Court condemns Director’s Secret Profits

Clegg v The Estate and Personal Representatives of Pache and others [2017] EWCA Civ 256 (11 May 2017) (Bailii).

The Court of Appeal has recently considered a claim against a company director who misapplied company property for his personal benefit.

Facts

Mr Nigel Clegg and Mr Andrew Pache were joint shareholders and co-directors of a steel trading firm, GAP Steel Trading Limited (“GAP”). Between 2004 and 2008 Mr Pache secretly carried on another steel trading business for his own benefit, Focusplay Limited (“Focusplay”). Around September 2007 Mr Clegg partially discovered Mr Pache’s activities and objected but Mr Pache continued the business of Focusplay for his own benefit. Mr Pache died in October 2010.

Mr Clegg pursued claims against Focusplay and also against Mr Pache’s estate and his widow, Mrs Pache, on the basis of knowing receipt and unjust enrichment.

At first instance, Bird HHJ found that Mr Pache had used Focusplay to conceal the existence of profits and ordered that an account be given for this between 2004 and 2009 in respect of certain transactions. Mr Clegg and Focusplay entered into a settlement agreement. The court found that the value of the settlement agreement should be deducted from the recoverable profits.

The court further reduced Mr Clegg’s recovery by imposing a limitation of 50% upon the recovery of profits earned after September 2007. This was on the basis of Mr Clegg’s partial discovery of Mr Pache’s conduct.

Bird HHJ also rejected the claims against Mrs Pache, finding that she had no knowledge of the breach of fiduciary duty and that there was no basis for a claim for unjust enrichment.

Mr Clegg appealed the judgment.

Read the full article here.