Richmond Pharmacology Ltd v Chester Overseas Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Stephen Jourdan |
| Judgment Date | 01 August 2014 |
| Neutral Citation | [2014] EWHC 2692 (Ch) |
| Docket Number | CLAIM NO: HC12FO4579 |
| Court | Chancery Division |
| Date | 01 August 2014 |
[2014] EWHC 2692 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Rolls Building, Fetter Lane
London EC4A 1NL
Stephen Jourdan QC SITTING AS A DEPUTY HIGH COURT JUDGE
CLAIM NO: HC12FO4579
Robert Deacon and Shawna Pasquale (instructed by EMW LLP) for the Claimant
Brian Doctor Q.C. and Giles Robertson (instructed by Berwin Leighton Paisner LLP) for the Defendants
Hearing dates: 9, 10, 11, 14, 15, and 16 July 2014
Stephen Jourdan QC sitting as a deputy High Court judge
Introduction
The Claimant, Richmond Pharmacology Limited ("Richmond") is a contract research organisation ("CRO") which specialises in the design and conduct of pharmaceutical clinical trials essential in the drug development process. Pharmaceutical companies often outsource clinical trials work to CROs. Richmond conducts early-phase clinical studies, mostly involving testing new drugs on healthy people to ensure that they are safe. It was formed in August 2001 by Dr Ulrike Lorch and Dr Radivoj Arezina, and in January 2002 they were joined by Dr Jorg Taubel, and Richmond then started trading. I will refer to those three doctors as "the Founders".
The First Defendant, Chester Overseas Limited ("Chester") is a British Virgin Islands company, the shares in which are owned by trustees who hold them on discretionary trusts for the families of the Second and Third Defendants, Milton and Larry Levine, and the family of a friend of Milton Levine's. The Levines are not directors of Chester, but throughout the history of this matter, they have acted as its representatives and made all relevant decisions about its actions.
On 5 March 2002, a shareholders' agreement was entered into between Richmond, the Founders and Chester ("the Shareholders Agreement"), pursuant to which Chester invested £117,858 in Richmond by subscribing for B ordinary shares equivalent to 44% of the issued share capital in Richmond. The Founders together held the remaining 56%, each holding 18.67%. The Levines were appointed as directors of Richmond.
In July 2009, Chester instructed New World Corporate Finance Limited ("NWCF"), a company providing corporate financial services. Primarily, NWCF advises private companies on the purchase or sale of companies, including management buy-outs and company owners who wish to dispose of their company or shareholding, or on possibilities for companies and/or management teams to raise finance. Chester retained NWCF to advise and assist Chester in relation to selling Chester's shares in Richmond to the Founders, by way of a management buy out ("MBO") or, failing that, to third parties.
After unsuccessful discussions about an MBO, from November 2009 to January 2010, NWCF marketed Chester's shares to third party prospective purchasers. Richmond claims that, in the course of this marketing, NWCF on behalf of the Defendants disclosed Richmond's confidential information to third parties, and also created the misleading impression that all the shares in Richmond were for sale. Richmond claims that this caused a substantial loss of business, and hence turnover and profits. Richmond claims damages or equitable compensation, put at £4,293,225.
At the trial, Richmond was represented by Mr Deacon, leading Ms Pasquale. The Defendants were represented by Mr Doctor QC leading Mr Robertson. I am grateful to all counsel and their instructing solicitors for their assistance in the presentation of the case, which enabled it to be completed in the 6 days allowed for the trial.
The issues
There is an agreed list of issues for me to decide, which can be summarised as follows.
First, what duties did the Defendants owe Richmond to keep information confidential. In particular, on the true construction of the Shareholders' Agreement, were the Defendants entitled to disclose confidential information about Richmond to third parties in order to facilitate a sale of Chester's shares, provided the third parties agreed to keep the information confidential?
Second, did conveying information about Richmond's business to NWCF constitute a breach of any of those duties?
Third, what information did NWCF communicate to third parties?
Fourth, did conveying that information constitute a breach of any of those duties?
Fifth, did Richmond consent to what NWCF did, or is Richmond estopped from saying it did not consent?
Sixth, did any information disclosed by NWCF cause a reduction in Richmond's business?
Seventh, if so, what is the amount of the loss to Richmond caused by that disclosure?
The witnesses
I heard evidence from Dr Taubel, Dr Lorch, Milton Levine, Larry Levine and Stephen Altman, a director of NWCF. I also heard expert evidence from two accountants on the quantification of loss, Alex Marsden for Richmond and Martin Long for the Defendants.
Dr Lorch has been Richmond's medical director throughout the history of this matter. was a careful witness, and I think she was trying to answer honestly the questions put to her. However, I formed the impression that, for the most part, she had little independent recollection of the relevant events and was relying heavily on reconstruction based on contemporaneous documents. Also, I think that in some respects, her endeavours to reconstruct events were significantly influenced by how she thinks things should have happened.
In much of his evidence, Dr Taubel seemed to me to be intent on arguing the Claimant's case and defending its position rather than focussing on the questions put to him and giving accurate answers. I do not think he was deliberately giving false evidence, but I think that his strong sense of conviction that the Defendants had wronged the Founders led him on a number of occasions to reconstruct the past in the way most favourable to Richmond's case. Mr Doctor argued that he did not really believe that the Defendants' actions had caused Richmond loss, but I do not think that is the case. Rather, my assessment is that he believes very strongly that the Defendants' actions did cause Richmond very substantial losses, and this belief caused him, at least in some respects, to remember events in a way which accords with his belief. Accordingly, I have treated his evidence with very considerable caution.
Mr Larry Levine was a straightforward and careful witness, and I am satisfied he was doing his best to accurately remember the events he dealt with in his evidence. However, in one respect I think his recollection was faulty, as I shall explain below.
Mr Milton Levine was also a straightforward and careful witness, although as he was only peripherally involved in the events with which I am concerned, his evidence is not of great assistance. However, to the extent that it is relevant, I think his evidence is reliable.
Mr Stephen Altman, too, struck me as a straightforward and careful witness who had attempted to accurately remember the material events about which he gave evidence.
Both experts had clearly put a lot of work into their reports and the joint statement which they agreed, and they gave their evidence carefully and with proper professional detachment. Mr Long's report included a number of comments to which Mr Deacon took exception as not constituting expert evidence, but rather commentary on the facts. At my request, Mr Deacon went through each of these in cross-examination, to ascertain whether they were derived from Mr Long's professional practice and experience. It transpired that they were not, but rather were either what Mr Long regarded as common sense, or were based on his experience in business rather than his professional practice as an accountant. That being so, I accept Mr Deacon's submission, and I have given no weight to Mr Long's evidence on those matters. I do not criticise Mr Long for including these comments, as I accept he did so to try and be helpful. This does not mean that Mr Long's comments do not have force, but it does mean that I did not give any weight to the fact that Mr Long made them rather than them being made as submissions by counsel.
The Shareholders Agreement
The background to the Shareholders Agreement
Before founding Richmond, the Founders had previously worked together at another CRO, Charterhouse Clinical Research Unit Limited based in Hammersmith. They founded Richmond because they thought there was a gap in the market for early phase clinical trials. The drugs development process consists of a number of steps. After testing on animals, testing on humans takes place in a number of phases. Phase I is testing on healthy humans. Phase II and later phases involve testing on people who have the target disease. It was the Phase I market that Richmond was formed to focus on, although by 2009, about 10% of its turnover came from early Phase II trials, which were often combined with Phase I.
The Founders put in £150,000 themselves but needed more money to make Richmond viable. They prepared a business plan, providing a detailed explanation of the business they hoped to establish and a copy was given to the Levines, who had been introduced to the Founders. The Levines were and are experienced investors.
The business plan projected that by 2006, the turnover would be £10 million and the net profit before tax £1.49 million. It said that exit options for an investor would be to sell the business or float it and "In any event the directors would be prepared to acquire any equity held by any investors once the business is established and is working to its full potential, i.e. after 3 to 5 years".
It is common ground that the Levines told the Founders that they wanted to invest, and told the Founders that they were not...
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