2011 the relevant dealings between ForgeMet and HSS can be categorised as:-
a) Sales of steel by ForgeMet to HSS;
b) Purchases of steel by ForgeMet from HSS for direct on-sale to ForgeMet's customers;
c) Provision of "cutting services" by HSS to ForgeMet on a subcontracted basis;
d) Provision of steel by ForgeMet to HSS
On 6 June 2011 Mr Michael Rudkin ("Mr Rudkin") came to ForgeMet as the incoming Managing Director to replace Mr Harrison. Amongst the objectives given to him by Dr Hackl was to reorganise the stock and to ensure the accuracy of the stock records, to improve profitability and to control the growth in the inter-company debt. It was his investigation into these matters (and what he was told by continuing members of staff) that led to the instruction of lawyers on 26 July 2011 and to the formulation of the present claim.
The claim seeks against
a) Mr Harrison: accounts, declarations and enquiries and/or equitable compensation for breaches of fiduciary duty;
b) John Harrison, Gemma Harrison and HSS: accounts, declarations and enquiries, and/or equitable compensation for dishonestly assisting in those breaches of fiduciary duty;
c) John Harrison and Gemma Harrison: damages for breach of contract;
d) Mr Harrison, John Harrison, Gemma Harrison and HSS: damages for conspiracy to injure by unlawful means and damages for conversion;
e) John Harrison and Gemma Harrison damages for breach of confidence.
Each of the witnesses who gave evidence in relation to these claims was a decent, honest person. None of them came to tell me deliberate lies. John Harrison positively asserted that he had told lies in order to raise funding for HSS, and Mr Harrison accepted that he had adopted those lies and made them his own. But I do not on that account treat them as liars whose every word at trial is simply to be disbelieved. However, it does damage their credibility in the sense that their admitted willingness to lie warns me that a deep commitment to their new company might lead to a distortion of recollection, especially in relation to evidence about motive and intention. This distortion of recollection was evident, for example, in John Harrison's evidence about ForgeMet's customers not knowing that work had been done by HSS, and about there being very slack times before June 2011 at HSS; both of which assertions were, from a simple examination of documents, demonstrably wrong.
Indeed, the evidence of all witnesses suffered to some extent from the circumstances of recollection. Some witnesses were being asked to recollect incidents which could have had no real significance for them at the time. Other witnesses were having to give evidence about events the significance of which was obvious and which they must have turned over in their minds time and again, so that recollection and reconstruction and justification became inseparable processes. At times the evidence of the Harrisons gave the impression that they were adhering to a family script: but this was not, I think, because they had colluded to fabricate evidence, but rather because entirely natural discussion had lead them to shared views which each genuinely believed to be their own individual recollection. All witnesses tried to help me to the best of their ability.
The issues for my decision are these:-
a) What duties did Mr Harrison owe ForgeMet?
b) In what respect (if any) is he in apparent breach of those duties?
c) Does he have a defence to these apparent breaches?
d) If he is in breach, what remedy ought to be granted?
e) Did John Harrison and/or Gemma Harrison dishonestly assist in those breaches of duty?
f) What contractual duties did John Harrison and Gemma Harrison owe ForgeMet?
g) In what respect (if any) are they in apparent breach?
h) Do they have a defence to these apparent breaches?
i) Are Mr Harrison, John Harrison, Gemma Harrison and HSS liable in tort?
j) What loss has been suffered by reason of any breach of contract or the commission of any tort?
k) Is HSS otherwise liable?
These are the facts I find that are relevant to the issues to be decided.
ForgeMet was part of the Breitenfeld Group, but not an integrated part. It was run very much as a Harrison family company, although it did have one Austrian board member, Mr Ternegg. Its place within the group was under consideration from the end of 2009. The options were (a) to close the Company (b) to sell the Company and (c) to grow the Company. Dr Hackl (who made 8 visits to ForgeMet during the period with which I am concerned) said in evidence (and I accept) that the preferred option was (c) on account of a desire to maintain a global presence and to advance to the USA: but that during the review period investment in the Company would be postponed unless based on a real business plan and a clear...
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