Paul Hague v The Green Mineral Company Limited & Ors

The court conducted an inquiry into loss following an earlier trial finding that the second defendant, Mr Greenwood, breached his fiduciary duties by diverting a contract (the "GT contract") from the claimant's company, the Green Mineral Company Limited ("GMC"), to Mr Greenwood's company, Soil Hill Quarries Limited ("SHQL"). The claimant elected equitable compensation rather than an account of profits.

The judge determined that GMC had no vested proprietary rights to the Far Shay and that any earlier permission to take clays from the Far Shay was a revocable licence which had been validly revoked. The court accepted expert valuation evidence that the market price for the clays in June 2015 was about £5.00–£5.50 per tonne. On that basis, had GMC retained the GT contract it would have had to pay market price for the clays and the contract would have been loss-making; accordingly GMC suffered no loss from the diversion. The claimant's late alternative factual case (concerning access rights, royalties or a barter arrangement) was disallowed as unfair and unpleaded.

This was a first instance inquiry into the quantum of loss to GMC following an earlier judgment that Mr Greenwood breached his duties as a director by diverting a contract to his wholly owned company, SHQL.

• Parties and nature of the proceeding: The claimant, Mr Paul Hague, brought a derivative claim on behalf of GMC against GMC, Mr Warren Greenwood and SHQL. Following the trial (judgment dated 28 March 2019) the court ordered an inquiry to determine loss or an account of profits; the claimant subsequently elected equitable compensation (loss).
• Relief sought: The claimant sought equitable compensation for loss said to have been suffered by GMC as a result of diversion of the GT contract.
• Principal issues for the inquiry: Whether GMC had any proprietary rights in the Far Shay or rights to clays; whether the licence to take clay had been validly revoked; what costs GMC would have incurred in performing the GT contract (in particular whether GMC would have had to pay for the clays and at what price); and whether any late alternative case (access rights, barter or a low royalty) could be permitted.

The court took detailed factual and expert evidence. The Relevant Defendants instructed an expert valuer who gave evidence that the open market price for clays at the time was about £5.00–£5.50 per tonne and that market conditions remained stable during the relevant period. The claimant advanced a primary case that, but for the diversion, GMC would have obtained the clays free from Mr Greenwood (as had occurred previously under a revocable licence). Late in closing the claimant sought to advance a new alternative case concerning rights of access and barter/royalty arrangements; that new case had not been pleaded and was not permitted.

Court's reasoning and conclusions: The judge accepted the expert valuation and concluded the revocable licence had been validly revoked and would have been revoked in any event by the summer of 2015. Taking the expert's lowest market figure (£5.00 per tonne), the cost to GMC of acquiring the clays necessary to perform the GT contract would have exceeded the contract revenues (the GT contract income was about £698,810), rendering the contract loss-making and leaving GMC with no compensable loss from the diversion. The court therefore refused to permit the unpleaded alternative case as unfair and disproportionate to admit at that stage. The net result of the inquiry was that the claimant's equitable compensation claim failed because no loss was proved.

The judgment also records procedural matters, including the court's application of the Denton test when considering relief from sanctions for the claimant's late disclosures and the requirement that the claimant had to fix his quantum case early and stick to it.

This was a first instance inquiry. The court concluded that although the diversion of the GT contract by Mr Greenwood was a breach of duty established at trial, GMC suffered no compensable loss from that diversion. The revocable licence to take clays from the Far Shay had been validly revoked and, on the expert evidence accepted by the court, GMC would have had to purchase clays at market rates (about £5.00–£5.50/tonne) so that the GT contract would have been loss-making; therefore the claimant's claim for equitable compensation fails. The court also refused to admit a late, unpleaded alternative case about access/royalty arrangements as unfair and disproportionate.