Stobart Group Limited v Tinkler

The court determined an extended boardroom dispute concerning alleged breaches of directors' fiduciary duties, the validity of summary dismissal and removal from office, the transfer of treasury shares to an employee benefit trust, and a claim of unlawful means conspiracy. The principal legal questions concerned (i) directors' fiduciary duties under Guernsey/English common law (including the duty to act in good faith in what the director believes to be the company's best interests, the duty to avoid conflicts, the duty to exercise independent judgment and the proper purposes rule), (ii) the proper construction and operation of the executive's Service Agreement (in particular clause 17.4), and (iii) the circumstances in which transfers of treasury shares to an Employee Benefit Trust (EBT) may be set aside for an improper purpose.

Key holdings:

• The claimant company's allegation of an unlawful means conspiracy was not proved.
• The defendant director, Mr Tinkler, committed a number of serious breaches of fiduciary and contractual duties by (a) briefing certain major shareholders against the board, (b) improperly sharing confidential corporate information (the Duranta budget) with an outside party, (c) sending a public letter to shareholders and circulating it to employees while a director, and (d) orchestrating an internal leadership petition/ELT letter. Those acts justified the company's decision to dismiss him from employment.
• The three-member Board Committee was validly constituted and had authority to terminate employment and to seek a resignation under clause 17.4 (which the court construed to include removal as a director of the company itself).
• The Committee's summary dismissal of Mr Tinkler on 14 June 2018, and the Committee/Board removal of him as a director on 14 and again on 7 July 2018 (pursuant to Article 89(5)), were valid acts.
• The majority of the board breached the proper-purposes rule in the separate decision (taken 19–21 June 2018) to transfer a further tranche of treasury shares (about 5.32m) into the EBT with the predominant purpose of influencing the outcome of the AGM vote; that transfer was therefore subject to equitable challenge, though the court declined to treat the resulting trustee vote at the AGM as automatically void because the transfer had been relied on and the trustee acted independently.

This first-instance trial resolved contested facts over the period September 2017–July 2018 arising from internal conflict at a listed Guernsey company. The claimant sought equitable and contractual financial remedies for alleged breaches of directors' duties and for an unlawful means conspiracy; the defendant counterclaimed for declarations that his dismissal and removal were invalid and sought reinstatement.

Background and parties:

• The company (a Guernsey incorporated public company) and its board were divided after the former CEO (later a part-time executive director), Mr Andrew Tinkler, fell into dispute with the chairman and other directors. Mr Tinkler remained a substantial shareholder. The litigation followed attempts by the majority to remove him from employment and from the board.

Nature of the claim / relief sought:

• The claimant sought an account of profits, equitable compensation and/or damages for alleged breaches of duty and conspiracy. The defendant counterclaimed for declarations that his dismissal and removal were invalid, that certain transfers to the EBT should be set aside and for injunctive relief restraining future use of Article 89(5).

Issues the court framed:

1. Did the defendant raise concerns with the board and, if so, in what manner?
2. Was there an unlawful means conspiracy between the defendant and third parties?
3. Did the defendant breach fiduciary or contractual duties (specific allegations listed in the pleadings)?
4. Did the four continuing directors breach fiduciary duties by specific acts (formation of a committee, RNSs, share transfers to the EBT, the dismissals, use of Article 89(5))?
5. Was the board committee properly constituted and authorised to dismiss the defendant?
6. Was the 14 June dismissal, and subsequent removals, invalid or unlawful (including by reference to clause 17.4 of the Service Agreement)?
7. Were the transfers from Treasury to the Employee Benefit Trust for a proper purpose?

Court's reasoning (concise):

• The judge analysed fiduciary principles under Guernsey law (largely consistent with English common-law principles), the duty to act for proper purposes and the interplay between the board's management function and the role of shareholders. The court emphasised that a director's right to form an independent view does not licence circumventing the board by privately canvassing selected shareholders or employees on management matters.
• On the facts the court found (i) Mr Tinkler had privately lobbied certain shareholders, sent a public letter to shareholders and employees and circulated an ELT letter; (ii) he shared confidential information (the Duranta budget) outside the group; (iii) those were serious breaches of fiduciary and contractual duties and, cumulatively, justified summary dismissal; and (iv) the unlawful means conspiracy allegation failed.
• On the other side, the board lawfully formed a committee, obtained legal advice and validly exercised delegated authority to terminate employment and request resignation under clause 17.4. The court also found that the board acted within its duties in issuing regulatory announcements and, after the AGM, validly relied on Article 89(5) to remove the elected director.
• However, the board acted improperly when, shortly before the AGM, it authorised a second transfer of approximately 5.32m treasury shares into the EBT largely to influence voting. The court found that purpose predominant for that transfer; it applied the traditional substantial-purpose test and held the action open to equitable challenge although, given the intervening conduct (including the trustee's independent decision and reliance), the court declined to undo the AGM result wholesale.

Remedies and consequences:

• The trial resolved liability and factual matters; the judge reserved detailed final orders and further relief (including quantification or any interim relief) for later directions. The court made a series of dispositive factual findings in favour of both parties on different heads and directed further submissions on remedies.

Issues determined. The court held that: (1) Mr Tinkler had committed serious breaches of fiduciary and contractual duties by briefing shareholders against the board, misusing confidential information (the Duranta budget), publishing a shareholder letter and circulating it to employees, and orchestrating an ELT petition; these breaches justified the company's summary dismissal decision; (2) the three-member Committee was validly constituted and authorised to dismiss and to seek resignation under clause 17.4 (which includes resignation as a director of the company); (3) the Committee's dismissal (14 June 2018) and the board's subsequent removal of Mr Tinkler (including the Article 89(5) step after the AGM) were valid; (4) the claimant did not prove an unlawful means conspiracy; but (5) the majority of the board acted for an improper purpose in the separate late-June transfer of c.5.32m treasury shares into the Employee Benefit Trust primarily to influence the AGM vote, a decision vulnerable to equitable challenge, though the court declined to set aside the AGM result given the trustee's independent role and other intervening events. Reasoning proceeded from established fiduciary principles, the proper-purposes test for share transactions and an analysis of the Service Agreement and the Articles.