First Subsea Ltd v Balltec Ltd and Others

JurisdictionEngland & Wales
CourtChancery Division
JudgeMr Justice Norris
Judgment Date25 March 2014
Neutral Citation[2014] EWHC 866 (Ch)
Docket NumberCase No: HC10C04595

[2014] EWHC 866 (Ch)



Royal Courts of Justice

The Rolls Building

London, EC4A 1NL


Mr Justice Norris

Case No: HC10C04595

First Subsea Ltd
(1) Balltec Ltd
(2) Robert Emmett
(3) [Discontinued]
(4) Russell Benson
(5) Roger Bacon

Philip Marshall QC, Michael Edenborough QC & Andrew Moran (instructed by Boodle Hatfield LLP) for the Claimant

David Cavender QC, James St.Ville & Tamara Kagan (instructed by Oglethorpe Sturton & Gillibrand) for the Defendants

Hearing dates: 5, 6, 7, 8, 11, 12, 13, 14, 15, 18, 19, 20, 25, 26, 27 March, 10, 11, 12, 15, 16, 22, 23, 24, 25 and 26 April 2013

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

Mr Justice Norris Mr Justice Norris



This is a trial of liability questions only (pursuant to an Order of Master Bowles of 26 April 2012) in a complex action against a former director and former employees of, and a former sub-contractor to, the Claimant company. The principal case advanced was a diffuse case of conspiracy to injure by unlawful means: and that case entails a detailed examination of the actions of the present Defendants (and others who were never defendants and another who has ceased to be a defendant but who were involved in the alleged conspiracy) in 2003 and 2004. The alleged unlawful means themselves were also the subject of separate claims against individual defendants. So it is necessary to examine multiple causes of action against sundry individuals, and then to ask whether some (and if so which) are secondarily liable as conspirators.


In order to present a coherent account of the issues I will establish the basic narrative, and then return to particular parts of it to address the issues for determination.

Basic narrative


In 1983 Mr Emmett and Mr Walmsley started a trading partnership as "BSW Design and Engineering" dealing with the design and development of underwater tools and machinery. They had recognised that the technology for moving underwater pipes at depth was unreliable and had seen an opportunity to develop and improve on the available systems. They (using the inventiveness of Mr Emmett) developed a self activating locking system which utilised the interaction between a ball and a taper: and having designed it they put it into production. Once the technology had been proven they adapted it to other uses, and began to design and produce pipeline recovery tools.


In February 1994 they incorporated this business as BSW Limited (which is the Claimant in this action under its new name) ("BSW"). In September 2001, in order to secure further investment into the company, Mr Emmett and Mr Walmsley sold a 75.1% shareholding in BSW to Arnlea Limited (a company belonging to and controlled by Mr Suttie) ("Arnlea"). Instrumental in bringing about this transaction was Mr Emmett's acquaintance, Mr Brown, who had been a project manager with major oil companies, was an enthusiast of the "ball and taper technology" and realised its potential. When the majority stake in BSW was sold to Arnlea Mr Brown became the Managing Director of BSW, having (at that time) the confidence of both Mr Emmett and Mr Suttie: and he was given a small shareholding. Mr Emmett was given the formal title of Technical Director.


The consideration payable to Mr Emmett for his shares was £650,000 in cash plus £1.254m of interest bearing Loan Notes redeemable in equal tranches of £313,500 on 30 November over 4 years, and guaranteed by the Royal Bank of Scotland ("RBS"). This (together with payments to Mr Walmsley which are not material to these claims) secured control of BSW by Arnlea (and Mr Suttie, as Chairman), and offered BSW access to funding in order further to develop its technologies. But it also meant that what had previously been an innovation-driven small business operating on an informal basis with a small and well-knit team of half a dozen had to be fitted into a formal corporate structure in which the key drivers were financial and key personnel were recent introductions. This was unsurprisingly productive of tension.


Mr Emmett and Mr Brown embarked on the product development programme which naturally enough entailed a "cash burn" phase before the developed product could be sold. But the progress of this programme did not accord with the business plan agreed at the time of Arnlea's acquisition. A significant factor in this was that Mr Emmett had realised there was a need to build a "test rig": but this had not been part of the business plan, and Mr Suttie appears not have been informed (or not to have appreciated) the amounts of money involved. From the perspective of an outside investor looking over the short term, Mr Brown and Mr Emmett had turned an operating profit at the time of the sale in September 2001 of about £220,000 into an operating loss (9 months later) of £378,000, and had turned a debt-free company into one burdened with £464,000 worth of debt and requiring further support for its overdraft facility to be continued. This lead Mr Suttie to assume greater operational control, to the evident irritation of Mr Emmett and Mr Brown, who sought (with some measure of success) to circumvent the constraints he imposed. This generated an atmosphere of conflict and concealment.


This was manifested in two ways. First, the underperformance against the business plan led to an entitlement on the part of Arnlea to claw back part of the purchase price: and the failure by Arnlea to pay an instalment of interest on the Loan Notes in full entitled Mr Emmett to call all the Loan Notes in immediately. These claims on either side were compromised: but their advancement undoubtedly put further distance between the parties.


Secondly, Mr Brown (probably through ignorance: see paragraph 5.12 of the decision of the Manchester Employment Tribunal which later considered Mr Brown's unfair dismissal claim) committed BSW to take a 15-year lease of some larger premises; and he then sought to conceal from Mr Suttie what he had done. Mr Brown was dismissed by Mr Suttie as an employee for gross misconduct in April 2003 (though he remained a director of BSW). Mr Emmett (who had not been consulted by Mr Suttie about Mr Brown's dismissal, and one of whose character traits is loyalty) thought this dismissal unfair: but he was powerless to prevent it. Mr Emmett represented Mr Brown at the internal inquiry within BSW: but Mr Suttie would not shift. This led Mr Brown to commence the proceedings in the Manchester Employment Tribunal against BSW for unfair dismissal to which I have referred, proceedings which Mr Emmett (out of loyalty to his friend) funded to the tune of £105,000, and in which he gave a statement supporting Mr Brown. In September 2004 the Tribunal found that Mr Brown's dismissal was indeed unfair, and that Mr Suttie had decided to engineer Mr Brown's departure even before he had discovered the lease commitment and its concealment.


As soon as Mr Brown was dismissed Mr Suttie appointed Mr Hatfield as managing director to work alongside Mr Emmett (though again without consulting Mr Emmett). Mr Emmett was simply informed of Mr Suttie's decision by email on the 23 April 2003. This inevitably produced yet more tension and conflict. Mr Emmett had a low opinion of Mr Hatfield and of his abilities and compared him very unfavourably with Mr Brown. Mr Hatfield appears to have been insensitive to Mr Emmett's position as creator and former owner of the business and to Mr Emmett's current status as a director, simply reporting to Mr Suttie and ignoring Mr Emmett.


Notwithstanding this degree of operational conflict within the office, BSW continued to operate in a formally correct way. In particular on the 25 November 2003 there was a board meeting of BSW (held at Mr Suttie's offices in Aberdeen) attended by Mr Emmett (though not by Mr Brown). At that meeting BSW's future business was reviewed. Amongst the prospects seen as maybe coming through were (a) a contract from a French company ("Technip") in relation to its Dalia Project: and (b) work in connection with the Kizomba oilfield. It is apparent from the minutes that Mr Suttie remained concerned to control capital expenditure on the development and testing of products, that business was slack (with the position of the company still deteriorating) and that the assistance that Mr Emmett was providing to Mr Brown in the Manchester Employment Tribunal proceedings was an irritation to Mr Suttie.


To this tension at board level must be added tension at the operational level well encapsulated in an email that Mr Hatfield sent to Mr Suttie on the 15 December 2003:-

"I like ball grab it's a challenge but I am not obsessive or as passionate about it as Bob [Emmett] says I should be. Personally I don't mind what we make as long as we make it profitable. Bob [Emmett] uses this as an excuse for non-compliance with simple changes I have introduced".


One way of resolving these tensions was for Mr Emmett (perhaps also with Mr Brown) to buy back BSW from Arnlea. In August 2003 Mr Emmett had retained Craig Corporate as advisors in relation to that process, and had sought the assistance of a Mr Harlow in the attempt to raise funds. Mr Suttie wanted (in effect) a clear return of £1m from his investment with BSW Limited irrespective of its current value, but no one could make the figures stack up at that level of purchase price (particularly in view of the company's deteriorating financial performance).


In the absence of a conventional purchase structure, on the 18 December 2003 Mr Emmett offered a pure "earn out" repurchase but deferred for 3 years. That proposal was brusquely rejected by...

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