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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Odyssey Entertainment Ltd v Kamp & Ors [2012] EWHC 2316 (Ch) (09 August 2012) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2012/2316.html Cite as: [2012] EWHC 2316 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		9 August 2012

HHJ Simon Barker QC :

Outline of the Claimant's claims

1. This action concerns the circumstances in which Odyssey Entertainment Limited (C) came to be placed in liquidation.
2. C's primary claims are against Mr Ralph Kamp (D1), a former director and employee, for breaches of statutory and fiduciary duties and of obligations under a written employment contract.
3. More specifically, C's allegations against D1 are of (1) breach of s.172 of the Companies Act 2006 (respectively s.172 and CA 2006) and clause 5 of his employment contract by failing to act in the way in which he considered, in good faith, would be most likely to promote C's success for the benefit of its members as a whole; (2) breach of s.175 CA 2006 (s.175) and clause 5 of his employment contract by placing himself in a position where his own interests conflicted, or might possibly have conflicted, with those of C; (3) breach of the duty not to profit from his position as a fiduciary, to an extent also a breach of s.175; (4) breach of clause 8 of his employment contract (clause 8) which restricts competition during the contractual term and for a one year period thereafter; and (5) breach of clause 9 of his employment contract (clause 9) which prohibits the use and disclosure of C's confidential information (as defined) without limit of time. D1 denies all these claims vigorously.
4. Timeless Films Limited (D2) is alleged by C to have been formed by and for D1 and to be liable as an accessory (through inducing D1's breaches, dishonest assistance and/or knowing receipt) to D1's alleged wrongdoing. D2 denies C's allegations no less vigorously.
5. Metropolis International Sales Limited (D3) was also alleged by C to be liable as an accessory to D1's alleged breaches of duty. By consent and pursuant to an order of Master Price made on 16.3.12 the proceedings between C and D3 have been stayed with no order as to costs. In fact, the terms of the consent order had been agreed and a draft order had been lodged for approval and sealing prior to the commencement of the trial on 12.3.12 and the trial was opened on the basis that C's claims against D3 had already been compromised.

Background to the parties

6. C was incorporated on 6.11.01 and commenced trading in early 2002 as a film sales, finance, and rights management business or agent, based in London. In essence, C's stock in trade was film distribution rights which it acquired, usually as exclusive rights, from film producers under sales agency agreements (SAAs) and sold on or licensed to distributors in territories around the world, but excluding the USA. C carried on this business from early 2002 until 2009.
7. In 2006, as an adjunct to C's business as a film sales agent, C established a subsidiary, Total Servicing Limited (TSL), as a means of generating a profit margin from handling the physical film materials (prints and master tapes) which C licensed and from handling physical film materials under other distribution agreements.
8. C was wound up on 9.9.09 with joint liquidators (JLs) being appointed pursuant to a members' resolution. The statutory declaration of solvency disclosed an expected surplus in excess of £620k.
9. At all material times C had four directors : D1, who was C's chairman and chief executive officer; Ms Louise Goodsill (LG), who was C's president and chief operating officer; and, two non-executive directors representing investors : Mr Lief Rosenblatt (LR) and Mr Randall Kau who was replaced as from 1.1.08 by Mr Sanjay Patel (SP). As a matter of course, board meetings were held quarterly at which reports were presented by LG and D1.
10. Funding for C was raised by the issue of A and B redeemable convertible preferred shares having a nominal value of US$0.001 each at a substantial premium (US$1k per share). In this way, and over time, more than US$5m (£3m) was raised from investors, principally wealthy individuals, including LR and SP. LR was C's first and largest investor, investing US$0.5m in November 2002 and a further US$0.5m in 2004. SP was amongst the smallest investors, investing US$100k.
11. LG was and is based in New York. Her business background before C included television and film production. LG had the original idea for C, was the principal author of C's business plan, and was responsible for raising capital from investors. LG's management duties were primarily to supervise C's legal, accounting and financial activities; this was to be, and was, done mainly from New York, but also involved regular business trips to C's offices in London and representation of C at film festivals. At all times, LG has been a shareholder in C, owning 50% of C's issued ordinary shares (having a nominal value of some US$8 equivalent to £5).
12. D1 was and is a UK resident and his career (more than 30 years) has been in television and film sales and representation. Immediately prior to becoming a founding director of C together with LG, D1 had been CEO of Icon Entertainment International (Icon), a film sales agency business which he had co-founded in 1995 with a well known film actor and his business manager. The attraction of C to D1 was that it presented an opportunity to be a stakeholder in a film sales agency business and to build up the business and thereby have the opportunity to generate a capital profit. D1's primary area of responsibility as a director and employee of C was sales and marketing. At all times, D1 has also been a shareholder in C, owning the other 50% of C's issued ordinary shares.
13. D1's engagement as CEO and LG's engagement as COO were formalised under contracts of employment as executives in identical terms, save for personalisation and that LG entered into her contract on 1.11.02 and D1 entered into his contract on 1.1.03.
14. These contracts were each expressed to be for an initial term of five years then continuing unless and until terminated by not less than one year's notice or as otherwise provided in the contract. By clause 5, the executive was engaged to undertake the duties and exercise the powers assigned by C's board, and to "well and faithfully serve [C] and use [his] utmost endeavours to promote the interests of [C]" and "[u]nless otherwise directed by the board, or prevented by incapacity, and subject to [vacations], [to] devote [his] full time, attention and abilities to the business of [C]". By clause 6, the executive's remuneration included a salary (initially £200k^[1]) and bonus based on pre-tax profits. As mentioned above, the contracts also contain provisions restricting competition during the term and for a subsequent period of one year (clause 8), and restricting the use and disclosure of confidential information (as defined) without limit of time (clause 9).
15. The employment contract issues between C and D1 include a disagreement as to whether or not D1's employment was terminated by mutual agreement pursuant to a written compromise agreement effective as of 31 August 2009 (the Compromise Agreement), and, if so, whether D1 was thereby released from the clause 8 restrictions.
16. D1 was still a director of C when it was wound up on 9.9.09, and formally resigned on 18.9.09.
17. D2 was incorporated on 26.5.09, following the filing of registration documents by D1's accountant, Mr Robert Braham (RB), a few days earlier, as a company having a nominal capital of £100, of which one £1 share was issued. D1's wife was appointed a director on 5.8.09. D1 was formally appointed a director on 1.5.10. D1 describes himself as a 50% shareholder in D2, owning the other £1 share issued by D2.
18. It is C's case that D1 has been at all material times and is the driving force behind D2. D1's case is that he did not become actively involved in D2, other than instructing its formation, until 1.9.09. D1 and D2's case is that on that date D2 began trading assisted by a start up loan (£20k) provided by D1 on 1.9.09. D1 accepts that as from 1.9.09 he was a de facto, even if not a de jure, director of D2.
19. D3 was incorporated on 21.5.09 (originally as Soaring Dynamics Limited, but with constitution documents dated as prepared at that time in D3's name and formally being incorporated as D3 on change of name on 1.8.09) by or as a fellow group company of Prescience Film Finance Limited (Prescience), a company which raises or arranges finance for films. According to D1, he informed Prescience's CEO, Mr Tim Smith, at the 2009 Cannes Film festival (held 13-24.5.09) that C would be winding down its business and, after the festival, Mr Smith informed D1 that Prescience would be forming its own film sales agency, D3, and then, in late June 2009, Mr Smith asked D1 if he would be interested in working for D3. D1's evidence is that he declined that proposal but did agree to a consultancy arrangement which he viewed as "a good way to earn some money whilst I was starting my own business from home". The consultancy arrangement is embodied in a written agreement dated 31.7.09 to take effect from 1.9.09 between D3, D2 and Barler Consulting Inc (Barler), a Swiss company (the Services Agreement). Barler is not a party to the proceedings, however, an issue raised in the proceedings is whether and, if so, to what extent D1 is obliged to account to C for any profits received by Barler.
20. A common theme of the evidence is that C specialised, albeit not exclusively, as a sales agent for family and children's films, including animated films. This appears also to have been the intended specialism of D2^[2] and Barler^[3], but not D3^[4]. It also appears that, at least to the world at large and to those engaged in film sales and marketing in particular, D1 was portrayed as joint CEO of D3^[5]. This goes some way to explaining the initial joinder of D3 as a defendant, and, of course, forms part of the background to C's claims against D1.

C's trading and operations – 2002 - 2008

21. D1's quarterly reports to C's board and C's board minutes provide a useful and informative contemporaneous documentary insight into the course of C's business. In order to keep the mood of the text in perspective, these reports may be read in the context of C's audited financial statements. In addition, it is also important not to overlook C's resources (staff and projects in progress) and off balance sheet assets (unexpired rights and reputation), particularly in the context of C's intrinsic worth and prospects.
22. D1's report for the 1^st quarter of 2003 (in fact covering also the trading in 2002) reported on six ongoing film projects and five potential new projects, and outlined plans to acquire or build a library of unexpired rights from other sales agencies in distress. D1 summed up C's business position as being on the verge of creating something hugely successful.
23. At 31.12.03, C reported a net accumulated trading loss of £1m but net assets, almost all of which were current assets, of £900k. At this point, £1.9m had been raised from investors and annualised operating costs were approximately £1m p.a.; on this basis, C was in a position to fund almost one year's trading even if no further sales were achieved.
24. D1's reports for the 2^nd and 4^th quarters of 2004 marked the realisation that securing a library would take time and, given C's available capital, would have to be achieved by piecemeal acquisitions. Relocation to offices in Covent Garden and careful monitoring of costs led to a reduction in overall operating costs (down to £933k for the year). The most notable feature was the early delivery and success of The Phantom of the Opera which helped to boost turnover for the year to in excess of £1.2m. C made a profit for 2004 of some £300k. An additional £1m was raised by the issue of further preferred A shares. C ended the year with £2.1m net assets, almost entirely represented by cash balances.
25. At the 1^st quarter 2005 board meeting, D1's and LG's reports raised the prospect of developing an equity fund to enable C to invest in films as a principal. LR is noted as questioning this proposal and in his oral evidence explained that he saw it as adding "another leg to the stool" with sales agency remaining C's core business, being low risk for low returns but still a steady business grinding out returns year after year.
26. In July 2005, for the 2^nd quarter, D1 reported a successful Cannes Festival and summarised C's business as having an "unquestionably high" reputation but being "a high maintenance business with a small profit margin". LR's evidence was that he understood that the growth strategy had shifted from acquisition of a film library to building a library by purchasing film rights through financing films.
27. D1 reported at the end of the 4^th quarter that 2005 had been a good year, but not the hoped for breakout year. D1 also noted that many of C's projects were animated films which have a longer (2 – 3 year) production time with deferral of financial returns on C's labours an inevitable consequence. At that time, the agreed strategy for C going forward was to concentrate on raising a film fund.
28. C's accounts for the year ended 31.12.05 revealed a steady turnover (£1.2m) with increased operating costs (£1.1m) offset by interest on cash balances (£73k) and a tax recovery (£96k). The overall result for the year was a net profit of £222k. An additional £130k was raised by the issue of further preferred shares. C ended 2005 with net assets increased to £2.5m, almost entirely represented by cash balances. D1's report on administration and staff, both existing and likely recruits, was very positive. At the year end, LG reported that C was a leading sales agent and financial advisor to European and American film producers; this was echoed in D1's 1^st quarter report of 2006.
29. The particular goal for 2006 was to bring a film fund to fruition. The intention was to establish the fund as a Cayman Islands based LLP with a minimum capital of US$15m and a maximum of US$30m. In his 1^st quarter 2006 report, D1 referred to C "having reached a turning point" and to an equity fund presenting the opportunity to "turn [C] from a small but profitable business into a much bigger, hugely successful valuable asset that can be sold one day to everyone's benefit". In his 2^nd quarter report, D1 emphasised both the reputation and soundness of C as a small company and also the need to expand through a film fund. D1 reported on five releases for 2006, and projects for seven more films in 2007 and a further three for 2008.
30. The fund did not come to fruition in 2006 (or at all); however, D1's and LG's reports for 2006 were very positive, referring to the high quality of C's staff, increased closings, 16 projects expected to be added to the "release slate" over the years 2007 – 2009, and a steady contribution to profit expected from TSL, the newly formed subsidiary dealing with physical film materials for distributors.
31. C's accounts for 2006 reported an increase in turnover (£1.5m) and an increase in operating costs (£1.44m) producing a similar operating profit to that of 2005 (£59k) which, together with interest on cash deposits, produced a net profit of £130K. C's net assets as at 31.12.06 were stated at £2.6m. Cash balances had reduced by £800k to £1.5m and work in progress and debtors had increased correspondingly; debtors included a loan to TSL to fund its start up (£130k).
32. At the end of the 3^rd quarter of 2007, D1 reported that C was at its busiest ever and was working on 25 projects, some recently 'closed'; C was working on projects for releases through to 2010; and, the staff were praised for their efforts and ability. In addition, the film fund, termed the January Fund, had opened for subscriptions. However, turnover was below budget because of delays in closings. This was viewed as a problem which would be overcome if C managed to raise the capital required for the January Fund because, as a financier, C would be able to influence closings and generate turnover. LG reported that the delays to closings were due in part to changes in UK tax incentives during 2006.
33. Both D1 and LG referred, for the first time, to The Nutcracker which had closed with a US$65m budget, had started shooting in July 2007 as an action/CGI^[6] film, and was expected to generate a sales fee advance of at least £300k.
34. In his 4^th quarter report, D1 set a different tone, referring to a downturn in staff morale and a very testing climate. There were no film closings in that quarter. The Nutcracker was in post-production. A showing at the American Film Market in November 2007 had not been as successful as forecast, but D1 hoped to be able to present a 20 minute screening to distributors at the Berlin market in February 2008.
35. LG's 4^th quarter report for 2007 identified three main factors as the cause of C's downturn : (1) the influence of third party equity groups on the timing of financial closings, (2) a writers' strike which also delayed closings and affected new film acquisitions, and (3) the state of the global economy. More specifically, four films were delayed causing a deferral of £250k in fees, two films were abandoned when funding was withdrawn, and two further films were delayed following the unexpected illness and death of an acclaimed special effects director.
36. C's accounts for 2007 revealed a material downturn in turnover (£542k), a significant increase in operating costs (£2.23m), a £50k contribution from TSL, which produced a net loss for the year, after interest and tax, of £1.56m. C's current assets reduced correspondingly, with cash balances halved (£789k), work in progress also halved (£315k), and debtors reduced by two thirds (£191k). The increase in operating costs (some £800k up on 2006) included the write off of previously capitalised costs relating to the establishment of the January Fund (£180k), the write off of marketing costs on films which would not come to fruition (£141k), and adverse currency exchange differences (£48k).
37. Looking to 2008, costs were to be saved by redundancies and tighter control of marketing expenses. Turnover was forecast at £1.47m with expenses at £1.51m, producing a forecast net loss in the order of £40k.
38. In his 1^st quarter report of 2008, D1 reported that the year had started well, with five films closing and progress being made on three further films (including Animals United). The release of The Nutcracker was to be delayed from Christmas 2008 to Christmas 2009. LG had increased her time spent working at the London office to at least 10 days per month and staff morale was reported to be improving. In summary, D1 reported that C had at least stabilised and was making some progress towards recovery in "what continues to be a very difficult worldwide slump".
39. At the 31.1.08 board meeting, the directors agreed to aim for 31.3.08 as the closing date for the January Fund. By the 30.4.08 board meeting, the January Fund had not closed and the board approved LG's suggestion that C might raise a further US$2m from shareholders and start buying and selling rights, including in China.
40. In his 2^nd quarter report for 2008, D1 noted that the Cannes festival had been very successful generating US$8.5m in gross sales and that these results were particularly pleasing given the "terrible state of the industry", which included the then recent closure of four significant US distribution companies. D1 also reported on C's high reputation for honesty and integrity and its standing (continued quality of product), and described C as "A bright light shining in the darkness". C had been involved in 24 made films, of which 14 had been released, and was presently working on 12 new titles.
41. Looking to opportunities and the future, D1 reported on an available underexploited library, possible sale or merger prospects for C, and the importance of access to investment capital to C's growth and future prospects. 2008 releases included Space Chimps. The report on 2009 releases included a recent test screening from The Nutcracker (still scheduled for release around Christmas 2009) before a UK audience which was said to have gone extremely well and the prospect of screening 30 minutes from the finished film at the Toronto festival in September.
42. In cross-examination, D1 confirmed that at that time he regarded C as viable and as an attractive proposition for a merger or sale.
43. The board minutes noted an improvement in C's turnover, a reduction in costs, and a corresponding improvement in cash balances. In summary, both D1 and LG reported that they were pleased with the state of C's core business and the board noted that C was at a crossroads and that it was necessary to either grow through library acquisitions, implementing the January Fund or securing a distribution deal covering China or to sell all or part of C (i.e. sale or merger) to a larger entity.
44. C's audited accounts for 2008 were not signed off until 9.9.09 (the liquidation date). Accordingly, the going concern basis was no longer applied. The contemporaneous financial information as at 31.12.08 appears from C's management accounts, which formed the draft for the audited accounts. These reported turnover at £1.25m, other income of £275k^[7], operating costs of £1.28m, and a net profit of some £242k^[8]. The balance sheet showed net assets at £1.34m of which £978k was held in cash and £469k was the value attributed to work in progress and debtors on a going concern basis.
45. After audit and restatement on the more conservative realisation basis, and disregarding (ie not consolidating) TSL's trading but taking account of the management fee paid to C, C's audited accounts for 2008 nevertheless recorded a material increase in turnover (£1.2m), marking a return to 2004 – 2006 levels, and a significant reduction in operating costs (£1.35m). After taking account of the continuing £50k contribution from TSL, interest earned and tax, the net result was a loss for the year of £80k. C's balance sheet reflected an increase over the course of the year in cash balances (£976k), a material increase in debtors (£344k), but a material reduction in work in progress to a nominal figure (£25k) and a material increase in creditors (£327k).
46. Comparing the management accounts to the audited accounts, the major differences are (1) the disregard in C's audited accounts of TSL's turnover from print sales (never a feature of C's audited accounts, which were prepared on an investment rather than a consolidated basis), and (2) the impact of the change of accounting basis, from going concern to realisation, on non-cash current assets and provisions for costs. Had the accounts been audited on a going concern basis, and bearing in mind the positive reports apparent from C's project notes, it is likely that the work in progress would have been at or close to the historic norm (upwards of £300k) and that C would have reported a post tax net profit (having regard to the foregoing, probably upwards of £100k).
47. At the time, that is at the end of 2008 and in January 2009, C's then current financial performance stood to be measured by reference to its management accounts. C had not achieved the turnover target set for itself in C's 2008 budget (£1.45m) but it had made up the shortfall by cost savings (£1.47m budget : £1.28m actual) and LG and D1 were of the view that the management accounts accurately recorded a profit for the year in the order of £240k. Overall, the outcome at the end of 2008 represented a material improvement on the 2008 budget prepared in 2007, which forecast a £40k loss for 2008.
48. In terms of existing and future projects^[9], as 2008 ended C had 10 ongoing film projects for 2009 and three for 2010, five further titles with signed sales agency agreements^[10]; C was also chasing five further titles (including a Postman Pat film, a Peter Pan film, and Chalet Girl) and was looking to secure eight further titles for the future which were the subject of discussions with established clients (including Constantin Films); and, at least 13 scripts (including Adam, the Serpent & Eve) had been read and were under discussion. In addition, C had a library comprising 13 titles (including Space Chimps) which were expected to generate some turnover in 2009 (c.£15k) from overages and otherwise provided connections for sequels (e.g. Space Chimps 2) and other future projects.
49. It is common ground that the year-end mood at C was optimistic, and that was reflected in a celebratory Christmas lunch hosted by LG and D1 for C's staff on the Orient Express and board approved bonus payments to each member of staff.

C's 2009 budget

50. Following C's usual practice, its 2009 budget had been prepared in about November 2008. Formal responsibility for the 2009 budget rested with LG, as COO. However, C's budgets were, in practice, drafted by D1 (sales) and Ms Sarah Simkin (SS), a chartered accountant and C's finance director, (operating costs and all other entries); they were then reviewed by LG, and finalised during one or more meetings in discussions between LG, D1 and SS in December each year.
51. In addition to coinciding with C's accounting period end, which helped with the budgeting for costs, drafting and review of the budget followed very shortly after the American Film Market, which presented a good opportunity and sound platform for D1 to consider sales forecasts for the forthcoming year.
52. In the ordinary way, and there is no suggestion that this did not happen in respect of the 2009 budget, C's budgeting process was iterative; a number of drafts would be produced, including - with LG's input - a worst case scenario.
53. The trial bundle contains several undated iterations for C's 2009 budget; the drafts include some producing a net profit (ranging from £16k to £79k) and others producing a net loss (ranging from £183k to £551k). Giving oral evidence, some three years later, perhaps understandably D1 had no clear recollection of these budgets or their sequence.
54. SS's^[11] evidence concerning the preparation of the 2009 budget was clear that the 2009 budget which had been approved by LG and D1 when they met in December and which SS then sent to the board was that producing a profit of £79k.
55. SS's written evidence also suggested that the budget showing a loss of £458k was prepared at that time by LG as the worst case scenario budget for internal information only; it does appear to have been prepared as a worst case budget, but it was not sent by SS to LG until 26.1.09 and was, as I find, prepared on or shortly before that date together with an alternative best case scenario budget showing a net profit of £59k. These revised budgets were prompted by D1 contacting C on or about 4.1.09 to express a material change of attitude on his part as to C's prospects and viability.
56. LG's evidence contained the most complete explanation of the 2009 budget finalisation process. Evidently, the final iteration produced by D1 and SS in November or early December 2008 for discussion with LG produced a £183k loss. During the review with LG, cost savings (£190k) were discussed and agreed as was a forecast increase in turnover (£70k). The result was a budget producing a modest net profit (£79k).
57. LG recognised that this budget, as with all previous budgets finalised by herself, D1 and SS, was still subject to consideration by the board as a whole, and LG made the further points that it would be likely to be subject to minor modifications in January and would in due course be subjected to a thorough review at the mid point of 2009.
58. However, as at 31.12.08, the budget showing a net profit of £79k was the budget collectively approved by the CEO, the COO, and the finance director.
59. With one exception, the dates of preparation of the other budgets are unclear, and in any event their preparation dates and content are not material to the matters I have to consider. The exception is the draft budget producing a £551k loss which LG identified as having been produced by D1 in the course of reconsidering the £79k net profit budget and having been discussed when they met on 9.1.09.

Reappraisal of C's business prospects and viability – January 2009

60. D1's written and oral evidence was that he habitually took time when C's office was closed for the Christmas / New Year holiday to review C's budget in the light of his reflection on the year past and further consideration of the year ahead.
61. D1's oral evidence was that until the end of 2008 he did believe that C's core stand alone business as a sales agent was viable ("a good [business] and stable") notwithstanding the general economic difficulties, which, as D1 noted in his evidence, included severe curtailment of funding opportunities following the collapse and/or rescue of a number of banks and financial institutions including Lehman Brothers (which had collapsed in September 2008).
62. However, in both his written and his oral evidence D1 stated that when he conducted this review he reached the conclusion that C would run out of cash during 2009 unless there was a major upturn in C's fortunes and that he struggled to see where new films would come from.
63. D1 explained that apart from his knowledge of the film market and concern about ongoing projects, he had based his thinking on C's management accounts for the year to 31.12.08 in the form then available and the 2009 budget showing a net profit of £79k.
64. Mr Hubbard, C's counsel, drew attention to the accounts available to D1 at the time, and which D1 said he considered. C's management accounts disclosed cash of some £976k and debtors of some £338k; in addition, C's subsidiary, TSL, had, as D1 would have known from its management accounts, cash in hand of £240k with other current assets being equivalent to its liabilities. Thus, there was £1.3m to £1.5 available to meet C's operating costs even if there was no additional income at all in 2009.
65. In relation to running out of cash, Mr Hubbard challenged D1 to explain how that might have come about and whether that was really his view given his agreement at a board meeting on 30.1.09 that C had available cash to fund its business through to mid 2010.
66. D1 explained that he was concerned about commissions due (ie debtors) in two respects, first that distributors in certain territories were slow at settlement and secondly that revenue projections for the year ahead, particularly in respect of The Nutcracker, simply would not be collected. D1 indicated that revenue relating to The Nutcracker was also included in C's 2008 debtors. As to The Nutcracker, revenue projections (for 2009) could not adversely affect cash balances available at 31.12.08 and D1 appears to be incorrect about revenue from The Nutcracker being included in debtors at 31.12.08; in fact, a small amount of cash had been received in relation to The Nutcracker and had been treated as deferred income and was therefore shown as an accrual (current liability) in the 2008 management accounts.
67. D1 was unable to identify a factual or evidential basis to support the suggestion in his evidence that C would run out of cash during 2009 beyond his assertion that, at the time, he was struggling to see where C could find new films. Mr Hubbard, fairly and with some force, challenged this assertion by reminding D1 of the film projects then being worked on and other projects in the pipeline and likely to do well in the future, including Postman Pat and Chalet Girl. In his closing submissions, Mr Caplan, returned to this point and referred to evidence as to delays with Postman Pat and the filming of Chalet Girl, and to D2's trading results in evidence as a basis for the submission that D1's view was borne out by events. However, that submission takes no account of the view that the board might, or would, have taken at that time if presented with information that these films might be, or even were likely to be, delayed rather than not materialise at all.
68. In the course of cross-examination, D1 was driven to extend the period for which funds were available at the close of 2008 to the middle of 2010 and, in so doing, D1 acknowledged that he had reached this conclusion in the course of his discussions with LG on 4.1.09.
69. It is arithmetically correct that if (1) C obtained no further receipts from new sales at all over an 18 month period starting on 1.1.09, and (2) C continued to maintain its office at the same level as for 2008, it would have exhausted its available cash in mid 2010. It may well also be correct that D1 had mistakenly calculated at the time (the end of 2008) that if C achieved no further sales and received no further funds, other than from existing debtors, it would run out of money during 2009. However, it is another matter altogether whether, even allowing for the credit crisis at the time, that was or could have been D1's considered view at the time of a realistic possibility or outcome for C.
70. In the event, D1 telephoned LG on 4.1.09 and informed her that he had reconsidered the state of C's business and had come to the conclusion that it was perilous and that C would be likely to run out of money before the end of the year unless further cash could be raised or a number of new films could be found.
71. LG's evidence was that from her perspective this marked a dramatic change of attitude and position on D1's part; she said in her written evidence that she was "taken aback" and "stunned". In contrast, D1 stated in his written evidence that LG had agreed with the fears for C that D1 expressed and had said to him that she "had seen this coming for over 6 months". However, the proposition that LG was not surprised by D1's telephone call does not accord with the other contemporaneous documentary material, with LG's reaction (convening an urgent meeting in London), or with LG's description during cross-examination of events at that time. My impression from the documentary material, fortified by LG's oral evidence, is that she was taken aback and stunned by D1's telephone call on 4.1.09, and I so find.
72. In consequence of D1's telephone call, LG flew to London and met with D1 on 9.1.09. At that meeting, D1 argued against putting a positive spin on C's circumstances and, as a matter of fulfilling his fiduciary duty, in favour of reporting C's situation to the board as terrible.
73. LG returned to New York and she and D1 worked together on a revised budget and on a draft joint report to the board. They were unable to reach agreement on a joint report and accordingly prepared alternative reports, which are dated 25.1.09. D1 also prepared a 4^th quarter report for 2008. In this report, D1 explained that The Nutcracker had not been finished in time for presentation at the American Film Market in November but had been screened in full to buyers in December who had passed on the film, disliking its dark and scary second half (described as including 6ft rats in nazi uniforms), and further that overtures that changes should be made had been rejected; accordingly, revenue estimates had been revised downwards (from £394k to £45k).
74. On 26.1.09, SS circulated to LG and D1 two revised budgets, a best case budget producing a net profit of £16k and a worst case budget producing a loss of £458k. In the event, LG and D1 presented only the worst case budget to the board.
75. In his written evidence, D1 stated that he felt at the time that C had three options : (1) raise more shareholder money (which he considered to be unlikely), (2) raise new money from elsewhere, and (3) close C in an orderly way. In fact, at the time he expressed options somewhat differently in his e-mail correspondence with LG : "the only 2 options that exist are to wind [C] up or to try to find a buyer, something I continue to believe will be very difficult in the current climate", and also in his 25.1.09 report to the board : "we really have only 2 options, one being to find a buyer quickly … the other to wind up the company and return as much money as we can to the shareholders".
76. LG's report to the board was more positive but did not advocate continuing in business on the current basis, namely as a stand alone sales agent. She drew attention to the existence of good projects in the offing (Peter Pan, Dark Crystal, and Vanilla Gorilla) but presented the £458k loss budget as a conservative reappraisal assuming only collection on sales already made (i.e. debtors) and very modest new business (1 small film and one big film with an advance). LG stated that she and D1 had always maintained that the key to success was ownership of distribution rights. No viable opportunities to purchase a library had arisen and the January Fund had been defeated by the credit crisis. LG acknowledged that the core business was strong but added that D1 and she "both feel that we must sell the company in order to move forward". LG identified synergies that would make C an ideal partner for an existing rights owner or investor, essentially C's proven ability to identify and access top quality product (in other words its personnel and consequential reputation).
77. It is to be noted that LG was not advocating that the core business remained viable for the foreseeable future. On the other hand, she was advocating sale in order to "move forward", i.e. for C's business to grow; this implies a sale of the business as a going concern. However, it is also to be noted that at the time of the original 2009 budget LG had not expressed the view that C's core business was other than viable.
78. An unspoken option, that is one which neither LG nor D1 endorsed, was to remain as an independent sales agent. The reason that this option was not advocated appears to have been or to have included on LG's part that it was not part of the business plan or the basis on which investors had bought preferred shares (referred to by LG as the execution of an event for C within seven years).
79. LG's written evidence is that D1 was of the view that the investors were "big boys", in other words that they were sophisticated investors who were used to making investment decisions, understood the financial risks involved, and had chosen to invest in a risky venture. That would be an entirely fair view for D1 to have held. Consistent with that, and notwithstanding LG's view that investors had been promised an event, there is no indication in the evidence that the non-executive directors, whether personally or as representatives of other investors, or that any other investors were pressing for a return on investment at that time.
80. Turning to the reappraisal of C's 2009 budget, subject to one adjustment, the £458k loss budget reflects the budget discussed by D1 and LG when they met on 9.1.09. At that time, the budget prepared by D1 produced a net loss of £551k. The one adjustment (+£93k) reflects the re-inclusion of income from print sales, which D1 had written off altogether.
81. The major adjustment made by D1 had been a very material write down in income expected from The Nutcracker (by £349k). As for the other films featured in the 2009 budget, four remained at their original estimates, six were reduced (£207k total reduction ranging from £14k to £66k), one (Easy Virtue) was increased (£5k), and an assumption was made that a BBC film would generate income of £75k.
82. In her written evidence, LG expressed her reservations about D1's revised sales forecasts as marking a radical turn-around from projections made only a few weeks earlier and as being materially lower than and add odds with C's turnover over the course of its trading history. Nevertheless, LG felt that she had to defer to D1 for his sales expertise, but the import of her evidence is that she retained a nagging doubt that such a savage reduction in budgeted sales was somehow excessive, even in the then current economic climate.
83. As for The Nutcracker, it is clear from D1's 4^th quarter 2008 report referred to above that he had a rational, evidence based reason for this very substantial reappraisal, and D1 elaborated on his reasoning in cross-examination. Having read and heard D1's explanation, I accept the adjustment relating to The Nutcracker as genuinely made. I also accept D1's original estimate as genuine. On any basis, the consequence of this adjustment was bound to be that C would have to present a loss producing revised 2009 budget to the board in January 2009.
84. As for the other reductions, these were justified by D1 in part on the basis of his critical reappraisal of particular territories and in part on the basis of the general state of the market (distributors cutting back, slow down in payments from several territories, production finance harder to find, Bunch of Amateurs and Wild Target not turned out as hoped). On the available evidence, it is difficult to see that any of these reasons had emerged or changed materially over the very short interval since finalisation of the £79k net profit budget. In my judgment, these adjustments in fact reflect the onset of a more negative attitude on D1's part. However, even if the full amount of the £207k reduction was restored to sales income in C's budget, the result produced would still be a net loss in excess of £250k^[12]. Thus, on any basis the board would have been considering C's future against a 2009 budget producing a material net loss for the year.
85. Finally, in relation to the meetings and discussions between LG and D1 before the board meeting on 30.1.09, there are two further matters which shed some light of potential relevance to the issues in this case.
86. First, LG was not challenged on her written evidence that, at the meeting on 9.1.09, D1 informed her that he had already taken advice from his accountant and his lawyer and that they had both suggested that an outside liquidator be appointed immediately to avoid personal liability. This may well explain the source of D1's reference to fiduciary duties at that time. That professional advice appears to have been obtained on D1's own initiative and instructions and for his personal account.
87. Secondly, in her written evidence LG referred to D1 not being interested in continuing to run the business for a year with a view to finding a buyer, and to asking D1 what his plans were. According to LG, D1 had replied that he would probably work in his family's real estate business and that, in relation to the film industry, he might eventually be an executive producer of a film or two. LG was cross-examined on the basis that this was unbelievable and a fabrication. In response, she explained that D1 had told her that he was stepping back from the film industry; that he had no specific plans but did not believe in the independent sales agency model any more; that his father had built up and sold a trucking business and invested the proceeds in real estate; that she remembered D1 stating that he had been a landlord when he was aged 18 years; and, that she understood that this had provided the means enabling D1 to afford a salary reduction in 2004. Mr Caplan, counsel for D1 and D2, put to LG that D1 was open about his intention to remain in the film industry to which LG responded that that was not his stance with her or the other board members.
88. During the course of giving this evidence LG maintained a poised demeanour with a confident voice, and she responded directly to Mr Caplan, neither looking down nor away, and not blushing around her neck and face as she tended to do when she found questions challenging (such as why she had accepted D1's sales estimates). During this questioning of LG, RK was unable to keep his head up.
89. As to evidence of D1's real estate ownership, RB, D1's accountant, referred to ownership of two flats. However, they were disposed of in 2007. There was some confusion about whether or not D1 owns a villa in Portugal, the evidence is that he does not. There was also reference to a property in Scotland; this appears to be to a one week timeshare at a golfing resort.
90. Notwithstanding that the evidence indicates that there was no real estate portfolio from which D1 might earn a living, on the question of whether or not D1 made such a statement to LG I have no hesitation accepting LG's evidence as honestly given and reliable.

C's board meeting on 30.1.09

91. Prior to the board meeting, LR and SP had received reports from LG and D1, the revised 2009 budget which forecast a £458k loss, and D1's 4^th quarter 2008 report. They met at LR's offices in New York. A little over one hour was scheduled for the meeting because SP had other commitments. LG took the minutes, which are accepted by D1 as an accurate record of the meeting. The board moved immediately to discussion about whether to liquidate C or attempt to sell it. D1 opened the discussion with an explanation of the serious deterioration in market conditions : distributors cutting back on acquisitions; several territories being slow at paying; production financing being harder to find; and, several films not turning out as expected (particularly The Nutcracker and also Bunch of Amateurs and Wild Target). D1's conclusion was that without a quick injection of equity C would not survive and, in any event, without capital to participate in film financing or guaranteed distribution in several territories, independent sales agents, such as C, were no longer viable.
92. LG's report was more positive. However, on the particular question of the viability of independent film sales agents, her observation was that distributors had become risk averse and were looking to purchase rights to completed films; in consequence, sales agents were having to invest in films. LG's conclusion was that to succeed C would have to be an owner/agent. On that basis, and C having failed to raise its own fund, LG saw a sale as inevitable but not a matter of pressing urgency; that is the important difference between the views as expressed by the two executive directors.
93. Although there is no record of discussion about C continuing in business, even on a further reduced cost base, LR said in cross-examination that he recalled such discussion taking place. If so, it was not minuted and cannot have been viewed as a realistic alternative to liquidation or sale.
94. What emerged from both the written evidence and the cross-examination of LG, LR and SP is that they all deferred to D1's long experience and expertise as a film sales agent (the expert witnesses were agreed that D1 is a leading individual UK film sales agent) for guidance as to C's sales prospects and, more generally, the market for independent sales agencies. In so doing, they were not simply accepting whatever D1 might say in disregard of their own powers of thought nor were they in dereliction of their duties as directors. Rather, they were giving due weight to the one of their number who could speak with particular authority on the general market for sales agents and the specific position of C.
95. The minutes indicate that LR and SP placed emphasis on a speedy investigation into whether there was a market for C and they assumed that this was a task which LG and D1 would carry out. LR and SP were influenced by the sense of urgency and doom in D1's report but at the same time they wanted to ensure that sufficient time was taken to allow for a proper investigation of the market, if any, for C. The balance to be struck was between trying to find a way through the difficulties facing C and not frittering away C's equity investment. Accordingly, the board agreed to postpone any decision for three months or so in order to allow time for investigation into the market for C. The board minutes refer to the task of searching for an investor or partner in the first person plural, but it is not apparent that any board member other than LG would in fact be actively involved in the search.

D1's conduct January - May 2009

96. The project notes for January to April 2009 and the sales agreement documents in the trial bundle confirm that over the 1^st quarter of 2009 work continued on film titles for which C had signed contracts and others which C was seeking to secure; in addition, new scripts were being read and discussed.
97. On 20.1.09, Ms Sarah Arnott (SA), whose role at C involved reading and recommending scripts and building good working relations with producers and others to lay the ground for agency agreements, sent an e-mail to LG and D1 asking for more involvement at executive director level to help convert projects into agent's agreements. In her written evidence, SA was critical of LG's skills at securing agent's agreements. However, SA also explained in her written evidence that this e-mail was sent partly to protect her own position.
98. SA, who is a witness called by D1, gave evidence that D1's response was to discuss the current problems of C's business with her, express pessimism about C's future, and inform SA that at a forthcoming board meeting it was likely that the board would decide to close C down. SA said that her impression was that D1's view was that it would be best for the shareholders and for the orderly unwinding of contracts if C was closed sooner rather than later. SA also said that D1 reassured her that if C did close he would set up his own company as and when he was free so to do and would offer SA employment. SA referred to carrying on with her job as best as she could, including making sales trips to Los Angeles which LG did not attend because, as SA understood it, LG was busy trying to secure an investor or partner for C.
99. When cross-examined about this passage in SA's written evidence, D1 did not reply to the question "You had already written [C] off, had you not?". When asked whether he agreed with SA's account of their conversation, D1 said that he could not recall what they had discussed but he agreed that he was very pessimistic about C's future.
100. Returning to Mr Hubbard's cross-examination of D1, D1 also said that he was pessimistic about his own future. This prompted a challenge as to why, on 15.1.09, D1 had responded to an earlier e-mail from SA to both himself and LG, about the postponement of filming Chalet Girl from March 2009 to winter 2009, by replying only to SA. D1's answer was that he had no idea and that he had probably just clicked 'reply' rather than 'reply to all' on the e-mail toolbar. However, that answer does not sit well with the terms of D1's e-mail in reply "Good decision to postpone because this is one I am really keen on. You and I can discuss more next week". Neither of those sentences makes any sense as a reply intended for LG's consumption. They do, however, support SA's evidence about D1 discussing his plan to establish a sales agency business as soon as C was closed down and he was free so to do. Mr Hubbard put this point directly to D1. D1 answered that that was ridiculous and that he did not start thinking about his personal plans to remain in the industry until May 2009. That is, of course, inconsistent with the evidence referred to above about his conduct at the time.
101. When it comes to evaluating D1's state of mind and intentions in the lead up to and at the board meeting on 30.1.09, it is relevant that (1) over the period from the closure of C's office for the Christmas 2008 / New Year 2009 holiday to the meeting with LG on 9.1.09, D1 had taken advice from his lawyer and accountant which included advice as to fiduciary duties and which advice was neither sought on the instructions of nor for the account of C; (2) D1 had given thought to the effect of C's closure on its existing contracts and the need to maintain order; and, (3) D1 had already discussed with SA the likely closure of C and future projects regarded as important and expected to come to fruition after such closure.
102. Pausing here, SA's evidence and the e-mail traffic between SA and D1 referred to above fortifies my finding that D1 had, as LG stated, informed her, and thereby C, that he would be leaving the film industry, save possibly for very occasional involvement as an executive producer. It also indicates that in so stating D1 misled LG and, thereby, C.
103. Returning to the chronology, in December 2008, one of the titles on the list of projects to chase was Postman Pat. This title remained on the project notes throughout January 2009 but was omitted as from February. LG's evidence is that D1 told her that Postman Pat had been put on hold because Classic Media was up for sale. In cross-examination, LG agreed that Classic Media had been put up for sale but added that that was quickly resolved. LG's complaint was that she had not been told of the revival of negotiations, evidenced by e-mails between D1 and Doug Schwalbe (DS) of Classic Media during February 2009 or that by March or April the project was "back on track". She was unaware at the time that DS had effected an introduction for D1 to "the creative mind behind Postman Pat" and that they had met on or about 18.3.09. DS's evidence was that, although he could not remember the specifics, he and D1 continued to discuss Postman Pat over the course of that period. DS did not remember, and frankly volunteered that he did not care, whether D1 was acting throughout on behalf of C or on his own account; what mattered to DS was that D1 was interested in the sales agency for Postman Pat. Although there is no documentary evidence of communications in March or April 2009, as from May 2009 D1 had ceased communicating with DS via his work e-mail address and was communicating with DS via a personal e-mail address.
104. A further issue arising on the pleadings and raised by LG in her written evidence, but not the subject of challenge in cross-examination, was that as from about mid February 2009 regular communication between D1 and LG dropped off dramatically. Of course, regular communication is not one way traffic; LG's point was aimed at corroborating the point that D1 was directing his attention elsewhere than C. As a free standing point, it is of little weight; there are only so many times that a nil return can sensibly be reported. However, it is not insignificant that there were no reports of the discussions or negotiations that actually were progressing, such as with Postman Pat.
105. D1's 1^st quarter 2009 report makes no mention of Postman Pat. Indeed, the report on ongoing and new projects was brief and unpromising : D1 reported that C had closed on Sex & Drugs & Rock & Roll and had received an executive producers fee of £50k; that there were no further films to close; that only two new projects had been found, one of which had been lost to a competitor and the other had a good script but was at a very early stage; and, that new business was only available to sales agents able to invest in the films.
106. Again, such evidence cannot be ignored when evaluating D1's state of mind and intentions at this time.

Experts' view of the state of market in early 2009 and of C's prospects at that time

107. Both experts, Mr Satesh Mathura (SM), instructed by C, and Mr Vincent Holden (VH), instructed by D1 and D2, agreed that by 2009 the economic climate had had an adverse effect on the independent film industry. They also agreed that finance for independent films was known to be and was available. However, they did not agree on the prospects for independent sales agents.
108. During cross-examination, SM acknowledged that over the period mid 2008 to mid 2009 distributors were cutting back on acquisitions, but observed that money was still being raised and films continued to be made. SM agreed that distributors were focussing their production involvement more on local films, that production financing was becoming harder to find, and that financiers were "cutting tougher deals" (i.e. reducing margins) for sales agents.
109. SM's report included a section on the survival or otherwise of independent sales agents who were members of Film Export UK, the trade body for UK based film agents. Of the 29 members at 7.2.12, 21 had been trading since before 2009. Of that 21, all were trading actively throughout 2009 and eight had either the ability to invest their own money in films or were attached to funds which had such an ability. Apart from C, SM identified only two other independent agencies which had left the market after 2008 (one through insolvency, the other by ceasing to trade). What this information does not do is provide any insight into whether the 21 sales agents were comparable to C in size, running costs, capital structure, reputation, or level of operation. It does, however, confirm that it was by no means the view of others operating in the same market place that the independent sector of the film industry was in terminal decline or, less dramatically, that there was no future for independent sales agents.
110. SM remained open to applying his mind to questions and points as they were put to him and he gave considered answers in response. He did not view cross examination as a challenge to his personal expertise or standing, but as a process of testing opinions to reach a conclusion.
111. VH's written report included a critique of C's ability to withstand financial pressure and a statement of his opinion on the reasonableness of C's decision to wind down its business in May 2009. In consequence, his written report strayed from the matters referred to him for expert guidance. In oral evidence, VH explained that he decided to opine beyond his instructions because he thought that D1's views were correct. On this point, Mr Hubbard demonstrated, during cross-examination, VH's want of information relevant to C's particular position and that his opinions were based on information obtained from the UK Film Council, which did not provide a properly comparable, and therefore reliable, platform on which to found an opinion as to C's position. It is far from clear to me that VH is qualified, whether by profession or experience, to give expert evidence on the financial matters concerning C he chose to address.
112. Mr Hubbard cross-examined VH on the challenges which independent sales agents faced in 2009 and asked him to confirm that two of the challenges he had listed (A and F) were in fact the same thing; after initial equivocation and an attempt to introduce a point covered as another challenge (D), VH conceded that the two challenges (A and F) were "similar". This was one of a number of examples where, instead of considering the question asked and answering it directly, VH's natural reaction was to attempt to defend his report.
113. Questioned about sources of information for his reports, VH's answers indicated that apart from UK Film Council material, some of which had been the product of his own work, he had drawn on telephone enquiries of lawyers and others with whom he had professional contacts.
114. Mr Hubbard concluded his cross-examination of VH with questions about his fee. VH was asked to confirm that, as stated, his services as an expert had been provided for no fee; which VH confirmed. He was then asked whether he expected to receive a fee. VH was reluctant to answer this question, but when directed to answer, confirmed that a fee had been discussed but not agreed and in response to the question "Have you agreed that a fee will be payable?" answered "Yes, well, in my mind yes we have, yes".
115. In closing submissions, SM was criticised by Mr Caplan for being extraordinarily superficial and for producing a report which lacked focus or analysis. VH on the other hand was praised by Mr Caplan as someone who knows as much about UK sales agencies as anyone alive.
116. My impression and my judgment is that SM was the more impressive and much more reliable expert witness. As an expert witness he was careful to listen to questions, careful not to seek to justify his report as a default reaction, and careful to give considered answers to the questions actually asked in cross-examination. Overall, VH's report and oral evidence lacked the openness and objectivity which was a feature of SM's evidence and which is to be expected of any and every expert witness.
117. SM's views were more positive than those of VH and his views on C's prospects were expressed without regard to hindsight or after the event knowledge (which in the case of The Nutcracker revealed an over-optimistic forecast and assessment of value when viewed through the lens of hindsight).
118. All of that being said, the value of the expert evidence in this case is to provide or confirm an independent view of the background rather than the foreground to the issues.
119. The background setting that I draw from the expert evidence is that the marketplace for independent sales agents without access to funds with which to finance or contribute to the financing of films was affected by the economic climate and could reasonably and properly lead to a pessimistic approach to forecasting sales to be achieved by such agents in 2009. However, as a general proposition it is far from obvious that a well resourced (in terms of cash flow funding) independent sales agency with a strong reputation and a committed and resilient board and workforce would have had no realistic alternative but to proceed to liquidation.

C's board meeting on 7.5.09 and the immediate aftermath

120. This meeting took place via a conference call; LR was in New York, SP at his office in London, and LG and D1 at C's office in Covent Garden. Shortly before the meeting the board received D1's 1^st quarter 2009 report. The Cannes Festival was to follow shortly afterwards (13–24.5.09).
121. The best evidence of what occurred at this meeting is contained in the minutes prepared by LG. She began the meeting by informing the non-executive directors that she and D1 had agreed to give C's staff three months notice on a redundancy basis and that during that three month period existing contracts and obligations would be wound down. LG and D1 would also be paid during that three month period but not thereafter. LG would thereafter continue to look for a purchaser. D1 had agreed to sell his ordinary shares to LG for £1. TSL was not to be maintained as a subsidiary. LG had spoken to the majority of investors who were not pressing for a return of funds but preferred to keep their investment while LG continued to explore sale options; however, they would all be asked to state their position formally. There was discussion of the cash position and likely expenditure. LG and D1 were to report to the non-executive directors on a monthly basis during the following three months.
122. It is common ground that the discussion on expenditure included the non-executive directors questioning whether it was necessary to attend the imminent Cannes Festival. D1 explained that C was obliged to attend and represent films under existing contractual arrangements and that C had been paid advances in respect of such expenditure.
123. It appears from SP's written and oral evidence that he regarded the winding down of C's business as tantamount to or indistinguishable from a liquidation of C. LR appears to have taken the view that the door to an alternative to liquidation was being left ajar in case there was some equity that could be realised on behalf of shareholders, but otherwise the effect of the decision was to stem the outflow of funds by winding down C's business. The discussion about whether the costs of attendance at Cannes could be avoided points to the non-executive directors understanding that a decision was being taken to close C's business.
124. Immediately after the board meeting, LG and D1 convened a staff meeting at which they were informed of the board's decision to wind down C, that there would be a presence at Cannes at which clients would be told that C would be closing down, and that all staff, including LG and D1, were being made redundant on the basis of three months notice. LG also mentioned the prospect of trying to keep C's name alive, which was said by some staff witnesses to have caused some confusion.
125. LG then returned to New York. Her unchallenged evidence was that she had lost the hearing in her right ear and had returned home for medical tests, which had concluded that extreme stress had been the cause. LG then returned to Europe for the Cannes Festival.
126. At Cannes, on LG's understanding, rights holders, or those with keyman clauses, were to be told that C's business was closing down. D1's 2^nd quarter report to the board, dated 2.6.09 (and therefore contemporaneous with Cannes and with which LG did not take issue at the time), referred more generally to attending Cannes "in order to meet all the producers face to face and deal with the implications of our impending closure. … We spent the week beginning negotiations to terminate our many films and settle outstanding payment issues …". In any event, and as was made clear in oral evidence, once negotiations have begun at a trade fair with one producer it would be inevitable that word and rumour would spread quickly.
127. The surrender or termination of rights inevitably left C with little, if anything, to package as an attraction to an investor, partner or buyer.
128. No less importantly, and notwithstanding suggestions to the contrary in some of the evidence on behalf of C, the commercial import of the decision and actions taken on 7.5.09 and the negotiated termination or surrender of rights was that revival of C would not have been straightforward, or other than very difficult. In his closing submissions, Mr Caplan referred to the evidence of two of C's employees (Mr James Scott (JS), who assisted D1 with sales, and SA) and the oral evidence of Mr Martin Moskowicz, (MM), an executive director of Constantin Film AG, as support for the submission that after the market had been told that C was closing "[t]here [was] absolutely no way back from that".
129. Constantin was an important client of C as producer of Wickie, Animals United and Impy's Wonderland, which MM described as a combined investment of some $40m. Taking MM's evidence as an example of how producers might have been expected to react to even an almost immediate attempt at reviving C's agency relationships, MM's immediate reaction to the hypothetical question was to observe that Constantin was unhappy at the loss of representation by C. As to reopening the connection if C was revived, even very shortly after May 2009, MM was unable to express a conclusion or a view notwithstanding being pressed several times by Mr Hubbard. He did make clear that Constantin's approach would be very cautious, but it was quite clear that a decision would be based on objective evaluation of the relevant factors (which included the position of D1) and available alternatives, and that any agreement would include an opt out clause for Constantin's protection. Of course, this was not an unqualified declaration of loyalty, but neither was it an outright rejection of further dealings with C if revived. It was a realistic common sense businessman's approach to a hypothetical commercial dilemma.
130. The fair conclusion to be drawn on the question of whether C could be revived is that it would be difficult but not impossible to reopen C as a trading sales agent, but the more time that passed the greater would be the difficulty, not least because experienced and valued staff would move on and rights which had been terminated or surrendered would be resold and lost.
131. Whether C should have been closed is a different question altogether, as is the question whether it would have been closed if (1) a less pessimistic outlook had been portrayed and maintained by D1, and (2) the board had been aware of D1's intentions as declared to SA and evident from his dialogue with DS rather than as stated to LG.

D1's conduct from May to July 2009

132. Both LG and D1 continued to be directors and employees of C.
133. On 2.6.09, D1 reported to the board on negotiations relating to the termination of agent's rights on 12 identified films and projects and reported that all the other rights holders had been advised of the decision to wind up C and that it was expected that all terminations would be dealt with over the following two months. D1 also reported that JS and SA had left C.
134. D1 did not report, as appears from his own e-mail correspondence^[13] to have been the case, that nine films had been offered to him at, or around the time of, Cannes; D1 did not report his communications with SA about future employment or that he had instructed her to work for his benefit while she was still an employee of C; D1 did not report that D2 had been incorporated or that he intended to remain involved full time in the film industry in the same or a similar capacity to that he fulfilled as a director and employee of and shareholder in C; and, D1 did not report his own activities in laying the ground for D2 to open with a flying start as from 1.9.09.
135. D1 introduced JS to D3, which D1 had described as a new company carrying out very similar work to C but with the advantage of being backed by a film finance company, Prescience. JS's written evidence included that he met with Prescience in early July 2009 and that D1 was also present at that meeting on the basis that he was helping to set up the new sales company (in the event D3) but would remain separate from the new company in order to retain the freedom to establish a new company of his own which he was in the process of setting up (in fact already set up).
136. SA joined D1 as an employee of D2 as from September 2009. However, SA stated in her written evidence that during June, July and August 2009 she also undertook some work for D1, including script reading, on an informal basis. In her written evidence, she "wholeheartedly" denied undertaking any such work while still an employee of C. In cross-examination, Mr Hubbard demonstrated that that denial was false by reference to a chain of e-mails recovered by the JLs. The e-mails record D1 receiving a script for Space Chimps 2 at a private e-mail address on 9.5.09; D1 forwarding the script to SA at a private e-mail address on 11.5.09; and, SA responding, again via private e-mail addresses, that she was not able to open the script. Of course, this chain of e-mails falls some way short of establishing that SA did in fact undertake work for D1 personally while employed by C, but it does demonstrate her willingness so to do. However, the relevance of these e-mails to these proceedings is that they evidence D1's willingness to engage C's staff in work for his personal advantage during the course of their employment by C and his tenure of the office of director of C.
137. When these e-mails were put to D1 in cross-examination, he agreed that he had told SA that he would be forwarding a script for her to read on behalf of himself personally and that he felt entitled to do this because he was going to be made redundant.
138. When asked when he started working on agreements with distributors, D1 initially answered "Not before September", and then that he could not remember doing so before September 2009. On being pressed by reference to documents, D1 admitted that he was conducting such negotiations, including for his own fees, in May 2009. In oral evidence, D1 accepted that he was aware of the script for Space Chimps 2 before 7.5.09 and that he had not disclosed the existence of this project then or at any time subsequently.
139. During cross-examination about this film, D1 was, after only a little pressing, quite open about his approach "At this point I was thinking only about my own future. [C] had decided to wind up, it had made everybody redundant, it was negotiating an agreement with me, the terms of my departure, [C] was closing. I didn't see any reason to do anything other than this and discuss things with prospective --- with future --- through my e-mail". What did not happen was that D1 did not either ask or inform C (by LG or the non-executive directors) about such conduct.
140. Not only that but, in the course of negotiating a personal deal for Space Chimps 2, (1) D1 was concerned to ensure that all e-mails were sent only to him at his private e-mail address; (2) D1 wanted to know what had happened at a meeting in June 2009 between the producer of that film and LG because he (D1) was to have a meeting with LG in the following week and he "[did]n't want to say anything wrong"; and, (3) in an e-mail dated 26.8.09 D1 referred to himself as being "still under the radar under (sic) the 9^th when all the final liquidation papers are signed and I am free!".
141. What all of this reveals is a concern, and indeed an appreciation, that what he was doing was not in accordance with his obligations to C. In this context, it is relevant that D1 had received professional advice about the fiduciary duties of a director.
142. Any doubt as to whether or not D1 appreciated his obligations is dispelled by reference to another e-mail (dated 23.6.09 and sent to a Mr Geoffrey Deane concerning The Perfect Margarita) in which D1 referred to his being in the process of "resolving the winding down issues at [C] and my departure" and continued "I am not ready to discuss possible future projects as I am in a position of conflict at present". What is clear from the evidence is that the fending off of Mr Deane was the exception rather than the rule over that period.
143. On the topic of working in his own interests while still an employee and director of C, D1 was cross-examined about his work on several other specific projects and the acquisition of C's terminated or surrendered rights.
144. An example of such a project is Postman Pat. Using his private e-mail address, D1 continued negotiations with DS from May through June and into July. On 15.7.09, D1 forwarded a sales agency agreement and pressed for an early conclusion. In the covering e-mail, D1 expressed his satisfaction with the progress being made for his new company. Summer holidays and minor negotiations caused delays to finalisation of terms and signature, however there did not appear to be any risk that an agreement would not be concluded. On 25.8.09, D1 assured DS and others that through his extraordinary finance and distribution contacts he would raise the money to finance Postman Pat and with that in mind he forwarded a draft distribution agreement. In early September, DS invited D1 to take up the unexpired rights in Lassie previously with C.
145. In relation to dealings with Constantin, D1's written evidence was that he had been approached by MM in the later summer of 2009 and had been invited to handle their films. In cross-examination, D1 placed this approach as July 2009. The e-mails recovered by the JLs include one dated 1.6.09 from D1, via his private e-mail address, to Reinhard Klooss at Constantin in which he proposed a meeting in August and referred to pushing a film very hard from September. In cross-examination, D1 confirmed that the film referred to was Animals United. However, and notwithstanding that the text of the e-mail is written on the basis that D1 was in an ongoing working relationship with Constantin concerning at least this film, D1 maintained that such negotiations had to be with MM and did not begin until July. If so, it was concluded remarkably quickly; there is an e-mail dated 15.7.09 from D1 to another executive at Constantin in which D1 confirmed that that executive will have been told by MM that D1 will continue to represent Animals United and Wickie.
146. D1 also agreed, in cross-examination, that Animals United was a very successful film, earning £450k in commissions and observed that Wickie was less successful. D1 was challenged as to whether he had informed C's board of the likely value of these films and confirmed that he would have done. Certainly, in the project notes through to March 2009, Wickie appeared as a film for 2009 and Animals United as a film for 2010. In his 25.1.09 report, D1 had referred to Constantin as a key production distribution partner in the context of the search for investors but there was no reference to Constantin's films as valuable projects in this report, or in the new projects section of D1's 4^th quarter 2008 report (also dated 25.1.09). In his 1^st quarter 2009 report, D1 included Wickie in the release slate for 2009 but did not consider any 2010 releases; indeed, his comment on future films was "we … have no new films on the horizon".

C's July 2009 board meeting

147. During the latter part of the various events referred to above, a further board meeting was held on 9.7.09 by conference call. LG reported that her further efforts to find a buyer or investor had proven fruitless (this report as minuted by LG supports a finding that D1 was not tasked with the search for a purchaser or investor).
148. Although the minutes do not record any formal decision being taken, the evidence is that the board decided unanimously to proceed with the liquidation. That is supported by an entry in the minutes to the effect that the board decided to obtain competing quotes for the professional services of a liquidator including from Deloitte, C's auditors, and subject to the competing quote(s) would appoint Deloitte.

D1's conduct from July to September 2009

149. On 31.7.09, D1, acting on behalf of D2, executed a services agreement (the Services Agreement) to which the other parties were D3 and Barler Consulting Inc. (Barler), a Swiss company. The Services Agreement records that it was made in the presence of Hindsight Media Services Limited (Hindsight) and that it was to take effect from 1.9.09. The recitals record that (A) D3 is a wholly owned subsidiary of Hindsight; (B) Barler has been established to act as a sales agent for films and programmes aimed at the family / children entertainment market; (C) D1 is the CEO of D2 and D2 is the exclusive worldwide sales agent for Barler; (D) D3 requires the benefit of D2's international sales expertise, which is to be provided via Barler; and, (E) Barler requires administrative and sales operational assistance which is to be provided by D3.
150. When cross-examined about the Services Agreement, D1 denied that he was or is involved in or a beneficiary of Barler; D1 identified a Mr Keith Cousins as the owner of Barler and explained that he (D1) had borrowed several hundred thousand pounds for personal purposes from Mr Cousins in August 2009 and that the Services Agreement was a means of hypothecating D2's income to repayment of that loan while at the same time enabling the office services which D3 was to provide to D2 to be paid for out of D2's income.
151. The available documentary material and oral evidence is insufficient to enable any facts to be found about the Services Agreement or its underlying purpose, perhaps not least because Barler is not a party to the proceedings and the case against D3 was discontinued before trial.
152. For the purposes of these proceedings, what the Services Agreement does show, based on D1's evidence, is that as part of the arrangement for a loan which he obtained in August 2009 D1 held himself out to be the CEO of D2 and was thereby able, on 31.7.09, to commit D2 to a course of conduct as from 1.9.09.
153. At a meeting on 3.8.09, D3 resolved to hold weekly meetings. D1 does not appear to have been present on 3.8.09, but, in the meeting notes, his existing involvement was noted and his future involvement was taken for granted.
154. On 24.8.09, D2 was registered with the American Film Market and D1 reserved adjacent offices for D2 and D3 for combined use, one as a reception and the other for quieter use. Shortly thereafter, D1 was asked to advise on the presentation of Prescience, D3 and D2 as a joint venture and how their co-existence was to be understood in the film industry.
155. As from 1.9.09, D1 had ceased to be an employee of C but he remained a director. Mr Hubbard cross-examined D1 about work conducted by D1 on behalf of D2 at this time. In relation to an e-mail dated 4.9.09 concerning Chalet Girl, D1 was asked to confirm that that did not mark the beginning of work on his own or D2's account in relation to that film, in part because the text of the e-mail suggests an ongoing dialogue and also because D1 had failed to respond to requests for disclosure of e-mails about this film. In response, D1 stated that he could not remember the background leading up to his 4.9.09 e-mail. D1 agreed that he had deleted e-mails relating to Chalet Girl and another film, The Guard, prior to being told by his solicitor to preserve e-mails; D1 said that this was because he was short of space on his computer at home and he believed that copies would be available via D3.
156. Ms Harriet Rees (HR), co-producer of Chalet Girl with Ms Pippa Cross, was the addressee of the 4.9.09 e-mail. She gave evidence as a witness for D1 and D2. She stated that after D1 had telephoned her in May 2009 to inform her that C was closing down neither she nor Ms Cross spoke to anyone at C about Chalet Girl "as there was no point". In oral evidence, HR agreed that she was talking to financiers and sales agents between May and September 2009 and that she did not talk to D1 after May until he reappeared in his "new incarnation at [D3]"; whether that was before 4.9.09 is not entirely clear, but the impression given by HR is that it was at around that time because, as from May 2009, she thought D1 "had just fallen off a cliff".
157. The available documentary material includes an e-mail dated 24.8.09 from Mr Paul Brett (PB), one of the principals at Prescience, to JS, by then an employee of D3, attaching a March 2009 pdf document relating to Chalet Girl. The attachment title matches that of an attachment to an e-mail sent by SA to D1, LG and JS on 20.4.09 in the text of which the attachment is described as a draft screenplay.
158. Doing the best I can on the available material, and bearing in mind Mr Caplan's caution against drawing inferences by logical leaps which are in fact illogical leaps, and also having regard to the fact that D1 would have had no need to engage in e-mail correspondence on his home computer after 31.8.09, the likelihood is that in August 2009, if not before, D1 was again active in seeking appointment as the sales agent for Chalet Girl.
159. In relation to The Guard, disclosed e-mails and e-mails recovered by the JLs evidence D1 working quite extensively on the financing and promotion of this film during July and August 2009 using his private e-mail address. As from 1.9.09, D1's e-mail correspondence, of course, conducted via his e-mail address at D2.
160. In cross-examination, JS, who had left C on 26.6.09, agreed that he had read and reviewed a number of film scripts or screenplays for D1, including Hello Darkness, Blackbeard, The Outside, and The Guard. On or about 19.7.09, JS gave his assessment of The Guard to Prescience and on 20.7.09 D1 sent an e-mail to JS concerning revised sales estimates for The Guard. As from 1.8.09, JS was an employee of D3. JS's evidence was that as an employee of D3 he considered D1 as well as Mr Tim Smith to be his boss.

Compromise Agreements

161. On 13.5.09, revised draft Compromise Agreements relating to the termination of LG's and D1's employment were circulated by C's employment lawyer. This date coincided with the opening of the 2009 Cannes Festival. It is far from clear that the drafts received anything more than cursory attention, if that, at that time.
162. The scheme was for (1) the employee to continue to perform her/his duties as, respectively, COO and CEO up to the termination date (originally defined as three months after the execution of the agreement) during which period C would continue to pay the employee's remuneration and, upon termination, any statutory redundancy pay entitlement; (2) on the termination date, the employee was to return all property belonging to C and all documentary materials in all formats and whether originals or copies; and, (3) with effect from the termination date, the employee was to be released from the non-competition provisions under clause 8 of his or her employment contract. The effect of the release of clause 8 was to disapply the one year notice period throughout which, if applied, C would be obliged to continue to remunerate the employee.
163. The draft in circulation concerning D1 provided in terms and for the avoidance of doubt that thereafter D1 would "be entitled to pursue his career in the film industry or elsewhere free from any contractual obligations to [C] … except as provided by this Agreement". There was a contractual restraint upon what D1 might say about C or its successors, and, more importantly, the terms of clause 9 of D1's employment contract, which prohibited the use and disclosure of confidential information at any time, were preserved.
164. The draft Compromise Agreement also contained (1) an entire agreement clause, at clause 11, which includes provision for the deemed termination of any other agreement, arrangement or understanding relating to the termination of D1's employment; and, (2) at clause 12, a provision that "Although marked "without prejudice and subject to contract" once this Agreement is signed by both parties it will become an open and binding agreement".
165. By 29.6.09 a further draft had been prepared. By this point, the 'for the avoidance of doubt' sentence clarifying the effect of the release of clause 8 had been deleted, and the termination date had been specified as 31.8.09.
166. On 6.7.09, D1's solicitor forwarded a draft suggesting certain changes, including that while the obligation to return all company property (including lap top computers) should remain, the obligation to return documentary materials should be deleted.
167. At the board meeting on 9.7.09, outstanding matters noted included finalisation of LG's and D1's Compromise Agreements which were under review by LR and SP. On 13.7.09, LR sent an e-mail to LG and D1 confirming his approval of both agreements subject to any issues that SP might raise.
168. On 28.7.09, C's employment lawyer sent D1 a final version for execution by D1 with an adviser's certificate for signature by his legal adviser, and confirmed that this was the version which had been approved by C's board. In this version, (1) the obligation to return all company property (including lap top computers) remained but the obligation to return documentary materials had been deleted (both LG and D1 were to be provided with an electronic copy of C's documentary materials, including numerous documents within the definition of confidential information under their employment contracts); (2) clause 8 remained released but the "for the avoidance of doubt" wording remained deleted; and, (3) other updating changes were included (the termination date remained specified as 31.8.09, the amount of the redundancy payment had been calculated, and so on). Otherwise, the Compromise Agreement was as drafted before. D1's Compromise Agreement was duly executed and forwarded to SP.
169. On 30.7.09, LG informed LR and SP that she was aware of rumours that D1 was starting a new sales agency and asked whether there were concerns about D1 acquiring unexpired rights in films that had reverted on termination or surrender or about D1 employing any of C's former staff. LG explained that she had not raised these issues with D1 in the wind down period in order in order to keep things going "smoothly and efficiently". LR's response was that LG should ask D1 about his plans and that there would be an issue if D1 "starts a new company with all our employees and staff". SP then "held off" signing D1's Compromise Agreement. When cross-examined about when she had heard such rumours, LG explained that it had been in July and that she could not say more precisely than that.
170. On 18.8.09, D1 asked SP whether the Compromise Agreement had been executed for C, to which SP replied that he had been away in the US and LG would be sending him some additional thoughts for discussion with her before execution by C.
171. On 1.9.09, LG forwarded a revised Compromise Agreement with a substantial additional clause which (1) recited that the decision to wind down C's business had been taken on advice from D1 that there was no realistic possibility of C continuing to trade profitably for the foreseeable future; and, (2) provided for D1 to pay C 15% of net profits earned over the two years from 31.8.09 to 31.8.11 on identified potential projects (a schedule listed 32 projects which included Dark Crystal and Adam, The Serpent and Eve, but not other films raised in the course of these proceedings).
172. D1 refused to agree to these new terms. He left C's employ on 31.8.09. He has not been remunerated for any part of a one year notice period.
173. By letter dated 15.10.09, the JLs, by their then solicitors, informed D1 that the Compromise Agreement was not effective as it had not been signed on behalf of C and that payment of statutory redundancy did not assist D1 as he had procured that payment.
174. Mr Caplan cross-examined C's other directors about their attitude to D1 remaining in the film industry as an agent.
175. LG's explanation was that she had understood that D1 was leaving the industry as his main line of work and source of earned income but that he intended to keep his options open for "a possible eventuality that he might executive produce a film or two". LG did understand that in both draft Compromise Agreements, which (at least until 31.7.09) were in common form, the release was entirely general. It transpired from LG's answers that the issue was not so much the fact that D1 should not be released, but rather that D1 had pressed the board to close C and had, at the same time and while C's business was being wound down, actively continued to develop his own career in the industry and to take (make use of and employ or find connected employment for) some of C's experienced staff and take (acquire unexpired rights which had reverted) C's product.
176. In other words, LG felt that the board had been misled by D1 in and from January 2009, and that the board had made decisions that it would not have made but for D1's pessimism about the market; D1's pessimism about C's projects and prospects; and, D1's insistence that C's business was no longer viable.
177. LG appreciated that it would be difficult to turn the clock back but felt that as a matter of justice and fairness D1 should not arrogate to himself or to his new business the fruits of C's endeavours without some payment from the profits derived therefrom.
178. SP and LR, as non-executive directors, had responsibility for C's Compromise Agreements with both LG and D1. SP and LR knew that LG wished to remain in the industry and, if possible salvage, revive or re-establish a business aimed at family media, which had been her previous career and had been C's particular field. To that end, she had been furnished with an electronic copy of relevant material from C's records and database (as had D1). LG's plans had been disclosed to C and followed rather than anticipated the decision to close C, and were thus unobjectionable.
179. In relation to D1, LR's evidence was similar to LG's. He recalled that at the 30.1.09 board meeting D1 had "pushed heavily for a rapid liquidation" and he (LR) had a broad concern that having done that and the decision having been taken, D1 then "emerged not only with a similar business but with [C's] pipeline of material that had been worked on previously". LR was clear that if he had known at the time that D1 had intended to remain in the industry and establish a new business, the credibility that LR had attached to D1's arguments in favour of liquidation would have been undercut. With hindsight, LR felt that his decision would have been against liquidation because C had talented staff, ample funds, and had survived other difficulties.
180. As an aside, I note that even as at 30.6.09, C's management accounts disclose that it had cash reserves of £840k and net assets of almost £1m.
181. SP stated in his oral evidence that when reviewing the Compromise Agreement he recalled specifically thinking about the release provision and had in mind that LG had told him in January 2009 that D1 intended to leave the film industry and devote all his time to his family's real estate business. Mr Caplan put to him that, on that basis, it was illogical to release D1 from restrictions that would not be needed. Rather than focus on the question and the reasons why SP thought the release was appropriate, SP sensed and expressed concern that a trap was being laid. When turning his attention to the question, SP's answer came broadly to the same point, that at 31.7.09 he was concerned that D1 had not been truthful, but he had no recollection of his earlier thinking as to why the release had been thought appropriate.
182. C raises issues about the enforceability of D1's Compromise Agreement which I shall address; however, at this stage of addressing the evidence and the facts, what the oral evidence established was that in January 2009 LG had informed LR and SP that D1 would be leaving the film industry to work in his family's real estate business and that had been a factor in the non-executive directors accepting the force with which D1 urged upon them that C's business was not viable and should be closed.
183. I accept and find that D1 did make such statements to LG; that she relayed this information to LR and SP; and, that they all accepted D1's statements as truthful and a factor supporting the proposition that there was no future for independent sales agents such as C.

C's September 2009 board meeting

184. A further and final board meeting and a general meeting were convened on 9.9.09 at SP's offices. The board meeting was attended by LG, D1 and SP in person and LR was present by telephone. The members' meeting was attended by LG and D1. Resolutions were passed to wind up C voluntarily and the JLs were duly appointed.
185. Technically, D1 remained a director until his resignation on 18.9.09. However, C's affairs were in the hands of the JLs as from 9.9.09.

D2's business

186. As from 1.9.09, D2 formally commenced trading under the management of D1. Indeed, as from 1.9.09 D1 worked entirely openly to promote and establish D2 and D3.
187. Over the course of the next few months a number of sales agent's agreements for new projects were executed by D2 and D3 based on marked up drafts of C's agreements. These were or included : on 30.9.09, Space Chimps 2 and Sex & Drugs & Rock & Roll; on 22.10.09, The Guard; and on 4.4.10, Adam, The Serpent & Eve.
188. D2's 1^st year accounts (1.9.09 – 31.8.10) are in evidence. They show turnover of £270k (derived mainly from Chalet Girl, Wickie, Animals United, and Space Chimps 2) and a net loss of £45k after directors and staff remuneration (£206k), commissions to D3 (£70k) and other expenses.
189. A combined business plan for D2 and D3 over the 18 month period 1.9.09 to 28.2.11 based on "[D2] financials" forecast income of £2.3m and profit after direct costs but before office overheads of £1.3m. The plan envisaged revenues from and expenditure on Sex & Drugs & Rock & Roll, The Guard, Wickie, Animals United, Space Chimps, Postman Pat and two other D3 films.

Conclusions on the evidence

190. I start by noting that I have already referred to my views and conclusions on the expert witnesses and their reports.
191. I have not referred, even in passing, to all the witnesses whose statements are in the trial bundle. In particular, I have not referred to Miss Strupinski or Miss D'Arcy, both of whom gave oral evidence. That is principally because their evidence on matters at the heart of the issues in this case is essentially hearsay. In particular, Mr Hubbard demonstrated that Miss D'Arcy had put forward as her own knowledge what she had in fact been told by others; in addition, she was argumentative when challenged, including on points on which she was plainly mistaken.
192. I have not referred in the same degree of detail to LG's oral evidence as I have to that of D1. I record here that I regard the factual evidence she gave as honest and generally reliable. In his closing submissions, Mr Caplan made a number of criticisms of LG's evidence, mainly centred on LG having "looked back in anger, applied hindsight, and either convinced herself that things happened in a particular way or is saying things happened in a particular way because that fits in with her current state of mind". To an extent, the criticism that her evidence is tainted by the application of hindsight is fair. However, that relates to her comments (e.g. as to her view expressed at trial as to the strength of C in January 2009) and her attribution of motives (including her own as well as D1's) which fall by the wayside in the process of extracting the facts from the evidence.
193. LR appeared a thoughtful and reliable witness whose evidence was considered and open, in the sense of honest and responding to the question asked without attempting to make a point.
194. SP appeared less comfortable with the process of having his evidence tested by cross-examination. This was clearly apparent from his concern that he might be caught out by a trap question and might slip up. However, in so far as my judgment concerns events over the period that SP was a director of C, my consideration of his involvement in events is aided by contemporaneous records.
195. The general impression I have of LR and SP as non-executive directors is that LR was the more attentive and enquiring of the two, perhaps because his investment was that much larger than SP's or that of any other investor, but also perhaps because that is his nature. Another relevant factor is that LR was a director from the outset, whereas SP did not join C's board until January 2008. Mr Caplan cross-examined each of them on the basis that each is a highly intelligent and experienced businessman, and is used to weighing business issues and making business decisions. I have no reason to find other than that is how they approached their role as directors of C in good faith and to the best of their respective considerable abilities.
196. SS was a neutral witness, in the sense that she provided each side with a witness statement. She was not called to give oral evidence. I have drawn on her written evidence as supported by the contemporaneous documents, and I have no reason to have reservations about so doing.
197. DS, MM and HR were industry witnesses who spoke to their dealings with C and with D1. DS's evidence was that he had only limited recollection of events but he was entirely frank about his attitude to dealing with D1. It is clear from the evidence of all three witnesses that D1 was and is held in very high regard as an independent film sales agent. I accept their evidence, subject to it being conditioned or supplemented by the contemporaneous documentation, including in particular e-mail correspondence with or about D1, as generally reliable and to be placed in the context of the surrounding circumstances and evaluated accordingly.
198. As witnesses, JS and SA were broadly reliable; they weathered Mr Hubbard's challenges in cross-examination by recognising when the current had become too strong to swim against and, in consequence, by resiling from or revising some points in their written evidence (e.g. when SA began reading scripts for D1 personally).
199. RB, D1's accountant, provided limited but reliable evidence.
200. The trial bundle also includes a witness statement of PB, a director of D3, made in June 2011 in connection with a summary judgment application. As requested, I read this statement during the trial and have reminded myself of it since. However, in so far as I have referred to evidence concerning D3 or make findings of fact, my foundation has been the evidence of other witnesses and the contemporaneous documentary material.
201. D1 was, of course, the most important witness. He has made three witness statements (the 2^nd and 3^rd being his trial statements). His oral evidence began towards the conclusion of the second hearing day (15.3.12) and continued, with other witnesses being interposed to accommodate their availability, on 16.3.12 and 19–20.3.12. Mr Hubbard's cross-examination was thorough, relentless and testing. In his closing submissions, Mr Caplan fairly referred to D1 having retained his composure very well, save for a period during the afternoon of 16.3.12 when he was or appeared to be – in Mr Caplan's words – "punch drunk". That is a reference to a point in cross-examination where D1 found some questioning difficult to answer (e.g. whether C could easily have invested £35k in The Moon and the Sun and why D2 was incorporated given D1's expressed belief that stand alone sales agents were no longer viable) with the result that, as D1 put it, he "lost the thread" and it became appropriate to have a short break.
202. When cross-examination resumed, D1 stated that in January 2009 through to the date on which D2 was incorporated (26.5.09) he continued to believe that a stand alone sales agent could not survive, and D2 was incorporated to start trading in September by which time he would have "figure[d] out" whether it would operate as a sales agent, producer or consultant. After expressing some incredulity, Mr Hubbard put it to D1 that by 26.5.09 he was "up to [his] neck in negotiating sales agency agreements" to which D1 responded "Yes, it was part of what we wanted to do".
203. My impression of D1 as a witness is that he came to court to give truthful evidence explaining the events in issue from his point of view. There were certainly questions for which D1 had no answer (literally as well as metaphorically); there were questions which caused him to stumble and respond disjointedly; there were questions as to his conduct whilst still an employee and director of C which he recognised as problematic and which he answered on the basis that, after the decision to wind down or close C was taken, he regarded himself as free to look to his own interests; and, there were some questions (e.g. the exchange referred to above) where the truth took a bit of extraction.
204. Although not affected by hindsight in the same way as LG, some degree of reflection and modification was an inescapable feature of D1's evidence; and, I should add, that some of D1's inability to recall left me unconvinced. However, when it comes to deciding the issues in this case, the question for me is not the extent to which D1 was a reliable witness during the trial but what the evidence taken as a whole, including contemporaneous documentary material, shows about D1's thinking, intentions and conduct at the material time, that is January to August 2009.
205. Drawing on the evidence I have read and heard, and by reference to the facts and matters I have referred to in this judgment, I summarise my findings of fact as follows :

(1) D1 brought to C 20 years experience in the sale and distribution of television programmes and films. His ability as a film sales agent is attested to by C's other directors and by the industry witnesses.

(2) LG and D1 decided to join forces and establish C with a view to building C's business and value to the point whereby it, or their respective shareholdings, could be sold yielding a capital profit.

(3) At all material times, the market in which independent film sales agents operate was, and continued to be, competitive. At least since 2007, if not before, the ability to make or introduce a direct investment in a film has improved a sales agent's prospects of securing a film.

(4) Largely through the efforts of LG, C was well capitalised as a sales agent and was at all material times (2002 – 2009) liquid and able to meet its operating costs. Although C's executive directors envisaged 'an event' over the course of the medium term (7 years in C's business plan), C's investors did not impose targets or press for results. They appreciated that investment in C involved risk and were at all times content to take that risk.

(5) Under the direction of D1 and LG, C (1) quickly established a strong reputation as an independent film sales agent; (2) recruited and retained high quality staff; and, (3) was managed with an eye to keeping operational costs under control.

(6) Throughout the period 2003 – 2008 both D1 and LG consistently presented positive and 'upbeat' reports to the board, praising, in particular, C's ability to adapt and meet the challenges of a very competitive market and its strong reputation.

(7) Over C's trading life, (1) C was generally capable of making a modest return or net profit, but profitability was vulnerable to the impact of (a) capital or other out of the ordinary costs (e.g. attempting to establish a fund) and (b) delays outside C's control with completion of films; but, (2) C had sufficient liquid capital resources to absorb such costs and industry risks.

(8) At the end of 2008, (1) C had demonstrated that it could survive the international financial crisis, and even generate a profit; (2) objectively, there was no reason for C's board to conclude that independent films would cease to be made or that C would be other than a strong competitor for sales agent's agreements; (3) morale within C was high; however, (4) C's original 2009 budget was overly optimistic in relation to The Nutcracker and D1 was right to recast at least that aspect of the budget, which would inevitably transform the 2009 budget from net profit to net loss.

(9) D1's downward adjustment to the 2009 budget in respect of six other film projects at such a short remove in time is less easy to understand. In 2008, D1 knew that C did not have access to funds with which to finance or contribute to financing films and is to be taken to have factored an appropriate degree of pessimism or prudence into his original budgeting. Further, the reasons for the downward revision stated to C's board would all have been known to D1 when preparing the original budget. However, whether as a consequence of pessimism or prudence, viewed on its own there would be no reason to draw a conclusion adverse to D1 from the further downward revision of his revenue forecasts.

(10) D1's conduct over the period January to May 2009 points to him having decided in (or by) early January to set up or continue in business as a film sales agent on his own account. Here I have in mind, in particular, D1's inability to respond to the proposition put in cross-examination that he had written off C, D1 taking professional advice from an accountant and a lawyer at the beginning of 2009, D1's communications with SA, D1's change of tone in project reporting generally, D1's dealings with DS, and D1's false statement to LG in January 2009 that he intended to leave the film industry (save possibly as an occasional executive producer). D1's assertion that he did not decide to continue in the film industry as a sales agent until May 2009 is not credible.

(11) These findings as to D1's conduct over the period January to May 2009 also illuminate (1) D1's motivation when reappraising C's business prospects and viability in January 2009 (C's business being perilous and D1 arguing for immediate liquidation), (2) the reporting to the board in January 2009, and (3) the board's decision, on 30.1.09, to postpone a decision whether or not to liquidate for three months in order to investigate the market, if any, for C. What is revealed by the illumination is a lack of candour on D1's part with the board. It is this which supports C's contention that the revised 2009 budget was overly pessimistic and challenges Mr Caplan's submission that there is no evidence to support such a finding.

(12) The board's decision on 7.5.09 to make staff redundant and wind down C's business followed a further pessimistic report from D1 (his 1^st quarter 2009 report), and LG's failure to find an investor or source of equity over the period 30.1.09 to 7.5.09. It was also made in ignorance, on the part of LG, LR and SP, of D1's private activity in the market (e.g. with DS in relation to Postman Pat). Once that decision, which included a decision to inform producers and distributors with whom C had contracts of the decision to wind down C's business, had been implemented at Cannes, it became very difficult for C to be revived.

(13) At (or possibly shortly after) Cannes 2009, D1 was, by his own account^[14], offered nine films, as well as employment, but he made no mention of the film offers to LG or C's board.

(14) D1's conduct over the period May to August 2009, as evidenced by D1's e-mail traffic and other documents, (1) points to D1 recognising obligations to C and at the same time working hard to secure new films and rights surrendered by C for the benefit of himself, whether through D2 or his involvement with D3; and, (2) justifies a finding that D1 set about the establishment of D2's business and his involvement with D3 actively and surreptitiously. Over this period D1 negotiated sales agencies for films which, in some cases, had previously been projects worked on by C and, in other cases, would have been projects which would have been worked on by C and, where secured by D1, would probably have been secured by C. When questioned by Mr Hubbard about specific films, D1 admitted that he could have brought a number of films to C (The Guard, The Moon and the Sun, Winter, Justin and the Knights of Valour, The Wedding Video, 222, One Perfect […]^[15], and Manchester United). The same is probably also true of some if not all of Animals United, Wickie, Space Chimps 2, Chalet Girl, and Postman Pat.

(15) In summary, from 7.5.09 onwards, and while still a director and an employee of C, D1 worked consistently towards entry into the market on his own account and D1 was careful to keep all such activity from coming to C's attention.

(16) As to Barler, on the available evidence, the likelihood is that it is not an entity under the control of D1 or in which D1 has any material interest. Barler and the Services Agreement appear to have been the means by which D1 secured, through the good offices of a wealthy friend, a stream of cash flow to enable him to meet his domestic financial commitments after he ceased to be remunerated by C and during D2's start up period.

(17) As to the Compromise Agreement, (1) plainly the attempted renegotiation of terms marks the point by which C (by LG) became aware of rumours that D1 intended to continue working as a sales agent; (2) this fortifies the findings that (a) prior to that point (July 2009) D1 had led LG, and thereby C, to believe that he intended to devote his energies to a family real estate business; and, (b) this had added weight to D1's statement in January 2009 that there was no future for independent sales agents such as C; further, that C (by LG, LR and SP) was in the dark as to the negotiations which D1 had been conducting on his own account is evidenced by the schedule attached to the revised Compromise Agreement sent to D1 on 1.9.09.

(18) D1 ceased to be an employee of C on 31.8.09 and a director as from 18.9.09. Thus, until 31.8.09 D1 will have owed duties to C under his contract of employment and until 18.9.09 D1 will have owed duties as a director, including fiduciary and statutory duties, to C.

(19) D2 formally commenced business under D1's management on 1.9.09. In reality, from the point at which D1 instructed his accountant to form or acquire D2, D1's work aimed at securing film sales agencies was undertaken with a view to giving D2 a running start; and, even before that (January to May 2009) D1 was working as a film sales agent on his own account while a director and employee of C. That D1's efforts were successful is borne out by D2's accounts and by D2's and D3's publicity material.

206. In a nutshell, I find that (1) by 4.1.09, D1 had decided that C would not provide him with the route to a capital profit which he had hoped for and that he would have better prospects in that respect working on his own account; (2) thereafter, D1 influenced the board's stage by stage decision making process which led to the winding down of C's business, the termination or surrender of its contracted rights, and the liquidation of C; (3) over the period 4.1.09 to 31.8.09, D1 misled C's board as to his own true intentions and kept secret the work he undertook on his own account as a film sales agent, whilst still a director and an employee of C, as part of his plan to bring those intentions to fruition. In so doing, D1 continued to mislead C's board (and therefore C) as to C's true viability and prospects; (4) had C's board not been misled by D1, C's board would probably not have made the decisions that it did leading to its winding up on 9.9.09; and, (5) in consequence, D1 and/or D2 and/or D3 as a result of D1's efforts secured sales agent's rights in films that (a) would otherwise probably not have reverted to the rights owner in the case of film rights already under contract to C and (b) would otherwise probably have been acquired by C in the case of other films on which D1 had been working while a director of C.

Legal Principles

Breach of Fiduciary Duty

207. C's claim against D1 is founded principally in breach of duty as a fiduciary. There is no doubt that, as a director of C, D1 was in a fiduciary position. C relies upon three main duties :

(1) the duty to act in a way which the director considers, in good faith, would be most likely to promote the success of the company for the benefit of the members as a whole, a duty at all times material to this case imposed by s.172 CA 2006. The statutory provision identifies a number of matters as amongst the matters to be taken into account (s.172(1)) and is expressly subject to any rule of law or statutory provision requiring consideration of the interests of creditors (s.172(3)) ;

(2) the duty not to profit from his fiduciary position, a duty embraced by, though not comprehensively expressed in, s.175 CA 2006; and,

(3) the duty to avoid a situation where the director has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company, a duty at all times material to this case expressly imposed by s.175. This duty is of particular application to the exploitation of any property, information or opportunity whether or not the company could take advantage thereof (s.175(2)), and thereby the 'no profit' duty; but, the duty is not infringed if the situation cannot reasonably be regarded as likely to give rise to a conflict of interest or the matter has been authorised by the directors (s.175(4)).

208. C maintains that D1 was also bound, by clause 5 of his employment contract, to duties similar to those at (1) and (3) above by requiring the employee "to well and faithfully serve the Company and use his utmost endeavours to promote the interests of the Company"; to "keep the board promptly and fully informed (in writing if required) of his conduct of the Company's business"; and, to "devote his full time, attention and abilities to the business of the Company".
209. I do not understand there to be any dispute between the parties as to the existence or meaning of these obligations. The areas of controversy are as to their application to D1 in the particular circumstances of this case.
210. Mr Caplan submits on behalf of D1 that in this area of the law, where the outcome of cases is fact sensitive, there is no directly applicable authority. I do not understand Mr Hubbard to be of a different view.
211. That being said, both counsel have referred me to several authorities which they urge upon me as being of assistance, even if not directly on point, when it comes to applying the facts to the law.
212. In the context of s.172 and the "competing narratives" as to the facts, Mr Caplan reminds me of the burden and standard of proof and draws attention to the judgment of Lewison J (as he then was) in Ultraframe v Fielding [2005] EWHC 1638 at ##9 and 18 and the extract there cited from the speech of Lord Nicholls in Re H [1996] AC 563 at p.586. I bear in mind both Lord Nicholls' consideration of inherent probabilities and Lewison J's reference to Occam's razor. I also bear in mind later consideration by the House of Lords of the balance of probabilities standard of proof and the potential relevance of inherent improbabilities in any case where serious allegations are made (see In Re B [2009] AC 11 (in particular the speech of Lord Hoffmann at ## 11 – 15)), and by the Supreme Court (see In Re S-B [2010] 1AC 678 (in particular the speech of Baroness Hale at ## 11 – 13)). The significance of inherent probabilities is not that more serious allegations require more compelling evidence in order to be established, but to serve as a reminder to have regard to the quality of the evidence when reaching a factual conclusion on the straightforward balance of probabilities.
213. In relation to a director's duties under s.172, Mr Caplan also drew attention to a recent decision in GHLM Trading Ltd v Maroo & others [2012] EWHC 61 (Ch) in which Newey J referred to the Court of Appeal's decision in Item Software (UK) Ltd v Fassihi [2005] 2 BCLC 91 to the effect that a director's duty of good faith may potentially require him to disclose misconduct, and concluded that where a company complains of a director's failure to disclose a matter, it must establish that the director concluded that disclosure was in the company's interests or, at least, that the director would have so concluded had he been acting in good faith.
214. In fact, C puts its case on the basis that it (by LG) was positively misled. Even if that was not so, it seems to me that where a director has decided or is even seriously contemplating carrying on a business similar to that carried on by the company and is recommending the closure of the company's business, the legal obligation of good faith under s.172 will not be met by remaining silent about that fact or serious possibility.
215. Also in connection with C's s.172 case, Mr Caplan draws attention to ss.173 - 174 CA 2006, which require a director to exercise independent judgment and reasonable care, skill and diligence. In this context, Mr Caplan refers to Re Westmid Packing Services Ltd [1998] BCC 836 in which the Court of Appeal had upheld the disqualification of directors who had failed to keep themselves properly informed of the company's financial position as a result of allowing themselves to be dominated and used by a director who was thoroughly irresponsible and lacking in commercial morality.
216. Mr Caplan submits that, where a company's board is not inexperienced, weak-willed or unfamiliar with the industry in which the company operates, any failure to detect, or at least be extremely sceptical about, overly pessimistic advice must be as a consequence of breach of duty under either or both of ss.173 – 174. Mr Caplan submits that, from D1's standpoint, it is sufficient if it is as likely as not that that was the case when C's board made the various decisions which led to its liquidation.
217. In relation to a director's duties under s.175, both Mr Hubbard and Mr Caplan refer in particular to Bhullar v Bhullar [2003] EWCA 424 and Foster Bryant Surveying Ltd v Bryant [2007] EWCA Civ 200. The passage specifically drawn to my attention by Mr Caplan in Bhullar is that in the judgment of Jonathan Parker LJ at ## 28 – 30 where Jonathan Parker LJ reviewed the decision of the House of Lords in Boardman v Phipps [1967] 2 AC 46, in which Lord Upjohn had explained that the phrase 'possibly may conflict' is not satisfied by a merely theoretical possibility but requires that the reasonable man would view the possibility of conflict as realistic.
218. Foster Bryant is a case upon which Mr Caplan places a degree of comparative reliance factually and considerable reliance for the propositions, which Mr Hubbard accepts, that (1) fiduciary obligations do not in general continue after the fiduciary relationship has determined; (2) acts done by a director while the contract of employment subsists which are preparatory to competition after the contract terminates are not necessarily in themselves a breach of the duty of good faith; (3) directors are not bound by a continuing duty prohibiting the use of their general skill and knowledge, including connections, after termination of employment or upon leaving office; (4) however, even after resignation a director is required to avoid a conflict of duty and self-interest where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself a maturing business opportunity of the company and where it was his position with the company that led him to the opportunity which he later acquired; and, (5) any finding of breach of duty in such circumstances depends upon a careful consideration of all relevant facts and matters.
219. In the leading judgment in Foster Bryant, Rix LJ acknowledged that it is possibly above all when a director is leaving that the company needs the protection which the law relating to directors' duties provides (#48); and, that fiduciary duty cases are fact sensitive (##52 and 65) and for that reason are not susceptible to a comprehensive statement of the circumstances in which a retiring director may or may not be found to be in breach of fiduciary duty (##76 - 77). Rix LJ considered that one important indicator of liability giving rise to a remedy is that there is a relevant connection or link between the director's resignation and the obtaining of the business (#66 referring to the decision of Lawrence Collins J, as he then was, in CMS Dolphin v Simonet [2001] 2 BCLC 704); what the law requires is that the court adopts a common-sense and merits based approach and produces a pragmatic solution (#76).
220. On the question of whether or not a fiduciary duty continues beyond resignation or termination of office or employment, Rix LJ analysed Lawrence Collins J's decision as not being based upon fiduciary duty surviving the termination of the office, but as being based upon conduct while still a director (planning future exploitation and resignation as part of a dishonest plan which meant that the duty had already been breached during the tenure of office and the liability to account for subsequent conduct and profits being causally connected with the earlier fiduciary breach (#69)).
221. On the facts, Foster Bryant was a quite different case from the instant case. The company was essentially a two person surveying business (Messrs Foster and Bryant), and Mr Bryant was excluded from his role as a director (#93). The company's main client was unhappy at the prospect of losing Mr Bryant's services and sought to retain Mr Bryant's services while at the same time offering Mr Foster all the work the company could handle. Mr Foster rejected this offer. Put bluntly, the court's view was that the company's loss resulted not from Mr Bryant's defection and appropriation of business or connection belonging to the company but from Mr Foster's own folly. Significantly, Mr Bryant's duties were confined to remaining honest and neither exploiting nor taking any property of the company.
222. Both Mr Hubbard and Mr Caplan rely upon a passage in the judgment of Rix LJ in Foster Bryant at #76 to the effect that the twin principles that a director must act towards his company with honesty, good faith, and loyalty and must avoid a conflict of interest are firmly in place and are exacting requirements exactingly enforced. The rigour of these principles is tempered but not diminished by sensitivity to the facts and to other principles such as freedom to compete using skill, experience and accumulated knowledge.
223. Mr Hubbard refers quite extensively to the well known cases of Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134, Boardman v Phipps [1967] 2 AC 46, and Bristol and West Building Society v Mothew [1998] Ch 1, the principles of which underlie the reasoning and decisions in the more recent cases referred to above and do not require repetition in this judgment.
224. Mr Caplan also refers to s.1157 CA 2006 by which the court is empowered to grant relief in certain cases. Thus, if, in a case of breach of duty against a director, the court considers that the director is or may be liable but that he has acted honestly and reasonably and, having regard to all the circumstances, ought fairly to be excused, he may be relieved wholly or partly from liability. Of course, an essential ingredient of the claim under s.172 is want of good faith. However, s.1157 may be of more relevance if D1 would otherwise be liable under the 'no profit' duty or the 'no conflict' duty (now s.175).

Contractual obligations

225. In relation to the issues concerning the Compromise Agreement and alleged abuse of confidential information, reference to authority is directed mainly at the available and appropriate remedy for any wrong or breach established on the evidence.
226. In addition, Mr Caplan draws attention to Oceanografia SA de CV v DSND Subsea AS [2006] EWHC 1360 (Comm) in which Aikens J, as he then was, found that an election had been made not to insist on signature of the written contract in that case and to go ahead with the contract on its terms without signature.
227. It seems to me that absent some overriding requirement (such as s.2(3) of the Law of Property (Miscellaneous Provisions) Act 1989 in relation to contracts for the sale or disposition of an interest in land), and notwithstanding that the parties have proceeded to prepare written contracts for execution, and even that they have incorporated terms specifically requiring execution, it will still remain open to a court to hold that, in the particular circumstances of the case, the unexecuted document is binding or sets out the terms of a binding agreement. Of course, any such conclusion must be by reference to compelling surrounding circumstances and/or conduct of the parties.

Accessory liability ~ dishonestly assisting breach of fiduciary duties

228. Mr Hubbard opened and closed the case against D2 very shortly and on the basis that D2 is liable to account for the profits which it made from the assets it received. The underlying foundation of this proposition is D1's admission in the pleadings that D1 has "at all times been [D2']s de facto director and directing mind and will", in other words that D1 was a de facto director of D2 from its incorporation even if he was not a de jure director until 1.9.09.
229. By reference to Cook v Deeks [1916] 1 AC 554, Mr Hubbard submits that D1 is liable for all profits made by D2 and, separately and for its own account, D2 is likewise liable. Of course, Mr Hubbard does not submit that C is entitled to double recovery. Mr Hubbard refers in the judgment of the Privy Council given by Lord Buckmaster to a passage at p.565 : "Their Lordships have referred throughout to the claim as one against G.S. Deeks, G.M. Deeks, and R.T. Hinds. But it was not, and it could not be, disputed that the Dominion Construction Company acquired the rights of all these defendants with full knowledge of all facts, and the account must be directed in form as an account in favour of the Toronto Company against all the other defendants".
230. Although cited in C's list of authorities and mentioned in passing in Mr Hubbard's skeleton argument, Mr Hubbard did not refer in opening or closing to Grupo Torras SA v Al-Sabah [2001] CLC 221. Presumably, Mr Hubbard had in mind the Court of Appeal's judgment in relation to the unsuccessful appeal of Mr Folchi, a Spanish lawyer, rather than the successful appeal of Sheikh Khaled Al-Sabah. However, it is not for me to speculate and I treat that authority as not relied upon.

Application of the law to the facts

231. C's case under s.172, and clause 5 of his employment contract, is put on the basis that D1 in bad faith (1) gave overly pessimistic advice to the board in January 2009 and over the ensuing months, (2) disengaged from C's business as from January 2009, and (3) failed to inform C's board about matters which it was in C's interests for them to know.
232. Want of good faith on D1's part stems from the timing of his decision to continue in business, or at least to maintain the possibility of continuing in business as a film sales agent on his own account and his conduct in furtherance of that decision. D1's case and evidence in chief and Mr Caplan's submissions on D1's behalf all stress that, until the board meeting on 7.5.09 and the consequence that all staff, including LG and D1, were made redundant on that day, D1 had continued to act at all times in good faith in the best interests of C and had not made a decision or conducted himself with an eye to his personal future.
233. However, there is contemporaneous documentary evidence by reference to which I have made findings to the contrary. In so doing, I have borne in mind in D1's favour the inherent probability and natural inference that D1, who had received professional advice as to a director's fiduciary duties in January 2009 before presenting the allegedly overly pessimistic advice, would not have acted in breach of duty. However, the quality of the evidence (in particular : contemporaneous documents, parts of the oral testimony of some of D1's own witnesses, and LG's oral testimony as to what D1 told her in January 2009) is such that I am bound, with confidence, to reject this part of D1's case and to reject the inherent probability and natural inference, and am entitled to conclude that D1's downward adjustment of income in the revised 2009 budget in respect of films other than The Nutcracker and D1's stated views as to C's (non-)viability were overly pessimistic.
234. The result is that D1's good faith is challenged and compromised. Whilst some of D1's 'pessimism' in recasting the 2009 budget was not only reasonable but also entirely appropriate (The Nutcracker), other revisions to the 2009 budget are less easily explained or justified. Without more, there would not be sufficient for a finding adverse to D1. But, as identified above, there is more. It simply was not true that D1 intended, as he told LG, to transfer his energies to a real estate business with occasional work as an executive producer of films. By working behind C's back to identify and develop opportunities on his own account, D1 disengaged himself from working to promote C's business and interests. Further, in so doing D1 intentionally misled an experienced and astute board and successfully allayed the scepticism or business common sense that would otherwise have caused the board to challenge D1. Such conduct on D1's part was not straightforward and cannot sensibly be characterised as "act[ing] in the way [D1] considers, in good faith, would be most likely to promote the success of [C] for its members as a whole …".
235. A finding that D1 broke his duty of good faith under s.172 to promote the success of C is inevitable.
236. Had D1 disclosed his true thinking and intentions in January 2009 and/or conducted himself in an open and straightforward manner, the board would have been faced with a very different situation and with different and perhaps even more difficult options and choices. But, that did not happen.
237. In relation to the duty not to profit from his fiduciary position, D1's conduct from January 2009 onwards was geared to maintaining and nurturing contacts and opportunities for his future advantage. Until 1.9.09, D1 kept, or tried to keep, these activities secret from C and he appears to have succeeded, certainly until July 2009. The extent to which D1 directly, or indirectly through D2 or otherwise, has in fact profited is far from clear, but that is not an answer to a finding of liability.
238. In relation to s.175 and the 'no conflict' duty, over the course of the period from 4.1.09 to 31.8.09 D1 failed to avoid situations in which his own interests were directly and indirectly in conflict with those of C. Indeed, to the contrary, D1 was instrumental in the creation of such conflicts.
239. I accept that the formation of D2 would not, of itself, have given rise to a breach of duty on the part of D1. The circumstances which do give rise to a breach of the s.175 duty concern D1's efforts to develop projects and secure rights for himself and for D2 during that eight month period of 2009.
240. It is no answer to say that there was no competition or conflict because C had determined to wind down its business, could not revive its business, and was inevitably heading for liquidation. That is because that chain of decisions and events occurred as a result of D1 misleading C's board in and from January 2009. In other words, D1's conduct was causative of rather than incidental to the chain of decisions and events.
241. In the light of my findings as to D1's intentions and conduct, this is not a case in which to consider relieving D1 of liability by the application of s.1157.
242. Mr Hubbard has not identified any aspect of C's claim under clause 5 of D1's employment contract that adds anything of significance to C's claims against D1 in relation to his fiduciary duties. Accordingly, it is unnecessary to make separate findings in that respect.
243. In relation to the claims under clause 8 of D1's employment contract, the existence of any restraint against competition continuing after 31.8.09 turns on the enforceability or otherwise of the Compromise Agreement and, if so, whether clause 8 remained enforceable in circumstances where D1 was not held by payment to a notice period. In my judgment, clause 8 adds nothing of any significance to D1's obligations and liability as a fiduciary.
244. That being said, I would not have held D1 bound by clause 8 because (1) D1 was presented with the Compromise Agreement for signature on the basis that it had been approved by C's board; and, (2) it would have been unjust for C both to prevent D1 from turning to account his skill, experience and knowledge in the industry in which he has spent his working life and to fail to compensate him during the period of restraint.
245. In relation to clause 9, it is to be remembered that the final version of the Compromise Agreement did not retain an obligation to return documentary materials and data, although it did expressly preserve and reiterate the clause 9 prohibition against use and disclosure of confidential information.
246. The clause 9 claim is also to be set in the context of (1) D1 and LG being provided with electronic copies of C's records and data (including contracts); (2) the definition of the information characterised as confidential being comprehensive and extending to information unlikely to be of a confidential nature; (3) there being no clear evidence that such information as may be identified as confidential was in fact and law the property of C; and, (4) D1 being free (as from 1.9.09) to use his skill, experience and accumulated knowledge and contacts to carry on a business similar to that carried on by C.
247. On the question of contracts with producers and distributors, it is not clear which terms, percentage rates, or monetary sums are said to be confidential whether as a matter of general principle or by specific example in any particular case. The lengthy definition of confidential information (23 lines) in LG's and D1's employment contracts include five categories of information, documents and data and a general exception to exclude information in the public domain and generic information or knowledge that the employee would have acquired by other means (e.g. work elsewhere in the trade). By the Amended Particulars of Claim, C makes clear that it relies on two of these categories ("(iii) all business and sales information, plans, tactics or materials of [C], including, but not by way of limitation, information relating to operations, constructions, specifications, purchasing, accounting, non-public financial information, marketing, merchandising, selling, costing, mark ups, negotiating, terms of business, and contracting; (iv) all information relating to [C]'s actual or prospective clients, customers, suppliers, business associates, distributors or agents …"). Such wide definitions inevitably span information which is of a confidential nature, and information which is not protected either because it is in the public domain or otherwise not of a confidential nature or because it was known to D1 as part of his general knowledge before he came to C or became part of his general knowledge while at C.
248. Mr Caplan acknowledges that some of the information made available to D1 may have been confidential and that D1 and/or D2 may have used some information that could properly be classified as confidential; however, he submits that it is not evident and has not been established that any right of confidence is exclusive to C (as distinct from, for example, being shared with or confidential to the other party to any contract).
249. Mr Caplan also submits that the use of such information was largely a matter of convenience; however, that is not of assistance to D1 because use as a springboard is precisely the sort of abuse of confidential information which the court will restrain or compensate, and in such a case the onus shifts to the defendant to establish the independent source by which such information was obtained.
250. There are specific instances where there is at least a prima facie case of misuse of confidential information calling for explanation. These include in particular, the draft SAA and the draft distribution agreement forwarded by D1 to DS in relation to Postman Pat on dates when D1 was still a director and an employee of C, and the draft SAA's based on C's SAA's utilised by D2 and D3 for Space Chimps 2, Sex & Drugs & Rock & Roll, The Guard, and Adam, The Serpent & Eve.
251. In relation to D2, I note and reject C's plea that D2 has induced D1 to breach his fiduciary duties. The reality is that D2 is D1 in a corporate guise; any 'inducing' will have been by D1 of D2 not the other way round. Thus, for the purpose of dishonest assistance D2 was fixed with D1's knowledge and state of mind.
252. In essence, the purpose of D2 was to provide D1 with a corporate vehicle through which to carry on his lifetime's work and to pick up where C left off, but without the burden of all C's overheads and on the basis that D1 would not lose the benefit of 50% of any capital profit.
253. As a matter of principle, it would be unconscionable for D2 to retain the benefit of assets received and profits earned in consequence of D1's breaches of fiduciary duty and the development of opportunities passed on to D2 in such circumstances.
254. However, when it comes to determining the extent of D2's liability or accountability to C, it will be important to ensure that there is no duplication of remedy, and that the terms of any account are carefully defined.

Remedies

255. C seeks extensive financial remedies against D1 and D2 involving accounts of profit, declarations of trust, inquiries as to damages, equitable compensation, and interest.
256. It is no light thing to have made findings against D1 of breaches of his fiduciary duties to C or to have made a finding of accessory liability against D2; but, it does not follow that the total amount of such remedies will be a large sum. It is also important to ensure that the process of determining the appropriate remedy or remedies and its / their amount(s) remains proportionate to what is at stake or in issue.
257. In relation to D1's breach of his s.172 duty and the liquidation of C, C (in liquidation) seeks equitable compensation or damages for the loss suffered as a result of going into liquidation. That is said to be the profit which C would have earned on the films it either represented or in respect of which it would have acquired distribution rights.
258. At paragraph 61(a) of the Amended Particulars of Claim, C claims that its loss of profits under its existing agreements as at termination of the agreements (broadly May 2009) totalled US$7.3m. This sum is calculated by reference to 10% of the total value of unsold rights available to C. Of this total, more than US$2.5m relates to The Nutcracker. Thus, embedded in the value of unsold rights are rights which are unsaleable or worth considerably less than 10% of the total unsold value. In my judgment, this approach, which LG sought to justify in her oral evidence, is misconceived.
259. On an ongoing basis, C's business was low yield, even after including the contribution from TSL. Any value of substance would have flowed from the chance that C had identified or would identify and secure a sales agency for a film which became very successful. That is not to say that C's unsold rights in May 2009 were of merely nominal value (whether intrinsically or as a route to further rights); indeed, if that was so D1 would not have troubled to acquire any such unexpired rights for D2.
260. In relation to D1's breaches of the 'no profit' and 'no conflict' duties, I understand C to be looking to D1 and D2 to account for profits.
261. I have found that the claim under clause 5 of D1's employment contract adds nothing of substance, to which I would add : or value.
262. I have rejected C's claim under clause 8.
263. As to the claim under clause 9 for misuse of confidential information, taken in the round, there is considerable force in Mr Caplan's submission that any financial remedy would be nominal alternatively that its ascertainment would be an unduly burdensome and expensive process. That being said, it does not follow that if C's remedy against D1 and/or D2 is or includes an account of profits allowance for expenditure in the account should necessarily include an allowance for office costs relating to the preparation, negotiation and execution of contracts or other costs where advantage is likely to have been taken of the 'springboard' provided in electronic format to D1 and used and passed on by him to D2 and D3.
264. Mr Caplan's submission that damages based on the approach in Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 1406 would be merely nominal because C was winding down is misconceived. The hypothetical negotiation would be conducted on the basis that C's closure would follow, not precede, a successful negotiation. However, for the reasons stated, I am not in a position to make a sufficiently clear finding as to the existence and nature of any confidential information which would form the foundation for a hypothetical negotiation in relation to such information. Whether or not a hypothetical negotiation is the basis on which to determine an overall remedy for C is another matter.
265. On the available evidence, remedies running in total to US$millions, or the £sterling equivalent, seem unrealistic and unlikely; and, it is as well to recognise at this stage that the financial remedies available to C are quite likely to produce a significantly lower total sum.
266. It will be important for the parties to factor the likely financial outcome into their thinking about a proportionate and cost effective way of addressing the determination of C's remedies.
267. This trial was opened and conducted on the basis that it was a trial as to liability only. The approach to be taken to quantum is a matter to be addressed at the hearing at which judgment is handed down or a subsequent hearing at which the order flowing from my judgment is determined. I encourage the parties, through their representatives, to consider and discuss, in the spirit of co-operation required by the overriding objective, the most cost effective and proportionate method of determining the remedies issues^[16].

The Agreed List of Issues

268. At an early stage of the trial Mr Hubbard and Mr Caplan helpfully produced an agreed list of issues^[17], which they stressed was not intended to be a substitute for the pleadings. I appreciate that in my judgment I have not considered in detail or made findings of fact going to all issues (for example those relating to TSL); accordingly, if and as necessary, I include my further findings and reasoning in the answers which follow.
269. Issue 1 : Yes. My findings of fact support a conclusion on this issue that D1 did provide C's board with 'overly pessimistic advice' as defined in the Amended Particulars of Claim. Whilst it would not have been appropriate to budget for a net profit in 2009, C had at least reasonable prospects of profitability in the future, albeit generally at a low yield and always accepting that very close cost control would remain an essential feature of C's operation.
270. Issue 2 : No. D1's advice to C's board to liquidate TSL was based upon the view that TSL's existence was inextricably linked to C's existence. The evidence would not support a finding that C's board or investors would have been minded to continue TSL's business independently of and without a film sales agency business. TSL's role was to provide a contribution to C's profitability. There is no evidence that TSL could have supported the overhead cost of even LG and D1 together with its own overheads.
271. Issue 3 : Yes and Yes. My finding is that from January 2009, and probably by 4.1.09, D1 had decided to establish a film sales agency business on his own account not because he believed that C was doomed and would fail within a year if it continued in business but because he did not believe that C would deliver the capital gain which had been an important part of his decision to leave Icon and team up with LG. The breach of s.172 was that D1 misled C as to his true reasons for advocating that C be liquidated.
272. Issue 4 : Paragraph 48A of the Amended Particulars of Claim must now be read without references to D3.
273. At paragraph 48A, C's allegations of breach of s.172 by failure to inform C are collected and summarised. I have made detailed findings in respect of C's breach of s.172 which may be matched to the specific allegations which are swept up or collected at paragraph 48A (e.g. the breach alleged at paragraph 22(j)); but, the basis of my finding of bad faith is that D1 misled C rather than that he failed to inform C. The difference is in part, but not entirely, semantic. The structure of my finding on this point is (1) D1 deliberately misled LG and thereby C as to (a) his personal intentions and (b) the profitability, prospects and, therefore, viability of C; and, (2) the consequence of D1's silence and failure to inform C of the work he was undertaking and his true intentions was that C continued to be misled.
274. As to the specific sub-paragraphs of paragraph 48(A) : (a) and (c) are addressed by my findings that C was misled by D1 into thinking that D1 would be leaving the industry to devote his energies to a real estate business, and that D1's failure to inform C of the project work and negotiations in fact conducted for his personal benefit constituted a breach of his s.172 duty. C's allegations relating to SANTX are not the subject of specific consideration or findings in this judgment because they do not add anything of significance to C's case against D1 or D1's defence of that case. D1's negotiations with Prescience were part and parcel of his arrangements for the establishment of D2; the evidence does not support a finding that Prescience was in fact a joint venture partner for C and the Services Agreement does not constitute such a joint venture.
275. Accordingly, my answer to Issue 4 is a qualified yes.
276. Issue 5 : Yes. I have made express findings of surreptitious conduct on D1's part in relation to the establishment and conduct of business on behalf of himself and D2 in breach of his s.172 duties.
277. Issue 6 : Yes. D1 did conceal or divert corporate opportunities from C in breach of his s.172 duties.
278. Issue 7 : Yes. D1 did otherwise undermine C's business in 2009 by neglecting to pursue or procure contracts for new films for C's benefit. However, he was not tasked with assisting C to identify a partner or a buyer. Moreover, after 7.5.09, including at Cannes 2009, D1's conduct in relation to informing C's business partners and others that C was winding down its business was in accordance with the strategy approved by C's board. The difficulty for D1 is that that strategy was decided upon as a result of C's board having been misled by D1.
279. Issue 8 : As to heads of loss, this issue has not been fully canvassed at the trial and is a matter for a later hearing.
280. Issue 9 : Yes. D1 did surreptitiously conduct business on behalf (or in anticipation of the incorporation) of a rival business or businesses in breach of his s.175 duties.
281. Issue 10 : As to remedy, this is a matter for a later hearing.
282. Issue 11 : Yes. D1 has profited from the exploitation of opportunities whilst under fiduciary obligations to C which D1 kept secret from C. Accordingly, D1 has breached the no profit rule and, thereby, his s.175 duties.
283. Issue 12 : In principle D1 is liable to account to C for such profit. The amount of such profit is a matter to be determined at a later hearing.
284. Issue 13 : No. The evidence does not support a finding that D1 acted honestly and reasonably or that having regard to all the circumstances D1 ought fairly to be excused from liability wholly or in part.
285. Issues 14 – 16 : D1 was plainly in breach of clause 8 during the course of his employment (up to 31.8.09). After 31.8.09 D1 was released from the clause 8 restrictions. All relevant conduct of D1 up to 31.8.09 also constitutes breaches of his fiduciary duties. It is unnecessary, and would be unduly onerous, to devote further time and resources to an account of any profits from such breaches of clause 8.
286. Issues : 17 – 18 : No. The evidence does not support any clear finding of breach of clause 9 or that C is entitled to a remedy for such use of confidential information as appears to be acknowledged by or on behalf of D1.
287. Issue 19 : The claims against D2 are established on the basis of accessory liability. The remedy is a matter to be determined at a later hearing.
288. Issue 20 : Not at all. Whilst it may well be relevant to ascertain the quantum of income which would have been received by D1 or D2 but for the Services Agreement, "any profits received by Barler" is not a measure for determining the outcome of any account to which C is entitled.
SCHEDULE ~ Agreed List of Issues

The section 172 / clause 5 case

289. Did Mr Kamp provide Odyssey's board with 'overly pessimistic advice' (as defined in the Amended Particulars of Claim) and thereby breach his section 172 and/or contractual duties?
290. Did Mr Kamp, in bad faith, provide Odyssey's board with advice that it should liquidate TSL and thereby breach his section 172 and/or contractual duties?
291. Did Mr Kamp cease, by 26 May 2009, to believe the advice which he had provided to Odyssey's board prior to that date and, if so, was it a breach of his section 172 and/or contractual duties not to have informed the board of that fact?
292. Did Mr Kamp's failure to inform Odyssey's board of the matters set out at paragraph 48A of the Amended Particulars of Claim (insofar as such matters are true) give rise to a breach of his section 172 and/or contractual duties?
293. Did Mr Kamp surreptitiously incorporate and/or conduct business on behalf of rival companies and if so did such acts give rise to a breach of his section 172 and/or contractual duties?
294. Did Mr Kamp conceal or divert from Odyssey any corporate opportunities in breach of his section 172 and/or contractual duties?
295. Did Mr Kamp otherwise undermine Odyssey's business in 2009 in breach of his section 172 and/or contractual duties, including by:

6.1 Neglecting to pursue or procure contracts for new films for Odyssey;

6.2 Failing to assist Odyssey to identify a partner or a buyer; and/or

6.3 After 7 May 2009 but before Odyssey was placed into liquidation, informing Odyssey's business partners and others in the market that Odyssey was closing down?

296. If the answer to any of the above questions is yes, what (if any) heads of loss did the relevant default(s) cause Odyssey?

The section 175 case

The 'no-conflict' case

297. Did Mr Kamp surreptitiously conduct business on behalf (or in anticipation of the incorporation) of a rival business or businesses and thereby breach his duties under section 175 of the Companies Act 2006?
298. If so, what remedy is Odyssey entitled to and in relation to what (if any) specific assets?

The 'no profit' case

299. Has Mr Kamp made a profit as a result of his fiduciary position or of opportunities or knowledge arising from that position in breach of his duties under section 175 of the Companies Act 2006?
300. If so, what profit has Mr Kamp made and is he liable to account to Odyssey for it?

Section 1157

301. If Mr Kamp has breached his section 175 duties, should he be granted relief under section 1157 of the Companies Act 2006?

The clause 8 case

302. Has Mr Kamp breached clause 8 of his employment contract whilst and/or after he was employed by Odyssey?
303. Insofar as the period after Mr Kamp left Odyssey is concerned, was he released from the restrictions contained in clause 8 of his employment contract pursuant to a compromise agreement?
304. Is Odyssey entitled to an account of profits for any breach of clause 8?

Clause 9

305. Has Mr Kamp breached clause 9 of his employment agreement?
306. If he has, what remedy is Odyssey entitled to?

Timeless

307. Insofar as any of the claims against Mr Kamp are established, what remedy (if any) is Odyssey entitled to as against Timeless?

Barler

308. To what extent (if any) is Mr Kamp obliged to account to Odyssey for any profits received by Barler?

Note 1   In fact lower remuneration was drawn initially and salaries were not subsequently increased in accordance with the contractual terms    [Back]

Note 2   D3 Press Release E23/6738    [Back]

Note 3   Services Agreement recitals    [Back]

Note 4   E23/6738    [Back]

Note 5   D3 press release for 2010 Cannes and Toronto festivals 23/6810-5    [Back]

Note 6   Computer generated imagery    [Back]

Note 7   Taking account of both TSL’s turnover and a management fee payable by TSL     [Back]

Note 8   Pre-tax as no provision was made in the management accounts    [Back]

Note 9   Detailed at E23/6579-80    [Back]

Note 10   Including The Troll, still at script development stage by a relative of D1    [Back]

Note 11   SS made a witness statement for each side and was not called to give oral evidence    [Back]

Note 12   A loss of £458k reduced by £207k. Towards the conclusion of the trial C produced a reworked 2009 budget prepared by Deloitte which forecast a net loss of £269k    [Back]

Note 13   E21/6139    [Back]

Note 14   E21/6139    [Back]

Note 15   Agreed by D1 before title completed    [Back]

Note 16   On 20.9.12 a consent order was made in Tomlin form with no order as to costs    [Back]

Note 17   A copy is attached as a schedule to this judgment    [Back]