Keystone Healthcare Ltd & Anor v Parr & Ors

A director who conceals fraud from his company breaches the fiduciary duty of loyalty. The company may recover loss caused by the concealment, including an overpayment made on the director’s exit, where causation is established. A director may compete after resignation, but not where preparations begun during the directorship seek to appropriate the company’s maturing business opportunities or confidential information. A contractual restraint may be enforced by the company expressly identified as entitled to enforce it. Equitable compensation remains subject to causation and credit for benefits received. A proprietary remedy requires identifiable trust property or its substitute; a diverted business cannot itself ordinarily be treated as such property. Knowing assistance, database-right infringement and misuse of confidential information may nevertheless support damages or an account of profits.

Keystone Healthcare Limited and Keystone Healthcare Holdings Limited brought claims against Colin Parr, Mark Reynard and Medipro Recruitment Limited. The claims concerned frauds committed while Mr Parr was a director, his failure to disclose that wrongdoing before selling his shares, and the alleged diversion of Keystone’s clients, workers, business information and systems to Medipro.

Summary judgment had already been entered on the payroll fraud, and several claims were admitted or withdrawn. The trial concerned the consultancy payments, overpayment on the share sale, restrictive covenants, fiduciary duty, proprietary relief, knowing receipt or dishonest assistance, database right, confidential information and remaining invoice fraud allegations. The principal questions were whether liability and causation were established and what remedies were available.

1. Consultancy payments. The claim failed. Although Mr Parr had been obliged to disclose Mr Reynard’s payroll misconduct, equitable compensation required causation. Keystone had received valuable consultancy and software-development services, and had already recovered the sums removed by the payroll fraud. It was therefore necessary to give credit for the benefit received.
2. Overpayment. Mr Parr breached his fiduciary duty by failing to disclose his own wrongdoing. The breach deprived Keystone of the opportunity to remove him and invoke the bad-leaver provisions before the negotiated share sale. Holdings could recover the difference between the amount actually paid, £1,242,195, and the counterfactual compulsory-transfer value, £591,582.96. Judgment was entered for £650,612.04.
3. Diversion and restraints. The restrictive covenants were enforceable by Keystone under the SPA. Medipro was effectively owned and controlled by Mr Parr, and his preparatory conduct before resignation crossed the line from lawful competition into breach of fiduciary duty. Keystone was entitled to damages or an account of profits. The court applied the concealment principle in Prest v Petrodel Resources Ltd [2013] UKSC 34.
4. Proprietary relief. The claim failed. Following Ultraframe v Fielding [2005] EWHC 1638 (Ch), a business or its profits was not itself identifiable trust property. An account of profits could provide appropriate relief.
5. Medipro’s liability. The knowing-receipt claim failed because no proprietary asset had been established. The dishonest-assistance claim succeeded. Medipro’s knowledge, including knowledge imputed from Mr Parr, and its assistance in exploiting Keystone’s information and business, made it liable co-extensively for damages or an account of profits.
6. Database and confidential information claims. Keystone’s worker information and File Maker database qualified for database-right protection, and the information and business documents were confidential in Mr Parr’s hands under the contractual obligation. The claims succeeded against Mr Parr and Medipro, with damages or an account of profits available.
7. Invoice frauds. The remaining claims succeeded in part. Mr Parr was liable for £8,158.30, together with admitted sums not already discharged, and Mr Reynard for £7,358.30. The consultancy claim failed and the outstanding diversion remedies were left for assessment.