Kings Security Systems Limited v Anthony King

The judge found that the Range Rover arrangement between the first defendant (Mr King), the fleet supplier (TCH) and Kings Security Systems Ltd (KSSL) created a real possibility of conflict and amounted to both a benefit conferred on Mr King and a breach of his duties as a director under the Companies Act 2006 (notably sections 172, 175, 176 and 177). The Range Rover was provided on token rental but was funded in substance by KSSL (via the profit-share mechanism and other arrangements) and the board was not informed.

Accordingly the Court held Mr King breached his statutory, fiduciary and contractual duties, he was not entitled to relief under section 1157 of the 2006 Act, and KSSL was entitled to damages for losses (principally lost profit share) and equitable relief including rescission of the post-trial Settlement Agreement as induced by Mr King’s non‑disclosure. The Court also rejected Mr King’s defences of shareholder acquiescence (Re Duomatic) and of mitigation by reference to a without-prejudice offer made by TCH.

The counterclaim alleging abuse of process (Grainger v Hill tort) was dismissed: the Court accepted the proceedings had a legitimate object (to vindicate KSSL’s rights and obtain compensation) and, although emotions and commercial objectives influenced the decision to litigate, Mr King did not prove the proceedings were brought for the improper collateral purposes pleaded. The judge ordered judgment for KSSL in the sum of £45,666.47, rescinded the Settlement Agreement and dismissed the counterclaim.

Background and parties. KSSL (a security business) sued its former chief executive officer, Mr Anthony King, and former chief operating officer, Mr Stephen Evans, after the company’s board discovered that two Range Rovers used by Messrs King and Evans had been provided via arrangements with TCH (a fleet supplier) and effectively funded at KSSL’s expense. The second defendant settled. These are first-instance Chancery proceedings.

Nature of the claim and relief sought.

• KSSL alleged the Range Rover transaction was a bribe from TCH and/or gave rise to breaches of directors’ statutory and fiduciary duties (Companies Act 2006: sections 172, 175, 176, 177), and sought damages, declarations, an account, restitution (rescue of the Settlement Agreement), and other equitable relief.
• Mr King denied knowledge of the profit-share funding and counterclaimed for the £70,000 settlement payment and damages for alleged abuse of process (relying on Grainger v Hill and related authorities), asserting KSSL’s predominant purpose in suing was improper (to force transfer of family shares and to ruin his reputation).

Issues for decision. The court identified and decided inter alia: whether the Range Rover arrangement was a bribe; whether Mr King breached his statutory, fiduciary and contractual duties; whether shareholders or the board had effectively authorised the arrangement (Re Duomatic); whether the earlier Settlement Agreement barred or covered KSSL’s claim or had been (properly) rescinded; whether Mr King should be excused under section 1157 Companies Act 2006; whether KSSL unreasonably failed to mitigate by refusing TCH’s offer; and whether the counterclaim for abuse of process could succeed.

Reasoning and findings.

• The court accepted contemporaneous emails and texts, and found that Mr King knew the profit-share would fund the Range Rover and that the arrangement was improper; Mr King’s evidence of ignorance was rejected as not credible.
• The arrangement conferred a personal benefit on Mr King (token rental, risk assumed by TCH and exceptional personal lease), created a real possibility of conflict and was secret from the board; it therefore engaged the law on bribery and the Companies Act duties. The Court treated the breach claim as the more direct route and found breaches of sections 172, 175, 176 and 177, plus contractual breaches of an anti‑bribery policy and disclosure duties.
• The board and shareholders (other than the King family and Evans) did not know the true arrangements, so Re Duomatic did not apply.
• The Settlement Agreement did not preclude KSSL’s claims (clause did not cover the claims actually pursued), and the Settlement Agreement was rescinded: the court held Mr King had an obligation to disclose his wrongdoing, his silence amounted to a misrepresentation that induced the settlement and no bar to rescission was established; KSSL was entitled to restitution of the £5,000 payment.
• Section 1157 relief was refused because Mr King had not acted honestly and reasonably in relation to the arrangements.
• The court held that TCH’s without-prejudice offer was not binding and that KSSL was entitled to choose its defendant; the offer did not defeat KSSL’s claim or operate as mitigation that would bar recovery from Mr King.
• On the counterclaim, the court reviewed authorities on abuse of process and Grainger v Hill and concluded that the tort remains available in limited circumstances but Mr King failed to prove that KSSL’s predominant or illegitimate purpose was established; the legitimate objectives of vindication and compensation were present and the pleaded collateral purposes were not proven.

Outcome. judgment for KSSL in part: Mr King was ordered to pay £45,666.47; the Settlement Agreement was rescinded and the £5,000 payment recoverable; and Mr King’s counterclaim was dismissed.

First instance: The claimant’s substantive claim succeeded in part. The court held that the Range Rover arrangement gave rise to a personal benefit to Mr King and breached his duties under sections 172, 175, 176 and 177 of the Companies Act 2006 and his contractual obligations; Mr King was not entitled to relief under section 1157; KSSL was entitled to rescind the Settlement Agreement and recover £5,000; KSSL recovered damages for lost profit share and related loss in the aggregate sum awarded by the Court (£45,666.47). Mr King’s counterclaim for abuse of process was dismissed because the court found KSSL had legitimate purposes in bringing the litigation and the pleaded improper collateral purposes were not established.