Shepherds Investments Ltd v Walters and Others
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE ETHERTON,Mr Justice Etherton |
| Judgment Date | 12 April 2006 |
| Neutral Citation | [2006] EWHC 836 (Ch) |
| Docket Number | Case No: HC04C02668 |
| Court | Chancery Division |
| Date | 12 April 2006 |
[2006] EWHC 836 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Etherton
Case No: HC04C02668
Paul Nicholls (instructed by Dechert LLP) for the Claimants
Iain Quirk (instructed by Eversheds) for the First, Third, Fifth and sixth Defendants
Toby Kempster (instructed by Spring Law) for the Second Defendant
Hearing dates: 21, 22, 23, 24, 27, February, 2, 3, March 2006
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.
INDEX
Introduction 1–3
Background 4–50
The Witnesses 51–52
Investments claims 53–63
Preparations for a competing business: breach of
fiduciary duty, the obligation of fidelity and express
Diversion of business opportunity 57
Misuse of confidential information 58–61
Other claims 62
Remedies 63
The defences 64–72
Did Mr Simmons owe fiduciary duties? 73–81
Was there a breach of duty in setting up a competing business? 82–132
Diversion of maturing business opportunity 133–135
Express terms of employment contracts of Mr Walters and
Mr Hindle 136–142
Misuse of confidential information 143–145
Damages 146–161
Account of profits 162–163
Decision 164
Introduction
These are proceedings for damages, an account of profits and other relief against the First to Fourth Defendants, as former directors and employees of the Claimants, for various breaches of duty and contract, including, in particular, setting up a competing business, diversion of a business opportunity and misuse of confidential information.
The First Defendant, Andrew Walters ("Mr Walters"), and the Third Defendant, Mark Hindle ("Mr Hindle"), were formerly directors and employees of the Second Claimant, Shepherds (Financial) Limited ("Financial"). The Second Defendant, Michael Simmons ("Mr Simmons") was formerly an employee, and is alleged by the Claimants to have been a de facto director, of the First Claimant, Shepherds Investments Limited ("Investments").
The Fifth Defendant, Assured Fund Limited ("Assured"), and the Sixth Defendant, Policy Selection Limited ("PSL"), are alleged to carry on the competing business.
Background
The following is a brief summary of the factual background to the proceedings.
Shepherds Select Fund plc ("SSF") was an open-ended investment company founded by Michael Abraham. It had two subsidiaries. One of them, Traded Life Policies Limited, carried on business investing in US traded life policies ("TLPs"): it provided an investment opportunity in TLPs through the purchase of interests in life policies which had been acquired by market makers from persons living in the USA, who, in the case of each such policy, wished to raise money from the policy prior to maturity on the death of the assured. Until May 2004 those TLPs took the form of interests in "fractionalised policies" held by a US corporation, Mutual Benefit Corporation ("MBC"), that is to say a share in each of a number of different life policies held by MBC.
The other subsidiary of SSF, Traded Endowment Policies Limited, carried on business investing in UK traded endowment policies ("TEPs").
Custodial services for the Shepherds Group were provided by the merchant bank, Close Brothers ("Close").
SSF had different classes of shares reflecting the different types of business carried on by its two subsidiaries.
Investments acted as the manager of SSF, responsible for sales and marketing, pursuant to a written management agreement dated 16 May 2002 ("Investments' Agreement"). Financial advised Investments on investment policy for SSF, pursuant to a written investment and advisory agreement also dated 16 May 2002 ("Financials' Agreement"). Clauses 2 and 3 of Financials' Agreement provided, so far as relevant, as follows:
"2 Appointment
The Manager [i.e. Investments] hereby appoints the Adviser [i.e. Financial] and the Adviser hereby agrees with effect from the date hereof (subject always to the overall policy and supervision of the Directors [i.e. the directors of SSF]) to advise the Manager as to the investment and reinvestment of the assets of the Company [i.e SSF] in traded endowment policies ("TEPs") and traded life policies ("TLPs") in accordance with the provisions of the Memorandum and Articles of Association of the Company, this Agreement, any Offering Document, the laws of the Isle of Man and any other applicable laws or regulations for the time being in force … within the investment policy from time to time laid down by the Directors until its appointment shall be terminated as hereinafter provided.
Duties
Without prejudice to the generality of Clause 2 the Adviser shall:
advise the Manager concerning all actions which it appears to the Adviser would be advantageous to the Company in implementing the TEPs and TLPs investment policy of the Directors in relation to the Company…;
evaluate the opportunities for possible investment in TEPs and TLPs by the Company and communicate its advice to the Manager;
keep constantly under surveillance and review the Assets for the time being of the Company comprising TEPs and TLPs and recommend, as circumstances may require, changes in such Assets;
Both Investments, under Investments' Agreement, and Financial, under Financials' Agreement, were entitled to fees which reflected the amount of funds under SSF's management.
Financial was the parent company of Investments. I shall refer to Financial, Investments, SSF and its two subsidiaries as "the Shepherds Group".
Mr Walters was the finance director of Financial from 5 November 2001 until 7 May 2004. He had a written contract of employment. The following provisions of that contract are material:
" Confidential Information
You shall not, except as authorised or required by your duties under your employment contract, use for your own benefit, gain or divulge to any persons, firms, company or other organisation whatsoever, any confidential information belonging to the company or relating to it's affairs or dealings which may come to your knowledge during your employment. This restriction shall cease to apply to any information or knowledge which may subsequently come into the public domain other than by means of unauthorised disclosure.
All confidential records, documents and other papers, together with any copies or extracts thereof, made or acquired by you in the course of your employment shall be the property of the company and must be returned to the company on the termination of your employment.
Confidential information shall include all information which has been specifically designated as confidential by the company and any information which relates to the commercial and financial activities of the company. The unauthorised disclosure of which would embarrass harm or prejudice the company. It does not extend to information already in the public domain unless such information arrived there by unauthorised means.
Restrictions on other Business Activities
You will devote the whole of your time and attention during business hours to your duties as an employee and will not, at any time, without the written consent of the company, be directly engaged, concerned or interested in or connected with any other company, business or concern (except as the holder of shares, stock debentures or debenture stock in any other company quoted or dealt with on any recognised stock exchange)."
Mr Simmons was employed by Investments from 29 May 2002. He was originally employed as a sales manager. He had no written contract of employment. It is alleged by Investments that, although Mr Simmons was never formally appointed a director of Investments, he in due course assumed the role of, and acted as, a director. There is a dispute between the parties as to the precise date on which his employment came to an end. It was either in late September 2003 or early October 2003.
Mr Hindle was the investment director of Financial from 2 September 2002 until 10 October 2003. He was employed under a written contract of employment, which contained the same provisions as in Mr Walters' contract set out in paragraph 12 above.
The Fourth Defendant, Alan Morgan-Moodie ("Mr Morgan-Moodie"), was a director of Investments, SSF and its two subsidiaries until he resigned with effect from 31 October 2003. He was the managing director of Investments until May 2003. The claim against Mr Morgan-Moodie was settled prior to the trial. It is not necessary, therefore, to include in this summary of events the allegations of Investments against him in the amended Particulars of Claim ("the APOC").
In the rest of this judgment I shall refer to Mr Walters, Mr Simmons and Mr Hindle together as "the Individual Defendants".
In the first half of 2003 the Shepherds Group began to consider the establishment of a "whole policy" investment fund, which would purchase whole life policies rather than interests in fractionalised policies owned by MBC. It consulted Close in that connection. Further, a legal executive, Ms Aisling Costello, was employed by Financial on a short term fixed contract to prepare a report on the TLP market. She travelled to the US on a number of occasions between April and August 2003 to assess the standing of the various market makers in life policies, including MBC, and to obtain further information on business structures, US licensing of TLPs and trust and escrow accounts. She...
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