Giles v Rhind
| Jurisdiction | England & Wales |
| Judge | Lord Justice Waller,Lord Justice Chadwick,Lord Justice Keene |
| Judgment Date | 17 October 2002 |
| Neutral Citation | [2002] EWCA Civ 1428 |
| Docket Number | Case No: A3/2001/1779 CHANF |
| Court | Court of Appeal (Civil Division) |
| Date | 17 October 2002 |
[2002] EWCA Civ 1428
Lord Justice Waller
Lord Justice Chadwick and
Lord Justice Keene
Case No: A3/2001/1779 CHANF
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Blackburne
Royal Courts of Justice
Strand,
London, WC2A 2LL
George Bompas QC and Mr Sharif Shivji (instructed by Messrs Lamb Brooks, Solicitors, Basingstoke) for the Appellant
Mr Paul Greenwood (instructed by Messrs Douglas Wemyss, Solicitors, Leicester) for the Respondent
Introduction
This appeal raises for consideration the width of what was decided by the House of Lords in Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1. By a judgment dated 24 July 2001 Blackburne J held that all the heads of damage claimed by Mr Giles in this case are irrecoverable by virtue of that decision but said in paragraph 29:
"I reach this conclusion with reluctance because, to my mind, it is a wrong without a remedy."
He further granted permission to appeal on the basis that the matter should be reviewed by this court. When the appeal first came on Mr Giles appeared in person with Mr Greenwood representing Mr Rhind. That court thought that the points to be argued were of sufficient importance for Mr Giles to be represented (if possible). Mr Greenwood had no objection to that course. The matter was adjourned and Mr Giles has been able to enlist the assistance of Mr George Bompas QC who has, as we understand it, rendered his services pro bono. The court is very grateful to Mr Bompas for the care and attention he has given to the appeal.
The facts
Mr Giles and Mr Rhind were formerly directors and shareholders of a company called Surrey Hills Foods Limited (SHF). SHF had been formed by them in 1987 at which time they each held approximately 50% of the issued shares, twelve shares being issued to a third person who does not feature further in the story. The principle activity of SHF was to run a business concerned with the manufacture of cooked meat suitable for use in pizzas, ready meals or canned products.
The business was a success and in July 1990 the company was able to attract venture capital support from an organisation called APA Ventures (Apax). This enabled SHF to expand by acquiring a cooked meat business based in Northampton. Apax invested £1.285 million receiving in return a quantity of ordinary shares, preference shares and convertible unsecured loan stock. Others, including a family trust, invested a further £27,500. The existing shareholdings were sub-divided into 1p ordinary shares. Mr Giles in the result held 19,900 ordinary shares, Mr Rhind 18,900 ordinary shares and the third party 1,332 ordinary shares. The shareholding of Mr Giles and Mr Rhind represented approximately 20% of the issued ordinary share capital.
The directors also subscribed for convertible unsecured loan stock carrying interest at 18%. Mr Giles became the holder of £81,330 of the stock. The stock was redeemable at the option of the director on or before 10 June 1997 or convertible at a stated rate into ordinary shares of 1p each. Mr Giles was appointed managing director of SHF, Mr Rhind the commercial director and a Mr Hancock was appointed chairman. A Mr Freedman was also appointed to the board.
The terms of Apax's investment in SHF, the acquisition of the Northampton business and the alteration of SHF's shareholdings and other changes made necessary by this development in the company's fortune, were enshrined in a subscription and shareholder's agreement and a sale agreement, each dated 11 June 1990. At the same time Mr Giles and Mr Rhind entered into service agreements with SHF under which they were entitled to remuneration and, (as I understand it), pension rights.
It was a term of the subscription and shareholders' agreement, to which Apax, Mr Rhind, Mr Giles and SHF were parties, that:
"9.1 … each of the parties agrees to keep secret and confidential and not to use disclose or divulge to any third party or to enable or cause any person to become aware of (except for the purposes of the company's business) any confidential information relating to the company including …".
There then followed a list of various matters. Clause 9.2 contained restrictions on the part of Mr Giles and Mr Rhind, expressed to be for the purpose of protecting Apax's investment in the business, concerning their involvement in other businesses after their employment by SHF should cease. Matching provisions in substantially similar terms were contained in the service agreements entered into by Mr Giles and Mr Rhind.
As a result of the relocation to Northampton the business of SHF progressed the turnover increasing from approximately £4.5 million to £12.5 million by the year ending March 1994. It initially traded at a considerable loss but by March 1993 it was operating at a small net profit.
It was alleged in paragraph 9.2 of the statement of claim in the action between Mr Giles and Mr Rhind that part of the confidential information belonging to SHF was the fact that "SHF had a large and lucrative contract with Netto [Food Stores Limited] for the supply of cooked meat and that the future solvency of SHF would depend largely on the continuance of that contract". That paragraph was expressly admitted by Mr Rhind in his amended defence.
Unhappily by the beginning of 1993 the relationship between Mr Rhind and Mr Giles had broken down. In March 1993 the board of SHF decided that Mr Rhind would have to go. He did so, ceasing from March 1993 to be in the company's employment, but continuing as a shareholder and director. Terms were agreed for Mr Rhind's resignation. They included a termination payment of £32,000 and his written acceptance that certain provisions of his service agreement and all material provisions of the subscription and shareholders' agreement would continue.
In June 1993 Mr Rhind set up his own food business, operating through a company called Bedfield Foods Limited. In September 1993, before Mr Giles, or one assumes Apax, had any knowledge of Mr Rhind's plans, Mr Rhind sold his shares (only slightly fewer than Mr Giles' holdings) to Apax for £331,000.
Having been paid off by SHF and having achieved payment for his shares, Mr Rhind then in breach of his covenant with SHF, Apax and Mr Giles, in effect stole the business of SHF. The details are set out in the judgment of Mr Michel Kallipetis QC sitting as a Deputy High Court judge when he gave judgment on liability in this action. He found in effect that Mr Rhind had masterminded the diversion of the Netto contract from SHF to a company, MW Foods Limited, making use of the confidential information of SHF. Having regard to the admission by Mr Rhind of the importance of the Netto contract, there can be little doubt that he intended by his conduct to destroy the SHF business and the value of any investment which Apax and Mr Giles had in that business.
In March 1994 SHF launched proceedings against Mr Rhind, MW Foods Limited and Bedfield Foods Limited and two other individuals who were former employees of SHF. The writ in that action set out a claim for injunctive relief against the individual defendants and also claimed damages for breach of contract together with an order for delivery up of such confidential information as they had. SHF applied by summons in that action for interim injunctive relief but the matter never came on for hearing. On 15 April 1984 SHF was placed in administrative receivership. At this stage Mr Rhind was stoutly denying any involvement in the misuse of confidential information and stoutly denying any involvement in MW Foods Limited. Thus in that action, as noted by Mr Kallipetis in paragraph 37 of his judgment, Mr Rhind swore a affidavit stating "I should make it clear that I am not and never have been a director of nor a shareholder in MW Foods and have never been involved in MW Foods activities." Mr Kallipetis found that "that cannot be a truthful statement ….".
An application was made evidently for security of costs and it seems that again, according to the judgment of Mr Kallipetis, Apax was not willing to put up the security. In the result SHF did not have the money to pursue the action and SHF discontinued that action in June 1994. The consent order provided for discontinuance on the basis that it precluded SHF from bringing any further action against any of the defendants in respect of its claims in the action.
It was in that context that Mr Giles began this action in January 1996. He alleged breaches of the shareholders' agreement so far as there were covenants in his favour and asserted that he had suffered loss and claimed for the value of his shares in the business and for the remuneration unparticularised which he otherwise would have earned. Mr Rhind initially put in an uninformative defence making no admissions but ultimately by an amended defence asserted that he had not breached any covenant in the way alleged by Mr Giles. Mr Rhind also asserted that Mr Giles was estopped from bringing proceedings by virtue of the discontinuance of the action by SHF and the terms of the order obtained therein. There was no assertion that the loss and damage claimed by Mr Giles would in any event be irrecoverable.
The trial on liability came on before Michel Kallipetis QC. Mr Rhind continued to suggest that he was not in breach of any covenant and was not a party to the using of confidential information for the purposes of persuading Netto to terminate their contract with SHF and a contract with MW...
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