Paul Hague v The Green Mineral Company Limited & Ors

Loss caused by diversion of a contract is assessed by identifying the net profit the claimant company would have made had it retained the contract. The assessment is distinct from an account of the wrongdoer’s profits and does not involve a discretionary allowance to the accounting party.

Where performance depended on assets which the claimant did not own or have a continuing right to use, the hypothetical cost of acquiring those assets must be taken into account. A prior supply arrangement under a revocable licence does not establish that free supply would continue after lawful revocation.

The judgment concerned an inquiry into the loss suffered by The Green Mineral Company Limited following the diversion of a Galliford Try clay-supply contract by its director, Warren Greenwood, to Soil Hill Quarries Limited.

The earlier judgment had found a breach of fiduciary duty and ordered an inquiry into loss. The claimant elected equitable compensation based on GMC’s loss rather than an account of profits. The central issue was whether GMC would have obtained the necessary clays free of charge, or would have had to acquire them at market value, had the contract remained with GMC.

1. Measure of loss. The relevant inquiry was the net profit GMC would have made from performing the Galliford Try contract. It was not the profit made by the defendants, nor an account of profits requiring a just allowance. The burden remained on the claimant to establish the loss.
2. Cost of the clays. The earlier arrangement under which GMC obtained clays without immediate payment was a revocable licence and was not an arrangement intended to continue indefinitely. The court found that the licence could validly be revoked independently of the diversion. In the counterfactual world, GMC would therefore have had to acquire the clays.
3. The accepted expert evidence placed the market cost of the clays at approximately £5 per tonne at the lowest. That cost would have exceeded the contract income of £698,810, making the contract loss-making and leaving GMC with no loss caused by the diversion. The claim for loss accordingly failed.
4. The claimant’s new alternative case, advanced in closing submissions, was outside the case-management order and could not fairly be raised after cross-examination. Relief from sanctions was granted in relation to the properly formulated case under the third limb of Denton v T H White [2014] EWCA Civ 906, subject to the existing restriction on changing the case.
5. Submissions that taking the clay costs into account breached the director’s duty under Companies Act 2006, s 175, or involved lack of clean hands, had no merit.
6. The parties were directed to attempt to agree the form of order, with alternative drafts to be lodged if agreement could not be reached.