England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY

		Birmingham Civil Justice Centre The Priory Courts 33 Bull Street Birmingham B4 6DS
		27th June 2008

Judge Purle QC:

1. The First Claimant ("Clearview") is a company owned equally by the Second and Third Claimants ("Mr. Bragoli" and "Mr. McMahon" respectively). They are also its directors.
2. Mr. Bragoli and Mr. McMahon are also shareholders and directors of the Fourth Defendant ("the Company"). They each own a quarter of the issued share capital. The other shareholders (also owning a quarter each) and directors are the Second and Third Defendants ("Mr. Hinett" and "Mr. Farnell" respectively). As the existence of these proceedings indicates, the shareholders of the Company have fallen out, with the result that the Company is now deadlocked.
3. The First Defendant ("PWH.Com") is owned by Mr. Hinett and Mr. Farnell.
4. The Fourth Defendant ("Mr. Woods") was formerly engaged by the Company (and by one of Mr. Farnell's companies before that). Whether he was engaged by the Company under a contract of service or for services is technically in issue, though nothing ultimately turns on the resolution of this issue.
5. In the action as originally constituted, the Claimants were Clearview and the Company. Mr. Bragoli and Mr. McMahon purported to give instructions on behalf of the Company. This required board approval. As the Company was deadlocked, this was not forthcoming (or even sought). The Defendants accordingly applied to strike the proceedings out (so far as brought on behalf of the Company). Eventually, an application was made (to which I acceded) for Mr. Bragoli and Mr. McMahon to pursue the Company's claims derivatively. It is in that form that the action came on for trial.
6. Clearview at all material times was in the business of the sale of holiday accommodation. This action concerns accommodation in Spain.
7. Polaris World ("Polaris"), an independent entity, is the developer of holiday complexes in Spain, for which Clearview has acted as selling agents.
8. Clearview has built up a substantial database of purchasers of Polaris properties, and much other information relating to its business connections. Clearview claims database rights in respect of that database under the Copyright and Rights in Database Regulations 1997 ("the 1997 Regulations"). It brings amongst other claims a claim for alleged breach of those rights and for breach of confidence arising from alleged misuse of the database.

Setting up the Company

9. The Company was incorporated in November 2004 to sell holidays in Spain on behalf of property owners. As mentioned, Messrs. Bragoli, McMahon, Hinett and Farnell became its shareholders and directors. Mr. Hinett was given the title of Finance Director and also became company secretary. He had a similar role in Mr. Farnell's other companies. Mr. McMahon's role was the promotion and marketing of the Company's services to property owners and their agents. Mr. Bragoli's role was to organise the sale of holidays to holidaymakers. Mr. Farnell's role was chiefly in the provision of finance. The concept for this business was Mr.McMahon's, who had done a great deal of groundwork, and developed contacts for the development of the business. There were 2 important features of the business from the marketing perspective: the Polaris connection (which meant that holidaymakers would have the facility to visit Polaris sites other than the one they were renting) and the Co-Op connection. Mr. McMahon had developed a relationship with Co-Op's travel arm (Co-Op Mid Counties) and it was contemplated that the Company would (in the UK) market the holidays through the Co-Op, which had a very large number of outlets.
10. There were within the Company 2 factions: the Clearview side (Messrs. Bragoli and McMahon) and the Farnell side (Messrs. Hinett and Farnell). Mr. Woods, though he came to work for the Company, was also very much on the Farnell side, as he worked for one or other of Mr. Farnell's companies previously. I call that faction "the Farnell side" as Mr. Farnell was very much the dominant influence.
11. Mr. Farnell is a successful businessman who seems to have been seen by everyone as something of a "cash cow", a fact he came eventually (and understandably) to resent. He was persuaded in March 2005 (the date is corroborated by a receipt dated 25^th March 2005) to pay through one of his companies £30,000 to Mr. McMahon "as consideration for [Mr. McMahon's] concept, time and expense in the setting up of [the Company]". Mr. Farnell now considers himself to have been conned by Mr. McMahon into parting with his money in this way. It is not easy to see why Mr. Farnell, uniquely of the participators, should be required to stump up an entry fee which was not exacted from Mr. Bragoli or Mr. Hinett. Nevertheless, Mr. Farnell agreed it freely, albeit against (he says) a threat on Mr. McMahon's part to withdraw from the project without it. Mr. McMahon says Mr. Farnell made this part of his evidence up, and that a contribution of this sort was agreed much earlier. I do not accept that Mr. Farnell made this up, though I do think there were earlier discussions of some such contribution. These discussions seem on the evidence to have been with Mr. Hinett, and Mr. McMahon considered (somewhat optimistically) that Mr. Hinett had committed Mr. Farnell to such a contribution when he had not. There was no binding commitment before March 2005, but I do accept that Mr. McMahon discussed some such contribution with Mr. Hinett at the time of the Company's incorporation
12. Mr. McMahon for his part came across as a forceful witness. He is a salesman through and through, with great confidence in his own abilities. I have no doubt that he would have pressed persuasively and vigorously for this payment, and would not have hesitated to threaten withdrawal from the project. Nevertheless, Mr. Farnell is no shrinking violet, and was well able to look after his own interests in the negotiations that occurred. I do think Mr. Farnell was unfair in at least one respect to Mr. McMahon in reaching the view that he was conned, as I am satisfied on the evidence that Mr. McMahon did do substantial background work which he saw as entitling himself to ask for what in the end he got. Nonetheless, the view that Mr. Farnell expressed in his evidence was honestly held and the developing suspicion that he had been conned was one of the contributory factors which resulted in the erosion of the relationship between the Farnell side and the Clearview side.

The Company's Business

13. I should now say something more about the Company's business. The Company was, as I have said, established for the purpose of selling holidays. It was to arrange lettings of Spanish properties on behalf of property owners. It was partly with that venture in mind that Clearview developed its own database of property owners in the first place. Clearview then marketed the idea on behalf of the Company by approaching the persons identified on that database. In some respects, the database creation and its use as a marketing tool were combined, Clearview running seminars for agents and prospective property purchasers which resulted in sales of Polaris properties to owners (through agents other than Clearview) which were in turn made available for letting via the Company. Clearview also developed a brochure for the holiday venture, which was never in final form, but it could from early 2006 have been completed relatively quickly had the Polaris properties come through on time. The understanding amongst all the parties was that Clearview would be recouped marketing costs from the profits of the holiday venture when those profits materialised.
14. Polaris had a number of sites, and they were initially expected to come on stream within the foreseeable future. By August 2005, the parties anticipated that the holiday venture would be up and running by early 2006. The Company's holiday brochure was nearing completion by then, though there needed to be enough holiday accommodation available to take the matter forward. As things turned out, the Polaris developments were seriously delayed.
15. Mr McMahon had a good relationship with Co-Op Mid Counties who, it was intended, would market the holidays in the UK. Mr. Machin for the Defendants suggested that the strength of that connection was much exaggerated. Mr.McMahon did, it is true, exhibit a saleman's tendency to oversell his product, and this was reflected at times in his evidence. The same could be said of Mr. Bragoli. Although he was less effervescent than Mr.McMahon, and more measured in his evidence, he was also a salesman, and he also showed a tendency to package his evidence as a sales pitch. I take that into account when evaluating Mr. Bragoli's, as well as Mr.McMahon's, evidence. That does not, however, without more cause me to reject their evidence. The packaging of evidence does not make it untruthful. It does however require me as a Judge to look at it with some caution. For all their natural propensity towards salesmanship, both Mr.McMahon and Mr. Bragoli came across in the witness box as sincere witnesses who were in the main trying to help me, as well as themselves. Returning, in the light of those observations, to the present point, the connection with the Co-Op was in my judgment real, and would probably have materialised in firm arrangements had the Polaris developments completed on time. What delayed the holiday venture was the protracted development program of Polaris, which got seriously behind schedule. Until that was resolved, matters could not be taken any further forward with the Co-Op. Before that happened, the parties fell out.
16. Although the fulfilment of the holiday venture involved Clearview (as its database was to be used, and it was doing the marketing), Clearview had no direct interest in the business. Clearview was not a shareholder of the Company, though its shareholders and directors were both shareholders and directors of the Company also.
17. The result therefore was that Mr. Bragoli and Mr. McMahon became directors of 2 separate companies, to each of which they owed fiduciary duties, with outside shareholders in one of them. This was a source of obvious potential conflict.
18. The expectation of all parties when the Company was set up was that Clearview would benefit from the Company's letting activities, as holidaymakers would also be potential purchasers of other Polaris properties which Clearview was acting as sales agent for. It was agreed between the 4 shareholders and directors of the Company that Clearview would be allowed to approach the Company's customers for selling purposes. In the event of a sale being arranged, the Company would receive part of Clearview's commission from Polaris.
19. It was also the understanding between the participators in the Company that any expenditure borne on behalf of the Company by any of them or their other companies would be recouped, but only when the Company could afford it. I have already mentioned Clearview's expenditure in marketing the holiday venture. More significant were the contributions of Mr. Farnell and his companies. This included the provision of the services of Mr. Woods.

Mr Woods

20. From about the summer of 2005, Mr. Woods was sent from time to time to Spain to assess the venture. It was agreed that he would be paid expenses, and Mr. McMahon countersigned a number of cheques which covered those expenses, including something for Mr. Woods' remuneration. Mr. McMahon contended in his evidence that he never agreed the remuneration element at this stage, but he signed the cheques without demur and, if he did not know what he was signing for, I do not think he can now turn round and say, in the absence of evidence that he was misled into signing the cheques, that the expenditure was in that respect unauthorised. There is no convincing evidence that he was misled in some way.
21. All parties eventually agreed that Mr. Woods should go to Spain where he would from the end of October 2005 be working full time for the Company on the holiday venture. The terms upon which these services were to be provided were not agreed between the Company's directors initially. Mr. Bragoli and Mr. McMahon left it to Mr. Farnell to make the arrangements, as he would be funding them in the first instance. Mr. Farnell accordingly agreed with Mr. Woods the detailed terms. Mr. Hinett knew what the terms were, but neither of them (I find) discussed those terms with Mr. McMahon and Mr. Bragoli, who told me (and I accept) that they found out for the first time from Mr. Woods what the basic terms were on a visit to Spain in January 2006. Although they thought the terms were over-generous (the details do not matter) they confirmed his continued engagement on those terms (and that of his wife) which was extended (with everyone's agreement) to the furniture venture, to which I shall come later. Thus, the terms agreed by Mr. Farnell were effectively ratified. In addition, Clearview itself made 2 payments of €5,000 each (in January and April 2006) towards Mr. Woods' salary and expenses, which became seriously in arrears.
22. Mr. Woods says that all the directors agreed his terms in around September/October 2005 but I did not find Mr. Woods a helpful witness at all. He was vague and his recollection of any of the relevant events was in general very poor, even when prompted by diary entries which he made at the time. I did get the impression that he was at times hiding behind his forgetfulness, especially when it came to the agreement which was reached (or which appeared to have been reached) on 5^th May 2006 concerning the division of shares in a Spanish company, called Blue Chip Management SL ("Blue Chip"), which Mr. Woods set up for the Company when he went to Spain. In my judgment, the terms were agreed with Mr. Farnell at the outset, with Mr. Hinett's knowledge, but not with the others'. However, as I have said, those terms were ratified by them once they knew of them.
23. Blue Chip was incorporated on 19^th December 2005. Mr. Woods became its sole director and shareholder. At trial, it was common ground that his shares were (at least down to May 2006) held upon trust for the Company so that, initially at any rate, Blue Chip was a wholly-owned subsidiary of the Company. Argument over the ultimate division of the shares in Blue Chip among the participators came to precipitate the final breakdown in the relationship between them. Although it was, as I have said, common ground at the trial that Blue Chip was strictly speaking a subsidiary of the Company, it is far from clear that the parties appreciated that this was so at the time of their dealings or attempted dealings with the Blue Chip shares. The probability is that they had not analysed the matter through. All the individuals knew that the shares were held by Mr. Woods and were concerned to ensure an ultimate share division favourable to themselves. Had they realised (which I do not think they ever did) that the entirety of the shares in Blue Chip already belonged as a matter of law to the Company, that might have prevented much of the argument that ultimately occurred, as it might have struck them that the share ownership issue was already resolved.

Change of Name

24. The Company's name (Polaris World Holidays Limited) was, as is self-evident, close to Polaris, the developer of the holiday resorts which the Company was set up to exploit. This was deliberate, as the participators in the Company saw obvious advantages in suggesting a connection between the 2 entities. This was less of an advantage in the eyes of Polaris, who were well established and objected. The upshot was that in about November 2005 the 4 shareholder/directors of the Company agreed on a change of name to PWH.Com Limited, and passed a special resolution to that effect. The relevant resolution was lodged with Companies House and a fee was paid (the cleared cheque was produced in evidence) but for reasons which cannot be explained Companies House did nothing to process the change of name. Mr. Hinett accordingly continued to use the old name in documents filed at Companies House, and that was the name in which a guarantee to the Bank was given in April 2006. By contrast, the marketing of the holiday venture (and a number of resulting contracts with property owners) were in the new name.
25. Complaint is made that Mr. Hinett improperly failed to register the change of name, and deliberately withheld from the Clearview side the fact that the name change had not gone through. Mr. Hinett clearly did know that there had been a failure to process the change of name at Companies House. He himself checked up on the position with Companies House at the time when the guarantee to the Bank was being prepared (in March 2006). He concluded that the Company should go through the process again. Down to this point, there was nothing sinister in his behaviour. However, he did nothing to put the matter right, and did not tell the Clearview side that anything had gone wrong, as clearly it had. I do not however think that these failures on his part, though regrettable, had any sinister motive. The guarantees he produced for signature by the guarantors (including Mr. Bragoli and Mr. McMahon) clearly identified the Company under its original name. Mr. Bragoli and Mr. McMahon do not appear to have noticed this fact. I am bound to say that I did not find Mr. Hinett a convincing witness. He was less than forthright in his early witness statements about a number of key events (the transfer of the Company's database to Inside Right and the form the deal with Inside Right ultimately took) and he gave the impression of caginess when giving evidence. Nevertheless, he was not deliberately concealing anything from the Clearview side about the name change. The reason he did not raise the point expressly at the stage when the guarantees were given was because he was genuinely not particularly concerned (the process could be gone through again at any time, and the holiday venture was still delayed) and because there were other more pressing matters on his mind.
26. Later, when the relationship between the parties was at breaking point (June 2006) Mr. Farnell and Mr. Hinett incorporated the First Defendant under the same name. This unsurprisingly is a matter of complaint, to which I shall return when dealing with the outcome of the furniture venture later.

The Company's Banking arrangements

27. The banking arrangements for the Company were, originally, governed by a Mandate (dated 28^th April 2005) under which Mr. Hinett's and McMahon's signatures were needed, together with one further signature of either Mr. Farnell or Mr. Bragoli. The clear intention was that in this way neither the Clearview side nor the Farnell side could spend the monies in the bank account without the other side knowing.
28. Just before Mr. Wood's departure to Spain, Mr. Hinett and Mr. Farnell concluded that Mr. Woods would need a local bank account, and so they submitted in October 2005 a further mandate to the bank to enable a euro account to be set up under which Mr. Woods and his wife (who was also involved in the business) were sole signatories. Mr. McMahon and Mr. Bragoli knew nothing of this. In the events which happened, the new account was substantially unused, and no complaint is made of expenditure from it. The setting up of this account was nevertheless in direct contravention of the earlier mandate. So far as the Bank was concerned, the matter appeared to be regular as the new mandate purported to embody a board minute authorising the new mandate. No such board resolution had been passed or even discussed by the board. The euro mandate was entirely the idea of Mr. Hinett and Mr. Farnell.
29. The new mandate also in terms cancelled the existing mandate, though it is clear that this was not intended, as Mr. and Mrs. Woods never had anything to do with the English account. The Bank continued to honour the existing mandate in that respect. The Bank have confirmed in writing that they regarded this mandate as relating only to the euro account and not to the existing account.
30. Mr. Machin says that I should make no criticism of Mr. Hinett and Mr. Farnell for setting up this account, as the euro account was thought to be needed, mutual trust existed and the only money in the Company's account had come from Mr. Farnell or one of his companies. None of that entitled Mr. Hinett and Mr. Farnell to take it upon themselves to override in relation to the euro account the earlier mandate. By recording a board resolution to which all 4 directors assented, that earlier mandate limited the respective authorities of the directors. In addition, it is an indication that the mutual trust was not unlimited.
31. By October 2005, such trust as there had been was already in a state of partial erosion, as the following demonstrates:-

(i) Mr. Farnell was resentful as to the way in which £30,000 had been extracted in March 2005.

(ii) Mr. Farnell and Mr. Hinett felt seriously let down as a result of Mr. McMahon and Mr. Bragoli declining to move the Company's and Clearview's operations into more expensive premises, Gravell Hill House, later in 2005. The lease of Gravell Hill House had, Mr. Farnell and Mr. Hinett say, been acquired (by a Farnell company) upon the faith of an agreement or understanding (which the Clearview side deny) that Clearview and the company would pay a reasonable proportion of the rent. Although I am satisfied that there never was an enforceable agreement for any contribution to rent, or other office expenditure, I do accept that the move was in part motivated by the perceived need to accommodate the Company's and Clearview's operations. Mr. McMahon and Mr. Bragoli only made their alternative plans plain (which was to move to other premises in Wednesfield) at a time when the Farnell side were already committed to a move to Gravell Hill House.

(iii) In about October 2005, Mr. McMahon openly and aggressively expressed in a meeting his dissatsifaction with Mr. Hinett's performance and abilities. This could not have endeared himself to anyone on the Farnell side, especially Mr. Hinett, who was there. I should in fairness add that Mr. McMahon's criticisms were genuine, in the sense that they represented his honest view, but his level (or rather lack of) tact was not calculated to induce long-term harmony.

32. I accordingly find that the opening of the euro account was an unauthorised act on the part of Mr. Hinett and Mr. Farnell. As, however, there were no withdrawals from the euro account of which complaint is made, the Company suffered no loss in consequence of its opening. Moreover, I acquit Mr. Hinett and Mr. Farnell of any improper motive or dishonest intent in opening this account. They were in no sense trying to injure the Company. They opened the account with a view to facilitating the Company's business in Spain. For reasons apparently connected with the fact that the Company was an English and not a Spanish company this turned out to be an impracticable solution. Hence, the account was not used. In the circumstances, I shall decline an order for damages or any other relief in respect of the euro account.
33. On 15^th November 2005, Mr. Hinett and Mr. Farnell entered into a BusinessMaster Customer Agreement on behalf of the Company with the Bank. This enabled funds to be transferred electronically from the account and was regularly used to transfer monies to Blue Chip's account in Spain, from which local expenditure was met when funds were available for that purpose.
34. The BusinessMaster Customer Agreement had the effect of by-passing the mandate (assuming it had not been cancelled) as regards electronic transfers and was unauthorised by the board, a point which seemed on this occasion not to concern the Bank, as on the available evidence they did not require a formal board minute.
35. The electronic facility was used to effect significant transfers (not just to Spain) without the knowledge or approval of Mr. McMahon and Mr. Bragoli. The only time Mr. McMahon pressed for payment of an invoice (for printers he had engaged), Mr. Hinett arranged (in May 2006) for the payment to be made by cheque which Mr. McMahon signed as one of the required signatories. The payment could just as if not more easily have been made electronically, as that is how all other payments by that time were made. Had that payment been made electronically, Mr. McMahon would then have known that the payment was being made without his signature, as required by the mandate, and would I am sure have demanded to know why, and how that came about.
36. In my judgment, Mr. Hinett arranged for the payment to the printers to be by cheque as he did not wish Mr. McMahon to know that the electronic banking system by-passing the mandate had been set up. By this time (May 2006) the relationship between the 2 sides had become increasingly strained (the Farnell side thought the Clearview side were trying to divert the furniture venture, mentioned below, to Clearview) and Mr. Hinett and Mr. Farnell used the electronic banking arrangements at this time to recoup from a recently-granted overdraft facility some of the outlay of Mr. Farnell or his companies. (a total of £8,000 was paid on 23^rd May 2006). They claimed that this had been agreed when the overdraft was set up, but the Clearview side denied this, and I accept that denial. The effect of the recoupment was to prefer the Farnell side. Clearview was also owed monies (e.g., the 2 payments of €5,000 each, and substantial other miscellaneous expenditure) which were not recouped. Although the Farnell contributions were much greater, the understanding throughout (I find) was that the contributions from the participators would be recouped when the Company could afford it, not before.
37. Mr. McMahon's claim that he did not know of the electronic banking facility was challenged but I find that neither Mr. McMahon nor Mr. Bragoli knew that such a facility had been set up, though it was envisaged that such a system might ultimately be needed to make payments to property owners and agents once the holiday venture was up and running. I did ask myself how Mr. Bragoli and Mr. McMahon thought bills were being paid. As regards Mr. Bragoli he would not necessarily be alerted to anything unusual as he was not a necessary, as opposed to an authorised, signatory under the original mandate. As regards Mr. McMahon, he thought Mr. Farnell was initially funding the business without recourse to the Company's account. Later, when Mr. Farnell told everyone (in early 2006) that he wasn't going to fund the operation any more, Mr. McMahon did not give it much if any thought, as he was chiefly engaged on other unrelated Clearview matters. It was generally known that the Company was defaulting on its obligations, because of its cash flow problems. It was not to be assumed therefore that bills were being discharged as they fell due. This was why Clearview made 2 payments of their own to Mr. Woods of €5,000 each. It was also why Mr. McMahon pressed for discharge of the printers' invoices. As regards Mr. McMahon's and Mr. Bragoli's own expenditure, this had been and continued to be funded by Clearview.
38. The Company's 4 shareholder/directors did give a joint and several guarantee for £50,000 plus interest (in April 2006) to the Bank. This afforded the Company the overdraft facility I have mentioned. This was supposed to be enough to keep the Company going until July 2006, when income for the Company was hoped to arise. However, the facility was used up much sooner as a result of the payments through the electronic banking system which then ensued. These were (with the exception of the cheque payment of the printers' invoice) strictly unauthorised payments in the sense that they contravened the mandate that had been agreed between the directors. To the extent, however, that the payments were proper, in the sense that they discharged genuine liabilities of the company which were then due, the Company suffered no loss, except (possibly) as regards any preference in respect of the Farnell recoupments: compare West Mercia Safetywear Ltd (in liq) v Dodd and another [1988] BCLC 250.
39. In the circumstances, I shall order an account and inquiry relating to dealings undertaken via the electronic banking facility and, should any loss have been suffered, Mr. Hinett and Mr. Farnell will be ordered to pay any such loss. Between themselves, they have not sought to say that the one, rather than the other, was responsible. As they both purported to authorise the facility, any resulting liability is joint and several.

The Databases

40. I have already explained the creation by Clearview of its database, which included details of Polaris property owners. These were either people who had bought properties from Polaris through Clearview, or other property owners whose details Clearview had obtained from other agents. It is not disputed that such rights as existed in this database were Clearview's. On the evidence, this database was compiled at Clearview's expense at some time in the second half of 2005.
41. I have also explained that Clearview marketed the holiday venture, and found property owners who were willing to let, by mailings to property owners and agents taken from the database, and through seminars.
42. This marketing resulted in contracts being made between the Company and individual property owners and their agents, and the provision to the Company of ancillary information (such as account details) about those owners, which were needed to service the contracts. These thus became the Company's contracts and information. They had been produced as a result of Clearview's efforts and expenditure (which Clearview was expected to recoup from the Company's profits when on stream) and were derived from the use of Clearview's database. Such database rights as Clearview had did not however transfer to the contracts and ancillary information which were made with or given to the Company.
43. In April 2006, the details of the contracts and all ancillary information were input onto the Company's computer. This did not involve the transfer of data from the Clearview computer. It involved Mr. Bragoli bringing his son Daniel along to Gravell Hill House (where the computer was situated). Once there, Daniel Bragoli spent the day transferring details from the hard copy contracts and ancillary information onto the computer. No data was transferred from the Clearview database.
44. The information thus transferred was subsequently transmitted electronically to a third party, Inside Right Limited ("Inside Right") in circumstances which are contentious, and which form the basis of the claim for breach of the 1997 Regulations. It is sufficient to say at this stage that the database which was transmitted to Inside Right, and the information on it, was the Company's, not Clearview's. It follows from this that Clearview's claims under the 1997 Regulations and for breach of confidence fail.
45. I shall deal with the Company's claims under the 1997 Regulations and for breach of confidence and fiduciary duty after consideration of the history of the furniture venture.

The furniture venture (2005)

46. By the late summer/early autumn of 2005, there were 2 parallel businesses, that of Clearview (as selling agent of Polaris properties) and that of the Company (as the seller of holidays for property owners).
47. Around this time, Mr. Bragoli (who had experience in the furnishings business) opened discussions with Inside Right Limited ("Inside Right"), an English company, for the sale of furniture packages to property owners, which had the advantage not only of generating further potential income in the form of commissions on any sales, but also ensured that furniture of a suitable standard would be available for the properties to be let in connection with the holiday venture.
48. Some extravagant claims were made on the Clearview side for the furniture aspect of the business, not the least being that there was no-one in Spain capable of fulfilling this demand. In fact, the evidence confirmed that there were adequate furniture suppliers in Spain. Nonetheless, I accept that the potential for selling furniture packages through a dedicated supplier such as Inside Right was considerable, and remains so.
49. The emergence of this idea raised the question of through which of Clearview and the Company the business, if it could be set up, should be channelled.
50. Mr. Bragoli's instinct at the outset was to offer it to the Company, but Mr. Hinett was not interested in it, and declined the opportunity. Mr. Hinett now says that it was not properly explained to him. I need not consider whether it was or was not properly explained, as the furniture project was not mentioned to Mr. Farnell at this stage, nor was it raised at a board meeting. Mr. Hinett alone did not have authority to give up the opportunity of this business in favour of Clearview. Nor did Mr. Bragoli and Mr. McMahon have the authority, even with Mr. Hinett's concurrence, to do so.
51. In my judgment, Mr. Bragoli and Mr.McMahon were at this stage in a real position of conflict of interest and duty. As directors of Clearview, they owed a duty (and it was in their interests as sole owners of that company) to obtain the business which this new opportunity afforded for Clearview. As directors of the Company, they owed a duty to obtain the business for the Company. If they obtained the business for the one without the informed consent of the other, they would on principle be accountable to that other, for they would then be profiting from their position of trust. The business opportunity presented itself to Mr. Bragoli and Mr. McMahon both by reason of their directorships of Clearview (selling properties which needed furnishing) and by reason of their directorships of the Company (arranging holiday lets of properties which needed furnishing).
52. As the only directors and shareholders of Clearview, Mr. Bragoli and Mr. McMahon could legitimately cede the business opportunity in favour of the Company, just as they had in the case of the holiday venture. The reverse is not, however, true. If Mr. Hinett and Mr. Farnell did not agree to the business being taken by Clearview, the only options open to Mr. Bragoli and Mr.McMahon in relation to the furniture venture were either to make the opportunity available to the Company to Clearview's exclusion, or to decline the opportunity.
53. As, therefore, the matter was not raised at a board meeting, and Mr. Farnell was never consulted at the initial stages, the duties of Mr. Bragoli and Mr. McMahon were to obtain the benefit of the furniture venture (if at all) for the Company. That remained the position unless and until the participators agreed something else.
54. This was not however how Mr. Bragoli and Mr. McMahon saw matters. They considered the opportunity to be Clearview's alone following Mr. Hinett's initial disinterest. For the reasons I have given, they were wrong about that. Nevertheless, they did genuinely hold that view.

The furniture venture (down to May 5^th 2006)

55. In January 2006, anxiety was increasing over the delays to the holiday venture. Mr. Woods was not getting paid and there was little or nothing further he could usefully do until the Polaris properties came on stream. The furniture project was raised again. Mr. Farnell told me (and I accept) that this was the first he had heard of it. The proposal on the Clearview side, as he understood it, was that this venture would be put into the Company, and that profits from this should start coming through by around the middle of the year. The packages would be sold not only to Polaris owners, but other property owners as well. There was however still much to be done (Inside Right were on side but not yet committed contractually) and warehouse and showroom facilities were needed. It was agreed therefore that Mr. Woods and his wife would be seconded to help get the furniture venture up and running. From that date on, Mr. Woods' and his wife's efforts were concentrated on the furniture venture. They continued to work for the Company, and their salary and expenses (to the extent that they were met) were paid through Blue Chip.
56. Mr. Bragoli and Mr. McMahon told me that they only regarded the proposal that the Company would benefit from the furniture venture as a short-term proposal, that is to say until the holiday venture started producing income. However, that is not how Mr. Farnell and Mr. Hinett saw it, and I prefer their evidence in this respect. Mr. Bragoli and Mr. McMahon may still have seen the furniture venture as a Clearview deal but, once the decision was taken to develop that venture through the Company, and for the Company to reap its rewards, it clearly became the Company's venture, even if (contrary to the view I have already expressed) the venture was properly regarded as Clearview's before then. If Mr. Bragoli and Mr. McMahon wished to retain for Clearview the ultimate beneficial interest in the venture, they should have spelt this out clearly and unequivocally and secured explicit agreement. This was not done. Nevertheless, I have no doubt that Mr. Bragoli and Mr. McMahon did both still genuinely regard the furniture venture (wrongly, in my judgment) as Clearview's, though the Company would have the benefit of short term cash flow on unspecified terms. The Farnell side regarded it (correctly in my judgment) as the Company's.
57. Mr. Bragoli thereafter took the lead in negotiations with Inside Right, he having been instrumental in setting up the opportunity in the first place. Prices were negotiated, and premises were found which would operate as a warehouse, showroom and offices. The offices would be for the use of the Company as well as the chosen Spanish vehicle on the Inside Right side, which in the event became Inside Right Espana ("Espana"). I shall call the premises as a whole "the warehouse" for short.
58. In early 2006 also (certainly within the first 3 months) Mr. Bragoli agreed with Mr. Woods that he would receive a 20% interest in the furniture venture. He did not discuss this with anyone before agreeing it, which is regrettable, as the difficulties in accommodating this extra 20% within the share structure of the chosen vehicle for the venture (which became Blue Chip) were never satisfactorily resolved.
59. On 19^th April 2006, a meeting took place in Barcelona at which were present Mr. Bragoli, Mr. Woods, Mr. Tula (Inside Right's lawyer) and other Inside Right representatives. The warehouse was nearly ready and was due to open at the beginning of May. Mr. Bragoli was hoping to conclude the deal for Clearview. It was suggested on the Farnell side that Mr. Bragoli was hoping to do so behind their backs. However, Mr. Woods was also there. Mr. Bragoli was perfectly happy for him to be there, though it may be that Mr. Woods did not know about it until quite late in the day. How he got to know about it is not clear. Mr. Bragoli did not invite Mr. Farnell or Mr. Hinett to this meeting. As, however, he was in his own eyes doing the deal for Clearview, he would, on that understanding, have no occasion to invite them. Mr. Woods was in a different position, as he already had 20% of the deal promised to him.
60. At the meeting, Mr. Bragoli named Clearview as the contracting party. However, Mr. Tula said that a Spanish company was needed, and the decision was taken to proceed with Blue Chip, which was already in being, as the contracting party. The Farnell side present this as something which was only brought about as a result of Mr. Woods' intervention, without which Mr. Bragoli would have stolen the venture for Clearview. However, Mr. Woods was a very unsatisfactory witness and I preferred Mr. Bragoli's account of the meeting, which (broadly speaking) was to the effect that he saw Blue Chip as the obvious entity to put forward once a Spanish company was needed, as it already existed and was available for immediate use. He was in no sense forced into it by Mr. Woods, though it may be that Mr. Woods was the first to suggest it. I am satisfied that (irrespective of whoever it was who suggested the use of Blue Chip) the idea was immediately accepted and there was nothing savouring of an interjection on Mr. Woods' part objecting to the use of Clearview. It would be an inappropriate way of proceeding in a negotiation with a third party with whom Mr. Bragoli and Mr. Woods were both keen to conclude a deal.
61. Mr Tula for his part put forward Espana as the contracting party on the Inside Right side. Mr. Bragoli then negotiated in principle an option for Blue Chip to acquire 40% of the Espana shares, after considering the matter in private with Mr. Woods (Mr. Bragoli had previously been holding out for 50%).
62. Following the decision to contract in the name of Blue Chip, it was critical to know how the shares in Blue Chip were to be divided. As things stood, they were held by Mr. Woods for the Company. They could continue to be held for the Company, but Mr. Woods' 20% share had to be accommodated. It was recognised by everyone (though not without resentment on the part of Mr. Hinett and Mr. Farnell) that as Mr. Bragoli had agreed this share for Mr. Woods, it should be honoured. Mr. Bragoli's somewhat crude solution was to suggest that as Mr. Hinett had turned down the opportunity in the past, he should now be excluded, thus leaving the Clearview side with 50%, and Mr. Woods and Mr. Farnell 50% between them. This was not acceptable to the Farnell side, who wanted a 5-way equal split. Mr. McMahon and (to a lesser extent) Mr. Bragoli were unwilling to countenance any arrangement which left them or Clearview with less than 50%. Mr.McMahon in particular was adamant that he was not prepared to accept any situation in which he could be outvoted, assuming (correctly, as subsequent events would demonstrate) that he could rely upon Mr. Bragoli's support on matters of critical importance. The possibility of resolving this dilemma by the issue to Mr. Woods of non-voting shares or by honouring the commitment to him in some other way (e.g., by a profit share arrangement with some provision for compensation should the arrangement come to an end) was not considered.
63. The discussion on the share split in Blue Chip culminated in a meeting in Spain on 5^th May 2006. This was when all relevant parties (except Mr. Hinett) were present upon the occasion of the opening of the warehouse. Although Mr. Hinett was not there, the evidence of his witness statement (which I accept in this respect) was that Mr. Woods held his "proxy", which I take to mean that he would be bound by whatever Mr. Woods agreed. On the oral evidence, though, Mr. Hinett was in contact throughout the day by telephone with Mr. Farnell, not Mr. Woods. Mr. Farnell led the negotiations on the Farnell side. Mr. Woods was in fact on the brink of resigning (and had already tendered a resignation to Mr. Bragoli shortly before then), and the issue of shares, though of significance if he was to remain, was not nearly as important to him as the need to be paid regular salary and expenses. He had through no fault of his own been living somewhat from hand to mouth in Spain, and the experience was not a pleasant one.
64. By 5^th May, the Farnell side were very suspicious of Mr. Bragoli and Mr. McMahon, caused principally by what they saw as an attempt by Mr. Bragoli to steal the furniture venture from the Company at the Barcelona meeting with Mr. Tula. I have already held that Mr. Bragoli and Mr. McMahon both genuinely (though wrongly) saw the furniture venture as Clearview's, but the Farnell side took a less charitable view. This did not help the resolution of the share division in Blue Chip.
65. There were 3 meetings of significance attended by Mr. Farnell and Mr. Woods on 5^th May. The first was with Mr.McMahon at the warehouse in the early afternoon. Mr. McMahon made his position clear. He wanted 50% of the Blue Chip shares for the Clearview side. The Farnell side could have the other 50%, which they could divide in whatever way they thought fit. Mr. Farnell for his part wanted an equal 5-way split, i.e., 20% each for the 5 individuals. Mr. McMahon's evidence is that his proposal was agreed at the warehouse, and that he shook hands on the deal. I do not think there was any agreement at this stage, however. I have no doubt Mr.McMahon made his point clearly, and that the other side understood what he was saying. Mr. McMahon was wrong, however, to conclude that his proposal was agreed. I doubt very much whether this is how Mr. McMahon saw matters at the time, though I do think he had come to believe it by the time he gave evidence. Mr. McMahon was (I find) on this part of his evidence a victim of his own salesmanship.
66. Mr. Bragoli was not at this earlier meeting. It was arranged that Mr. Farnell and Mr. Woods would meet him later, a meeting that would hardly have been necessary if Mr. McMahon had already agreed the deal that Mr. Bragoli wanted. Mr. Hinett also gave evidence to the effect that Mr. Farnell reported to him following the first meeting that the difference between the parties was whether the split should be 50/50 (between the Clearview side and the Farnell side) or an equal 5-way split, i.e., 20% each. That was still to be resolved. It is quite clear from this evidence that everyone was well aware of what the difference between the parties was. Mr. McMahon also (I find) reported to Mr. Bragoli what the parties' positions were for the purpose of the meeting he (Mr. Bragoli) had later. There was no misunderstanding of the parties' respective positions.
67. The later meeting took place at Mr. Woods' home address in Spain. Again, Mr. Farnell took the lead on the Farnell side. Mr. Bragoli held out for a 50/50 split and Mr. Farnell ultimately agreed. Mr. Woods, though he tried to distance himself from what happened in the witness box, also (I find) confirmed his agreement, which was enough to bind Mr. Hinett. Mr. Hinett claims that he was told that an equal 5-way split was agreed, but I do not accept that evidence. I find that he was told of the 50/50 deal.
68. In their oral evidence, what the Farnell side said was that an equal 5-way split was agreed at the later meeting with Mr. Bragoli. Strangely, this differed from Mr. Hinett's witness statement, where he said that no final agreement was reached. It was, however, accepted that, at the critical meeting with Mr. Bragoli, the agreed split was described as "50/50". It was similarly so described by Mr. Hinett subsequently in his dealings with the Clearview side. It was suggested that there was an inherent ambiguity in this, in that 50/50 merely meant equal, and that the concept of equality could be extended to a 5-way split. I do not agree. Whatever the position may be generally (and I have some difficulty in seeing how 50/50 can ever mean an equal 5-way split) the difference between the 2 sides had become crystal clear at the first meeting with Mr. McMahon, and there was no room for doubt as to what 50/50 meant in this context. It was a reference to the proposal that Mr. McMahon had unambiguously advanced at the earlier meeting, which everyone present understood perfectly well, and which had been reported to Mr. Hinett and Mr Bragoli respectively.
69. Following the meeting with Mr. Bragoli, the parties met up with Mr. McMahon and retired to a Bar. This is the third meeting I refer to earlier. The atmosphere was described as relaxed by the Clearview side, and tense by the Farnell side. This I think reflects the relative state of contentment of the 2 sides to the negotiation. Mr. Woods observed to Mr. Bragoli that he still wanted a 5-way split. This suggests that, though he still wanted it, he had not got it. Mr. Woods denied this conversation, but Mr. Bragoli remembers it, and I accept his evidence in this respect.
70. I conclude in those circumstances that a 50/50 split had been agreed, though with great reluctance on the Farnell side. What that meant was that the Clearview side were to have 50% of the shares, and the Farnell side the remainder. In fact, Mr. Bragoli and Mr. McMahon always intended their 50% share to go into Clearview, and I find that in this respect they were representing Clearview. This may have been less than clear to the Farnell side, whose evidence suggested that they saw the negotiations as concerning 5 individuals, but I do not think it matters. Mr. Bragoli and Mr. McMahon could agree the matter as agents for Clearview without expressly naming Clearview, or, if contracting personally, could direct the issue of shares to Clearview. Be that as it may, I should state my finding (in case it ever comes to matter) that the Farnell side were aware that Mr. Bragoli and Mr. McMahon were negotiating the issue of shares for Clearview. They knew Mr. Bragoli had tried to take the Inside Right contract in the name of Clearview and were therefore aware that Mr. Bragoli and Mr. McMahon saw this as a Clearview deal.
71. I reach the conclusion that a 50/50 deal was done notwithstanding the fact that a diary entry for Mr. Woods of 10^th May suggested that there was to be a 5-way split, which Mr. Woods was to arrange. The fact is that Mr. Woods did nothing to arrange that split. He blames the Clearview side for not coming to Spain for that purpose, yet there is no email or other communication ever pressing the Clearview side on this point, and there is one occasion, on the day when the 3-way split was put into effect (26^th May 2006) when the Farnell side met Mr. Bragoli by chance in Spain and remained totally silent on the point of the share issue. Further, Mr. Bragoli emailed Mr. Woods on 6^th June 2006 asking him to sort out the shares, and this was not met with the riposte that Mr. Woods had been pressing Mr. Bragoli to come to Spain for that purpose. I conclude that it is much more likely that the Farnell side simply decided to cut the Clearview side out of the furniture deal if they could. As to the diary entry, this may have reflected what Mr. Woods still wanted and hoped at that stage to achieve, as he had told Mr. Bragoli in the Bar. It did not however represent what had been agreed.
72. I now turn to consider the effect of the 5^th May agreement. I am conscious that what I am concerned with is an agreement made in Spain for the division of shares in a Spanish company (Blue Chip) as a prelude to a Spanish joint venture with another Spanish company (Espana). No-one has however suggested that there is any relevant difference between Spanish and English law, or that I should not apply the presumption that they are the same. Moreover, I also have to consider the impact of the deal on the Company, which is of course an English company to whom fiduciary duties were owed by all of its directors under English law.
73. What the parties did was reach an agreement to divide the shares 50/50 between the Clearview side and the Farnell side. Was that enforceable against the Company, whose shares they were? No consideration moved from any of the promisees (that is to say, the persons who were to receive the shares). This was not a compromise of a disputed claim, as no-one other than the Company had a claim to the Blue Chip shares. There was of course an expectation that the furniture deal would be channelled through Blue Chip, but that had not happened and there was no binding commitment to that effect. Moreover, that deal was the Company's, as I have already found.
74. The agreement was never put into effect by the issue or transfer of shares on the agreed 50/50 basis. What the agreement therefore amounted to from the Company's perspective was an incomplete gift, which was ineffective in law
75. Moreover, as the shares in Blue Chip belonged in equity to the Company, it is difficult to see how the Company could be bound by this agreement, even if it would otherwise be enforceable. The parties were not negotiating with the interests of the Company in mind at all. They did not give the Company's interests a moment's thought. The Company (as was common ground) was heavily insolvent at this time, being kept afloat by the forbearance of the shareholder directors (to the extent that they, or their associated companies, were creditors) and the overdraft facility at the Bank. The Company was however still in business and incurring daily liabilities. Any agreement to transfer the shares away from the Company was therefore:-

(i) a breach of fiduciary duty which the shareholders could not excuse, given that the interests of the creditors predominated: see the West Mercia case (above);

(ii) beyond the powers of the directors and therefore incapable of ratification, as it furthered no purpose of the Company,: see Rolled Steel Products (Holdings) Limited –v-British Steel Corporation and Others [1986] 1 Ch. 246 especially at 297E.

76. I accordingly conclude that the agreement reached on 5^th May 2007 did not bind the Company and that the shares in Blue Chip remained beneficially the Company's.
77. Mr. Spratt for the Claimants suggested that Clearview was owed fiduciary duties, either as a joint venturer or as a party to the May 5^th agreement, and that the subsequent conduct of the Farnell side in (as will be seen) issuing the shares to themselves in a 3-way split and arrogating (or attempting to arrogate) the furniture contract with Espana to themselves was a breach of fiduciary duty to Clearview as joint venturer, giving rise to a constructive trust.
78. Had the Blue Chip shares been owned at the time beneficially by Mr. Woods, this argument might have some prospect of success. Mr. Woods would then have free power of disposition, and the incomplete character of the gift would not be determinative of the question of fiduciary duty, as there would be a firm (but far from certain) basis on the authorities for saying that Clearview, as a result both of its previous involvement and the agreement reached on 5^th May, was a joint venturer and was therefore owed fiduciary duties as such: see Elliott v Wheeldon [1993] BCLC 53; Murad and another v Al-Saraj and another [2004] EWHC 1235 (Ch), at [325] – [332]
79. These questions do not however arise in circumstances where Clearview's rights in the furniture venture are dependent on a breach of a fiduciary duty as against the Company by directors acting beyond their authority. Any rights Clearview might have under a constructive trust could hardly be asserted as against the Company, as Clearview through its own directors was fully aware (and indeed those same individuals were party to) the breach of fiduciary duty which was committed against the Company. I need not therefore decide whether or not Clearview would otherwise have fiduciary duties owed to it in respect of the furniture venture.

The furniture venture (after 5^th May 2006)

80. Heads of Terms relating to the Blue Chip/Espana deal were exchanged and commented upon between Mr Tula and Mr. Bragoli. There was however no binding agreement between Clearview (or the Company) and Inside Right which was ever reached or (since the Barcelona meeting) even in contemplation. What was contemplated was an agreement between Espana and Blue Chip.
81. Although everything appeared to be agreed in principle, I am satisfied that what the parties intended was that there should be no final binding agreement until the written contract confirming those terms was signed (a point effectively confirmed by Mr. Bragoli in an email of 6^th June 2006). This never happened.
82. I am nevertheless quite satisfied on the evidence (especially that of Mr. Dunlop of Inside Right and, to a lesser extent, Mr. Pagett, also of Inside Right) that a binding agreement, reflecting the document set out in the Heads of Terms, would have been entered into between Espana and Blue Chip were it not for the falling out between the Clearview and Farnell sides, which encouraged Inside Right to pitch for a more favourable deal requiring money up front. This came from Mr. Farnell. The Clearview side was not told about the new deal.
83. On 8^th May 2006 (just after the opening of the warehouse) Mr. Pagett of Inside Right circulated the "agreed version of the contract" by email under an attachment entitled "Suggested Heads of Terms Inside Right Spain final version.doc". At the same time he asked Mr. Tula to prepare a legal document for early signing by both sides. Mr. Pagett sought to persuade me that there was still a long way to go. However, I do not think there was. Nevertheless, I do, as I have indicated, accept that the Heads of Terms were not then binding. This was so notwithstanding that the warehouse was open and the Company was already (through Mr. Woods and Mr. Bragoli) endeavouring to effect furniture sales. The sale prices and commission rates had been agreed and that was all that was needed in the short term to underpin the business arrangement.
84. As regards the Heads of Terms, these provided (in the "final" 8^th May version) in outline as follows:-

(i) There was to be a minimum 1 year contract. If not cancelled, it would become a 12 month rolling contract.

(ii) Blue Chip was only to sell Espana's furniture locally.

(iii) The prices were fixed for 6 months and thereafter (after adjustment of anomalies) could not be increased beyond the UK inflation rate.

(iv) Espana was to maintain the warehouse and sufficient supply.

(v) Espana was to invoice customers at prices advised by Blue Chip, who would present a monthly commission statement.

(vi) Blue Chip was to maintain a sufficient sales team.

(vii) There was to be agreement of budgets.

(viii) A 4-year share option agreement was to be drawn up offering 40% of the shares in Espana, on terms which were outlined.

(ix) The contract would be under Spanish jurisdiction.

(x) There were post-contract restrictions for the terminating party for 12 months.

85. Shortly before the Blue Chip/Espana deal was expected to be finalised, Mr. Woods, on 26^th May 2006, attended with Mr. Farnell and Mr. Hinett upon a Spanish notary and transferred one third of the Blue Chip shares to each of the other 2, keeping the remaining third for himself. There was thus a 3-way split of those shares, having the effect of excluding the Clearview side completely. However, I have already held that those shares belonged to the Company beneficially. These transfers did nothing to alter that. Everyone knew that Blue Chip had been set up for the Company. These transfers were unauthorised by the Company, Mr. McMahon and Mr. Bragoli remaining directors, and the 3 persons present knew this. Moreover, this was not done to further any purpose of the Company, and was for this additional reason a plain breach of duty on the part of Mr.Hinett and Mr. Farnell as directors, and a breach of duty and trust on the part of Mr. Woods as agent and trustee of the Blue Chip shares.
86. The individual Defendants sought to impress upon me condign motives for this. The principal suggestion is that this was done to prevent Mr. Woods from being pressured by the Clearview side into giving them more than 40%. Another suggestion was that this was a temporary measure until such time as the shares could be split 5-ways. None of this cured their want of authority to transfer what were in law the Company's shares, and I do not believe either of these variants. I have no doubt that what they were doing was taking Blue Chip for themselves, hoping to finalise the deal with Espana that was by this time nearly concluded, and exclude the Clearview side. They expected to have to negotiate at some stage with the Clearview side. It would help them if they already had the furniture deal in the bag. As with the earlier wranglings over the Blue Chip shares, the Company's interests in this were simply not considered.
87. In the result, the Blue Chip shares remained (and remain) the Company's property.
88. Returning to the chronology, Mr. Bragoli on 6^th June 2006, now concerned by the apparent lack of progress regarding the division of the Blue Chip shares, emailed Inside Right, telling them that no contract would be signed until the shares were reassigned in Blue Chip. On the same day, he pressed Mr. Woods by email to sort out the shares.
89. Mr. Farnell and Mr. Woods on 7^th June 2006 met Inside Right in England. By now the divisions between the Clearview side and the Farnell side were clear for all to see, including Inside Right. Inside Right wanted Mr. Bragoli on board, as they then saw him as essential to the sales side.
90. On 9^th June 2006, Mr. Farnell went to see Mr. Bragoli and Mr. McMahon and told them he was not proceeding with them in the furniture venture. He was however still planning to proceed through Blue Chip with Mr. Woods and Mr. Hinett.
91. On 13^th June 2006, Mr. Hinett and Mr. Farnell met Mr. Bragoli at Gravell Hill House and offered him a sales agency position. This was to satisfy Inside Right's requirement that Mr. Bragoli should be on board. Mr. Bragoli refused. He chose to remain loyal to Mr. McMahon instead.
92. On 26^th June 2006, Mr. Farnell, Mr. Hinett and Mr. Woods met Inside Right in Spain. They were told that the Blue Chip deal was off. Instead, they could buy into Espana, but that would require money up front.
93. Only Mr. Farnell was in a position to put up money, so the deal was ultimately done with him. In essence, Mr. Farnell acquired 50% of Espana. Inside Right acquired the other 50%. Deeds of Trust (only the one concerning Mr. Farnell's shares are in evidence) were executed in August 2006, back-dated to 30^th June 2006. The 2 parties were to fund the venture by way of loan equally.
94. In addition, Mr. Woods was to work as from 1^st July 2006 for Espana. Until then his salary and expenses was a liability of the Company. I doubt whether he was technically ever an employee of the Company. His salary and expenses were paid either to Bissell Developments or Blue Chip. He appears to have been treated as a Consultant rather than an employee. He was, however, the Company's agent, owing fiduciary duties as such. He was also trustee of the Blue Chip shares, owing the duties of a trustee. So far as relevant to the present case, his duties in those capacities were no less onerous than the duties of an employee, and (as regards his share trusteeship) may well have been more onerous.
95. The required funding of Espana to date has been substantial. Nevertheless, I understood Mr. Dunlop of Inside Right to be very happy with the business which has been built up. I am satisfied therefore that the 50% shareholding that Mr. Farnell has acquired is valuable, though the value is presently unrealised. Such evidence as there is suggests that sales have been at least up to, if not beyond, expectations. Further substantial loan funding is required from Mr. Farnell. He has not provided this yet, because (I am told) of a freezing order which I granted last year.
96. I understood also from the evidence that Inside Right had other potential investors for the furniture project in June 2006, but they struck a deal with Mr. Farnell as they had come so far in the negotiations with him and his colleagues, and preferred not to start negotiations all over again with someone new. That I think illustrates the importance of the prior connection and how it can be said that the opportunity to acquire the shares arose because of that prior connection, which gave Mr. Farnell more than a head's start over anyone else.
97. The result of my findings as regards the 50% of the Espana shares held on trust for Mr. Farnell is that he in turn holds his beneficial interest on trust for the Company. As I have said, the furniture deal was the Company's, and what was agreed on 5^th May 2006 did not divest the Company of its interest. Mr. Farnell's duty was to obtain the shares for the Company. The fact that Inside Right may not have treated with the Company, or that the Company may not have afforded the investment (with its collateral funding requirements) is irrelevant: compare Industrial Development Consultants Ltd v Cooley [1972] 1 WLR 443. The opportunity to make the investment came to Mr. Farnell because he was a director of the Company. That is how he first heard of the venture, and he himself regarded the furniture venture as the Company's, which is why he thought (as he did following the Barcelona meeting) that Mr. Bragoli was trying to steal it for Clearview. The deal, it is true, changed significantly when Inside Right chose to exploit the divisions between the parties to get a better deal, but it still remained a deal which it was Mr. Farnell's duty to do (if at all) for the Company. He was able to do the deal because he had a head's start over other investors because of the negotiations which had previously taken place, which he (unlike Mr. Bragoli and Mr. McMahon) recognised had been for the Company. He could go it alone if the Company gave its free and informed consent, but not otherwise. As 2 of its directors were not consulted on the deal which eventually was done, that condition was not satisfied and Mr. Farnell is accountable as a constructive trustee accordingly. This is an application of well-settled equitable principles dating back to Keech v Sandford (1726) Sel.Cas t. King (Macnaghten) 175, recognised by the House of Lords in Phipps v Boardman [1967] 2 AC 46, and applied in the context of company directors in numerous cases, such as CMS Dolphin Ltd v Simonet [2001] 2 BCLC 7.
98. In addition, I consider that the Company is entitled to an inquiry as to damages (or, more strictly, equitable compensation) as on my findings I think it is overwhelmingly likely that the deal would have been done with Espana by Blue Chip in its original form were it not for the fall out over the division of the shares. As the shares were the Company's on my rulings, it was a breach of duty by all the directors not to recognise that fact, and to seek to have the shares divided out amongst themselves. It was also (as against the Company) a breach of duty as agent and trustee by Mr. Woods to deal with the Blue Chip shares otherwise than in accordance with the properly authorised instructions of the Company. He knew he did not have those. On the original deal, it is possible that the Company would have done better than they will now do claiming through Mr. Farnell. Credit will of course have to be given for the value of the shareholding, but if a loss is established after such credit, it is recoverable as damages or compensation.
99. Mr. Machin makes the point that as Mr. Bragoli and Mr. McMahon never approached the deal as the Company's deal, it cannot be right to treat the corporate opportunity as the Company's. I do not agree. All that means is that Mr. Bragoli and Mr. McMahon may have been acting in breach of duty as well, and there may conceivably be a claim for contribution in respect of any damages that Mr. Hinett, Mr. Farnell and Mr. Woods are called upon to pay.
100. The conflict of interest inherent in the Claimants' stance did cause me to wonder whether to allow this part of the claim to proceed derivatively when I gave permission to do so last year. As I could see no other way in which the claim could be brought, I allowed it to proceed, mindful that the Defendants' position was that the corporate opportunity had (at least initially) been the Company's, and that creditors might suffer if Clearview's claim was allowed to proceed without consideration of the like claim of the Company. I also thought that all relevant material would be before the Court, as has proved to be the case. My task has perhaps not been made easier by the tactical desire of those arguing the case (quite properly) to put the interests of the Company behind the interests of their clients. I have however not felt disabled from reaching what seems to me to be the correct result. Had I felt difficulty in doing that, I would have considered discharging the order to bring the derivative claim in that respect, so as to avoid the risk of injustice.

PWH.Com No 2

101. On 6^th June 2006, Mr. Hinett and Mr. Farnell incorporated the First Defendant. It has never traded, but its name is of course identical to the name which the Company had been using following the special resolution passed the year before. The excuse Mr. Hinett and Mr. Farnell put forward is that they acquired this company as a bargaining counter in their dealings with Mr. Bragoli and Mr. McMahon. They thought in other words that they could offer the new company to the Clearview side. One outcome which they hoped to achieve was letting the Clearview side have the holiday venture, with the new company thrown in, whilst they kept the furniture venture.
102. These manoeuvrings were a clear breach of fiduciary duty towards the Company. Mr. Hinett and Mr. Farnell were fully aware that the Company had not only resolved upon the name change but had actually used that name in its business. This was the name by which it was now known, not only by property owners, but by Polaris and the Co-Op. The incorporation of another company under the same name had a potentially sterilising effect on the ability of the Company to trade under its chosen name. They were both aware too that the previous name change had for some reason not gone through, and their duty was to put that position right, not compound the error. Mr. Bragoli and Mr. McMahon justifiably complain of this. I shall therefore order Mr. Hinett and Mr. Farnell both to procure a name change of the First Defendant to something completely different, and to do all in their power (in conjunction with Mr. Bragoli and Mr. McMahon) to procure the registration of the Company under the name PWH.Com Limited. As I am ordering an inquiry as to damages under other heads, I shall order one under this head also. However, I presently have real doubts as to whether any damage has been or will now be suffered.
103. Mr. Machin argues that the incorporation of the First Defendant is a "red herring" as this did not contribute to the loss of the prospect of the furniture contract. I agree that it did not have that effect, but that is not the complaint.

The transfer of the Company's database

104. Before Mr. Farnell's deal with Inside Right was concluded, someone (probably Mrs. Woods) emailed to Inside Right a Supplier and Property Owner Report taken from the Company's database. Mrs. Woods was acting at Mr. Woods' request on the ultimate authority of Mr. Hinett and Mr. Farnell. Mrs. Woods also emailed a large number of leads (117, it appears) for Espana. The Defendants say that this had been agreed some time earlier by Mr. Bragoli and they were only delivering to Inside Right what they had already been promised. I do not accept this evidence, even though it is supported by Inside Right's witnesses, who were by no means impartial.
105. Mr. Bragoli had, I have no doubt, emphasised to Inside Right the value of the information on the databases to which he had access. I think the Clearview database was probably more useful, as that had more information on it. I have no doubt too that Mr. Bragoli would have approached leads in the same way as he had previously approached property owners for the purpose of the holiday venture. That is a far way from saying that a database, or material information from it, will be transferred outright to a third party. I do not consider that Mr. Bragoli would ever have transferred either Clearview's database or the Company's database. The details on those databases were confidential to each of them respectively. To the extent of any overlap, that would be a shared confidence. The confidential nature of the material on the Company's database was obvious to all, including Mr. Farnell, Mr. Hinett and Mr. Woods.
106. The transfer of the Company's database to Inside Right was not a matter which Mr. Hinett and Mr. Farnell could agree simply by virtue of their directorships. It was the Company's customer list and had an inherent value. Its transmission to a third party required a board decision. No board meeting was called. The other directors had not agreed to it previously. It was accordingly an unauthorised act on the part of Mr. Hinett and Mr. Farnell, and therefore a breach of duty. It was also a breach of confidence. Mr. Woods knew both that there was no board approval and that its transmission involved a breach of confidence. In effect, they were giving away the Company's customer list.
107. It is said that the Company in return was promised a list of Inside Right's leads, and that this would benefit the Company, who could approach the leads for more letting opportunities. This is said to have been agreed at the meeting of 26^th June, though it is not recorded anywhere. It is also said that this was part and parcel of the deal by which Mr. Woods' salary and expenses were taken over by Espana. However, as the Company was being squeezed out of the deal come what may, it is difficult to see what use the Company would have any more for Mr. Woods' services. The holiday venture was still delayed and was getting nowhere. The furniture venture had been taken out of the Company. As a Consultant, Mr. Woods' services could have been dispensed with upon little or no notice. Be that as it may, none of the matters relied on by the Farnell side cured Mr. Hinett's and Mr. Farnell's lack of authority in this respect. I feel bound to say also that these explanations struck me as justifications that were thought up after the event. The truth is that the database was transferred to keep Inside Right sweet so that the deal with Mr. Farnell could be brought to fruition. That was a wholly improper purpose, which, questions of authority apart, amounted to a breach of fiduciary duty. The Company is accordingly entitled to damages from Mr. Hinett and Mr. Farnell for the unauthorised transfer of its database. The damages will be assessed on an inquiry. They are also entitled to damages from Mr. Woods, who knowingly participated in the breach of confidence and duty, and thereby breached his own duties as agent. They must (I find) all have known that what was being done in relation to the database went beyond the bounds of what any reasonable person would regard as proper from the Company's perspective. I am comforted in reaching this conclusion by their reluctance to disclose the transfer of the database until required to do so by an order of the Court.
108. I should add that I have some doubts whether there is also a cause of action under the 1997 Regulations, as it is not wholly clear that, so far as the Company's database is concerned, there was a sufficiently "substantial" investment in obtaining, verifying or presenting the contents of the database, as required by Reg 13(1). However, as the Company's entitlement to damages arises (for the reasons I have given) independently of those Regulations, the point is now academic. It is not suggested that the damages would be any different under the 1997 regulations.

The result

109. For the reasons I have given, and to the extent to which I have indicated, the Company is entitled in outline to the following relief:-

(1) Against Mr. Farnell as follows:-

(i) an inquiry in respect of the electronic facility dealings and as to any loss arising therefrom ;

(ii) an inquiry as to damages in respect of the incorporation of PWH.Com Limited;

(iii) mandatory orders requiring him to procure the change of name of the First Defendant and the conferring of the name PWH.Com Limited on the Company

(iv) a declaration that he holds his purported beneficial interest of 50% of the shares in Espana upon trust for the Company;

(v) a declaration that he holds one third of the shares in Blue Chip upon trust for the Company;

(vi) an inquiry as to damages in respect of the attempted diversion and ultimate loss of the proposed furniture contract with Espana (after giving credit for the value of the Espana shares);

(vii) injunctions restraining dealings with the Blue Chip and Espana shares except with the authority of the Company;

(viii) an inquiry as to damages in respect of the database transfer and (if required) injunctions restraining further unauthorised dealings;

(2) Against Mr. Hinett, the same relief with the exception of item (iv), and excluding in his case the reference to the Espana shares in (vii);

(3) Against Mr. Woods, the relief outlined in items (v) to (viii) inclusive, excluding in his case also the reference to the Espana shares in (vii).

110. I have specified the heads of recovery against each of the individual Defendants separately. The Claimants also say that there was an unlawful means conspiracy. This seems to me to add nothing to the Company's claims. To the extent that the means used were unlawful in the respects which I have summarised, the Company is entitled to recover damages or compensation from the individuals I have identified. It does not get any greater recovery by adding the label of conspiracy. There is always a danger, when dealing with conspiracy claims, to join disconnected events and build up an even darker picture than the unlawful means, looked at separately, justify, or to implicate individuals in a wider range of wrongdoing than can properly be laid at their door. Conspiracy also has the added feature that injury to the victim must be intended, though this is often inferred from the fact that injury is the natural consequence of the actions in question. In the present case, I need make no specific ruling on the conspiracy claims as the relief the Company is entitled to (and against which Defendant) is unaffected by whether there was technically a conspiracy or not. If any party wishes to persuade me otherwise, I will hear further argument on the point, but I am not encouraging it.
111. As regards Clearview, its claims are dismissed. An attempt was made to bring a claim by reference to their status as a joint venturer. However, I do not think that any sustainable claim for damages or other relief has been made out in that connection. It had no interest in the company's bank account, or in the name PWH.Com Limited, or in the Blue Chip or Espana shares, or (for the reasons I have given) the furniture venture. Moreover, the transferred database was the Company's, not Clearview's. The conspiracy label does not help either, as no unlawful means were used as against Clearview, and Clearview was not the victim of any plot to injure it.
112. There is also a Counterclaim by Mr. Hinett and Mr. Farnell against Clearview for commissions which they say are due. The agreement to pay commission in given circumstances is admitted. The defence is that those circumstances have not arisen, and no commissions have ever fallen due. The convenient course is for this issue to be dealt with by orders for appropriate accounts and inquiries
113. I shall require a hearing on handing down this judgment to determine amongst other matters what is to happen to the freezing order, which I granted over the trial. It was granted on the application of Clearview alone. As Clearview's claims have been dismissed, that suggests that the order should now be discharged. However, some of the derivative claims have succeeded. As the principal asset claimed (the Espana shares) will be protected by a separate injunction, it may be said that it is inappropriate to go further than that. If a further freezing order is sought, I shall need help on the maximum sum to be inserted, and what evidence there is as to likely quantum.