Interactive Technology Corporation Ltd v Jonathan Ferster
| Jurisdiction | England & Wales |
| Judge | Lord Justice David Richards,Lord Justice Newey |
| Judgment Date | 05 July 2018 |
| Neutral Citation | [2018] EWCA Civ 1594 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2017/0581 |
| Date | 05 July 2018 |
[2018] EWCA Civ 1594
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Morgan
[2017] EWHC 217 (Ch)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice David Richards
and
Lord Justice Newey
Case No: A3/2017/0581
Graeme McPherson QC and Michael Bowmer (instructed by DAC Beachcroft LLP) for the Appellant
The Respondent did not appear and was not represented
Hearing date: 18 April 2018
Judgment Approved
This appeal concerns the meaning and effect of an order for the assessment of equitable compensation made by Morgan J following the trial of claims for breach of fiduciary duty. The claims were made by the appellant company (ITC) against a former director, the respondent Jonathan Ferster. The respondent has since been made bankrupt and neither he nor his trustee in bankruptcy has appeared on this appeal or taken any part in it.
The relevant claim for the purposes of this appeal was that Mr Ferster had dishonestly caused the company to pay substantial unauthorised remuneration to him in excess of the salary of £120,000 per annum to which he was entitled. Morgan J found this claim to be established. The exact amount of the unauthorised remuneration has yet to be established but Mr Ferster has accepted that it is not less than £4.48 million.
After Morgan J handed down judgment on 15 November 2016, a hearing took place on 19 December 2016 to deal with consequential matters, including the terms of the order to be made. As regards relief in respect of the unauthorised remuneration, each party put forward a draft order which differed marginally but Mr Andrew Thompson QC for Mr Ferster said the differences were immaterial. As Morgan J later recorded in his judgment dated 10 February 2017 (the February judgment), giving his reasons for the Order now under appeal, there was essentially common ground that the court should make an order in the terms of the draft provided by Mr Alan Gourgey QC on behalf of ITC.
The order was as follows:
“Judgment be entered for ITC for equitable compensation to be assessed in respect of the payment to Mr Jonathan Ferster of unauthorised “remuneration” from ITC that was in excess of Mr Jonathan Ferster's entitlement under Paragraph 6 above (“the Unauthorised Remuneration”).
In his skeleton argument for the hearing on 19 December 2016, Mr Gourgey said:
“ITC is entitled at its option to repayment of the unauthorised remuneration taken by Jonathan or to equitable compensation for breach of fiduciary duty. For the reasons given in the Judgment (Judgment, ¶ [229]), an assessment of equitable compensation will be greater than an order for the repayment of the unauthorised element. ITC's current intention is to elect at the hearing for the remedy of equitable compensation. The equitable compensation is likely to be made up of (1) the amount of the unauthorised remuneration and (2) national insurance paid by ITC on the unauthorised remuneration. ITC reserves the right to seek in due course by way of consequential relief an order that Jonathan is liable to indemnify ITC in respect of any tax penalties and interest levied by HMRC following the reinstatement of ITC's accounts to reflect the amount of remuneration that was properly payable to Jonathan.”
After agreement had been reached on the terms of the order, Mr Gourgey made submissions in support of an application for an interim payment in respect of the equitable compensation. Mr Thompson responded that it was far from certain that ITC had suffered any loss which could form the subject of compensation. He submitted that on the evidence given at trial as to the market value of Mr Ferster's services, the remuneration received by him did not exceed that market value, with the result that ITC had suffered no loss. This was a new argument that had not been pleaded nor mentioned in any previous written or oral submissions. It was, of course, contrary to the position taken by Mr Gourgey in the passage from his skeleton argument that I have quoted and which, it may fairly be said, was his understanding of the effect of the order that he had proposed and that Mr Thompson had agreed on behalf of Mr Ferster.
The judge pointed out the major point of principle that now appeared to divide the parties. Mr Gourgey submitted that the losses suffered by ITC included the unauthorised sums paid to Mr Ferster and there was no need to search for a counter-factual scenario. The judge said that he did not regard Mr Thompson's submissions as hopeless and that they bore on what, if any, interim payment he should order. The judge recorded in his February judgment that “Just before the short adjournment, Mr Gourgey stated that he might need to think about simply claiming repayment of the unauthorised remuneration and not claiming compensation for losses”.
In the February judgment, the judge recorded at [38] what transpired after the short adjournment:
“After the short adjournment, Mr Gourgey told the court that ITC maintained its position in relation to the assessment of equitable compensation. I asked Mr Thompson whether he was content with the wording of paragraph 9 of the remuneration order and he stated that he was, subject to it being clear that he would be able to argue his points on causation of loss. Mr Gourgey did not suggest that Mr Thompson could not put forward the argument but, of course, Mr Gourgey had earlier made it clear that he would submit that the argument was unsound.”
At [39] Morgan J set out his view of the position as it then stood:
“With this background, it is clear that both parties were proceeding on the basis that ITC had two potentially available remedies. The two remedies were seen as an order for the repayment of unauthorised remuneration and an order for equitable compensation, meaning compensation for loss resulting from the payment by ITC of unauthorised remuneration. The parties proceeded on the basis that those two remedies were inconsistent and that ITC had a right to elect. It is also clear that the parties did not agree on the relevance of arguments as to causation. There was a clear election by Mr Gourgey between the two remedies. He first made a choice on behalf of ITC when he introduced paragraph 9 of the remuneration order and he maintained his stance having heard Mr Thompson's arguments on causation.”
Although in the following days the solicitors for ITC pressed the court to seal the order as made on 19 December 2016, there was a change of position in January 2017. On 23 January 2017, they wrote to the court, inviting it to make an order in different terms. The new order would provide in terms that Mr Ferster was obliged to repay the unauthorised remuneration and was liable to account to the company for all payments made out of the assets of the company in connection with the unauthorised remuneration.
In the February judgment, following a hearing on 7 February 2017, Morgan J gave his reasons for declining to make the new order in place of the order made on 19 December 2016. He went on to give his interpretation of that order. There is no appeal against his refusal to make the new order but the appeal is against the declaration setting out the Judge's interpretation of the order for the assessment of equitable compensation made in December 2016. The judge made three declarations. The first declared that the December order took effect on 19 December 2016. The second declared that it “provides for ITC to recover compensation for losses resulting from the payment to Jonathan Ferster of unauthorised remuneration”. The third declaration is as follows:
“ITC had a right to elect between inconsistent remedies, namely (i) an order against Jonathan Ferster that he repay unauthorised remuneration...
To continue reading
Request your trial
-
Kenneth Davies v Stephen Ford
...authority by a trustee or other fiduciary, such as a director”. He cites from INTERACTIVE TECHNOLOGY CORPORATION LTD v FERSTER [2018] EWCA Civ 1594 at paragraph 16 and Snell's Equity (34 th ed.) at paragraph 20–028. b. Equitable compensation to recover company funds or property which has b......
-
Hotel Portfolio II UK Ltd ((in Liquidation)) v Andrew Joseph Ruhan
...With regard to “substitutive” and “reparative” compensation, Mr Pickering relied on Interactive Technology Corporation Ltd v Ferster [2018] EWCA Civ 1594, where David Richards LJ (with whom I agreed) said: “16. … Equitable compensation is apt to include a payment made to restore to a claim......
-
Lewis v Australian Capital Territory
...5 M & W 351 [ 151 ER 149]; Morgan v Powell (1842) 3 QB 278 [ 114 ER 513]. 199 Interactive Technology Corporation Ltd v Ferster [2018] EWCA Civ 1594 at [15]–[21]. See also Matter of Rothko (1977) 43 NY 2d 305 at 322; Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681 at 732-733 [168]......