Colin Robert Parr v Keystone Healthcare Ltd

JurisdictionEngland & Wales
CourtCourt of Appeal
JudgeLord Justice Lewison,Lord Justice McCombe,Lord Justice Bean
Judgment Date16 Jul 2019
Neutral Citation[2019] EWCA Civ 1246
Docket NumberCase No: A3/2018/1785

[2019] EWCA Civ 1246

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE, CHANCERY DIVISION

His Honour Judge Stephen Davies

(sitting as a Judge of the High Court)

C30MA690

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Lewison

Lord Justice McCombe

and

Lord Justice Bean

Case No: A3/2018/1785

Between:
Colin Robert Parr
Appellant
and
(1) Keystone Healthcare Limited
(2) Keystone Healthcare Holdings Limited
(3) Mark Reynard
(4) Medipro Recruitment Limited
Respondent

Mr Nicholas Mason (instructed by Martin Gaffney Solicitors, Ilkley) for the Appellant

Mr Martin Budworth (instructed by FrontRow Legal, Leeds) for the Respondent

Hearing date: 9 th July 2019

Approved Judgment

Lord Justice Lewison
1

Keystone Healthcare Ltd (“Keystone”) carries on business as a healthcare employment agency. At the relevant time it was owned and controlled by Mr and Mrs Ward and Mr Parr. Mr Parr was also a director of the company. Following Mr Parr's departure from the company, Keystone brought a number of claims against him. We are concerned only with what has been called the “overpayment claim”. Following a lengthy trial, in which he considered a whole range of issues which no longer arise, HHJ Stephen Davies gave judgment for Keystone against Mr Parr in the sum of £650,612.04 in respect of the overpayment claim. Mr Parr appeals against that part of the order. Having heard Mr Mason's submissions on behalf of Mr Parr, we announced our decision to dismiss the appeal, with written reasons to follow. These are my reasons for joining in that decision.

2

That claim arises in the following way. Keystone was regulated by its articles of association. There was also a shareholders' agreement made between Mr and Mrs Ward and Mr Parr. The articles gave each member of the company a right of preemption over shares which another member wished to sell. The sale price was to be determined (in default of agreement) by an independent expert, who was to assess the fair value of the shares. The articles and the shareholders' agreement also contained provisions (commonly called “bad leaver provisions”) which deemed a transfer notice to have been given where one shareholder had been in persistent breach of a relevant agreement. In that event, the sale price of the shares was to be discounted by 50 per cent.

3

Unknown to Keystone and to Mr and Mrs Ward, from April 2014 Mr Parr was a party to a fraud on the company the immediate result of which was the transfer to his personal account of £128,022. By the spring of 2014 Mr Parr was looking to sell his shares. Mr Ward was willing to pay the price that Mr Parr had named; that is to say £1.2 million which, after tax, would leave Mr Parr with £1 million. However, the share sale was not structured as a simple transfer of shares by Mr Parr to Mr Ward. Instead, Mr and Mrs Ward arranged the incorporation of a new company, Keystone Healthcare Holdings Ltd (“Holdings”) to which all the shareholders transferred their shares. It was Holdings that paid the purchase price of Mr Parr's shares.

4

It is now common ground that, by participating in the fraud, and by failing to report his own misconduct, Mr Parr was in breach of the fiduciary duties which, as a director, he owed Keystone. Sir Geoffrey Vos C gave summary judgment against him for the amount of which he had defrauded Keystone. Keystone alleges that if it or Mr and Mrs Ward had known of the fraud, the circumstances would have been such as to trigger a deemed transfer notice. That would have resulted in the compulsory sale of Mr Parr's shares at a 50 per cent discount. Under article 18.10 of the articles of association, the shares which were subject to a compulsory sale would have to have been first offered to Keystone; and, if it did not wish to buy them, then to Mr and Mrs Ward. As things happened, however, in order to facilitate bank lending, the shares were acquired by Holdings. Holdings thus paid 50 per cent more than it would have done if the true facts had been known. The difference between the price paid and the discounted price was an unauthorised profit in the hands of Mr Parr, which equity requires him to disgorge to Keystone.

5

The essential point which Mr Mason takes on Mr Parr's behalf is that there was a mismatch between the company to which the fiduciary duty was owed (Keystone) and the company which made the overpayment (Holdings). Mr Parr was not liable for losses sustained by Holdings, to which he owed no fiduciary duty. In essence, he says, the claim is a claim for the loss sustained by Holdings. It is not a claim for the benefit that accrued to Mr Parr.

6

Paragraph 58 of the Amended Particulars of Claim allege that by failing to report his own wrongdoing in breach of fiduciary duty Mr Parr “caused the Claimants [i.e. Keystone and Holdings] loss.” The allegation of causation of loss is repeated at paragraph 62; and the prayer for relief claims:

“Damages for breach of fiduciary duty re the monies paid by [Holdings] for Mr Parr's shares…”

7

Thus, as the judge correctly observed at [152], the claim was indeed pleaded as a claim for damages for breach of fiduciary duty. A claim put in that way would be vulnerable to the objection that there was a mismatch between the company to which the duty was owed and the company which suffered the loss. But he had already said at [142] that the way the claim was put by Mr Budworth in opening on Keystone's behalf was a claim for the disgorgement of benefit. He considered at [143] and [152] whether it was necessary for the statement of case to be formally amended to plead the case in that way. It appears to have been agreed between counsel that a formal amendment was unnecessary; and in any event the judge said at [152] that there could be no possible objection to an amendment. Mr Mason's point is therefore essentially a pleading point. But it was accepted before the judge that there was no need for a formal amendment.

8

In those circumstances, I consider that we should approach this appeal on the basis that what Keystone seeks is recovery of the unauthorised profit made by Mr Parr consequent on the sale of his shares at full value rather than at a 50 per cent discount.

9

Mr Mason argued that there was no “profit” for which Mr Parr was accountable. The only possible “profit” was the difference between the full value of Mr Parr's shares and the 50 per cent discount that would have applied if the bad leaver provisions of the articles had been invoked. But Holdings would not have been entitled to take advantage of the bad leaver provisions in the articles, because it was neither the company whose articles they were; nor was it a member of the company before its acquisition of Mr Parr's shares. There were thus no circumstances in which Holdings could have benefitted from the 50 per cent discount. Although in form the judge gave judgment for Keystone, in substance he gave judgment for Holdings. That was impermissible because Mr Parr owed no fiduciary duty to Holdings.

10

The fundamental principle is best expressed by Lord Russell in Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134:

“The rule of equity which insists on those, who by use of a fiduciary position make a profit, being liable to account for that profit, in no way depends on fraud, or absence of bona fides; or upon such questions or considerations as whether the profits would or should otherwise have gone to the plaintiff, or whether the profiteer was under a duty to obtain the source of the profit for the plaintiff, or whether he took a risk and acted as he did for the benefit of the plaintiff, or whether the plaintiff has in fact been damaged or benefited by his action. The liability arises from the mere fact of a profit having, in the stated circumstances, been made. The profiteer, however honest and...

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2 cases
  • Vidya Bhushan Goyal v Florence Care Ltd
    • United Kingdom
    • Chancery Division
    • 19 March 2020
    ...relationship to the breach of duty proved. The same judge, as Lewison LJ, repeated that requirement in Parr v Keystone Healthcare Ltd [2019] 4 WLR 99 at 35 Mr Butler referred to another passage in Ultraframe, at [1579]–[1580], where Lewison J stated that one of the grounds on which an acco......
  • Uvj v Uvh
    • Singapore
    • Court of Three Judges (Singapore)
    • 18 May 2020
    ...Civ 959; [2005] All ER (D) 503 (Jul) (not folld) Ong Jane Rebecca v Lim Lie Hoa [2005] SGCA 4 (refd) Parr v Keystone Healthcare Ltd [2019] EWCA Civ 1246 (refd) Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 (refd) Sim Poh Ping v Winsta Holding Pte Ltd [2020] SGCA 35 (refd) Ultraframe (UK) ......

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