Burnell v Trans-Tag Ltd

Key principles and grounds of decision:

• The court found a concluded commercial agreement between Mr Burnell and Mr Aird/TTL in February 2017 under which Mr Burnell advanced funds (the Loan) in return for an agreed issue of 90 TTL shares; the obligation to issue the shares fell on TTL and Mr Aird had impliedly undertaken to procure that issue.
• TTL’s failure to issue the shares following receipt of the second tranche of the Loan amounted to a breach which entitled Mr Burnell to restitution of the monies paid on the ground of total failure of basis (Stocznia applied as authority on failure of consideration).
• Mr Burnell was held to have been a de facto director from about 28 February 2017 (after the AP01 filing) until shortly after the board meeting cycle in late March 2017; he was not validly appointed under the Articles or by the Duomatic principle.
• By acquiring TTS shortly after ceasing to act as a director and then taking steps to terminate the Licence Agreement and exploit its rights, Mr Burnell breached his continuing duty under section 175 Companies Act 2006 (as extended by s170(2)) to avoid conflicts in relation to property/information of which he became aware as a director; TTL was awarded compensatory relief and an order for an account of profits.

Background and procedural posture:

The dispute concerned the collapse of Trans-Tag Limited (TTL), a business developing tracking devices ("Tags") and a vehicle control product "Restore" licensed from an Estonian developer company Trans-Tag Systems Oü (TTS). The claimant, Mr Alan Burnell, loaned TTL £250,000 in two tranches in July 2016 and February 2017. He alleged the loans were given as part of an arrangement under which he would receive TTL shares; TTL did not issue the shares. TTL counterclaimed that Mr Burnell (a de facto director for a period) acted against TTL’s interests, misused confidential information and later acquired TTS to exploit TTL’s intellectual property.

(i) Nature of the claims / relief sought:

• Claimant: repayment of the £250,000 Loan from TTL; breach of contract claim against Mr Aird for failing to procure issue/transfer of TTL shares to Mr Burnell.
• Defendants / TTL: counterclaim for breaches of directors’ duties and/or equitable duty of confidence, damages, account of profits and declarations, arising from alleged attempts by Mr Burnell to appropriate TTL’s rights and business.

(ii) Issues framed:

• Whether a binding agreement existed in February 2017 and in what capacity Mr Aird acted;
• Whether TTL (or Mr Aird) breached an obligation to issue shares on receipt of funds;
• Whether Mr Burnell was a director (de jure, de facto or by Duomatic assent) and, if so, the scope and duration of his duties;
• Whether, after ceasing to act as a director, Mr Burnell breached continuing duties (s170(2)/s175) or equitable duties of confidence by acquiring TTS and seeking to terminate the Licence Agreement; and the appropriate remedies/valuation.

(iii) Court’s reasoning (concise):

• The court found a completed February 2017 agreement: the parties had agreed the key terms, including the issue by TTL of 90 shares to Mr Burnell linked to his second tranche. Mr Aird had negotiated in a mixed personal/Monogram capacity but, by reason of Monogram’s contractual position and Mr Aird’s control, TTL was bound.
• The court held the agreed issue of shares was not conditional on further agreement with Mr Clark and Mr Kriisk; the obligation to issue upon receipt of funds was breached when TTL did not issue shares after the second tranche. That breach entitled Mr Burnell to restitution (failure of basis) of the Loan.
• The court rejected that the Articles/Joint Venture provisions or the Duomatic doctrine validated any formal appointment of Mr Burnell; however, objectively he acted and was treated as a de facto director from late February to late March 2017 and so owed statutory director duties in that period (s172, s174, s175 CA 2006).
• On the counterclaim, the court found that after ceasing to be a director Mr Burnell exploited information/opportunities arising during his directorship by purchasing TTS and then taking steps to terminate the Licence Agreement; that conduct breached the continuing duty under s170(2)/s175 (interpreted in light of the established common law principles) and also engaged equitable breach of confidence. TTL was awarded £200,000 compensatory damages (valuer evidence preferred to a multi-million discounted cash flow exercise) and an order for an account of profits; that sum is to be set off against Mr Burnell’s claim.

Remedies and disposition: The court ordered repayment of the Loan in principle (restitution), awarded damages to TTL for the directors’ duties/ breach of confidence claim in the sum of £200,000 (set off against the Loan claim), allowed the claim against Mr Aird to the extent of any unrecoverable shortfall from TTL up to £67,500, and ordered an account of profits in respect of profits deriving from exploitation of the disputed rights.

First-instance judgment: The claimant's primary claim succeeded. The court found a binding February 2017 agreement obliging TTL to issue 90 shares to Mr Burnell on receipt of the second tranche; TTL’s failure to issue the shares entitled Mr Burnell to restitution of his £250,000 Loan (failure of basis). The court also held that Mr Burnell had been a de facto director from late February to late March 2017 and, after leaving office, breached his continuing duty under s170(2)/s175 Companies Act 2006 (and equitable duties of confidence) by acquiring TTS and taking steps to terminate the Licence Agreement; TTL’s counterclaim succeeded in part and damages of £200,000 were awarded and ordered to be set off against Mr Burnell’s claim, together with an account of profits claim.