by whiskers

First Subsea v Balltec
[2017] EWHC 866 (Ch)

This is a story about ball-grabs. It also contains a serious warning for company directors: dishonest breaches of their fiduciary duty do not attract Limitation Act forbearance.

Ball-grabs are not cognates of POTUS-grabs. They are a clever idea for making underwater oil pipes less leaky. If you want an illustration of the brilliance of this device, you will find a diagram at the end of the first instance case report.

Ball-grabs were invented by Mr Emmett. Mr Emmett had birthed the ball-grab early on his career. His company, BSW Engineering had employed a small and cohesive workforce of six. If you wanted a Silicon Valley analogy, it would be set in a garage, with a basket ball hoop on the wall, and Mr Emmett would be played by Matt Damon wearing glasses and trying to look intelligent. Norris J, at first instance, clearly warmed to Bob Emmett and his ball-grabbing obsessions. He describes him thus:

Mr Emmett was a passionate engineer with unbounded enthusiasm for the technology he created and a deep loyalty towards those who had helped him develop it and market its products.

Sir Alastair took less kindly to the Claimants. He described one of them as an “abrasive” witness. For Emmett, had like poor Mr Toad, given the keys of his beloved firm to Toad Hall to the Stoats & Weasels. Needing extra investment to develop his ball-grabbers, he had sold a 71% stake to a rather unpleasant and corporate outfit in Aberdeen. This was not going to end well. The entrepreneurial spirit of the Garage was never going to gel with the sort of outfit that had HR departments, health and safety policies and zero talent in management of the free-spirited.

Mr Toad remained a director of the company, but was more and more excluded from everything. At the end, even the premises of the company. He had responded badly to the Stoats & Weasels sacking his best friend, Mole, and funded his best friend’s claim through the Employment Tribunal. Mole won, and that can’t have pleased the Stoats & Weasels one bit.

Mr Toad took against the libertine ways of the Stoats & Weasels- imposed Managing Director. He was the sort of man downloads porn onto receptionists’ computers for grins. The sort of man who lacks passion for ball-grabbing, but considerable enthusiasm for other types of grab.

And so, lacking a Badger to come to his aid and cleanse the Augean Stables, poor Toad started a new company in Ratty’s hole on the riverbank, with his old friends. Unfortunately, he did this when still officially a director. The gang tendered for three contracts to build ball-grabbers for Angolans. They won one of the tenders, and whilst losing the other two, forced the Stoats & Weasels to lower their tender price, thereby causing loss to Toad Hall.

Oh dear, poor Mr Toad. After a twenty four day trial, in which Stoats & Weasels threw everything at him and his nascent company; after a judgment of 487 paragraphs, Mr Toad defeated all the claims of the Stoats & Weasels. Except the claim for breach of fiduciary duty.

But his brief, 1 Essex Court’s, David Cavender, gave it one last shot: the Limitation Act. Mr Toad is out of clink, because the breach of fiduciary claim is time barred. Now some of you might be as unfamiliar with section 21 of the LA 1980 as you are of ball-grabbing activities. (Yes: there is life in the old joke yet).

In a nutshell, section 21(3) offers absolution for trustees and trustee shaped people from breaches of trust/fiduciary duty after six years. So say you – qua trustee – bunged the trust fund into the wrong investments because you are a bit thick – after six years from breach you’re in the clear.

The problem, though, is section 21(1). This is a two-headed avenging angel, and there is no redemption for the fiduciary – let’s say a company director like Mr Toad – who acts to the detriment of the company fraudulently. Equity doesn’t like fraudsters. (Neither does it like fiduciaries who feather their nest with trust assets – which Toad hadn’t done.)

Fraud is a nasty word, but that is what Toad had actually done.   He should have resigned from the company, shaken the dust off his feet and started afresh. He had tried to buy back Toad Hall, but the Stoats & Weasels had declined to negotiate. But all this notwithstanding, he had gone tendered against a company of which he was director. However badly that company has been treating you, it never excuses a lowering of the standard of fiduciary duty.

On a brighter side, I can report that Toad’s new company, with Ratty and Mole is flourishing and employs over 250 people. I’m sure that Mr Toad will be able to afford the relatively small amount of equitable consideration, for which he has been found liable. Also, given that the Stoats & Weasels lost on so many points of their pleaded case, the costs judgment will be lenient to Toad.