City of London Group Plc & Anor v Lothbury Financial Services Ltd & Ors

The claim, brought after LF was placed into administration, alleged a conspiracy and multiple breaches of fiduciary duty by former directors, consultants and an administrator to transfer LF's business and assets to a related company LFS. The court held that the pleaded conspiracy and breaches were not made out on the evidence. Key legal findings were that (i) the consultants (Mr Astley and Mr Middleton) were independent contractors and not de facto directors or employees owed the fiduciary duties alleged; (ii) the office administrator (Ms Moss) did not owe fiduciary duties of the scope alleged and her conduct was reckless rather than conspiratorial; (iii) Mr Padley, as a de jure director, did owe duties but there was no evidence he embarked on a pre-existing strategy to divert LF to LFS or that LF suffered loss as a result; (iv) conspiracy, conversion and money had and received claims failed for want of particularised loss and causation; and (v) passing off failed because LF lacked the requisite goodwill, there was no evidence of confusion and LFS had a legitimate right to its name and domain. The claim therefore failed in its entirety.

This was a first instance trial of claims by the purchasers of LF's business and assets following LF's administration. The claimants alleged that personnel running LF conspired and breached fiduciary duties to 'milk' LF by transferring clients, contracts, data and goodwill to a separately incorporated company LFS, which had been formed with that purpose in mind. The claim included declarations of constructive trust, accounts and equitable compensation, damages for conspiracy, conversion and money had and received, and injunctive relief for passing off.

Background and parties:

• LF (trading as a financial PR consultancy) was placed in administration on 29 March 2010; CoLG (first claimant) and CoLPR (second claimant) purchased LF's business and assets from the administrators on 2 April 2010 and by agreement acquired LF's residual causes of action.
• Defendants included Lothbury Financial Services Limited (LFS), LF's sole director and shareholder Mr Padley, office administrator Ms Moss, and consultants Mr Astley and Mr Middleton (who supplied PR services through separate companies).

Nature of the claim/application: The claim sought declaratory relief, an account and equitable compensation for breach of fiduciary duty, damages for conspiracy, damages for conversion/money had and received and an injunction for passing off.

Issues framed by the court:

• Whether the individual defendants owed fiduciary duties to LF sufficient to support equitable relief and an account (including whether consultants were de facto directors or employees).
• Whether there was a concerted conspiracy to divert LF's business and assets to LFS and whether LF suffered loss causally attributable to any such conspiracy.
• Whether conversion, money had and received, or passing off were made out by the evidence.

Court’s reasoning:

• The court applied established authorities on fiduciary duties, de facto directorship and the requisites for accounts and conspiracy (including Hydrodam, Holland, McKillen and Ultraframe) and concluded that the consultants had not assumed the status and functions of directors and were independent contractors. Ms Moss was an administrator with limited duties and had not assumed fiduciary obligations of the type alleged.
• Although there were emails and conduct suggestive of overreaching and poor management of the transition, the evidence did not establish a pre-existing plan from 2009 to divert LF to LFS, nor did it show that clients were misled in a way that caused LF to suffer compensable loss. The personal nature of client relationships in the PR sector meant clients were likely to follow individual consultants irrespective of the company name; there were no restrictive covenants preventing that movement.
• Conspiracy claims failed for want of particularised loss and causation, conversion and money had and received claims failed on the facts, and passing off failed because LF lacked the requisite goodwill, there was no confusion and LFS had a legitimate right to its name and domains.

Procedural posture: This is a first instance Chancery Division judgment disposing of the substantive trial; appellate history not stated in the judgment.

The claim was dismissed. The court found insufficient evidence of a pre-existing conspiracy or of fiduciary duties owed by the consultants and office administrator to justify the relief sought; it held that LF did not prove loss causally attributable to the defendants, and that claims in conspiracy, conversion, money had and received and passing off all failed on the evidence.