Mr Justice Newey :
- This case has its origins in the decision of the first claimant, Mr Michael Miller, and the first defendant, Mr Christopher Stonier, to buy the assets of a company called Global Fires Limited ("Global"). The second defendant, Domestic Fire Appliances Limited ("DFA"), was used as the vehicle for the acquisition.
- The present proceedings involve claims by Mr Miller, DFA and other companies associated with Mr Miller that Mr Stonier has acted in breach of contractual and fiduciary duties. For their part, the defendants, who are Mr Stonier and a company that he established and controls, allege by way of counterclaim that certain torts have been committed.
Narrative
- Mr Stonier, a design engineer, has for upwards of two decades been involved with heating appliances. In 2000, he set up Global, which manufactured and sold gas fires of his design. By early 2003, however, Global was in financial difficulties. In January of that year, Mr Stonier approached Charlton and Jenrick Limited, another manufacturer, to see if it was interested in buying Global. That having come to nothing, in early April Mr Stonier made contact with Mr Miller, who had been the managing director of CFM (Europe) Limited ("CFM") since the beginning of the previous year. Like Global, CFM manufactured and distributed gas heating appliances. At the time, it was a subsidiary of a Canadian company, CFM Corporation.
- It is common ground that Mr Stonier and Mr Miller met several times in April 2003. They differ as to quite how many meetings there were and where they took place. I do not need to try to resolve the differences between them on these matters. They are significant, if at all, only as testifying to the difficulty of remembering the detail of events so long ago.
- The discussions between Mr Stonier and Mr Miller bore fruit. It was concluded that Global would have to go into liquidation. While, however, Mr Miller was not willing to become involved in Global itself, he expressed interest in its assets. It came to be agreed between Mr Stonier and Mr Miller that they would set up a company with a view to its buying Global's assets from its liquidators with funding from Mr Miller. Mr Stonier and Mr Miller were respectively to have 20% and 80% interests in the new company.
- So much is common ground. There are other respects, however, in which Mr Stonier and Mr Miller part company over what was discussed and agreed between them in 2003. I shall have to return to this subject later in this judgment (see paragraphs 51-66 below).
- Mr Stonier and Mr Miller instructed a firm of solicitors, Hacking Ashton, to act for them. Hacking Ashton provided a shelf company originally incorporated as HAJCO 262 Limited and renamed Domestic Fire Appliances Limited (i.e. DFA) as the vehicle for the acquisition of Global's assets. On 6 May 2003, therefore, DFA entered into an agreement with Global and its liquidators (Global having gone into creditors' voluntary liquidation on 28 April) under which it bought Global's assets for £35,000. The assets in question were expressed to include goodwill and intellectual property rights. £10,000 of the purchase price was attributed to goodwill and £8,000 to intellectual property rights.
- According to Mr Miller, he had asked CFM Corporation's then chief executive officer whether CFM was interested in purchasing Global's business and been told that it was not. Mr Miller does not, however, suggest that he informed CFM at this stage that he was acquiring a personal interest in another company dealing in domestic heating appliances. In the circumstances, Mr Miller was concerned to keep his involvement in the new company secret. While, therefore, Mr Stonier became a director of DFA on 1 May 2003, Mr Miller was not appointed as such. Nor did he take shares in his own name. DFA's issued shares were initially transferred to a Ms Helen Thompson on trust for Mr Stonier (as to 20%) and Mr Miller (as to 80%). By early 2004, Mr Stonier was DFA's only registered shareholder, holding 80% of the shares on behalf of Mr Miller.
- Although not formally appointed as a director of DFA, Mr Miller had some control over its bank account. The sole signatory on the account was Mr Lewis Griffiths of Hacking Ashton and he was not authorised to make any withdrawal of more than £1,000 without Mr Miller's approval. Mr Stonier managed DFA on a day-to-day basis.
- The second defendant, which is now called Hearth Products Limited ("FDL"), was established at much the same time as DFA. It was incorporated as Fire Developments Limited on 18 June 2003. Mr Stonier became the company's sole director and registered shareholder, though his wife appears to have acquired a 50% beneficial interest.
- Mr Miller had lent DFA £15,000 as working capital as well as the £35,000 needed to buy Global's assets. On 29 October 2003, however, the full £50,000 was repaid to Mr Miller.
- DFA carried on business as a wholesale supplier of heating appliances using the Global brand. The manufacture of gas fires would be undertaken by CFM (or, as it was to become, BFM Europe Limited ("BFM")). DFA would buy finished products from CFM/BFM and sell them on to its customers. In time, DFA came to deal in electric as well as gas fires and, here, goods would be manufactured for DFA by a Chinese company called Ningbo Richen Electrical Appliance Co, Ltd ("Richen") of which a Mr Zhou Wei ("Mr Zhou") was the general manager. Certain appliances had to be obtained from Richen via a Dutch company called Kebo de Heuning ("Kebo"). Percy Doughty and Cast Tec were among DFA's most important customers.
- DFA's product range was not confined to fires that Global had sold before its liquidation. It came to include a variety of other appliances developed by either Richen or Mr Stonier. Patent applications were made in DFA's name in respect of certain of Mr Stonier's designs. DFA also became the beneficiary of some patent applications that had first been made in the name of Global or Mr Stonier.
- Income derived from product research and development, including patent royalties, was treated differently from DFA's general profits from trading in gas fires. While profits of the latter kind would be split between Mr Miller and Mr Stonier on an 80:20 basis (in line with their interests in DFA's shares), research and development income was shared equally between them. Such income included royalties and licence fees paid by Percy Doughty, Cast Tec and CFM/BFM. A 50:50 split was, it seems, adopted as well in relation to electric fires sourced from Richen which Mr Stonier had not designed.
- Initially, the total dividend income greatly exceeded that from "royalties". In 2004-2005, dividends totalled £120,000 (of which Mr Stonier's share was £24,000), while "royalties" amounted to £60,000 (to half of which Mr Stonier was entitled). By 2010-2011, dividends had fallen to £4,300, but "royalties" had increased to £240,000.
- Mr Stonier also undertook design work for Kebo. His main development project for Kebo was for a flueless gas fire. Kebo paid FDL sums totalling in excess of £170,000 between 2003 and 2009.
- In October 2005, HM Revenue and Customs ("HMRC") initiated an enquiry into DFA's return for the year ending 30 April 2004. On 11 January 2006, two officers of HMRC met Mr Stonier and Mr Guy Weir, a chartered accountant whose firm undertook work for DFA. Notes of the meeting signed by all those present include these passages:
"CS [i.e. Mr Stonier] only spends approximately half a day a week on DFA LTD's business although he maintains overall control. He is remunerated through his other Company Fire Developments Ltd [i.e. FDL]."
and
[under the heading "Consultancy Fees/Professional Fees"]
"These are payments for CS's services working for Fire Developments LTD and to Miller for his services to the company. Payments to Miller are under code Z1."
- The words "Subject to the points made in our letter of 7.2.06" appear next to Mr Stonier's and Mr Weir's signatures on the notes. The letter in question, which is in fact dated 9 February 2006, was from Mr Weir to HMRC. It explains that, having reviewed the meeting notes, Mr Stonier would like to make certain comments, including this:
"Your notes state that CS spends approximately half a day a week on DFA Ltd's business. However the half day is an estimate of the time that CS spends at the premises of DFA Ltd, he spends a large proportion of his week on DFA's business. CS operates from an office at home."
- Early in 2006, Mr Stonier and Mr Miller bought an apartment together on the Spanish island of Mallorca. Mr Miller provided most of the deposit, but mortgage payments were to be shared equally.
- At the end of 2006, Mr Miller bought CFM from CFM Corporation for some £4.5 million. CFM was renamed BFM Europe Limited. Thereafter, the need for Mr Miller to keep his connection with DFA secret came to an end. He became a shareholder in DFA in his own name and, in time, was appointed as a director of the company.
- In 2006, CFM obtained an order from B&Q for a gel fire that Mr Stonier had designed. In turn, CFM ordered the goods from DFA, which placed an order with Richen. In the event, the fires proved not to be "Forestry Standard Compliant", with the result that B&Q cancelled its order. This resulted in a significant loss.
- By 2009, Mr Stonier had financial problems. Mr Miller agreed to lend him £2,000 a month for about six months from July 2009. In the event, he lent £2,000 in each of the six months between July and December 2009 and a further £1,000 in each of January and February 2010. The agreement relating to the loan provided for repayment to occur when the Spanish apartment was sold.
- By early 2010, Mr Stonier and Mr Miller had acquired a company incorporated in the United States of America, American Electric Fires LLC ("AEF"), as a vehicle through which to carry on business in the United States supplying LCD electric fires. Mr Stonier and Mr Miller both became shareholders and directors of the company, and Mr Stonier managed it on a day-to-day basis. Trading began in March 2010. DFA provided funding, in part from cashflow and in part by borrowing from National Westminster Bank ("the Bank"). Mr Stonier and Mr Miller guaranteed the loans in part. In the event, the venture was not successful. Mr Miller described the volume of sales as "insignificant".
- Mr Stonier's financial difficulties persisted. By the spring of 2011, he had told Mr Miller that he could no longer afford to pay his share of the mortgage payments on the Spanish apartment and that he needed to sell the property. Mr Miller appears to have offered to bear the full mortgage instalments (in effect, lending half of them to Mr Stonier) for a year or so, but Mr Stonier preferred to have the apartment sold. By the end of March 2011, some property agents, First Mallorca, had been asked to value it, and on 9 May Mr Miller and Mr Stonier instructed First Mallorca to put the property on the market at a price of €1.15 million. On 27 June, First Mallorca told Mr Stonier in an email:
"We have started offering your penthouse to our clients and we have received some good feedback so far. We will probably show your apartment within the next 2 weeks to some of our clients who are searching for an apartment in Gran Folies."
When Mr Stonier asked about progress a few weeks later, First Mallorca said:
"We have offered your apartment, which is one of my favourites at present in Gran Folies to our clients quite frequently. I have a client who will be coming in August and who wants to view it with me. The market in Gran Folies is stabilizing again since most of the apartments from the promoter have now been sold. There is only one Penthouse left from the developer for 1 M Eur …. When this will be sold the Gran Folies penthouse market will stabilize and we will have higher chances in selling it in a decent timeframe."
- The apartment was then, however, withdrawn from the market. In an email to First Mallorca of 28 July 2011, Mr Miller expressed disappointment that potential purchasers were being shown around the apartment without his knowledge and said that, with immediate effect, it was no longer for sale. On the following day, Mr Stonier similarly informed First Mallorca that he and Mr Miller had "taken the decision to take the property off the market with immediate effect".
- By this stage, Mr Miller and Mr Stonier had agreed that the former would buy the latter's interest in the apartment. In the end, Mr Stonier transferred his share to Mr Miller in November 2011 for some £92,000. That sum was arrived at on the assumption that the flat as a whole was worth €900,000. Various adjustments were made with the assistance of Mr Weir.
- In parallel with the sale to Mr Miller of Mr Stonier's interest in the Spanish apartment, steps were taken to transfer the Global business from DFA to BFM. Mr Miller was evidently worried about the implications for DFA of Mr Stonier's financial problems. Notes of a meeting Mr Miller had with Hacking Ashton on, it seems, 13 June 2011 include this:
"MM [i.e. Mr Miller] concerned[.] CS [i.e. Mr Stonier] says he struggling financially[,] needs money[,] may have to go bankrupt".
Mr Miller considered that he "needed to take steps to protect our commercial interests and the joint venture" (in the words of his skeleton argument). By 14 June, at a meeting with Mr Mohammed Akram of Hacking Ashton, Mr Miller was speaking in terms of BFM purchasing DFA's trade and assets, though DFA would "still remain a ltd. co. and continue with buying stock from China". Within days of this, Mr Miller and Mr Stonier were proceeding on the basis that there would be such a transaction but that the patents held by DFA would not be included. On 22 June, Mr Weir said in an email to Mr Stonier that he thought it would be useful to list DFA's intangible assets "as part of the new structure of DFA going forward (ie excluded from the sale of the business to BFM[)]". On 5 July, Mr Miller emailed Mr Akram and a solicitor from Read Gibbons LLP, who had been instructed to act for DFA, about the sums to be paid for DFA's goodwill and property.
- The transaction was ultimately carried into effect by an agreement dated 8 November 2011 between DFA, BFM and BFM Europe Holdings Limited (with which Mr Miller had bought BFM). The agreement provided for the purchase by BFM of DFA's premises, fixtures, fittings and the goodwill of the Global business for a total price of £350,575. £205,000 was apportioned to the property, £15,575 to the fixtures and fittings and £130,000 to the goodwill. DFA retained the patents it held and the benefit of pending patent applications.
- For practical purposes, a transfer had evidently occurred earlier than the date of the signed agreement. The agreement itself referred to DFA's two employees (Mr Andrew Cooper and Miss Sarah Machin) having been transferred to BFM from 1 July 2011. In cross-examination, Mr Stonier said that the transfer took place at the end of June "to all intents and purposes".
- Following the transfer, DFA no longer dealt in gas fires. It continued to receive income from intellectual property, but, whereas Percy Doughty had formerly bought fires from DFA, these were now supplied to it direct by BFM. DFA still stood to earn profits on sales of electric fires to BFM and Top Vent electric fires to Percy Doughty and Cast Tec, but it seems that no further Top Vent fires were in fact ordered.
- There is an issue between the parties as to whether Mr Stonier agreed that, if Mr Miller bought his share in the Spanish apartment (as he in the event did), he (Mr Stonier) would not compete with Mr Miller. Mr Miller gave evidence to the effect that Mr Stonier promised him that he "was not going to go off and start up in competition with [Mr Miller] or BFM or DFA" (to quote from Mr Miller's witness statement). That something along those lines was said is also suggested by contemporary documents. Thus, notes made by Hacking Ashton at a meeting with Mr Miller on, it seems, 13 June 2011 include this:
"CS [i.e. Mr Stonier] agreed not to sell property if MM [i.e. Mr Miller] can help out. MM worried if bail out CS may compete and/or go bankrupt anyway. Non compete clause? MM No not nec[essary] as given word already".
Mr Akram's notes of a meeting with Mr Miller on 14 June are also relevant. These refer to Mr Miller buying the Spanish apartment if Mr Stonier agreed to "certain transactions" and proceeded to give a list that included:
"CS [i.e. Mr Stonier] provide and has agreed not to compete with the business of DFA following purchase of business by BFM and purchase of property by MM for €900,000".
- Whether or not, however, Mr Miller understood Mr Stonier to have agreed by 2011 that he would not compete with DFA's business, non-competition obligations were discussed in the first part of the next year. On 6 March 2012, Mr Weir summarised proposals put forward by Mr Miller that included:
"CS [i.e. Mr Stonier] not to develop products as an alternative product against the Celsi, Intergrate or Top Vent products/patents."
In a similar vein, a draft agreement that Mr Weir prepared at about this time for the parties' consideration contained the following:
"CS agrees not to develop any product involving LCD within electric fireplaces whilst the above Celsi element of the agreement is in force or whilst CS is a party of AEF.
CS agrees not to develop any cast iron product to compete with the Intergrate technology for the lifetime of the agreement
CS agrees not to develop any product to compete with the Top Vent technology whilst this product continues to benefit DFA."
- By this stage, Mr Stonier had for some time been thinking of developing his own gas fire business. He had, it seems, been developing gas appliances for FDL since July 2011. In August 2011, Mr Stonier told Mr Zhou of Richen that he was planning to manufacture gas fires, and by November he was in discussions about premises in Stafford. In April 2012, FDL changed its name to Hearth Products Limited, and in the following month Mr Stonier received prototypes of the new products from Richen. On 1 June 2012, Mr Cooper, who had been DFA's national sales manager until his employment was transferred to BFM in mid-2011, was appointed as a director of FDL.
- During cross-examination, Mr Stonier commented:
"I didn't have Global any more. Global was now with BFM, it was finished."
- In February 2012, Mr Miller told Mr Stonier that payments that BFM had been making by way of licence fees were being brought to an end. In an email to Mr Stonier of 17 February, Mr Miller said that there would be "no further payments for the powerflue technology and the packaging design after the payments made at the beginning of this month" and that "the agreement for the Celsi LCD technology" would terminate in six months' time (though there were "discussions to enter into a further agreement for that technology to take effect immediately after the end of the existing agreement"). In his response, Mr Stonier said that the notice period was "understood and accepted".
- In June 2012, a trade show known as the Hearth & Home Exhibition was held in Harrogate. Shortly before the exhibition was to open, Mr Stonier told Mr Miller that it would include something he would not be happy about and went on to say that he (Mr Stonier) had set up an independent business. During the exhibition, someone gave Mr Miller a copy of a brochure prepared for the "Wildfire" brand that FDL (as "Hearth Products") was to use. Mr Miller was evidently incensed.
- On 20 June 2012, Mr Miller, Mr Stonier and Mr Griffiths attended a board meeting of DFA by telephone. Later that day, Mr Stonier sent Mr Griffiths an email in which he explained:
"Nine years on, DFA is obviously a very different company, as it is now purely a vehicle providing a royalty income to both directors and a facilitator of finance for the AEF business. I have adjusted to this new company position even though it has caused considerable financial strain for me and my family. As you are now aware however, I have progressed with other business plans for Fire Developments (which has now been renamed Hearth Products) to bridge this income gap."
In the course of his letter, Mr Stonier said that his intentions had "always been to continue with the ongoing business of DFA and to progress AEF", that he intended "to maintain the current status of DFA and to move forward with AEF in the US market with the addition of the new products" and that he felt that there was "nothing preventing DFA and AEF from continuing in its present format".
- On 22 June 2012, Hacking Ashton sent Mr Stonier a letter before action on behalf of BFM and DFA. This alleged breaches of Mr Stonier's duties as a director of DFA. It also included this:
"Yet further in November & December 2011 you personally warranted to our client at various meetings and in front of our client's Accountant, that in return for our client's Director, Mr Miller, paying you off in respect of a Majorcan property that you would not do anything that was in direct competition with Mr Miller or any of Miller's companies….
Therefore, by setting up and acting as a Director of Hearth Products Limited which is in clear competition with DFA and BFM you acted in breach of your duties and in breach of an oral Agreement made between our Michael Miller and yourself at the meeting in front of the Accountant in December 2011."
- Tinsdills Solicitors replied on Mr Stonier's behalf on 29 June 2012. For present purposes, it is enough to note what was said about the alleged warranty:
"Our client denies having ever warranted to Mr Miller that he would not compete directly with Mr Miller or any of his companies…. We should add that in the event that any such warranty was provided (which is denied) in the circumstances which you describe, it would simply be unenforceable."
- FDL (as "Hearth Products") appears to have made its first retail sale on 30 July 2012.
- In December 2012, Mr Stonier resigned as a director of DFA. Companies House received notification of the resignation on 17 December. Mr Stonier's resignation letter contained a reminder that he was "still a 20% shareholder of the company" and owned "50% of the rights to any technology within the company".
- On 28 April 2013, DFA assigned a variety of patent and other intellectual property rights to BFM for £38,000. The deed was executed on behalf of both companies by Mr Miller.
- In June 2013, the Bank told Mr Stonier that it considered that the sale of assets to BFM gave rise to an "Event of Default" for the purposes of DFA's facility agreements. On 18 October, the Bank made a demand for sums totalling £56,792.42. Early in 2014, the Bank sought payment from Mr Stonier and Mr Miller personally as guarantors. In March, the Bank agreed to limit the sums claimed from Mr Stonier and Mr Miller to £13,563.96. Mr Miller has offered to pay half of this amount, on the basis that the Bank would seek to recover the balance from Mr Stonier.
- The present proceedings were issued on 30 December 2013. The claimants are Mr Miller, DFA, BFM and AEF. The defendants, Mr Stonier and FDL (under it current name, "Hearth Products Limited"), have both disputed the claims against them and counterclaimed.
- On 13 October 2014, District Judge Williams gave a direction for all issues of liability (excluding any relating to causation of loss) to be tried by way of a trial of preliminary issues. A schedule to the order provided an agreed list of the preliminary issues to be tried.
The parties' claims in brief summary
- The matters in dispute between the parties narrowed somewhat during the trial.
- The claimants' complaints are focused on Mr Stonier's use of FDL as an independent development company and, later on, to run a heating appliance business. The claimants allege that Mr Stonier's conduct has involved breaches of the agreement that he made with Mr Miller in 2003; of his duties as a director of DFA; of fiduciary duties that he owed to Mr Miller as a co-venturer; and of an agreement he made with Mr Miller in 2011.
- For their part, the defendants claim that Mr Miller and BFM have committed economic torts (more specifically, the torts of inducing breach of contract, intimidation and unlawful interference) by their behaviour towards customers of FDL. In particular, the defendants say that Mr Miller and BFM are responsible for customers of FDL being told that BFM would not supply them if they continued to stock FDL's products.
- As I have mentioned, an agreed list of issues was appended to the order directing the trial of preliminary issues. The parties helpfully refined the list in the course of the hearing. Even so, I do not consider it necessary to address every item on the list for the purposes of determining whether either side has established liability.
- The key issues can, I think, be conveniently considered under the following headings:
i) The 2003 agreement;
ii) Has Mr Stonier acted in breach of his duties as a director of DFA?
iii) Has Mr Stonier committed breaches of duties owed to Mr Miller?
iv) Has Mr Stonier acted in breach of an agreement made in 2011?
v) Have Mr Miller and BFM committed economic torts?
The 2003 agreement
- It is common ground that a binding agreement was concluded between Mr Miller and Mr Stonier in 2003. The parties differ, however, as to quite what was agreed. This matters both because Mr Stonier is alleged to have breached the agreement and because its terms bear on the allegations of breach of fiduciary duty.
- Mr Miller gave evidence to the effect that he and Mr Stonier agreed at the outset that the activities of the company that would acquire Global's business (in the event, DFA) would extend to the development of new heating products (with a particular emphasis on electric fires). Mr Stonier was already doing some work for Kebo. Kebo apart, Mr Stonier was not to undertake any product development for anyone other than the joint venture company or CFM and, where Mr Stonier's work produced anything for which a patent could be sought, the patent was to be applied for and held by DFA. In return, Mr Stonier was to receive 50% of the profits derived from product development. Mr Miller would not, he said, have been prepared to commit his resources to the joint venture if he had thought that Mr Stonier would be free to channel his time and ideas into a separate company of his own. So far as Mr Miller was concerned, FDL's role was merely to allow Mr Stonier to be remunerated in a tax-efficient way. He did not understand Mr Stonier to have a development company of his own or (subject to a limited exception as regards Kebo) to be engaged in development work otherwise than for the benefit of his joint venture with Mr Miller.
- Mr Stonier's account of events was rather different. According to Mr Stonier, his discussions with Mr Miller in April 2003 were focused on Global's assets. There was no mention of electric fires, he had not yet met anyone from Kebo and he had not even heard of Richen. Mr Stonier said that he told Mr Miller at an early stage that he (Mr Stonier) would need another income stream and so would be setting up his own product development company. Mr Miller (Mr Stonier said) agreed to this and FDL was established for the purpose.
- The idea of sharing royalty income equally first emerged, as Mr Stonier recounted matters, in the context of an idea he had for what became known as the "Arch Tray Damper System". Mr Stonier applied for a patent for this in his own name in June 2003, having, it seems, started work on it the previous month. On 25 June, Mr Stonier sent Percy Doughty a draft licence agreement under which FDL would have licensed Percy Doughty to manufacture and sell the product in return for a licence fee and royalties. When, however, Mr Stonier told Mr Miller of his discussions with Percy Doughty, he (Mr Miller) proposed a revised arrangement under which the appliances would be manufactured by CFM and supplied through DFA, with Percy Doughty under an obligation to order at least a specified number of items each year. £5 from the mark-up on each sale would, Mr Miller suggested, be treated as a royalty and divided equally between FDL and Mr Miller.
- In due course, a "goods supply agreement" was concluded with Percy Doughty on this basis. The agreement provided for Percy Doughty to make an initial payment of £8,000, and this went to FDL. It appears, however, that Mr Miller subsequently withdrew a similar sum for himself.
- Mr Stonier said that he agreed to Mr Miller's proposal because it was likely to be more beneficial to him in financial terms. A 50:50 split was subsequently adopted in relation to other products developed by Mr Stonier: in practice, it suited him (so Mr Stonier said) to exploit his ideas through DFA, with the rewards shared on a 50:50 basis. It was, however, no part of his agreement with Mr Miller (Mr Stonier explained) that DFA should have the benefit of all product developments or that it should own all patents. Mr Stonier could (he said) decide on a case-by-case basis whether or not rights were to be transferred to DFA.
- As Mr Stonier noted during cross-examination, FDL's role is at the heart of the dispute between the parties. On the claimants' case, FDL was (or at any rate should have been) no more than a vehicle through which Mr Stonier was paid. In contrast, the defendants maintain that FDL was a development company which could choose whether or not to pass the fruits of Mr Stonier's work on to DFA.
- I have not found this part of the case at all easy to decide. The task has been made harder both by the passage of time and by the very limited extent to which relevant documentary evidence is available.
- One document to which reference was made in this context comprises notes made by Mr Griffiths of Hacking Ashton at a meeting with Mr Stonier on 16 July 2003. This mentions several "Additional Docs", including "Technology xfer DFA ? FD". Mr Griffiths explained in evidence that Mr Stonier had suggested that there should be a transfer of intellectual property rights from DFA to FDL, with a licence back in favour of DFA. The rights in question, Mr Griffiths thought, would have been the intellectual property rights referred to in the agreement by which DFA bought Global's assets. In the event, the transaction did not proceed: Mr Griffiths said that Mr Miller did not agree to it. Miss Susanne Muth, who appeared for the claimants, suggested that Mr Stonier was trying to improve on the deal he had agreed with Mr Miller. It might alternatively be argued, however, that Mr Stonier's apparent desire for intellectual property rights to be vested in FDL indicates that he saw the company as more than a payment vehicle.
- Another of the "Additional Docs" mentioned in Mr Griffiths' notes was a consultancy agreement. Mr Akram subsequently drafted an agreement under which Mr Stonier would have agreed to provide consultancy services to DFA. Mr Stonier, however, denied giving instructions on the specific terms of the document and linked its existence to the fact that there was at the time a proposal for Mr Miller to have a shareholding in FDL. In the event, Mr Miller did not receive shares in FDL and no consultancy agreement was concluded.
- Miss Muth stressed that, in practice, patents were applied for and held in DFA's name: FDL did not itself make any patent applications between the summer of 2003 and 2011. Miss Muth relied, too, on a claim for tax relief made on the footing that DFA had incurred expenditure on research and development. Mr Stonier, on the other hand, emphasised matters such as his use of an FDL email address: Mr Miller could not, he suggested, have been unaware of the fact that FDL was a company undertaking development. For his part, however, Mr Miller gave plausible evidence to the effect that he did not notice such use of FDL's name. He observed that, during the relevant period, he thought that he knew FDL's purpose.
- A good deal of attention was devoted to the documents relating to the HMRC enquiry into DFA's return for the year ended 30 April 2004 (as to which, see paragraphs 17 and 18 above). Miss Muth made the point that Mr Weir's letter of 9 February 2006, written on the basis of instructions from Mr Stonier, showed that Mr Stonier saw himself as spending a large proportion of his week on DFA's business, as would have been the case if his development work was being done for DFA. However, Mr Andrew Maguire, who appeared for the defendants, argued that the words could refer to work done for FDL in the context of DFA business.
- Miss Muth was inclined to suggest that the idea of development work being transferred from FDL to DFA on a case-by-case basis emerged for the first time in Mr Stonier's oral evidence. When, however, Mr Stonier's solicitors were first sent the particulars of claim in 2013, they stated in their response:
"[T]he decision as to which company would benefit from new technology was entirely that of our client."
It seems to me, moreover, that evidence to similar effect was to be found in Mr Stonier's main witness statement. Mr Stonier said, for example:
"My responsibilities to DFA did not extend to disclosing any and all technological innovations to Mr Miller or DFA nor was I required to devote all my time to DFA. If I thought that we could jointly benefit from a technology by involving DFA in the supply chain I would discuss it with him, but I was not under any obligation to do so. It was no part of the agreement that all product designs/developments would be owned by DFA or that all patents would be owned by DFA and registered in its name. If I wished, I could engage in other consultancy arrangements, although in fact, I became so busy with my development work for FDL and Kebo and managing the day to day business of DFA that there was no time to do so" [Paragraph 5.2]
and
"So far as I was concerned, there was no obligation on the part of FDL to develop products solely for DFA and Mr Miller had no control over what I was developing. On the other hand it would not have made sense to approach a competitor of CFM without firstly discussing the development opportunities with Mr Miller and the possibility that DFA might benefit from the establishment of trading relationships incorporating new technology" [Paragraph 9.2].
- In the end, I have not been persuaded that there was any agreement that, Kebo apart, Mr Stonier should undertake product development only for DFA or CFM. On balance, I accept Mr Stonier's evidence that he indicated early on that he would be setting up his own product development company and that Mr Miller did not dissent. In any case, the likelihood is, I think, that it was only when Mr Miller was told of Mr Stonier's negotiations with Percy Doughty that the idea of sharing the fruits of development work on an equal basis arose. Since Mr Stonier (a) did not yet have any expertise in or experience of electric fires and (b) had not yet met anyone from Kebo, I do not think there will have been any reference to either electric fires or Kebo during the discussions of April 2003; that of itself casts doubt on the accuracy of Mr Miller's evidence more generally. That Mr Stonier understood himself to be free to undertake development work otherwise than for DFA or CFM is, moreover, indicated by (a) the fact that he applied for a patent in his own name in June 2003 and (b) his sending Percy Doughty a draft agreement for the grant to it of a licence by FDL. Subsequently, Mr Miller and Mr Stonier agreed arrangements under which royalties arising from Percy Doughty's use of the "Arch Tray Damper System" would be split between them, but it seems to me that this agreement was probably specific to Percy Doughty; on balance, I do not consider that there was any agreement for other income from research and development to be treated similarly. In practice, a 50:50 division was later adopted for other such income, but I do not think that Mr Miller and Mr Stonier ever agreed that development work had to be transferred to DFA and treated in this way. In short, it seems to me that Mr Stonier was entitled to make decisions on a case-by-case basis.
- Another point on which the parties differ relates to competition with CFM. The particulars of claim allege that it was an express term of the agreement between Mr Miller and Mr Stonier that the "new company" (i.e. DFA) "would not compete with CFM". As to this, Mr Stonier has said that it was understood between himself and Mr Miller that DFA would not seek to compete with CFM's "Kinder" range and, further, that Mr Miller spoke of being able to explain DFA's proposed contractual arrangements with CFM on the basis that they would enable CFM to make better use of its manufacturing facilities and to exercise control over the Global brand. I accept this evidence. It seems to me, accordingly, that the parties recognised that there would be limits to the extent to which DFA would be seeking (or would be able) to compete with CFM and, in particular, that it should not compete with the Kinder range. I do not, however, consider that there was any contractual term that there should be no such competition.
- In the circumstances, the claimants have not, to my mind, proved any breach of the agreement made between Mr Miller and Mr Stonier in 2003. The claimants' allegations depend on their establishing that the agreement contained terms which, in my view, were not in fact agreed.
Has Mr Stonier acted in breach of his duties as a director of DFA?
- As a director of DFA, Mr Stonier will have owed a number of duties to the company. Once the relevant provisions of the Companies Act 2006 had come into force, those duties will have included those for which sections 170-177 of that Act provide. More specifically, Mr Stonier will have had a duty to promote the success of DFA (see section 172 of the 2006 Act) and a duty to avoid conflicts of interest (see section 175 of the 2006 Act).
- Mr Stonier is alleged to have acted in breach of his duties to DFA by using FDL as an independent development company, by undertaking work for Kebo between 2003 and 2009, by working on developing gas appliances for FDL from July 2011 and by promoting his new "Wildfire" range through FDL from July 2012. In the course of her oral submissions, Miss Muth observed that Mr Stonier would plainly have breached section 172 of the 2006 Act if I found that it was a term of his agreement with Mr Miller that he should undertake product development work only for DFA or CFM and that Mr Stonier would plainly have breached section 175 if I found that FDL was a product development company.
- In the event, I have not accepted key aspects of the claimants' case on the agreement Mr Stonier and Mr Miller made in 2003. In particular, I have concluded that Mr Stonier indicated that he would be setting up FDL as his own product development company and that he never agreed that product development work should be undertaken exclusively for DFA or CFM. In the circumstances, there can, I think, be no scope for the claimants to complain of FDL being used as an independent development company, of Mr Stonier undertaking work for Kebo or of his developing gas appliances for FDL.
- Had it still been trading in gas fires when FDL (as "Hearth Products") launched its Wildfire range, DFA might well have succeeded in allegations of breach of fiduciary duty against Mr Stonier. However, DFA had in fact transferred the Global business to BFM with effect from 1 July 2011 (see paragraphs 27-30 above) and there was no prospect of DFA re-entering the gas fires market. By June 2012, DFA was, as Mr Stonier noted in the email quoted in paragraph 37 above, effectively "a vehicle providing a royalty income to both directors and a facilitator of finance for the AEF business". While, therefore, the Wildfire products competed with BFM's business, I cannot see that they can have constituted competition for DFA. Mr Miller was entitled to trade in gas fires through BFM despite being a director of DFA. No more, in my view, was Mr Stonier precluded from developing his own gas fire business by being a director of DFA.
- In all the circumstances, it seems to me that Mr Stonier has not been proved to have committed any breach of his duties to DFA.
Has Mr Stonier committed breaches of duties owed to Mr Miller?
- It is the claimants' case that Mr Stonier owed fiduciary duties not merely to DFA but to Mr Miller personally.
- In support of this submission, Miss Muth cited the decision of Etherton J in Murad v Al-Saraj [2004] EWHC 1235 (Ch) (the relevant point was not the subject of debate when the case reached the Court of Appeal: see [2005] EWCA Civ 959, [2005] WTLR 1573), J D Wetherspoon plc v Van de Berg & Co Ltd [2007] EWHC 1044 (Ch) (Lewison J) and [2009] EWHC 639 (Ch) (Peter Smith J) and Ross River Ltd v Waveley Commercial Ltd [2013] EWCA Civ 910, [2014] 1 BCLC 545. It is sufficient, I think, for me to quote a passage from the judgment of Lloyd LJ (with whom Mummery and Fulford LJJ agreed) in the Ross River case. Lloyd LJ explained:
"[34] …From these [i.e. cases to which Morgan J, the first instance judge, had referred in his judgment] it is clear that, although the analogy with a partnership may suggest that fiduciary duties are owed in the context of a joint venture, the phrase 'joint venture' is not a term of art either in a business or in a legal context, and each relationship which is described as a joint venture has to be examined on its own facts and terms to see whether it does carry any obligations of a fiduciary nature.
[35] Two particular cases were identified as examples of fiduciary duties being owed in a joint venture context. One is Murad v Al-Saraj [2004] EWHC 1235 (Ch), a decision of Etherton J. Morgan J summarised that case aptly as follows at para [247]:
'In Murad v Al Saraj, the claimants successfully argued that the defendant owed them fiduciary duties in connection with a joint venture to acquire a hotel. The fiduciary duties were held to arise because the parties were in the position of joint venturers, the relationship was one of trust and confidence, the defendant had taken on a number of responsibilities in connection with the joint venture, in some respects acting as the claimants' agent, the claimants had no relevant experience, they had no knowledge of the arrangements made by the defendant with third parties and they entrusted the defendant with extensive discretion to act in relation to venture which affected the claimants' interests. The judge ordered that the defendant should account for the entirety of his profits from the joint venture even though that remedy gave to the claimants significantly more than they would have obtained pursuant to an award for damages for deceit, to which they were also entitled.'
[36] It is to be noted that the fiduciary obligation was held to be owed by Mr Al-Saraj even though the joint venture was carried out through a jointly-owned company, Danescroft Ltd, and even though Mr Al-Saraj was not a shareholder in Danescroft, shares being held instead by a company wholly owned by him, Westwood Ltd.
[37] The second case is J D Wetherspoon plc v Van de Berg & Co Ltd [2007] EWHC 104 (Ch), on a striking out application, and [2009] EWHC 639 (Ch) at trial. It was not in dispute in that case that the defendant, a corporate agent, owed fiduciary duties to the claimant as principal. The issue was as to whether any of the three directors of the defendant owed such duties as well. Lewison J declined to strike out the allegation of fiduciary duty as against two of the three directors but, in his judgment given after the trial, Peter Smith J held that whereas one director was subject to a fiduciary duty, the other two were not. That result is a good illustration of the proposition that the existence of a fiduciary duty in such a case is very fact-sensitive.
[38] We were also referred to Crossco No 4 Unlimited v Jolan Ltd [2011] EWCA Civ 1619, [2013] 2 All ER 754 where Etherton LJ referred to his own decision in Murad as follows:
'In the absence of agency or partnership, it would require particular and special features for such fiduciary duties to arise between commercial co-venturers. It is clear, however, that in special circumstances they can arise: Snell's Equity (32nd ed) at 7-006; Murad v Al-Saraj [2004] EWHC 1235 (Ch) at [325]–[341], [2005] EWCA Civ 959.'"
- Miss Muth argued that the present case involved a joint venture giving rise to fiduciary duties. The relationship between Mr Stonier and Mr Miller was, she said, based on mutual trust. The fact that Mr Miller and Mr Stonier pursued their venture through DFA did not, she submitted, prevent them from owing fiduciary duties to each other. There was a classic quasi-partnership.
- In my view, however, Mr Stonier did not owe fiduciary duties to Mr Miller personally. In the Crossco No 4 case, Etherton LJ noted that there must be "particular and special features" for fiduciary duties to arise between commercial co-venturers. To my mind, no such features existed here. The present case is a very different one from, say, Murad v Al-Saraj, where the relationship between the Murad sisters (the claimants) and Mr Al-Saraj (the defendant) was "a classic one in which the Claimants reposed trust and confidence in Mr Al-Saraj by virtue of their relative and respective positions" (see paragraph 332 of Etherton J's judgment). As Etherton J noted (at paragraph 332):
"The reality was, as Mr Al-Saraj was well aware, that the Claimants were wholly dependent upon Mr Al-Saraj for his advice and recommendation in relation to the Hotel, and for the negotiations with Mr Al-Arbash and HHL, the instruction of professionals on their behalf, including in relation to the structure of the transaction and the documentation."
There is no question of Mr Miller having been similarly dependent on Mr Stonier in the present case.
- In short, Mr Stonier had contractual obligations to Mr Miller and fiduciary duties to DFA. He did not also, in my view, owe fiduciary duties to Mr Miller.
Has Mr Stonier acted in breach of an agreement made in 2011?
- It is the claimants' case that Mr Stonier entered into a non-compete agreement with Mr Miller in 2011. The point is put in this way in the particulars of claim (in paragraph 30):
"During negotiations and discussions between the two, in writing and orally, on 6 April 2011, 23 June 2011 and 25 August 2011, Mr Miller and Mr Stonier entered into an oral agreement at BFM offices whereby Mr Miller would purchase Mr Stonier's interest in the property in Mallorca in consideration for Mr Stonier's agreement not to compete in any way with the joint venture and/or the Claimants."
- Mr Miller said the following about this in his principal witness statement (at paragraph 59):
"We orally agreed that I would buy his [i.e. Mr Stonier's] share in the Majorca property subject to him giving credit for sums I had lent to him or for sums due from him. I remember having several conversations with him about this…. I … genuinely wanted to help him out. At the same time I suppose I was a bit suspicious and wanted his confirmation that he was not going to go off and start up in competition with me or BFM or DFA or do anything in breach of what we had previously agreed. Chris promised me that that would not happen. I accepted that promise at face value because I did not think that he would set up in competition with our joint venture and me."
- During cross-examination, Mr Miller spoke of Mr Stonier having promised that, if he were bought out by Mr Miller, he (Mr Stonier) would not use any of the money from the transaction to set up a competing business. Mr Miller also stated that Mr Stonier had said at several meetings that he would not be competing. There was, he said, no discussion of an end date for this undertaking or its geographical extent.
- In June 2012, Mr Weir told Hacking Ashton that he had been present when Mr Stonier had agreed that he would not compete with Mr Miller. Mr Weir has since, however, explained that he had muddled events of 2011 with those during the settlement negotiations of early 2012. I have no hesitation in accepting Mr Weir's evidence to this effect.
- For his part, Mr Stonier has been adamant that he never gave any kind of undertaking not to compete. As, however, I noted in paragraph 31 above, Mr Miller's evidence is corroborated to an extent by notes made by Hacking Ashton in June 2011. The notes appear to record that Mr Miller thought that a non-compete clause was unnecessary as Mr Stonier had "given word already" and that Mr Stonier had "agreed not to compete with the business of DFA following purchase of business by BFM and purchase of property by [Mr Miller] for €900,000". Mr Maguire queried these notes on, among others, the ground that the Spanish apartment was not withdrawn from the market until later, but the likelihood must, I think, be that Mr Stonier had by mid-June said something to indicate that he would not compete.
- On the other hand, there was no attempt to commit any non-competition undertaking to writing. Moreover, whatever Mr Stonier had said in 2011 was not, it seems, thought to render it unnecessary for Mr Miller to propose non-competition terms during the 2012 settlement negotiations (see paragraph 32 above).
- On balance, it seems to me that, while there is likely to have been reference to Mr Stonier not competing, he probably never said anything clear and definite enough to amount, in the context, to a contractual promise. Supposing, however, that I am wrong about that, any promise would anyway, I think, be unenforceable. "All covenants in restraint of trade are prima facie unenforceable at common law and are enforceable only if they are reasonable with reference to the interests of the parties concerned and of the public" (Chitty on Contracts, 31st ed., at paragraph 16-076). "Restrictive covenants between vendor and purchaser are looked on with less disfavour by the court" (Chitty, at paragraph 16-117), but the covenant "must … have been taken in connection with a genuine sale of a business" (Chitty, at paragraph 16-118). Here, any promise will have been given in connection with the sale of Mr Stonier's interest in the Spanish apartment rather than a sale of a business. Moreover, the undertaking that Mr Stonier is alleged to have given was not subject to any limits in terms of either time or geography and could have been expected to have had a serious impact on his ability to earn a living. In all the circumstances, it appears to me that any promise Mr Stonier gave is unenforceable on restraint of trade grounds.
- This conclusion, taken in conjunction with those I have arrived at above, must mean that, despite Miss Muth's able advocacy, the claim stands to be dismissed in its entirety.
Have Mr Miller and BFM committed economic torts?
- The defendants allege that Mr Miller and BFM have committed the torts of inducing breach of contract, intimidation and unlawful interference.
- The tort of inducing breach of contract involves knowingly procuring or inducing a third party to break a contract with the claimant. Breach of contract is an essential ingredient of the tort: see Clerk & Lindsell on Torts, 21st ed., at paragraph 24-20.
- The tort of intimidation is committed where:
"[A] delivers a threat to B that he will commit an act, or use means, unlawful against B, as a result of which B does or refrains from doing some act which he is entitled to do, thereby causing damage either to himself or to C"
(see Clerk & Lindsell, at paragraph 24-59). "So long as the defendant only threatens to do what he has a legal right to do he is on safe ground" (Rookes v Barnard [1964] AC 1129, at 1168, per Lord Reid). "[I]t is essential to the cause of action that the person threatened should comply with the demand" (Stratford & Son Ltd v Lindley [1965] AC 269, at 283, per Lord Denning MR).
- The tort of unlawful interference is based on the deliberate use of unlawful means. "The need for the claimant to establish that the defendant used unlawful means is central to ensuring that this economic tort liability is consistent with the fundamental principle established in Allen v Flood that, conspiracy to injure apart, the exercise of a right is not rendered unlawful by the bad motive of the person who exercises it" (Clerk & Lindsell, at paragraph 24-74). "[D]amage is essential to the cause of action and must be shown to have been, or be about to be, caused by the unlawful interference" (Clerk & Lindsell, at paragraph 24-73).
- The defendants sought to support their allegations by calling a number of retailers who testified to their dealings with BFM sales managers.
- Mr Gary Ball owns and runs KGM Fire Surrounds in Smethwick. He spoke of an occasion in the summer of 2013 when Mr Grant Eaton, a BFM sales manager, told him outside his showroom that he would have to close KGM Fire Surrounds' account with BFM unless he (Mr Ball) agreed to stop selling Wildfire products. Mr Ball said that Mr Eaton was "adamant that it was BFM company policy that [Mr Ball] couldn't receive stock of BFM products if [he] was also stocking Wildfire products". Mr Ball said, however, that he had told Mr Eaton that he would continue to sell Wildfire products (and had).
- Mr Paul Clifton is a director of Cliftons of Wrexham Limited, which has premises in Wrexham. Mr Clifton said that, during a visit to the company's showroom in the spring of 2013, Mr Richard Weston, a BFM sales manager, told him that he would have to close the company's account with BFM and stop supplying BFM products unless the company removed Wildfire products from its showroom. Mr Weston explained, Mr Clifton said, that there had been "history" between the directors of BFM and FDL. Mr Clifton said that his company had in fact gone on displaying and selling Wildfire products even though he had been left with a showroom full of BFM products that he could no longer sell.
- Mr Simon Evans carries on business in Heywood, Lancashire under the name "Phoenix Fires". He said that, when visiting his showroom in the spring of 2014, Mr Clinton Du Plessis, a BFM sales manager, told him that he (Mr Du Plessis) could not continue to supply BFM products unless Mr Evans ceased to stock Wildfire products. Mr Evans said that, in the event, BFM had carried on supplying him even though he still stocked Wildfire products.
- Mr Graham Stevenson, who is a director of a company that trades under the name "The Fireplace Studio", said that in about April 2013 he was told by Mr Clinton Du Plessis when he visited premises that the company then had in Nottingham that, unless he agreed to stop selling Wildfire products, he would have to close the company's account with BFM and cease supplying its products. Mr Stevenson explained, however, that he was not prepared to be dictated to and that his company has therefore continued to stock Wildfire products.
- The defendants' allegations were disputed by Mr Du Plessis, Mr Eaton and Mr Weston, with support from Mr Miller. Mr Eaton, for example, explained in his witness statement:
"What I actually said [to Mr Ball] was if Gary [Ball] was to stock our Kohlangaz products then it could not be alongside other basement products such as the Wild Fire products, because we (BFM) only put our budget end products in showrooms where they can be the cheapest on display."
As regards Mr Clifton, Mr Weston said:
"[W]hen I visited Cliftons in May 2013 I found that they had removed all Flavel and Kinder branded fires from display and replaced them with fires from the Wildfire brand…. I had no choice but to inform Paul Clifton that we would look to appoint an alternative stockist for the BFM brands that had been removed from display as they no longer met our criteria of having sufficient product on display within their showroom."
- On balance, however, I prefer the evidence given by Mr Ball, Mr Clifton, Mr Evans and Mr Stevenson, whom I found convincing witnesses. It is to be noted, as Mr Maguire pointed out, that Mr Ball, Mr Clifton, Mr Evans and Mr Stevenson come from different parts of the country and had no obvious reason to give untruthful evidence.
- Even so, I have not been persuaded that Mr Miller or BFM has been shown to have committed any of the torts alleged. In the first place, the defendants do not suggest that any contracts with FDL have been broken. To the contrary, their solicitors explained in a letter dated 28 April 2015 that FDL does not have contracts with retailers but "operates on the basis of individual orders and invoices". In the circumstances, there can be no question of Mr Miller or BFM having committed the tort of inducing breach of contract.
- Turning to the other torts that Mr Miller and BFM are said to have committed, the defendants seems to me to face two insuperable obstacles. In the first place, the claimants have not been shown to have used, or to have threatened to use, any unlawful means. No relevant crime, tort, breach of contract or other wrong has been identified by the defendants.
- Secondly, it has not been established that FDL has suffered any loss as a result of the claimants' conduct. Mr Ball, Mr Clifton, Mr Evans and Mr Stevenson have all continued to stock Wildfire products. The defendants relied in their counterclaim on the fact that a concern called Centredart had ceased to deal with FDL, but the individual trading under that name, Mr Martin Ormston, gave evidence that he had not been threatened by BFM. He had simply, he said, found a product that was more suited to his business. The defendants also pleaded that Neale Ferre Limited, trading as Emberz Fireplaces, had ceased to deal with FDL, but Ms Lacey Ferre of Emberz Fireplaces said in a witness statement:
"[A]t no point was Emberz Fireplaces told that if we display Wildfire products that BFM would no longer supply us with the products."
- It follows, as it seems to me, that the counterclaim must fail.
Conclusion
- For the reasons I have given, it seems to me that the claim and counterclaim should both be dismissed.
- My answers to the issues set out in the agreed list of issues can to an extent be gleaned from what I have said above. Other issues now appear unimportant. If, however, either party considers it desirable that I provide a specific answer to a particular issue, I shall consider doing so.
