Mental Health Care (UK) Ltd v Edward Lupen Healthcare Ltd & Ors

A contractual relationship must be assessed by its substance and the parties’ objectively ascertained agreement. A freely negotiated consultancy agreement, including provisions concerning invoicing, tax, insurance and substitution, may represent a genuine services relationship despite features resembling employment.

A de facto director must undertake functions that could properly be discharged only by a director and must assume the status and functions of a director. Senior management responsibilities are insufficient. Contractual terms may define and limit fiduciary obligations. Damages for diverted staff time require proof of significant disruption and the extent of the diversion. Loss must be proved even where breach is established.

Mental Health Care (UK) Ltd brought claims against Edward Lupen Healthcare Ltd and Dr Devan Moodley arising from consultancy arrangements and the procurement of revalidation and e-learning products. It alleged breach of contract, fiduciary and tortious duties, misuse of confidential information, conspiracy and liability arising from Dr Moodley’s roles as Medical Director, Responsible Officer and Caldicott Guardian.

The principal issues were whether the second consultancy agreement was a sham, whether Dr Moodley was an employee or de facto director, whether fiduciary duties arose, whether contractual breaches had occurred, and whether the claimed losses were recoverable.

1. Consultancy agreement. The second consultancy agreement was valid and binding between MHC and ELHL. The court assessed the parties’ true agreement objectively, taking account of bargaining power, the commercial negotiation, invoicing, tax treatment, insurance obligations, fees payable to ELHL and the contractual provisions concerning substitution. The agreement was not a sham and Dr Moodley was not an employee.
2. Separate corporate personality. Dr Moodley was not a party to the agreement. In the absence of any properly pleaded basis for lifting the corporate veil, he was not personally or jointly liable for ELHL’s contractual breaches.
3. De facto directorship. Dr Moodley was not a de facto director. The relevant question was whether, viewed cumulatively and objectively, he had assumed the status and functions of a director. His participation in an executive board and senior management activities involved matters that could be performed by a manager below board level. He did not act on an equal footing with MHC’s de jure directors.
4. Fiduciary duties. The contractual arrangements governed the relationship. The fiduciary relationship could not be superimposed on the contract so as to alter its intended operation. Clause 7.1 permitted specified outside business activity, subject to its express qualifications. ELHL therefore owed no wider fiduciary duty in relation to that activity. Dr Moodley’s roles as Medical Director, Responsible Officer and Caldicott Guardian did not independently create the alleged fiduciary duties.
5. Breaches. ELHL breached clause 3.2(a) by Dr Moodley’s disclosure of a competitor’s pricing information during Contract 1 negotiations. It also breached clauses 7.1(a) and 3.2(a) when Dr Moodley supplied comments assisting SCL in negotiations concerning Contract 4. The other alleged contractual breaches were not established.
6. Loss and other claims. MHC failed to prove that either breach caused recoverable loss. Claims for diverted employee time failed for want of evidence of significant disruption and the extent of diversion. The claims concerning fiduciary duties, breach of confidence, Patient X and unlawful means conspiracy also failed. The claim concerning insurance resulted in an indemnity for future losses arising from the established breach.