Mark Chassy v Left Shift IT Limited

The claimant sued for damages for breach of employment contracts (including assigned claims) for unpaid salary, pension contributions, expenses and holiday pay, relying in part on contracts transferred by TUPE. The court applied the established tests for directors' personal liability for inducing a company to breach contract, analysing sections 172 and 174 Companies Act 2006, the rule in Said v Butt and the authorities in Antuzis and related cases. The court found that the First Defendant (company) had failed to pay sums due and that assignments to the claimant were effective; statutory pension shortfalls and specified unpaid amounts were accepted. The court rejected the defendants' defences of waiver, election, variation and estoppel because the former employees at most deferred payment in reliance on assurances and did not abandon their contractual rights. The court further rejected the allegation that the claimant deliberately and dishonestly deleted commercially valuable material to inflict loss; the deletion was not found to be a deliberate act causing pleaded loss. On directors' personal liability, the judge found that the Second and Third Defendants were de facto directors but did not act in the bad faith required to make them personally liable for inducing breaches of contract, so personal claims against them failed.

The claimant, Mark Chassy, issued proceedings against Left Shift IT Limited (the First Defendant) and two individuals who had been directors of that company (the Second and Third Defen­dants). He sought damages for breach of contract for unpaid salary, unpaid pension contributions, unreimbursed expenses and holiday pay arising under employment contracts originally entered into with NMQA Limited and said to have transferred to the First Defendant by TUPE. He also pursued assigned claims on behalf of four former employees. Statutory interest was claimed.

The procedural background included an Employment Tribunal finding of constructive/unfair dismissal dated 25 June 2020; the present proceedings were civil claims for breach of contract and related remedies. The Third Defendant was shown to be an undischarged bankrupt shortly before trial; the trial nevertheless proceeded against him with an undertaking limiting enforcement without leave or the trustee in bankruptcy's agreement.

Key issues identified and decided by the court included:

• what sums were due and unpaid to the former employees and to what extent those claims had been validly assigned to the claimant;
• whether the former employees had validly waived or varied their rights (or were estopped) from pursuing sums;
• whether the Second and Third Defendants continued to be de facto directors and, if so, whether they breached duties under sections 172 and 174 Companies Act 2006 and were personally liable for inducing breaches of contract;
• whether the claimant had deliberately deleted commercially valuable company data (Slack messages) and thereby caused loss to the First Defendant; and
• quantification of damages, interest and the tax/grossing-up treatment of different heads of award.

Reasoning and findings in brief:

• The court accepted the assignments to the claimant and permitted the assignee to proceed without joining assignors; notice had been given.
• The defendants' defences based on waiver, election, variation and estoppel failed: continued working in the face of financial difficulty amounted at best to a deferral, not an unequivocal relinquishment of contractual rights; the unilateral variation clause in the contracts did not validate a substantive change and the statutory framework (including section 13 ERA) did not re-write common law waiver principles so as to defeat the claimant's contract claims.
• The First Defendant was held liable for identified unpaid sums. The court accepted the parties' agreed/uncontested figures for pension shortfall and expenses and assessed unpaid salary and holiday entitlements for each former employee as set out in the judgment, producing an identified aggregate figure for award and directing the parties to resolve tax grossing-up within prescribed timescales. Statutory interest was awarded at 3% per annum.
• The allegation that the claimant intentionally destroyed commercially valuable Slack data was not proved to the civil standard. The judge accepted the claimant's evidence that any deletion was limited to private resignation-related messages and that product IP and repositories had been handed over; on the evidence the deletion was not deliberate sabotage and the defendants' loss estimate lacked adequate evidential foundation.
• On directors' liability, although both individual defendants were found to be de facto directors for the relevant period, the facts did not demonstrate the deliberate, dishonest or otherwise culpable conduct required to find a breach of duties under sections 172 or 174 such as would permit personal liability for inducing breaches of contract. The defendants were found to have sought investment and attempted to keep the company alive rather than acting to the company's detriment for their exclusive benefit.

The court therefore entered judgment for the claimant against the First Defendant for the unpaid sums identified in the judgment (inclusive of pension shortfall and expenses) with statutory interest at 3% and directed the parties to agree a final grossing-up methodology for tax consequences within 21 days (with further time for submissions if necessary). Claims for personal liability against the Second and Third Defendants were dismissed.

First instance: The claimant's claim against the First Defendant succeeds in respect of unpaid salary, holiday pay, pension shortfalls and expenses as identified in the judgment. Assignments to the claimant were effective. Defences of waiver/variation/estoppel were rejected. The claimant did not prove deliberate destruction of commercially valuable company data. The Second and Third Defendants were de facto directors but were not personally liable for inducing breaches of contract because the evidence did not show the requisite bad faith or breaches of duties under sections 172 and 174 Companies Act 2006; accordingly personal claims against them fail. The court awarded statutory interest at 3% and directed the parties to resolve tax grossing-up arrangements within set timescales.