Foster Bryant Surveying Ltd and anor v Bryant and anor
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rix,Lord Justice Moses,Lord Justice Buxton |
| Judgment Date | 13 March 2007 |
| Neutral Citation | [2007] EWCA Civ 200 |
| Docket Number | Case No: A3/2006/1346 |
| Court | Court of Appeal (Civil Division) |
| Date | 13 March 2007 |
[2007] EWCA Civ 200
Lord Justice Buxton
Lord Justice Rix and
Lord Justice Moses
Case No: A3/2006/1346
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION (Commercial Court)
HHJ Seymour QC (sitting has a High Court Judge)
Mr Richard Lord QC (instructed by Messrs Blandy & Blandy) for the Appellant
Mr Charles Douthwaite (instructed by Messrs Awdry Bailey Douglas) for the Respondents
Hearing date : 2 February 2007
Introduction
This is an appeal about the alleged breach of a director's fiduciary duties during a period of notice after he had resigned as a director but when his resignation had not yet taken effect. The director, Mr Graham Bryant, here respondent and defendant below, had been effectively forced out of the company by his business partner and co-director, who was the majority shareholder in the company, Mr Mark Foster, here appellant and claimant below. The defining moment came when Mr Foster unilaterally announced to Mr Bryant that Mr Bryant's wife, whom the company employed, was to be made redundant. It is not a case therefore where Mr Bryant resigned in order to attempt to take work or clients from the company. Nevertheless, during the notice period, the company's major, if not only, client (Alliance Leisure Services Limited (“Alliance”), whose managing director was Mrs Watts) pressed Mr Bryant to continue to play a role for that client after his departure from the company. The client, in its own interests, was anxious for continuity in its ongoing or future projects. Mr Bryant, who in the meantime had looked around for other employment, agreed to fall in with the client's wishes. The role envisaged for Mr Bryant by the client was essentially an employee's role, so that he would spend his time exclusively on the client's affairs, but it was decided that the form which this arrangement would take would be that he would provide his services to the client through a new company of his own. The client would pay all the expenses of the new company and in addition a “salary”. Thus Mr Bryant's or the company's remuneration was not to be project or fee based. Mr Bryant's new company was formed a few days before his resignation took effect. When it took effect, he started to work for the client. Previously, the client had channelled all its work exclusively to the company, under an exclusivity contract which had expired without renewal a few weeks before the resignation took effect.
The other director, Mr Foster, knew that the client wanted Mr Bryant to work for it, but sought to persuade the client that the company could provide continuity by contracting in outside support to service the client. In effect, the company wanted to contract out, or sub-contract, its work. The client, however, did not want that. It was more than satisfied with the personal, professional surveying work which the two co-directors had been performing for it. It wanted to continue with each director continuing to provide that personal service which it desired and for which it had rewarded the company in the past with its custom. If the two directors were no longer to be able to work together in the same company, then existing or future project work would have to be shared out between them, so as effectively to occupy each of them for 100% of their time. That was the proposal which the client made to each of them. Mr Bryant was prepared to agree, but Mr Foster was not. He rejected the proposal, insisting on wanting to cover the client's work through an outside agency, and being unwilling to continue to perform merely as much work for the client as he could personally deliver. There was a final breach between company and client when the company sued the client. It also sued the resigning director. Company and client have settled their dispute, but the litigation between the former co-directors continues. It must be a disaster for both.
The judge, HHJ Richard Seymour QC, found that there had been no breach of Mr Bryant's fiduciary duties. He also found that he had been excluded from his role as director after his resignation. He further found that even if he had been in breach of fiduciary duty (or otherwise of the shareholders' agreement in contract), the company had suffered no loss by way of damages as a result. If there had been a breach of fiduciary duty and an account was appropriate, the period for such an account would have been one year following Mr Bryant's departure from the company.
The judge's critical findings are summed up in these passages from his judgment:
“141…It was not a case of Mr Foster identifying a maturing business opportunity, or even a possible business opportunity, and trying to divert it to himself secretly. Rather it was a case of a customer-led initiative with a view to the identification of a solution to the problem arising from the departure from the Company of Mr and Mrs Bryant which was acceptable to the customer, Alliance. It was a very unusual situation…
144…If one regarded the Alliance work as a package as an asset of the Company (which it fact it was not), the intention of Mrs Watts at that stage was to divide it more or less equally between the two major participants in the Company. The only reason, as I find, why that did not happen, was the truculent attitude of Mr Foster and his decision to seek to extract a very substantial sum from Alliance by way of compensation…
147. In the particular circumstances of the present case it seems to me that Mr Bryant was not guilty of a breach of his fiduciary duties to the Company by going along with the suggestions of Mrs Watts that he should establish his own company and then undertake such work as Alliance was minded to give him. This aspect of the claims in this action therefore fails…
160. Alliance did in fact offer to provide Mr Foster with as much work as he could handle. Mrs Watts told me that she was not prepared to entrust all of Alliance's work to the Company if the Company was going to sub-contract what Mr Foster could not deal with personally. I accept that evidence. I find that the maximum amount of work which Alliance was prepared to offer to the Company, in a situation in which Mr and Mrs Bryant had left and Mr Foster remained the only employee of the Company able to offer professional services, was that which was in fact offered to him, but which he did not in fact get because of his reaction to Alliance's position.
168…On my findings there would have been no loss, because after the departure of Mr and Mrs Bryant, Alliance was never going to place with the Company more work than Mr Foster as an individual could cope with. That amount of work was offered, but came to nothing for reasons which I have explained.
169. Thus, so far as damages are concerned, had it been necessary to consider what damage the Company or Mr Foster had sustained as a result of some breach of fiduciary duty or breach of the Shareholders' Agreement on the part of Mr Bryant, I should have found that no damage had been suffered.”
On this appeal the company nevertheless submits that despite these findings the judge was wrong not to recognise that what Mr Bryant did during his notice period between resignation and departure was a classic breach of fiduciary duty. The judge's principal error was to find that Mr Bryant had been excluded from discharging his role as a director of the company as from his resignation. That finding was unjustified: all that had happened were the normal consequences of a parting of the ways. If the judge had not made that error, he would probably have found a breach of fiduciary duty. In any event, the facts, namely Mr Bryant's willingness to fall in with the client's proposal while he was still a director, spoke for themselves. There was no escaping a finding of breach of fiduciary duty. Once that breach is established, then a duty to account is inevitable. Such a duty does not depend on the need to establish any loss, but on the existence of a profit connected with the breach. The judge ought therefore to have ordered an account. Such an account could be required both of Mr Bryant himself and of his new company, Savernake Property Consultants Limited, the second respondent (“Savernake”).
Mr Bryant submits, on the other hand, that the judge was right for the reasons that he gave, and was entitled to come to the findings of fact which he made. Indeed there were even further matters which the judge might well have mentioned (raised in a respondent's notice). There had been no dispute about the principles of law. On the judge's express findings, Mr Bryant had had no intention to accept any work from Alliance at the time of his resignation. He did not solicit the business of Alliance nor attempt to entice it. He did no more than respond to the suggestions of Mrs Watts who was herself acting, as she was entitled to do, in the best interests of Alliance and its own clients. Moreover, the judge was also right to say that Mr Bryant had been excluded from his role as director. As for loss, on the judge's findings there could be no liability in damages. As for an account, there had to be some connection between breach and profit, and there was none.
It may be observed that in their pleaded case and in their case at trial, the claimants accused Mr Bryant of serious dishonesty: of soliciting Alliance to transfer its custom under the exclusivity agreement to him and of resigning in...
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