First Subsea Ltd v Balltec Ltd & Ors

Factual and Procedural Background

This opinion concerns a trial of liability only, pursuant to an order dated 26 April 2012, in a complex action brought by Company A against a former director, former employees, and a former subcontractor. The principal claim was for conspiracy to injure by unlawful means, focusing on alleged conspiratorial conduct during 2003 and 2004. The case involves multiple causes of action against various individuals, some of whom were not defendants or had discontinued their involvement. The technology at issue related to subsea mooring connectors and pipeline recovery tools employing "ball and taper" technology, originally developed by Company A and its founders.

Company A was originally founded as a trading partnership in 1983 and incorporated in 1994. In 2001, a majority shareholding was sold to Company B, controlled by a third party, leading to tensions between the original founders and the new controlling interests. This resulted in operational conflicts, dismissals, and disputes over management and financial control. Subsequently, former directors and employees formed a competing company, Company C, which submitted bids for contracts also sought by Company A. Company A initiated proceedings alleging conspiracy, breach of fiduciary duty, breach of contract, infringement of intellectual property rights, and other claims.

The trial involved detailed examination of the conduct of the named defendants and others, the nature of the technology and products involved, the contractual and fiduciary obligations owed, and the circumstances of the formation of the competing company and its business activities. The proceedings also included prior related litigation, including employment tribunal claims and separate proceedings involving related parties.

Legal Issues Presented

1. Whether the defendants conspired to injure Company A by unlawful means, including breaches of fiduciary duty and contract, inducement of breaches, fraud, and infringement of intellectual property rights.
2. The scope and existence of fiduciary duties owed by former directors and employees to Company A, and whether those duties were breached.
3. The enforceability and breach of restrictive covenants and non-compete obligations in employment and director contracts.
4. Whether the conduct of the defendants amounted to dishonest assistance or fraudulent behavior.
5. The applicability of limitation periods and whether claims were time-barred or subject to extension due to concealment or fraud.
6. Whether the judgment in related disclosure proceedings should be set aside due to alleged fraud on the Court.
7. The extent of injury suffered by Company A and the appropriate remedies, including equitable compensation and damages.
8. The effect of settlements and releases entered into by some parties on the liability of others.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Court's Reasoning and Analysis

The court conducted a detailed factual and legal analysis focusing on the actions and intentions of the principal individuals involved, particularly the former directors and employees of Company A and the formation and operation of the competing company, Company C.

Initially, the court established the timeline and nature of the business relationships, the corporate and employment arrangements, and the tensions arising from changes in control and management. It found that from around the end of June 2004, the former director and a former employee (referred to as Mr Emmett and Mr Brown in the source text) agreed and acted in concert to establish a competing business, submitting bids for contracts that Company A also sought. This concerted action was not wrongful per se, but the court then examined whether the means employed were unlawful.

The court examined the mental element of conspiracy to injure by unlawful means, applying established legal principles requiring intention to harm. It found that initially the defendants hoped to buy back Company A but later intended to compete, knowing that their success would injure Company A. The court held that the requisite intention was established.

The court then considered whether other individuals (employees or contractors) were co-conspirators. It found insufficient evidence to conclude that some, including certain employees and contractors, joined in the conspiracy or shared the common design, distinguishing their roles from those of the principal conspirators.

Regarding fiduciary duties, the court summarized the legal principles governing directors' duties of loyalty and good faith, noting that such duties do not necessarily continue after the termination of the underlying relationship. It found that the former director retained fiduciary duties as a director until his resignation and was not effectively excluded from those duties despite operational sidelining. The court held that the former director and former employee breached fiduciary duties by, among other things, disloyally asserting Company A's insolvency to induce a key subcontractor to join them and by submitting premature bids competing with Company A.

The court analyzed breaches of contract by the defendants, including obligations of confidentiality, non-competition, and non-solicitation. It found that certain restrictive covenants were unenforceable due to their breadth and duration, particularly against some employees. It found breaches of contract by some defendants in relation to use of confidential materials and participation in the competing business, but rejected claims that inducement to breach contract extended to all alleged parties.

On claims of dishonest assistance and fraud, the court found no basis to establish a general tort of inducing breach of fiduciary duty, and held that the evidence did not show dishonest assistance by certain contractors. It found some deceitful conduct in concealing involvement in the competing company but did not find that this caused compensable loss.

Regarding the related disclosure proceedings, the court carefully analyzed allegations that the former director gave fraudulent evidence to the court. It concluded that while there were inaccuracies and honest mistakes, there was no conscious and deliberate dishonesty warranting setting aside the judgment or costs order. The court found that the competing company’s designs were developed mainly after the director ceased to be a director of Company A and that the claim of using Company A's plans was unsustainable.

On injury and damages, the court held that Company A suffered loss due to the premature bids by the competing company, which forced Company A to reduce its bid prices. The court rejected arguments that Company A’s knowledge of the bids barred its claims or that it acted with "unclean hands". It found that the conspiracy and breaches caused loss sufficient to warrant an enquiry into damages.

The court addressed limitation issues, finding that claims based on breaches occurring before December 2004 were prima facie time-barred, but that certain claims relating to confidential documents and inducement were not barred due to concealment and late discovery. It found that the limitation period was extended under statutory provisions for fraudulent concealment and for claims involving trust property.

In conclusion, the court found that Company A succeeded in proving conspiracy to injure by unlawful means involving breaches of fiduciary duty and contract by the former director and former employee, breaches of contract by a contractor, and admitted copyright infringements. Other claims were dismissed. The court deferred issues relating to relief and the liability of the competing company itself for further hearing.

Holding and Implications

Company A’s claims are partly upheld and partly dismissed.

The court held that the former director and former employee conspired to injure Company A by unlawful means, including breaches of fiduciary duty and contract, and that certain breaches of contract and copyright infringement by other defendants were established. Company A is entitled to an enquiry into damages for the losses caused. Other claims, including those of fraud on the court and conspiracy involving some defendants, were dismissed.

The court extended the time for appeal applications and adjourned further matters related to relief and the conduct of the action for a subsequent hearing. The decision does not establish new precedent but applies existing legal principles to complex factual circumstances involving corporate control, fiduciary duties, and competition law.