HENRY WILLIAMS LIMITED v STEVEN ADRIAN COTTON & Anor

The court held at first instance that the Claimant proved liability against the individual defendants on multiple grounds. Directors Cotton and Herron breached their statutory and fiduciary duties (see Companies Act 2006 ss 171, 172, 175, 176, 177 and 178) and the implied contractual duty of fidelity by concealing negotiations with SNIC SAS/SNIC UK, passing confidential information (including price lists and order details) and taking preparatory steps to enable SNIC UK to trade while still directors of the Claimant. The court found both were involved in the loss of a major prospective order (the Babcock order) and in preventing realistic negotiation with the purchaser. Rubicon (nominee company) dishonestly assisted and participated in a conspiracy by concealing a 40% shareholding for Cotton; Rubicon therefore holds the shares on trust (knowing receipt/constructive trust). The Claimant proved entitlement to equitable remedies; it may elect an account of profits or equitable compensation and further directions for the quantum stage were ordered.

This was a first instance liability trial concerning two related claims by Henry Williams Limited (the Claimant) against senior employees/directors Steven A. Cotton and Alan Herron and against Rubicon Consultants Limited. The Claimant manufactures and distributed railway treadles and alleged that after the manufacturer Idemia sold the treadle business to SNIC SAS, Cotton and Herron secretly negotiated to join the purchaser SNIC UK, passed confidential information, procured the loss of business (including a large Babcock order), and otherwise breached fiduciary and contractual duties. Rubicon was accused of acting as nominee for Cotton's 40% shareholding and of dishonest assistance/conspiracy.

Nature of claim / relief sought: damages or an account of profits (the Claimant reserved election until after liability), and declarations including that Rubicon holds the shares on trust. Injunctive relief was no longer pursued.

Issues framed:

• whether Cotton and/or Herron passed confidential information to SNIC;
• whether either participated in the decision or the preparatory steps by SNIC SAS to terminate/displace the Claimant as UK distributor;
• whether they conspired to prevent negotiation between the Claimant and SNIC SAS or to procure the loss of business;
• whether they were involved in the Babcock order acquisition;
• whether Cotton misused or retained confidential information;
• whether Rubicon dishonestly assisted or conspired with Cotton; and
• whether the Claimant repudiated Cotton's service agreement by accessing his work computer.

Courts reasoning: the judgment turned on credibility and documentary evidence. The judge preferred the Claimants witnesses and found Cotton and Herron repeatedly lied and deliberately destroyed data on employer-issued devices, justifying adverse inferences. On the facts the court found: Cotton materially participated in incorporation and activation of SNIC UK (providing the accountant, instructing the nominee arrangement, attempting to secure premises and assisting with web design); both Cotton and Herron passed confidential information (including price documents and details relating to the Babcock enquiry); Herron caused manufacturing of a treadle gauge head engraved in French and the gauge went missing, which the court treated as further evidence of improper assistance to SNIC; Rubicon (via its director) knowingly held shares to conceal Cottons interest and granted powers of attorney, and thus dishonestly assisted and is liable on principles of knowing receipt/constructive trust. The Claimant did not repudiate Cottons contract by accessing the employers computer; the employers access was permitted under its policies.

Outcome and next steps: liability was established in favour of the Claimant on the pleaded causes; the Claimant must elect remedies (account of profits or equitable compensation/damages). A Form of Order Hearing and directions for quantum were listed.

At first instance the court found for the Claimant on liability. The judge held that both Mr Cotton and Mr Herron breached their fiduciary duties and contractual duties by concealing negotiations with SNIC SAS/SNIC UK, passing confidential information (including pricing and order details), taking preparatory steps to enable SNIC UK to trade, and acting so as to prevent realistic negotiation between the Claimant and the purchaser. The court also held that Rubicon knowingly held shares for Cotton to conceal his beneficial interest and thus dishonestly assisted and participated in a conspiracy; Rubicon holds the shareholding on trust. The Claimant proved liability and must elect between an account of profits and equitable compensation; further directions for quantum were ordered.