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Equitable Compensation for Breach of Fiduciary Duty in Scotland: Kidd v Paull & Williamsons LLP

Document Cited in Related
Vincent
Published date01 September 2017
Date01 September 2017
Pages405-411
DOI10.3366/elr.2017.0436
Author
INTRODUCTION

In Robert Gordon Kidd v Paull & Williamsons LLP, Burness Paull LLP,1 the Outer House of the Court of Session examined the circumstances in which equitable compensation for loss resulting from breach of fiduciary duty is available in Scots law. The fiduciary, a firm of solicitors, breached its fiduciary duty of undivided loyalty by taking on two clients with opposing interests, and by failing to address the conflict through disclosure and informed consent. While the existence and breach of fiduciary duty were not contested, the parties differed on the correct approach to determining the amount of equitable compensation, causality and contributory negligence. After canvassing the relevant authorities, the court refused the pursuer's motion for summary judgment in respect of the contested matters, which were left to be determined after proof.

This case comment focuses on the “but-for” test that the court applied in order to determine the elements required for granting equitable compensation for breach of fiduciary duty. It will be argued that the court seems to have conflated the “no-conflict” fiduciary duty with the contractual duty of disclosure of conflicts of interest and advice that existed between parties.

 THE FACTS

Robert Gordon Kidd (“RGK”) was the sole shareholder of ITS Tubular Services Ltd (“ITS”), a Scottish company specialising in the supply of drilling equipment to the oil industry worldwide.2 He held full executive control of the company and its subsidiaries. In 2007, RGK decided to step down from management and sell his stake in the ITS group. To make his business more attractive to potential buyers, he appointed Jeff Corray and Scott Milen as directors of ITS.3 The two directors started looking for potential buyers, but their initial efforts were unsuccessful. In October 2008, they received three expressions of interest.4 In January 2009, only one of the potential acquirers, Lime Rock Partners (“Lime Rock”), submitted an indicative proposal.5

Corey and Milen retained Paull & Williamsons (“PW”), a firm of solicitors, to act in connection with the proposed share sale. The PW partner primarily responsible for carrying out the directors' instructions was Scott Allan.6 Unknown to RGK, Lime Rock was an existing client of PW. The PW partner with primary responsibility for Lime Rock was not Allan, but Kenneth Gordon, one of his colleagues.7 On 26 January 2009, Allan wrote a letter of engagement addressed to RGK and ITS. PW undertook to draft a due diligence report on the ITS group, for the purposes of the Lime Rock transaction. The letter stated expressly that PW had an obligation not to act for two or more clients whose interests are in actual or potential conflict. PW undertook to inform RGK and ITS of any such conflict promptly, and to require them to seek independent legal advice.8 On 24 February 2009, the business of PW was transferred to Paull & Williamsons LLP (“PW LLP”). In December 2012 PW LLP merged with Burness LLP, forming Burness Paull LLP (“BP LLP”).9

The Lime Rock transaction was finalised in September 2009. RGK sold one third of his stake in exchange for ten million US dollars. Lime Rock undertook to invest a further forty-five million US dollars in ITS. In exchange, RGK agreed to give up control of the board and his casting vote at board meetings.10 Subsequently, ITS ran into financial difficulties, due to, among other causes, mismanagement and breach of bank covenants. ITS went into administration and was sold as a going concern. RGK received nothing from the sale proceeds.11

RGK sued PW LLP and BP LLP jointly and severally, claiming that he incurred a loss of 210 million US dollars as a direct...

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