Odyssey Entertainment Ltd v Kamp & Ors

A director who decides, or seriously contemplates, carrying on a competing business while recommending that his company close must disclose that fact. Silence may breach the statutory duty to promote the company’s success under Companies Act 2006, s.172. The formation of a competing company is not itself necessarily a breach of the no-conflict duty. The relevant breach may lie in pursuing corporate opportunities or securing rights for personal benefit while still a director, particularly where the director’s conduct caused the company to abandon those opportunities. A director remains subject to fiduciary duties until resignation, and may be liable to account for profits obtained through opportunities developed during that period. Accessory liability may arise where a company is used as the corporate vehicle for the director’s breaches, subject to avoiding double recovery.

Odyssey Entertainment Ltd was a film sales and rights-management company. It was wound up voluntarily in September 2009 after its board decided to wind down the business. Odyssey alleged that Ralph Kamp, its former chief executive and director, had given bad-faith and overly pessimistic advice, concealed his intention to establish a competing film-sales business, diverted corporate opportunities, breached statutory and fiduciary duties, and breached his employment contract. Timeless Films Ltd was alleged to be accessorily liable.

The central issues were whether Kamp breached his duties under ss.172 and 175 of the Companies Act 2006, whether Timeless was liable for the consequences, and what remedies followed. The trial proceeded on liability, with quantum reserved.

1. Section 172 duty. Kamp breached his duty under s.172 of the Companies Act 2006. By January 2009 he had decided, or was seriously contemplating, continuing as a film-sales agent on his own account. He nevertheless advised the board that Odyssey was not viable and represented that he intended to leave the film industry. A director in that position must disclose the true intention or serious possibility of competition. Kamp’s conduct was not consistent with acting in good faith to promote Odyssey’s success.
2. Causation. Kamp’s misleading advice materially influenced the board’s staged decisions to wind down Odyssey, terminate or surrender rights, and proceed to liquidation. The resulting loss of opportunities was therefore not merely incidental to the company’s closure.
3. Section 175 duty. Kamp breached the no-conflict and no-profit duties under s.175. He secretly pursued film projects, rights and business relationships for himself and Timeless while remaining an employee and director. The creation of Timeless alone would not have been sufficient, but the associated exploitation of opportunities during the fiduciary period was. It was no answer that Odyssey had decided to wind down, because that decision had resulted from Kamp’s misleading conduct.
4. Contractual claims. The claim based on clause 5 added nothing material to the fiduciary claims. Kamp was released from the post-termination restraint in clause 8 and the court would not have enforced it in the circumstances without continued remuneration. The evidence did not establish a sufficiently clear breach or remedy under clause 9 concerning confidential information.
5. Timeless. Timeless was liable as an accessory. It was, in substance, Kamp operating through a corporate vehicle and was fixed with his knowledge and state of mind. It could not retain benefits and profits obtained through his breaches, subject to a carefully defined account and no duplication of recovery.
6. Relief and remedy. Relief under s.1157 was refused. Kamp was liable in principle to account for profits obtained from the concealed opportunities, with the amount and other remedies reserved for a later hearing.