Keystone Healthcare Ltd & Anor v Parr & Ors

The court determined multiple related claims arising from a director’s misconduct before and after sale of his shareholding. The judge upheld that a director (Mr Parr) breached fiduciary duties by failing to disclose and by diverting company assets and opportunities, and that he clandestinely funded and controlled a rival company (Medipro) which used Keystone’s confidential information and database material. The judge found liability for breach of post‑sale restrictive covenants in the SPA, for dishonest assistance by Medipro, and for misuse of confidential information and database right infringements.

Key contract and company law features included the SPA restrictive covenants (clause 6), the 2011 shareholders’ agreement and articles providing a compulsory transfer/bad‑leaver mechanism (50% discount). The court held that (i) the Overpayment claim (difference between sale proceeds and the bad‑leaver valuation) succeeded in the sum quantified by the judge (£650,612.04); (ii) the Consultancy Payments claim failed because the consultant had provided valuable services; (iii) the Termination Payment was admitted by the defendant; and (iv) the Payroll Fraud had previously been the subject of summary judgment and paid. The court awarded liability for certain invoice frauds in specific quantified sums against the defendants.

This was a first instance Chancery trial concerning claims by two companies (Keystone Healthcare Limited and Keystone Healthcare Holdings Limited) against a former director (Colin Parr), an IT consultant (Mark Reynard) and a rival company (Medipro Recruitment Limited).

• Nature of proceedings: multi‑headed claim including (i) equitable claims for breach of fiduciary duty and misuse of confidential information, (ii) claims under the SPA for breach of restrictive covenants, (iii) copyright/database right and infringement claims under the Copyright and Rights in Databases Regulations 1997, (iv) quantification claims concerning an alleged overpayment under the SPA (invoking the shareholders agreement bad‑leaver mechanics), and (v) a range of alleged invoice/payroll frauds.
• Relief sought: an account of profits or damages, restitution of overpaid share consideration, recovery of fraudulent payments, delivery up/return of confidential information or damages, and declarations of infringement and breach.

The court framed primary issues as: whether Mr Parr had breached fiduciary duties by concealing fraud and diverting business post‑departure; whether Medipro was effectively controlled/funded and benefited by Mr Parr; whether Keystone’s database/confidential material had been copied and used; whether the SPA restrictive covenants had been breached; whether Keystone (or Holdings) was entitled to recover an overpayment under the bad‑leaver mechanism; and which invoice/payroll frauds were proved and quantifiable.

On the facts the judge found that: (i) summary judgment had already been entered and satisfied in relation to the Payroll Fraud; (ii) Mr Parr failed to disclose the frauds and therefore breached fiduciary duties; (iii) he had funded and in substance controlled Medipro and caused confidential worker/client information and a bespoke FileMaker system to be copied for use by Medipro; (iv) Medipro knowingly assisted and received benefit from those breaches; (v) Keystone’s database right and confidentiality claims were made out as part of the overall diversion; and (vi) the consultancy‑fee restitution claim failed because Keystone received real value from the consultant and had already recovered the tangible stolen sums.

On valuation and quantification the court adopted a future maintainable earnings approach, made adjustments to historic accounts, considered management accounts to September 2014, and applied a multiplier of four before applying the 50% bad‑leaver discount to arrive at the overpayment remedy of £650,612.04. The court declined to award a general proprietary remedy for business goodwill but recognised remedies by way of account of profits or damages and preserved the claimant’s election between them.

The judgment also reviewed relevant authorities (including Item Software/Fassihi, Murad, Prest, Ultraframe and the Supreme Court’s decision in One Step/Morris‑Garner) in relation to fiduciary duties, disgorgement, proprietary remedies and negotiating damages, and applied them to the detailed factual findings.

This was a first instance judgment determining multiple heads of claim. The court held that: (a) summary judgment on the Payroll Fraud had been previously entered and satisfied; (b) the Termination Payment was admitted and repaid; (c) the Consultancy Payments claim was dismissed because the consultant provided real value; (d) the Overpayment claim succeeded against Mr Parr and was quantified at £650,612.04, the calculation reflecting the shareholders agreement/articles bad‑leaver mechanics; (e) the Diversion claims succeeded: Mr Parr breached restrictive covenants and fiduciary duties, Medipro dishonestly assisted and is liable, and Keystone proved misuse of confidential information and database right infringement; and (f) specified Invoice Fraud claims succeeded in quantified sums. The court’s conclusions rested on factual findings that Mr Parr concealed his control and funding of Medipro, procured copying and use of Keystone materials (including FileMaker data), and acted disloyally in preparing and effecting competition while a director.