Breitenfeld UK Ltd v Harrison & Ors

The judge held that the managing director, Mr Harrison, breached fiduciary duties to ForgeMet (Breitenfeld UK Ltd) by assisting and facilitating the foundation and trading of a rival company (Harrison Special Steels Ltd) owned and run by his son and daughter-in-law. Relevant statutory duties under the Companies Act 2006 (notably s.172, s.175, s.176 and s.177) and the underlying common law equitable principles were applied.

Although the director did not personally profit in the form of a proven financial interest in the new company, the court found he allowed company property and opportunities to be used to create a springboard for the rival and therefore ordered equitable compensation rather than an account. The son and daughter-in-law (and their company) were found to have dishonestly assisted the breaches and to have breached their contractual duties to ForgeMet; they were held jointly and severally liable with Mr Harrison.

The primary remedies awarded were equitable compensation of £90,500 (as the money equivalent of the injury caused) payable by Mr Harrison, John Harrison, Gemma Harrison and HSS (jointly and severally). Alternatively, the court assessed general damages for conspiracy at £59,000 and, alternatively again, contractual damages of £38,500 and conversion damages of £20,500. The claimant must elect between equitable and common law remedies.

Background and parties. ForgeMet (renamed Breitenfeld UK Ltd) was a small Sheffield steel stockholder and supplier managed by Harold John Harrison (managing director). His son John and daughter-in-law Gemma were employees. From mid-2010 John and Gemma established Harrison Special Steels Ltd (HSS) while still employed by ForgeMet; HSS began trading with ForgeMet from December 2010. The claimant brought claims against Mr Harrison for breach of fiduciary duty and against John, Gemma and HSS for dishonest assistance, breach of contract, conspiracy and conversion.

Nature of the claim and relief sought. The claimant sought accounts, declarations, enquiries and/or equitable compensation against Mr Harrison; equitable relief against John, Gemma and HSS for dishonest assistance; damages for breach of contract (against the employees), damages for conspiracy and damages for conversion.

Issues framed by the court. The judge expressly framed the issues as: (a) the duties owed by Mr Harrison; (b) whether he breached them and any defence; (c) appropriate remedy; (d) whether John and Gemma dishonestly assisted; (e) the contractual duties of John and Gemma and any breach or defence; (f) tortious liability (conspiracy and conversion); and (g) quantification of loss.

Findings and reasoning. The court found that: (i) as a director Mr Harrison owed statutory and equitable fiduciary duties to ForgeMet (not to the parent company); (ii) he acted in breach of those duties by facilitating the creation, secret funding and operation of a competing business run by close family members while they remained employees and by permitting company property and opportunities to be diverted; (iii) he did not, on the balance of probabilities, acquire or hold a proved personal financial interest (shareholding or loan) in HSS, and therefore an account of profits against him was inappropriate; (iv) because the main injury was the assistance given to produce a ready-to-trade competitor, the proper remedy was equitable compensation assessed by reference to benefit to HSS and loss to ForgeMet; (v) John and Gemma breached their contractual duties of fidelity, confidentiality and to devote their time to ForgeMet and they dishonestly assisted Mr Harrison in his breaches; (vi) conversion of ForgeMet steel to HSS was established for a specific quantity and value; and (vii) the defendants were alternatively liable in conspiracy and in contract for specified sums.

Remedies and quantum. The judge assessed the money-equivalent of the equitable remedy at £90,500 and awarded that sum against Mr Harrison and jointly and severally against John, Gemma and HSS for dishonest assistance. In the alternative the court assessed general damages for conspiracy at £59,000; and, alternatively, contractual damages (£38,500) and conversion damages (£20,500). The claimant must elect between equitable compensation and common law remedies.

This is a first-instance judgment. The court found that the claim succeeds. Mr Harrison breached fiduciary duties and must pay equitable compensation assessed at £90,500. John Harrison, Gemma Harrison and HSS dishonestly assisted those breaches and are jointly and severally liable for the same sum (in lieu of an account). Alternatively, the court assessed general damages for conspiracy at £59,000 and, alternatively again, awarded contractual damages of £38,500 and conversion damages of £20,500. The claimant must elect between equitable and common law remedies. The judge rejected the submission that Mr Harrison had a joint venture or a personal profit requiring an account and found no available defence of disclosure, good faith or waiver.