Richmond Pharmacology Ltd v Chester Overseas Ltd & Ors

The Claimant, Richmond Pharmacology Limited (“Richmond”) is a contract research organisation (“CRO”) which specialises in the design and conduct of pharmaceutical clinical trials essential in the drug development process. Pharmaceutical companies often outsource clinical trials work to CROs. Richmond conducts early-phase clinical studies, mostly involving testing new drugs on healthy people to ensure that they are safe. It was formed in August 2001 by Dr Ulrike Lorch and Dr Radivoj Arezina, and in January 2002 they were joined by Dr Jorg Taubel, and Richmond then started trading. I will refer to those three doctors as “the Founders”.

The First Defendant, Chester Overseas Limited (“Chester”) is a British Virgin Islands company, the shares in which are owned by trustees who hold them on discretionary trusts for the families of the Second and Third Defendants, Milton and Larry Levine, and the family of a friend of Milton Levine’s. The Levines are not directors of Chester, but throughout the history of this matter, they have acted as its representatives and made all relevant decisions about its actions.

On 5 March 2002, a shareholders’ agreement was entered into between Richmond, the Founders and Chester (“the Shareholders Agreement”), pursuant to which Chester invested £117,858 in Richmond by subscribing for B ordinary shares equivalent to 44% of the issued share capital in Richmond. The Founders together held the remaining 56%, each holding 18.67%. The Levines were appointed as directors of Richmond.

In July 2009, Chester instructed New World Corporate Finance Limited (“NWCF”), a company providing corporate financial services. Primarily, NWCF advises private companies on the purchase or sale of companies, including management buy-outs and company owners who wish to dispose of their company or shareholding, or on possibilities for companies and/or management teams to raise finance. Chester retained NWCF to advise and assist Chester in relation to selling Chester’s shares in Richmond to the Founders, by way of a management buy out (“MBO”) or, failing that, to third parties.

After unsuccessful discussions about an MBO, from November 2009 to January 2010, NWCF marketed Chester’s shares to third party prospective purchasers. Richmond claims that, in the course of this marketing, NWCF on behalf of the Defendants disclosed Richmond’s confidential information to third parties, and also created the misleading impression that all the shares in Richmond were for sale. Richmond claims that this caused a substantial loss of business, and hence turnover and profits. Richmond claims damages or equitable compensation, put at £4,293,225.

At the trial, Richmond was represented by Mr Deacon, leading Ms Pasquale. The Defendants were represented by Mr Doctor QC leading Mr Robertson. I am grateful to all counsel and their instructing solicitors for their assistance in the presentation of the case, which enabled it to be completed in the 6 days allowed for the trial.

There is an agreed list of issues for me to decide, which can be summarised as follows.

First, what duties did the Defendants owe Richmond to keep information confidential. In particular, on the true construction of the Shareholders’ Agreement, were the Defendants entitled to disclose confidential information about Richmond to third parties in order to facilitate a sale of Chester’s shares, provided the third parties agreed to keep the information confidential?

Second, did conveying information about Richmond’s business to NWCF constitute a breach of any of those duties?

Third, what information did NWCF communicate to third parties?

Fourth, did conveying that information constitute a breach of any of those duties?

Fifth, did Richmond consent to what NWCF did, or is Richmond estopped from saying it did not consent?

Sixth, did any information disclosed by NWCF cause a reduction in Richmond’s business?

Seventh, if so, what is the amount of the loss to Richmond caused by that disclosure?

I heard evidence from Dr Taubel, Dr Lorch, Milton Levine, Larry Levine and Stephen Altman, a director of NWCF. I also heard expert evidence from two accountants on the quantification of loss, Alex Marsden for Richmond and Martin Long for the Defendants.

Dr Lorch has been Richmond’s medical director throughout the history of this matter. was a careful witness, and I think she was trying to answer honestly the questions put to her. However, I formed the impression that, for the most part, she had little independent recollection of the relevant events and was relying heavily on reconstruction based on contemporaneous documents. Also, I think that in some respects, her endeavours to reconstruct events were significantly influenced by how she thinks things should have happened.

In much of his evidence, Dr Taubel seemed to me to be intent on arguing the Claimant’s case and defending its position rather than focussing on the questions put to him and giving accurate answers. I do not think he was deliberately giving false evidence, but I think that his strong sense of conviction that the Defendants had wronged the Founders led him on a number of occasions to reconstruct the past in the way most favourable to Richmond’s case. Mr Doctor argued that he did not really believe that the Defendants’ actions had caused Richmond loss, but I do not think that is the case. Rather, my assessment is that he believes very strongly that the Defendants’ actions did cause Richmond very substantial losses, and this belief caused him, at least in some respects, to remember events in a way which accords with his belief. Accordingly, I have treated his evidence with very considerable caution.

Mr Larry Levine was a straightforward and careful witness, and I am satisfied he was doing his best to accurately remember the events he dealt with in his evidence. However, in one respect I think his recollection was faulty, as I shall explain below.

Mr Milton Levine was also a straightforward and careful witness, although as he was only peripherally involved in the events with which I am concerned, his evidence is not of great assistance. However, to the extent that it is relevant, I think his evidence is reliable.

Mr Stephen Altman, too, struck me as a straightforward and careful witness who had attempted to accurately remember the material events about which he gave evidence.

Both experts had clearly put a lot of work into their reports and the joint statement which they agreed, and they gave their evidence carefully and with proper professional detachment. Mr Long’s report included a number of comments to which Mr Deacon took exception as not constituting expert evidence, but rather commentary on the facts. At my request, Mr Deacon went through each of these in cross-examination, to ascertain whether they were derived from Mr Long’s professional practice and experience. It transpired that they were not, but rather were either what Mr Long regarded as common sense, or were based on his experience in business rather than his professional practice as an accountant. That being so, I accept Mr Deacon’s submission, and I have given no weight to Mr Long’s evidence on those matters. I do not criticise Mr Long for including these comments, as I accept he did so to try and be helpful. This does not mean that Mr Long’s comments do not have force, but it does mean that I did not give any weight to the fact that Mr Long made them rather than them being made as submissions by counsel.

Before founding Richmond, the Founders had previously worked together at another CRO, Charterhouse Clinical Research Unit Limited based in Hammersmith. They founded Richmond because they thought there was a gap in the market for early phase clinical trials. The drugs development process consists of a number of steps. After testing on animals, testing on humans takes place in a number of phases. Phase I is testing on healthy humans. Phase II and later phases involve testing on people who have the target disease. It was the Phase I market that Richmond was formed to focus on, although by 2009, about 10% of its turnover came from early Phase II trials, which were often combined with Phase I.

The Founders put in £150,000 themselves but needed more money to make Richmond viable. They prepared a business plan, providing a detailed explanation of the business they hoped to establish and a copy was given to the Levines, who had been introduced to the Founders. The Levines were and are experienced investors.

The business plan projected that by 2006, the turnover would be £10 million and the net profit before tax £1.49 million. It said that exit options for an investor would be to sell the business or float it and “In any event the directors would be prepared to acquire any equity held by any investors once the business is established and is working to its full potential, i.e. after 3 to 5 years”.

It is common ground that the Levines told the Founders that they wanted to invest, and told the Founders that they were not like what they described as traditional venture capitalists in that they said that they were investors who were in it for the long haul and took a long-term view. They did not seek exit provisions of the kind sometimes insisted on by investors, entitling them to realise their investment after a set period of time.

On 5 March 2002, the date on which the Shareholders Agreement was entered into, new articles of association were adopted for Richmond, referred to in the Shareholders Agreement as “the New Articles”. Clause 3.1(a) of the Shareholders Agreement provided for these to be adopted. Also on that date, new service agreements were entered into between Richmond and each of the Founders, referred to in the Shareholders Agreement as the “Taubel Service Agreement”, the “Lorch Service Agreement” and the “Arezina Service Agreement”. Clauses 3.1(e) and 3.3-3.5 of the Shareholders Agreement provided for those to be entered into.

Under clause 2 and Schedule 1 of the Shareholders Agreement, Chester (referred to as “the Investor”) agreed to subscribe £117,857 in return for the issue to it of 47,143 fully paid B Ordinary Shares in the Company, giving them 44% of the equity share capital.

Under clause 4(a), Chester was entitled to appoint two directors (“the Investor Directors”) and each of the Founders was entitled to appoint one director (“the Founder Directors”). The consent of both Investor Directors was required to remove or appoint a Founder Director and the consent of all the Founder Directors was required to remove or appoint an Investor Director, in each case such consent was not to be unreasonably withheld or delayed.

Under clause 3(f) the parties agreed to procure the appointment of the Levines as the Investor Directors. Under clause 4(a), each Founder was deemed to have been appointed as a Founder Director. Under clause 4(e), the parties agreed that one of the Investor Directors would be Chairman of the Board. Mr Larry Levine performed that role until he resigned as a director in 2010.

Under clause 4(f), full board meetings were to be convened at least once a month by notice in writing accompanied by an agenda specifying the business to be transacted, directors' monthly reports on the performance of the business, including monthly management accounts and cash flow projections. Under clause 4(g), no meeting of the Board would be quorate without at least one Investor Director and one Founder Director being present.

Clause 5 set out a long list of “Board Reserved matters” on which the consent of an Investor Director was required including any material revision of the Business Plan and capital expenditure greater than £10,000.

Clause 6.1 and 6.2 provided:

Clause 9 provided that none of the Shareholders should, without the prior written consent of all the other Shareholders, dispose of any interest in his Shares except in accordance with the provisions of the New Articles and conditional upon the transferee entering into a “Deed of Adherence” in favour of the continuing Shareholders, defined as a “deed of adherence to the terms of this Agreement in such form as may be approved by the Board”.

Clause 10 provided for what was to happen if there was “deadlock”, which was deemed to have occurred if the Shareholders “are unable to agree on any matter requiring their agreement and any Shareholder serves notice on each of the others saying that he/it believes that there exists a dispute of fundamental importance to the future of the Company which cannot be resolved by further negotiation between them.” In that event, any Shareholder could within 28 days of the deadlock serve a Deadlock Notice. The Shareholders were then to try and resolve the dispute, but if they were unable to by 6 months after service of the Deadlock Notice, Richmond was to be wound up.

Clause 12.1 and 12.2 provided:

There is clearly a mistake in clause 12.2. Chester was not a member of the Board. So clause 12.2 must mean that Chester will procure that the Investor Directors use their best endeavours with regard to the business of Richmond in their capacity as non-executive members of the Board.

Clause 13 provided

“13.1

Subject to Clauses 13.2 and 13.3, each party shall treat as strictly confidential all commercially sensitive information received or obtained as a result of or in anticipation of entering into or performing this Agreement which relates to

(a)

the provisions of this Agreement;

(b)

the negotiations leading to this Agreement;

(c)

the subject matter of this Agreement;

(d)

the other parties to this Agreement; or

(e)

the affairs of the Company.

13.2

A party to this Agreement may disclose to its professional advisers, and bankers any information which would otherwise be confidential provided that the relevant party to this Agreement at all times procures that any person to whom any such information is disclosed at all times treats that information as confidential in accordance with the provisions of this Clause.

13.3

Clause 13.1 shall not prevent any disclosure if and to the extent:

(a)

required by law;

(b)

required by any securities exchange or regulatory or governmental body to which a party to this Agreement is subject, wherever situated;

(c)

required to vest the full benefit of this Agreement in any other party to this Agreement;

(d)

the information has come into the public domain through no fault of that party; or

(e)

it is approved by the Board.

13.4

Except as may be required by law or the rules of any stock exchange or governmental or other regulatory authority, whether or not having the force of law, no announcement or circular which contains information of the type described in Clause 13.1 shall be made or issued by or on behalf of any party at any time without the approval of the Board.

13.5

The restrictions contained in this Clause shall continue to apply after the expiration or termination of this Agreement (as against any Shareholder or generally) for a period of five years from such expiration or termination.”

Under clause 15.1, all parties were required to cooperate, and to use their voting powers so that the provisions of the Shareholders Agreement “are duly and promptly observed and given full force and effect according to its spirit and intention”’.

The business plan referred to above formed Schedule 4 to the Shareholders Agreement and the expression “Business Plan” was defined as follows: “The description of the nature and scope of the business of the company, the assumptions financial and taxation forecasts and projections prepared by the Founders in respect of the Company in the approved form appended to this Agreement at Schedule 4 which shall be updated in respect of each subsequent Financial Year.”

Article 14 of the New Articles of Association provided that a shareholder could sell his shares to any third party after three years, subject to a right of pre-emption by the remaining shareholders. Only if the remaining shareholders failed to exercise such rights within 30 days of service of a Transfer Notice could the seller transfer the shares to be sold at a price no less than the offer made under the pre-emption right. This transfer had to be completed within 90 days.

The Service Agreements included a clause which imposed an express prohibition on divulging or communicating confidential information. Mr Doctor submitted that this shed light on the correct interpretation of the Shareholders Agreement. It provided:

“The executive shall neither during the executive's employment (except in the proper performance of his duties) nor for a period of ten years after the termination of the executive's employment:

(a)

divulge or communicate to any person, company, business entity or other organisation;

(b)

use for his own purposes or for any purposes other than those of the company or any group company; or

(c)

through any failure to exercise due care and diligence, cause any unauthorised disclosure of any trade secrets or confidential information

relating to the Company or any group company or their clients, but so that these restrictions shall cease to apply to any information which shall become available to the public generally otherwise than through the default of the executive.”

In addition to the Shareholders Agreement there were also various loans by Chester to Richmond but the loans were subsequently repaid and nothing turns on them.

There was no dispute that the normal principles of interpretation applicable to a contract apply to the Shareholders Agreement. These principles have been considered on a number of occasions over the past 15 years by the Court of Appeal, House of Lords, Privy Council and Supreme Court. The most recent detailed consideration of the issue at the highest level was by the Supreme Court in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, and recent decisions of the Court of Appeal include BMA Special Opportunity Hub Fund v African Minerals Finance [2013] EWCA Civ 416, Dear v Jackson [2013] EWCA Civ 89, Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited [2014] EWCA Civ 603 and Napier Park European Credit Opportunities Fund Ltd v Harbourmaster Pro-Rata Clo 2 B.V. [2014] EWCA Civ 984.

Before closing submissions, I supplied counsel with a summary of what I regard as the applicable principles and they both agreed that the summary is an acceptable one. It is as follows:

The Defendants’ argument proceeds in the following stages. First, it is obvious that no-one would be willing to buy a minority shareholding in a small company of this kind without substantial amounts of detailed information about its affairs, of a kind which would inevitably be confidential. Therefore Chester’s right to sell its shares would be entirely illusory unless it could provide such information to a prospective purchaser.

Second, under the Shareholders Agreement and New Articles, a sale of Chester’s shares would only be possible if it could find someone willing to buy the shares who was willing to complete within 90 days of the expiring of the 30 day pre-emption period; and to sign a Deed of Adherence to the Shareholders Agreement, which would inevitably include the current version of the Business Plan. The original business plan is Schedule 4 to the Shareholders Agreement and the Shareholders Agreement requires that to be updated annually.

Third, it must follow that the obligation under clause 13 to keep information confidential can be complied with by ensuring that any third party to whom information was supplied agrees to keep the information confidential. In practice, this would be done by ensuring that any such party entered into a confidentiality agreement before receiving any information. The obligation is to “treat as strictly confidential all commercially sensitive information…”. It is not, unlike the equivalent provision in the Service Agreement, an obligation not to “divulge or communicate” confidential information to any person. Rather, it is an obligation to treat information as confidential. Information can be treated as confidential even if it is communicated to a third party, provided care is taken to ensure that the third party is trustworthy and undertakes to keep the information confidential.

The provisions in clauses 13.2 and 13.3(a) and (b) allowing disclosure of information in certain limited and identified situations were simply there to make express what would otherwise be implicit, and were not intended to represent a comprehensive list of situations in which disclosure was permissible. If clause 13 only allows disclosure in the situations described in clauses 13.2 and 13.3, then that would negate clause 6.2 which requires information to be disclosed to an agent or representative of Chester. The provision in clause 13.3(a) that disclosure is permitted if and to the extent “required by law” was extremely limited in its scope. If Chester was sued by a third party and needed to rely on confidential information to defend itself it could not do so – in that situation, Mr Doctor said, it would not be “required by law” to disclose the information. When I asked for authority for that proposition, he cited Tournier v National Provincial and Union Bank [1924] 1 KB 461.

Fourth, any purchaser of Chester’s shares would have to enter into a deed of adherence and this would have to include the current business plan. So it was implicit that the business plan could be disclosed to a prospective purchaser.

Accordingly, either as a matter of interpreting the phrase “treat as confidential”, or by virtue of an implied term, Chester was permitted to disclose confidential information to third party potential purchasers provided it was done under the cover of a non-disclosure agreement (“NDA”).

Mr Doctor argued that I could take comfort in accepting his submissions from the fact that the Founders had disclosed confidential information in 2009 when trying to raise money to buy Chester’s shares.

Persuasively though the argument was presented by Mr Doctor I cannot accept it. In my view, the ordinary and natural meaning of an obligation to treat information as confidential is that it may not be disclosed to anyone else. At the head of every draft judgement sent out by judges of the High Court and Court of Appeal (including this judgment when it was sent out in draft) is a statement that:

“This draft is confidential to the parties and their legal representatives and accordingly neither the draft itself nor its substance may be disclosed to any other person or used in the public domain.” (emphasis added).

That illustrates what I regard as the ordinary meaning of an obligation to treat information as confidential. It means that the information must not be disclosed or transmitted to anyone outside what Mr Deacon called the “confidentiality club” – those permitted to have access to it.

The fact that the parties spelled out in 13.2 and 13.3(a) and (b) certain situations where disclosure of information could be made supports that reading. I do not see any conflict with clause 6.2, which involves disclosure to Chester, not by Chester.

As to clause 13.3(a), I do not think that Tournier supports the submission that “required by law” has a settled meaning and has the effect that a person cannot disclose information even if it is essential to do so in order to defend a claim against him. The case concerned a banker’s implied duty of confidentiality, and the qualifications on the implied duty, and not the interpretation of an express confidentiality agreement. However, it is possible that “required by law” in clause 13.3(a) would be interpreted so as not to authorise the disclosure of confidential information by a party to enable him to defend a claim against him, because the party would have a choice as to whether or not to defend the claim and so would not be “required” by law to disclose it. If so, that would simply reflect the agreement of the parties that Richmond’s confidential information could not be used by any of them save in very limited circumstances. It would not shed any light on the issue in this case.

I fully see the force of the first and second limbs of Mr Doctor’s argument. Giving clause 13.1 its ordinary and natural meaning undoubtedly produces a situation where neither Chester, nor any of the Founders, can realistically expect to be able to sell their minority shareholding in Richmond without first obtaining the approval of the Board to the disclosure of confidential information to a third party purchaser.

However, I do not think that interpretation produces a result contrary to business commonsense. If a shareholder, whether Chester or one of the Founders, wanted to sell their shares at a particular price, and the other shareholders were unwilling to buy them at that price, then the shareholder would have to seek Board approval to a sales process, involving providing confidential information to prospective purchasers. The Board would know that, if it refused to act reasonably in allowing that process to proceed, the shareholder would inevitably invoke the Deadlock provisions in clause 10, leading ultimately to the winding up of the company. Thus there would be a very strong incentive on the Board to act reasonably in agreeing a sales process which would allow a sale of the minority shareholding.

In his closing submissions, Mr Doctor accepted that, if Chester wished to sell its shares but could not secure board approval to a marketing process, that would constitute deadlock under clause 10. A few days after the end of the trial, he emailed to me a supplementary note in which he sought to withdraw that concession. Mr Doctor’s supplementary note submits that a “deadlock” under clause 10 can only occur if the shareholders are unable to agree on any matter requiring their agreement. A proposed resolution of the board giving consent to Chester to disclose confidential information for the purposes of a due diligence exercise was not such a matter. Mr Deacon objected to that note being submitted, but it seems to me reasonable to allow what is, after all, only an additional submission on the interpretation of the Shareholders Agreement.

However, I think Mr Doctor’s original position on this point was correct. The point he makes on the interpretation of clause 10 in the note is, in my judgment, unsound. As I have said, clause 12.2 of the Shareholders Agreement treats Chester as if it was a member of the Board, and must be interpreted as meaning that Chester will procure that the Investor Directors use their best endeavours with regard to the business of Richmond in their capacity as non-executive members of the Board. I think that when clause 10 refers to matters requiring the agreement of the Shareholders, the reference was not limited to matters requiring the agreement of the Shareholders acting in their capacity as owners of the shares, but also the Shareholders acting in their capacity as directors, either directly, in the case of the Founders, or indirectly, in the case of Chester through the Levines.

The commercial reality of the position here was, I think, that it was always going to be virtually impossible to sell Chester’s 44% shareholding without the co-operation of the Founders. This is a point that Mr Doctor himself made when discussing the marketing exercise in 2009-2010. He said that it was inconceivable that any purchaser would have been willing to buy the 44% shareholding without meeting, liking, getting to know, and trusting, the Founders. That being so, I think that the interpretation of the Shareholders Agreement that I favour does produce a position consistent with commercial commonsense.

As to the contrast with the Service Agreements, I do not think this assists. In Oceanic Village v United Attractions [2000] Ch 234 at 241-2 there was an issue about the meaning of the landlord’s covenant, in clause 4.6, not to “permit any other gift shop to be operated in the building....”. The issue was whether this prevented the landlord itself from operating a gift shop, or only prevented the landlord from permitting others to operate a gift shop. Neuberger J held that it did prevent the landlord from operating a gift shop, because an agreement not to permit something carried with it an obligation not to do that thing. One argument against that conclusion depended on comparing clause 4.6 with clause 3.27, in which the tenant covenanted “not to use or permit or suffer to be used” the demised premises in certain ways. As to that argument, Neuberger J said that, while it was it was right to contrast a provision with the way in which another provision in the lease is drafted, and to take into account the fact that the draftsman used a different form of words in relation to two provisions of a lease concerned with the same concept, this should not normally justify departing from the natural meaning of either provision. This is because draftsmen of leases frequently use many expressions where one will do, and draftsmen may take the wording of different clauses from different precedents and different clauses may come from different hands.

In my view, that point applies with even greater force where one is comparing the drafting of a shareholder’s agreement and a service agreement, albeit entered into on the same day, and means that it would not be right to depart from the ordinary and natural meaning of clause 13 of the Shareholders Agreement because it is drafted differently to the Service Agreements.

As to the requirement for a Deed of Adherence, reading the Shareholders Agreement as a whole, I do not think that this was intended to require a purchaser of Chester’s shares to execute a deed to which was attached the latest version of the business plan.

As to the point that the Founders had disclosed confidential information in 2009 when trying to raise money to buy Chester’s shares, the interpretation of an agreement cannot be affected by events many years after it was entered into.

Accordingly, in my judgment, Chester owed a contractual duty to Richmond not to disclose to third parties any commercially sensitive information relating to the affairs of Richmond received or obtained as a result of its position as shareholder or the Levines’ position as directors, unless that disclosure fell within one of the exceptions in clauses 3.2 – 3.4.

Both of the Levines as directors owed to Richmond the duties set out in ss.172, 174 and 175 of the Companies Act 2006. S.170(3) provides that these duties are based on certain common law rules and equitable principles as they apply in relation to directors and have effect in place of those rules and principles as regards the duties owed to a company by a director. S.170(4) provides that the duties shall be interpreted and applied in the same way as common law rules or equitable principles, and that regard shall be had to the corresponding common law rules and equitable principles in interpreting and applying the duties.

Under s.172, a director is under a duty to act in a way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, having regard to certain specified matters. Under the duty now set out in s.172: “The question is not whether, viewed objectively by the court, the particular act or omission which is challenged was in fact in the interests of the company; still less is the question whether the court, had it been in the position of director at the relevant time, might have acted differently. Rather, the question is whether the director honestly believed that his act or omission was in the best interests of the company. The issue is as to the director’s state of mind.”: Regentscrest plc v Cohen [2001] B.C.C. 494 at [120] per Jonathan Parker J.

It was common ground that the effect of the Levines being directors nominated by Chester was that, in performing this duty, they could take the interests of Chester into account, provided that their decisions were in what they genuinely considered to be the best interests of Richmond: see Hawkes v Cuddy [2009] EWCA Civ 291 at [33].

Under s.174:

“(1)

A director of a company must exercise reasonable care, skill and diligence.

(2)

This means the care, skill and diligence that would be exercised by a reasonably diligent person with--

(a)

the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company, and

(b)

the general knowledge, skill and experience that the director has.”

I was not referred to any authority on the scope of this duty, but it seems clear that, unlike s.172, the test here is an objective one.

Under s.175, the director owes a duty to avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. This applies in particular to the exploitation of any property, information or opportunity. However, this duty is not infringed if “the matter has been authorised by the directors.”

Mr Doctor submitted that the test under s.175 is subjective, not objective, citing Regentscrest. I reject that submission. That case was concerned with the duty imposed on a director to act in a way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, which is now set out in s.172, not the duty to avoid actual or potential conflicts of interest, which is now in s.175.

I was not referred to any authority on the interpretation of s.175. However, the “no conflict rule” that a person who owes fiduciary duties must not put himself in a position where his duty does or may conflict with his interests, is a very familiar one, going back at least to Keech v Sandford (1726) 25 ER 223. It is clear from that decision, and many later ones, that the rule is a strict one which does not depend on bad faith or any question as to the state of mind of the fiduciary. In Regal (Hastings) Ltd. v Gulliver [1967] 2 AC 134, at 144G, Lord Russell of Killowen said that the rule of equity “in no way depends on fraud, or absence of bona fides.” The rule applies even where the fiduciary’s breach is calculated to benefit and does benefit the person to whom his duty is owed, as in Boardman v Phipps [1967] 2 AC 46. As Snell’s Equity p.189 puts it: “The honesty or otherwise of the fiduciary is also irrelevant: a breach of fiduciary duty ‘may be attended with perfect good faith.’ The fiduciary conflict rule ‘might be departed from in many cases, without any breach of morality, without any wrong being inflicted, and without any consciousness of wrong-doing.’”

In my view, therefore, the test of whether there is a breach of the s.175 duty is objective, and does not depend on whether the director is aware that what he is doing is a breach of his duty.

It was clearly possible that a situation might arise in which there was a conflict between Chester’s interests as minority shareholder and the interests of Richmond. For example, if there was a deadlock situation under clause 10. In my view, by entering the Shareholders Agreement, the Founders as the then directors of Richmond authorised the Levines to act in a dual capacity. The Levines were authorised to act both as directors of Richmond, and as representatives of Chester, despite the fact that this produced the potential for a conflict of interest. Mr Deacon submitted that, if a conflict situation arose, the Levines could not act further as directors of Richmond without the approval of the Board. I do not think that is right where the conflict arose in circumstances where Chester was acting in pursuance of rights conferred on it by the Shareholders Agreement and New Articles. However, I do think it is correct to the extent that the Levines proposed to cause Chester to commit a breach of the Shareholders Agreement. The authority given by the directors only extended to the Levines acting as Chester’s representatives so long as Chester complied with its obligations under the Shareholders Agreement.

Mr Deacon contended that an equitable duty to keep information confidential is imposed by the law where confidential information is provided by one person to another in circumstances importing an obligation of confidence. If the circumstances are such that any reasonable man standing in the shoes of the recipient of the information would have realised upon reasonable grounds that the information was being given to him in confidence, then this suffices to impose upon him a duty of confidence, relying on the decision of Megarry J in Coco v AN Clarke (Engineers) Ltd [1969] RPC 41 at 47-48.

Mr Doctor accepted that, but submitted that where, as here, there is a contractual duty of confidence, the contractual duty overrode the equitable duty, referring to Coco at p.47 per Megarry J: “... in cases of contract, the primary question is no doubt that of construing the contract and any terms implied in it”. In my view, where there is a contractual duty of confidentiality, equity would not impose any wider duty, and I think Mr Deacon accepted that as correct.

The Defendants submit that the duty on the Levines to treat information received by them in that capacity as confidential arose out of their acceptance of appointment as directors of Richmond pursuant to the provisions of the Shareholders Agreement. Both that duty, and their statutory duties as directors, were subject to the purpose for which they were, by agreement of all the parties, appointed in the first place, namely to protect Chester’s investment in Richmond, and to secure the interests of Chester as shareholder in Richmond. Any information given to them as directors was effectively given to Chester (which had a right to receive it), and Chester was obliged to treat it as confidential. Therefore if Chester was entitled to disclose information, the fact that it came to Chester via the Levines is of no consequence.

I accept that equity would not impose on the Levines any wider duty of confidence than was imposed on Chester under the Shareholders Agreement. However, I think that the duty would not be any narrower either, and that to the extent that the Levines caused Chester to disclose confidential information in breach of the Shareholders Agreement, the Levines would themselves be in breach of that duty of confidence.

Before turning to make my findings of fact, I will briefly explain the nature of Richmond’s business, insofar as material. This aspect of the evidence was not in dispute.

Early stage clinical trials take place over a number of years and require a financial outlay from the outset. Generally, payments to CROs are made before costs are incurred by it. So if a CRO was to fail to complete a trial for any reason, the pharmaceutical company would lose significant expenditure, both in terms of cost and time, the latter of which can be crucial in the pharmaceutical industry. As a result, Richmond’s clients are required to invest substantial trust in Richmond’s present and future financial and scientific stability. They would be very concerned if they learned of facts which cast doubt either on the financial stability of the company, or as to whether the Founders would continue to work for Richmond.

The clinical research and development market is very confined and competitive. From 2009, this market was contracting, with early phase clinical research units being acquired by larger clinical research organisations due to financial instability, a lack of new market entrants, economic conditions in the UK becoming increasingly difficult, and all UK pharmaceutical companies closing their own Phase 1 units, other than GlaxoSmithKline in Cambridge.

When placing a Phase 1 study, clients choose a CRO based upon a large number of factors. The reputation of a CRO is built up over many years and assists the CRO in obtaining new business, allowing it to score higher in respect of the client’s criteria. However, once the reputation of a CRO has been damaged, it is difficult to re-establish and has long lasting effects in the market, particularly as the pharmaceutical industry is very conservative and information is widely communicated and quickly becomes common knowledge.

Richmond predominantly conducts phase I studies, but in the period with which I am concerned was increasingly also conducting phase II clinical trials. In 2009, about 10% of its business constituted phase II trials.

Richmond operates from two sites, both in teaching hospitals. Richmond’s location is one aspect that gives it a competitive advantage. Since October 2008, Richmond has held accreditation from the Medicines and Health Care Products Regulatory Agency (“MHRA”) as a Phase 1 facility. It is one of only 15 companies so accredited in the UK. The accreditation is on a named basis. Dr Lorch is the MHRA’s contact person, and all three Founders are named as Richmond’s key personnel.

The way Richmond’s clinical trials business works is essentially as follows. An existing or prospective client approaches Richmond with an invitation to tender for a contract to carry out a clinical trial. This was referred to in the evidence as a “request for proposal” or “RFP”. If Richmond wishes to bid for the contract, it makes a proposal. If the proposal is accepted, then a contract is entered into, often with a letter of intent preceding the contract. Richmond then does the work under the contract and receives payment for it. There is a small part of Richmond’s business which works in a different way, comprising the sale of drug free plasma, but it is common ground that this is irrelevant for the purposes of this dispute.

The following table, taking from Mr Long’s report, sets out the number of RFPs which Richmond bid for, and the value of the bids, and the number and value of RFPs won which led to contracts being entered into, in the years 2007-2013:

As is apparent from that table, there was a very sharp reduction in both the number and the value of RFPs won from 2009 to 2010, with the number and value remaining low in 2011 and 2012 and not recovering until 2013. This is, essentially, the basis for the claim. Richmond says that the marketing by NWCF in November and December 2009 and January 2010 involved disclosing confidential information to clients, potential clients and competitors, and giving the wrong impression that the business was in trouble and that the Founders were about to leave, which caused a huge reduction in the business being placed with the company, and therefore its turnover and its profits.

In this section of my judgment, I will make my findings as to the material facts in chronological order. I will confine this summary to facts I regard as material. In some cases, the facts are not in dispute. In others they are, but unless the issue is a major one I will not identify my reasons for finding the facts as I do. I have been guided by the contemporaneous documents, the inherent probabilities, and my general preference for the evidence of the Defendants’ witnesses.

In 2008, there was a dispute between the Founders and the Levines about some software that Richmond had developed, called “Prefect”. The details of this dispute do not matter, but by May 2008, it had led to a falling out between the Founders and the Levines, and a desire by the Levines to end their connection with the Founders and to sell Chester’s shares in Richmond.

To assist them in trying to sell Chester’s shares in Richmond, in June 2008 the Levines made contact with NWCF, a company the directors of which were Mr Altman, an accountant, and Mr Berger a solicitor. NWCF was regulated by the FSA. NWCF signed an NDA in June 2008 although it was not signed by Chester until a year later, in June 2009.

Subsequently, Larry Levine sent a substantial amount of confidential information about Richmond’s affairs to NWCF, with the knowledge and approval of Milton Levine. Both the Levines believed that they were entitled to do this because they regarded NWCF as Chester’s “professional adviser” for the purposes of clause 13.2 of the Shareholders Agreement. Whether they were right in that belief I will address below.

In October 2008, the Levines told the Founders that Chester wished to end its connection with Richmond, either by a sale of Richmond, or by Richmond or the Founders buying out Chester, or by Chester finding a buyer for its shares in the market. At some point, they started referring to this project of selling Chester’s shares as “Project Green”.

Initially, starting in November 2008, an attempt was made to agree a management buy out (“MBO”) by which the Founders would buy Chester’s shares. The details of the discussions about this possibility do not matter. No progress was made.

On 29 April 2009, Chester served on Richmond a transfer notice, pursuant to Article 14 of the New Articles, offering a price of £1.5 million for the Founders to buy out Chester’s shareholding in Richmond, failing which Chester intended to sell its shares in Richmond. Some fairly desultory discussions followed, but again no progress on the possibility of an MBO was made.

On 4 June 2009, Larry Levine emailed Dr Taubel, saying that, unless the Founders responded with an indication of their position by the next day, Chester would offer its shares to the market.

On 11 June 2009, Mr Altman emailed Larry Levine to say that he had just met with a private equity house which was invested in a clinical trials business. He said they were very acquisitive. In cross-examination, he said the equity house was Lyceum Capital, which he had regular meetings with. Lyceum held a majority shareholding in a CRO called Synexus Clinical Research Ltd. Synexus had been acquiring a number of other businesses and so Mr Altman thought this information would be of interest to the Levines. It was suggested to Mr Altman that this email indicated that he had started marketing Chester’s shares at that time, which he said was not the case. I think it is clear from later emails referred to below that Mr Altman’s evidence on this point was reliable.

Larry Levine replied the same day, saying that he had made some progress with the Founders and he thought they had accepted the price of £1.5 million. The next day, Milton Levine emailed the Founders with a suggestion as to how the purchase could be structured.

On 29 June 2009, Dr Taubel emailed the Levines. He said:

“It is essential for the business to remain stable and competitive with a good reputation for financial and managerial stability. These are of utmost importance in our industry, in particular in the present financial climate, We have been approached by brokers acting for competitor companies on sale in the past and by expressing a vague interest we were given commercially sensitive information of these companies. Whilst we have always maintained strict confidentiality we are conscious that there may be others who will take a less ethical approach. To discuss openly [Chester’s] proposals with staff members and or a wider group of individuals in the industry is therefore out of the question as they will inevitably pass on commercially sensitive information to others and this would eventually reach our clients. This would almost certainly put the business at risk and also negatively impact on the price of the shares. We have therefore discussed your proposals with a very small number of select and entirely trustworthy individuals only.

To date we have not been successful to raise the necessary funds ourselves. We also had very little interest from friends, relatives and a select number of high wealth individuals who we thought may show an interest in acquiring COLs shares or at least part thereof. We are continuing discussions but we are not hopeful that anything will happen quickly in this respect.”

He concluded that the only way forward they could see was for Richmond to buy back Chester’s shares over time, ‘entirely at its discretion’.

In the cross-examination of Dr Lorch and Dr Taubel, the question of from whom they had tried to raise money from was explored in some detail. I cannot see that this is a matter of any relevance to the issues I have to decide. However, it did provide grounds for questioning the reliability of Dr Taubel’s evidence. In paragraph 45 of his statement, he gave evidence about attempts by the Founders to raise money in June 2009 from a laboratory used by Richmond, TDL. He said that TDL ultimately were not interested but did carry out some due diligence work. He said: “I disclosed information to TDL, which it had access to in the normal course of business with the Claimant and the Claimant’s management accounts, which I only disclosed after completing a very restrictive confidentiality agreement between the Claimant and TDL”. That gave the clear impression that he had insisted on a specific and very restrictive confidentiality agreement with TDL before disclosing financial information to them. However, in cross-examination, he accepted that the only confidentiality agreement with TDL was one signed in 2005, four years before there was any question of a sale of Chester’s shares. He said that was the agreement he was referring to in his statement, which I cannot accept. This was an example of Dr Taubel recalling events in a way more favourable to Richmond’s case than the facts justified.

Understandably, the Levines did not think that Dr Taubel’s email of 29 June 2009 that Richmond should endeavour, entirely at its discretion, to buy back shares annually, constituted a viable suggestion as to the way forward. From 1 July 2009, they therefore began to seriously consider a sale of Chester’s shares to a third party as an alternative to an MBO, and they arranged a meeting with Mr Altman on 9 July 2009 to discuss the position. The day before that meeting, Larry Levine emailed a number of confidential documents to NWCF.

On 9 July 2009, at the meeting, a letter was signed by Mr Altman for NWCF and Milton Levine for Chester by which Chester retained NWCF to provide corporate finance advisory services in relation to the proposed sale of its shares. The letter provided for a retainer fee and a completion fee, which was £35,000 if the shares were sold to the Founders and £75,000 if they were sold to a third party. The letter provided that stage 1 of the process would involve NWCF approaching the management of Richmond.

It was suggested by Mr Deacon that NWCF was engaged by the Levines as well as Chester, but I do not think that was the case. The shares were held by Chester and NWCF was working for Chester to try and sell them. The Levines were acting as Chester’s representatives in instructing NWCF.

Following that meeting, during July 2009, Larry Levine continued to send Mr Altman confidential information about Richmond, to assist him in working for Chester in the process of trying to sell Chester’s shares. Not all the information sent was confidential, but a great deal of it was.

On 10 July 2009, Mr Altman emailed Grant Davidson of Lyceum Capital, saying he would like to discuss the Synexus acquisition criteria in greater detail. Mr Davidson put him in touch with Duncan Green also of Lyceum, and Mr Altman met Mr Green on 22 July 2009.

Also on 10 July 2009, Mr Altman asked Larry Levine for names of competitors and any suppliers or customers who could be possible trade purchasers. Larry Levine replied on the same day with a list of some CROs and the name of the main supplier, and said he would get the name of the second largest supplier, which he later did.

On 14 July 2009, Mr Altman emailed Larry Levine with a summary of Richmond’s financial position and options to sell Chester’s shares. He said that selling Chester’s shareholding “...to the trade will however be difficult without the agreement of management as there are no drag along rights. Trade buyers are unlikely to buy a minority stake.” As to a sale to a third party investor, this would face valuation issues as the business was only marginally profitable. He said that the key was to attempt to work with the Founders and to focus on “carrot rather than stick”.

He included a draft email to Dr Taubel, which Milton Levine duly sent to Dr Taubel the next day, by way of reply to Dr Taubel’s email of 29 June 2009. This said that the Levines had appointed NWCF to advise on the position and proposed a meeting between the Founders and Mr Altman.

On 23 July 2009, after a board meeting of the directors of Richmond, Mr Altman met the Founders. At the meeting, Dr Taubel emphasised the need for confidentiality. The next day, Mr Altman wrote to Dr Taubel summarising the role of NWCF and what Mr Altman understood had been agreed at the meeting. This included an agreed action list, which provided that Mark Vaughan, Richmond’s finance director, was to send a NDA to NWCF by 28 July 2009 and that it was to be signed the same day, after which NWCF was to meet Mr Vaughan and agree contents of fund raising documentation.

Mr Altman did not hear from Mr Vaughan and on 5 August 2009 discussed with the Levines by email what they should do. Milton Levine sent an email as part of that discussion saying that they had to now seriously bringing clause 10 of the Shareholders Agreement into play i.e. advising that a deadlock had occurred and if it was not resolved at the expiry of 6 months they would proceed to have the company wound up. Following that discussion, Mr Altman sent an email to Dr Taubel on 5 August 2009. He said that an MBO was Chester’s preferred route, but in the absence of that, there would be a sale of Chester’s shares to an investor or trade purchaser. Dr Taubel responded on 7 August saying that Mark Vaughan was expecting Mr Altman’s call. Dr Taubel said in cross-examination that he had delegated this matter to Mr Vaughan, which I think is clearly correct. Mr Altman did then meet Mr Vaughan on 12 August 2009. Mr Vaughan did not given evidence, but he did send an email to Dr Lorch in February 2011 recording his recollection of the meeting. He said his understanding of the meeting was to gain an understanding of the potential MBO and that is what they discussed at the meeting, which seems likely to be correct.

The minutes of Richmond’s board meeting on 21 August 2009 say, at item 12, that Mr Vaughan was working with Mr Altman of NWCF, “... who is attempting to raise the funding required for the first instalment in the prospective purchase of the Chester shares. NWCF will in the process attempt to raise additional working capital for Richmond as well...”. Although both Dr Lorch and Dr Taubel said in their statements that this does not make sense, the minutes were approved at the next board meeting. I think it is clear from the minutes, and from an email from Peter Magness (a consultant) to the Founders dated 1 September 2009, that, at this stage, it was still hoped that an MBO might be possible and Mr Altman and Mr Vaughan were working together to that end.

On 30 September 2009, Mr Vaughan emailed Mr Altman. He said:

“... the founder directors do not want any information or rumours to get into the market place relating to the potential sale of part of the share capital. No information should go to any competitors or related companies, and there needs to be a defined allowable purpose for the usage of information provided. It may be necessary to agree on a case by case basis who can receive what information prior to any contact being made. In addition, we do not want to loose a contract with a client as a result of any rumours in the marketplace so need an indemnity clause to protect against this, and an indemnity for any losses to the business and any negative effect that may result on the value of the founder directors shareholding.”.

After an email discussion with the Levines, on 2 October 2009, Mr Altman emailed Mr Vaughan in reply. He said that the process could be seen in two stages, first an MBO, and second, in the absence of that, a sale of Chester’s shares to “... any party including competitors and related companies.” He said an MBO would avoid stage 2 and any confidentiality issues and Chester were still willing to proceed with an MBO and were happy to use either an NDA already provided or a standard form of NDA. He concluded:

“If we do not proceed with the MBO we will immediately progress with stage two, at which point we are under no obligation to agree with you:

1.

The form of the NDA.

2.

The list of competitors with whom we wish to make contact.

3.

The information to be provided to them”.

This email of 2 October 2009 for some reason went astray and was not received by Mr Vaughan at the time, although Mr Altman and the Levines did not find this out until a few weeks later, on 26 October 2009, at the next board meeting.

Following that, in October 2009, in the period leading up to that board meeting, Larry Levine obtained various pieces of information from Mr Vaughan, and forwarded them to Mr Altman. Larry Levine did not say, in his requests to Mr Vaughan, why he wanted the information.

At the same time, Mr Altman set about preparing a list of potential purchasers of Richmond’s shares, using both information supplied by Larry Levine and his own research. He also prepared a two page document which contained the name of Richmond, a brief description of its business, and a proposed timetable for taking forward negotiations about a purchase. The timetable started with interested parties signing an NDA, then meetings with directors, then further information requirements being agreed as appropriate, and then an indicative bid. It is normal practice, when marketing a shareholding in a company, to prepare a document of this kind, giving a very brief summary of the company, the shares in which are for sale, generally referred to as a “teaser”.

On 14 October 2009, Larry Levine emailed Milton Levine and Mr Altman reporting, among other things, on a meeting he had held with Mr Vaughan that day. Mr Vaughan said that Dr Taubel wanted additional protections in the NDA between Richmond and NWCF. Larry Levine said these were much too onerous and that Dr Taubel “... must realise that it is reasonable for NWCF to be able to release information to third parties as long as some precautions have been taken.”

On 19 October 2009, there was an email discussion between Mr Altman and Larry Levine in which they agreed that Larry Levine should add to the agenda for the forthcoming board meeting two items, the business plan and cost reductions. It is apparent from those emails that the intention was to add those items to the agenda to try and produce a situation in which Chester could trigger the deadlock provisions in the Shareholders Agreement. Larry Levine then emailed the directors adding those items to the agenda for the meeting.

On 23 October 2009, Mr Altman emailed Larry Levine to say he had “set aside Monday am to hit the market” and ideally by then needed confirmation to proceed, any comments on the teaser which he had produced, the “board pack to reflect any financial data amendments to the teaser” and “any comments from yourselves on the buyer list” which was attached.

In the morning of 26 October 2009, a Monday, Larry Levine emailed Mr Altman in reply, saying “We know that there is a fight coming on us going to the market and thus at this stage I would only use information clearly available in the public domain i.e. on their website and the 2007 accounts. I can check if the 2008 accounts are available at Companies House”.

At the board meeting later that day, 26 October 2009, the minutes record that Larry Levine: “... advised the board that [NWCF] were now offering the [Chester] shares to the market. Larry Levine pointed out that this can proceed in parallel with a fundraising for an MBO should the Founders wish to reactivate that process.’

Larry Levine said in his evidence that, on that occasion, he had also referred to the email of 2 October 2009 and had said that NWCF would be passing information on to prospective buyers once they had signed an NDA. It is common ground that he did refer to the email of 2 October 2009 and indeed that is apparent from subsequent references to it. It is disputed that he said that NWCF would be passing information on to prospective buyers. However, on 2 December 2009, only a few weeks after the meeting, Larry Levine sent an email to Mr Altman saying: “I did tell them in the last meeting that [NWCF] will be passing information on to the prospective buyers once they had signed an NDA”. In my view, that is good contemporaneous evidence he did say that and I accept his evidence that he did. By saying that at the meeting he was doing no more than repeating what Mr Altman had already said in his email of 2 October and what Larry Levine had told Mr Vaughan on 14 October.

After the meeting, on 26 October 2009, Mr Altman emailed Larry Levine with the heading “exit process”, saying:

“• I believe that the way forward here is not to produce anything in writing at this point!

• I will contact potential trade buyers and confirm the name of the business

• I will obtain an NDA and then discuss the business

• If of interest I will arrange an initial meeting with NWCF and yourself

• At the meeting we can then agree an appropriate process with the potential buyer

• Do you agree with the above?”

In context, I think it is reasonably clear that by saying “the way forward here is not to produce anything in writing at this point”, Mr Altman meant that he did not think it would be a good idea to use a teaser for the initial marketing exercise, and not, as Mr Deacon suggested, that he would not make a written record of his discussions with prospective buyers.

On 29 October 2009, Mr Altman emailed Larry Levine to say he had updated the teaser using information from the business plan. It is apparent from the email that he was trying to present Richmond’s business in the most favourable light possible without being inaccurate. Larry Levine replied suggesting one change, namely that the reference to meetings with directors would be with “investor directors” or “non-executive directors”. Mr Altman duly made that change.

The final version of the teaser started with Richmond’s name. There was then a brief description of its business in general terms, and a statement that it operated out of two London based teaching hospitals, St George's University of London and Mayday University Hospital. It then said: “The executive management team, who are the founders, own 56% of the equity with the remaining 44% owned by an external investor. The highly experienced founders wish to continue to run the business.” Under the heading “key strengths and attractions”, it made a number of favourable statements about the company, including that it was “profitable and cash generative with a proven track record and strong brand since its commencement in 2001”, had a “high calibre management team with extensive experience in the sector”, was accredited with the MHRA and had supplementary accreditation for data management, was the UK's only CRO to conduct trials from within two acute NHS teaching hospitals, had a comprehensive list of pharmaceutical companies as clients including 7 of the world's top 10, had a turnover of around £10m with 100 beds and multi-site capability. It then outlined a number of growth opportunities. There was a brief financial summary for the year ending 31 December 2009, with sales at £9.3m, gross profit of £3.15m, EBITDA pre directors’ remuneration of £950,000 and operating profit of £150,000. There was then a heading “transaction process” which started with interested parties signing an NDA, followed by meetings with non-executive directors then further information requirements to be agreed as appropriate, and then indicative bids.

On 3 November 2009, Mr Vaughan emailed Larry Levine saying that, at the last board meeting, Larry Levine had mentioned an email from Mr Altman and Mr Vaughan could not find it – could Mr Levine forward it to him. He said that, in his capacity as a director, he wanted to understand the current position about the sale of the shares, and that he assumed that clause 10 of the Shareholders Agreement (deadlock) had not been invoked but rather Chester was progressing on the basis of clause 14(h) of the New Articles of Association.

Larry Levine replied saying that Chester was proceeding under the articles and sent Mr Vaughan a copy of Mr Altman’s email of 2 October, which Mr Vaughan then acknowledged. Given that Mr Vaughan was the finance director of Richmond, and had been authorised to deal with Mr Altman, there is no doubt that this constituted communication of the email of 2 October to Richmond.

The emails disclosed by Richmond do not include any email by which Mr Vaughan forwarded that email to the Founders. Dr Lorch said that Richmond’s servers do not include any record of him forwarding the email to the Founders. I accept that evidence, and I think that probably the reason he did not forward it to them was because he thought it did no more than record what Larry Levine had told Mr Vaughan on 14 October, which no doubt Mr Vaughan had passed on to the Founders, and what Larry Levine had told the board at the meeting on 26 October, and therefore would not tell the Founders anything they did not already know.

Mr Altman then started the marketing process in early November 2009. Mr Altman and his secretary, Carina O’Brien, kept a running “control schedule” of contacts sought, responses, and the fate of each such attempt in the form of an Excel spreadsheet. It was a working document, which was updated as the marketing exercise progressed. In its final form, the form in which it was disclosed, it was headed “Project Green Control Schedule 3”. It was not suggested to Mr Altman that the entries in this document had been falsely created or altered in any respect.

The marketing consisted of the following initial parts. Part 1 was that Ms O’Brien, telephoned the prospective purchaser and asked if they might be interested in purchasing a shareholding in a CRO specialising in early phase clinical trials. She did not give Richmond’s name or any details about its business in the course of this call. She followed that up with an email saying:

“I was calling on behalf of Stephen Altman, MD of New World Corporate Finance. We are an independent adviser who specialise in advising on the buying and selling of companies. We are currently representing a shareholder of a Clinical Research Organisation (“CRO”) who is considering the potential sale of their shares. Your company is involved in similar activities and we would therefore be keen to discuss your potential interest in this acquisition opportunity”

and saying she would like to set up a 10-15 minute telephone call with Mr Altman. 82 potential purchasers were approached by Ms O’Brien in this way.

Mr Deacon accepted in closing submissions that this part of the process did not involve the disclosure of confidential information, which seems to me to be plainly correct.

If the potential purchaser was interested, a telephone call, referred to as a “conference call” was arranged between the purchaser and Mr Altman – that was part 2 of the process. 25 potential purchasers got as far down the marketing process as this.

In this conference call, Mr Altman gave some information about Richmond, and, if the purchaser seemed interested, Richmond’s name. 13 potential purchasers were given Richmond’s name.

If the potential purchaser remained interested, Mr Altman sent them an NDA to sign, on the basis that no further information would be supplied unless the NDA was signed. Mr Altman sent out a total of 8 NDAs.

Only three potential purchasers signed NDAs. They were Synexus, Proteome Sciences plc, and United BioSource Corporation. They were each sent the teaser.

The NDAs signed by those companies were 8 page agreements, in which the prospective purchaser agreed to keep the “Confidential Information” supplied secret, and use it only for the purpose of considering, evaluating and negotiating the proposed purchase of the shares owned by Chester. The Confidential Information protected by the NDAs included “the fact that the Seller is considering selling the Shares, that the Buyer is considering buying the Shares, and the existence and contents of this agreement”.

It has not been suggested by Mr Deacon that there was any deficiency in the terms of the NDAs signed by those three companies, nor that, if those companies had complied with those terms, that any harm could have been caused to Richmond by the disclosure of confidential information to prospective purchasers.

Of those purchasers who signed an NDA, a meeting was held with two of them, Synexus and Proteome, and a modified version of Richmond’s business plan was given to them at the meeting. Mr Deacon did not draw attention to any particular aspect of that modified business plan that he said might have been likely to cause harm to Richmond.

The meeting with Synexus took place on 27 November 2009. It was attended by Larry Levine, Mr Altman, Michael Fort, the CEO of Synexus, and Duncan Green of Lyceum Capital. Synexus did not compete with Richmond for phase I trials, but did compete for phase II trial work which, as I have said, constituted about 10% of Richmond’s business.

At the meeting, Larry Levine and Mr Altman went through the modified business plan and discussed the nature of Richmond’s business. They explained what they thought were the strengths of the business, and presented it in the most positive light that they could. They explained that Chester only had a minority shareholding but had enhanced rights under the Shareholders Agreement. Mr Fort and Mr Green said that they were interested, but only if all the shares could be purchased, and they requested four pieces of further information about Richmond, turnover analysis for past 3 years, lease terms for the two hospitals where Richmond operated, the size and make up of the business development team and typical sales contract key terms.

After the meeting, on 30 November 2009, Larry Levine emailed Mr Altman and Milton Levine saying he thought Richmond would be a good fit with Synexus and “if the Founders of Richmond give this half a chance, they would thrive in that environment”. He said there were three options to obtain the information Synexus wanted: (1) Larry Levine, in his capacity as director, could simply send Richmond a list of questions; (2) Mr Altman could send them the list; or (3) “We tell them what has transpired and solicit their assistance. Synexus has said that they would need to visit the premises so we will need their co-operation at some point anyhow”.

Later that day, Larry Levine emailed Mr Vaughan, with a copy to Dr Taubel, and asked him for the information, to be provided by the end of the week. He did not say why he wanted it. Clearly Larry Levine and Mr Altman had decided to adopt the first option. Mr Vaughan then supplied the information requested before the end of the week.

This prompt provision of the information requested clearly surprised Larry Levine. On 2 December 2009 he emailed Mr Altman saying:

“I have just passed on to the balance of the information from Mark. We need to dwell on this for a moment This came ahead of schedule (I asked for it by Friday) and without any apparent hesitation or questioning. Jorg was copied in on the email and thus is aware of what has been sent to us. What is going on here? Some combination of:

1.

Mark sent it without getting Jorg's approval and simply copied him on the email. Although you would have thought that if Jorg did not want him to respond to my request, Jorg would have told him at the time of my request.

2.

They realise that I have a right to the information and they are obliging.

3.

They realise that I have a right to the information and they are obliging even although they know or have a suspicion why I want it. This would be completely out of character.

4.

In their minds, they are giving us rope to “hang” ourselves on (by passing it on to others in the industry). On this one, I did tell them in the last board meeting that you will be passing information on to the prospective buyers once they had signed an NDA and the they said nothing at the time.

5.

Most optimistically (and perhaps unrealistically), they are aware that we are talking to Synexus (they do after know the medical director who has visited them previously) and they are happy for us to proceed.

6.

Others?”

In my view, that makes it reasonably clear that Larry Levine was puzzled by the fact that Richmond was promptly supplying the information he had asked for – he had expected more difficulty in getting it, and he thought there were a number of possible reasons why it had been provided. One of those was that the Founders simply thought he was entitled to the information in his capacity as director of Richmond and did not realise that it was being requested to help market the shares. Another was that they thought that, but knew, or had a suspicion that he wanted it to disclose it to a prospective purchaser, but he thought that would be “completely out of character”. Another was that they knew that Larry Levine was going to pass the information to prospective purchasers and were co-operating with the intention of bringing a claim for damages for the harm that caused – “they are giving us rope to “hang” ourselves on”. Another was that they knew what was going on and were happy about it, but he thought this was optimistic and perhaps unrealistic.

It is clear that Larry Levine was concerned, throughout this process, that the Founders might allege that the marketing exercise had harmed Richmond. That is apparent from the facts summarised above, and is further evidenced by an exchange of emails in December 2009. On 3 December 2009, Mr Altman emailed to say that he had spoken to the head of strategy at a company called Covance, who was very interested and who said that Dr Taubel had previously approached him on more than one occasion about a possible sale. The next day, Larry Levine replied asking for the name of the person at Covance because: “It may come in very useful if [Dr Taubel] says that we are harming the company by making approaches to the competition”. Clearly Larry Levine still thought that was a real possibility.

On 1 December 2009, Ms O’Brien emailed Jeff Williams, CEO of a company called Clinipace, with her standard invitation to speak to Mr Altman. As usual, this did not name Richmond. Mr Williams replied the same day saying: “.. I am not interested in buying a minority position in a private company”. On 2 December, Mr Altman replied, saying: “I can confirm that this is an opportunity to buy the whole of the business”. There was subsequently a telephone conversation between them on 4 December, summarised in the control schedule as follows: “4/12: JW confirmed Phase 1 does not fit in with their strategy.”

Mr Deacon cross-examined Mr Altman on his statement on 2 December that “…this is an opportunity to buy the whole of the business”, putting it to Mr Altman that this was a downright lie. Mr Altman disagreed. He said “… there is always the opportunity to buy the majority stake in a business if the terms are correct”.

I accept that Mr Altman was not lying. I think that Mr Altman believed that, if an attractive enough offer were made, he would be able to persuade the Founders to sell their shares. That is supported by an email of 21 October 2009, in which Mr Altman said of the draft teaser: “I have therefore avoided the issues relating to executive management and their 56% at this stage. The rationale is that it could appear to be a significant hurdle for buyers to countenance early on. Therefore it makes sense to meet with them and then gauge each buyer individually. As I mentioned if we receive a strong valuation for 100% then I believe that executive management may well come to the table/become willing to meet the buyer etc”. However, I think this material does show that Mr Altman was ready to give the impression that it would be possible to acquire all the shares in Richmond if he thought that would help to move negotiations forward.

On 8 December 2009, Mr Altman emailed Duncan Green of Lyceum Capital some further information about Richmond. This information comprised:

On 17 December 2009, Larry Levine emailed Mr Altman with a summary of points discussed at the board meeting two days earlier, on 15 December. He said he had mentioned Synexus and Dr Taubel had said they were doing badly, after which Larry Levine said nothing more about them. Larry Levine raised the possibility of a funder buying Chester’s shares and putting some money into the business, and told Dr Taubel that the stumbling block with taking forward that idea was the NDA which Dr Taubel had asked for and which no funder would sign. Dr Taubel said that the nature of their industry was that this information is very sensitive. Larry Levine’s comment on that, in the email was that “They are still stuck in that rut” i.e. still worried about the possible damaging effects of a marketing process, and “They do not appreciate that we have already given information out on a different NDA and I said nothing further”.

Shortly afterwards, Synexus said they were putting their interest in any acquisition on hold for 6 months and would revert. They never did.

The meeting with the other signatory of an NDA, Proteome, took place on 21 January 2010. Mr Altman and Larry Levine made a presentation similar to that they had made to Synexus, but it turned out Proteome had no real interest in buying shares in Richmond.

No meeting was ever held with the other signatory of the NDA, United Biosource, who thus received only the teaser. The marketing effort had ended by the end of January 2010.

On 15 February 2010, Chester served a notice of deadlock on the Founders under clause 10 of the Shareholders Agreement. Negotiations about the deadlock were ultimately fruitless. On 15 July 2010, the Levines resigned as directors of Richmond.

In early 2010, Richmond increased its prices for new trials by 10%, as recorded in the board meeting on 1 March 2010. Dr Taubel reported that the order book was strong, with the unit busy until June 2010.

On 22 January 2010, Richmond’s head of business development, Charlotte Gowling, was taken seriously ill and she remained away from work for some time. There followed a debate between Dr Taubel and Larry Levine about what should be done in consequence. On 9 March 2010, Dr Taubel emailed Larry Levine saying that Mr Levine had not fully understood the urgency of the situation created by Ms Gowling’s illness leaving business development uncovered. He said:

“This has lead and will lead to futher serious shortcomings in that department. This will prevent us from meeting current sales target and certainly not allow to meet the proposed extended targets. We will therefore not be able to operate profitably in 2010 as we will not be able to sell new studies nor be able to retain the contracts we have (i.e. the existing forward order book).”

On 10 March 2010, Dr Taubel emailed Larry Levine repeating his serious concerns about the absence of the business development director. He said:

“I am seriously behind with marketing and sales tasks which are essential if I am to protect the sales we have (orders taken in but not delivered) and if I am to achieve the targeted sales for the summer period. In fact it is necessary for me to say at this juncture that we are unlikely to achieve the sales I was hoping to achieve for the summer period with resulting decrease in revenues for the third quarter due to the current issues”.

Subsequently, as a result of Dr Taubel’s concerns, Brian Friel was employed by Richmond in a business development role.

The finance report for March 2010 said that the end of February position of firm sales in 2010 had improved to the end of March, and that since the end of March a letter of intent had been received from Debiopharm for £880,000, the two Kissei contracts had increased by £270,000 and another contract had increased by £270,000, so that there was “a very strong position at the end of the quarter”.

The first sign of any concern about the business came in the finance report for June 2010, which said that “Given the low volume of proposal activity, we need to be cautious with current recruitment to avoid significant overcapacity from Q3 onwards”.

At the board meeting on 2 August 2010, Dr Taubel said that sales figures were a concern, and “the challenge is to adjust staff numbers to the lower revenue projection in the second half”. He reported that Brien Friel had left the company due to poor performance during probationary period. He said that extra effort was being made to address the shortfall in sales. He reported on an issue with contract with Kissei.

At the board meeting on 2 September 2010, Dr Taubel said that there was a downturn in workload and marketing activities were being accelerated to increase opportunities.

Some insight into the difficulties that Richmond was experiencing at this time is given by Richmond internal emails on 16 February 2011. These record that a client, Genzyme, felt that a quote that they had received from Richmond was too expensive, and that Genzyme were also upset by a threat to withhold data until they paid. This had also been a problem with another client, UCB who gave that as the reason why Richmond did not get the chance to bid on a recent study. There had also been feedback from a company called Tibotec, who said Richmond were “way too expensive and currently not in the pack to be chosen”. A subsequent report on 18 February 2011 said that the medical director of Genzyme, with whom Richmond had previously worked when she was at another company, had provided feedback. She said that internal communication at Richmond was poor, she was terrified by Richmond’s high staff turnover, Richmond was more expensive than all the other CROs, she had friends at another company who had told her about some extra charges which made her worry about her budget, and putting all these issues together “it was more than enough to put them off”.

In March 2011, Chester applied to the Court under s.994 of the Companies Act 2006, alleging unfair prejudice, and claiming an order that the Founders should buy Chester’s shares in Richmond at a price to be determined by an independent valuer, alternatively, a winding up of the company.

At the board meeting on 5 April 2011, Dr Taubel reported that sales and business development had had a busy month. “Recent events in Japan (earthquake) may result in less business, there has been a considerable amount of Japanese business over the last year. Most of the business won recently has been Japanese and with other markets contracting it is difficult to win new business. Current sales are on track for the £10m revised budget …”.

At the board meeting on 7 June 2011, Dr Taubel reported that: “Order intake remains a significant problem ... the market is very slow. There has been a reduction in normal healthy volunteer trials resulting in competitors encroaching into our Japanese market with some success, undermining our position. Pharmaceutical companies have voted against tighter regulations by conducting trials abroad... [Richmond] need to be careful with pricing and establish client budgets prior to quoting.”

At the board meeting on 10 August 2011, Dr Taubel reported that there had been a focus of attention on marketing, and there had been a number of enquiries suggesting that it was having the desired impact. “Despite this, several quotations have been unsuccessful reducing the number of studies in the pipeline. The historical conversion rate of 40% is not being reached. Some contracts have been lost due to price, so prices are being reduced, and some have been lost due to established client relationships with other CROs. Our most established client AZ [Astra Zeneca] are now conducting most Japanese studies in Japan and it is doubtful whether we will get much further work from them. AZ’s Caucasian studies are going to Quintiles.” Quintiles is a large CRO.

The new director of business development who was engaged after Mr Friel was not a success and had left the company by the time of the board meeting on 14 October 2011, when Dr Taubel reported that he was managing business development and marketing personally. He reported that “Sales to Japanese companies now need to focus on studies into Caucasians as there appear to be no more Japanese studies being awarded outside Japan. Western companies wanting to enter Japan with Japanese data find it easier to work with western CROs which then puts us into direct competition with Japan. There are more phase 1 units being set up in Japan.”

In the course of the s.994 proceedings, in about November 2011, Chester disclosed some documents relating to the marketing process. The Founders regarded this as evidence that Chester had disclosed confidential information about Richmond to the market, thus causing damage to Richmond. They sought disclosure of documents in the s.994 proceedings, but this was successfully resisted, although Chester served a witness statement summarising what the sales process had consisted of.

This claim was issued in November 2012. In January 2013, the s.994 proceedings were settled on terms that the Founders buy Chester’s shares at current market value following a binding independent valuation. The valuation process eventually led to a price of £642,000 being fixed, and the Founders are in the process of paying that sum in instalments.

This seems to me to be an issue of no importance, as it is not suggested that conveying information to NWCF by itself caused any loss to Richmond. However, as it is part of Richmond’s case, I must deal with it, albeit briefly.

There is no doubt that, between 30 October 2008 and 17 December 2009, Larry Levine did disclose to NWCF a substantial amount of confidential information about Richmond’s affairs. Larry Levine did not dispute that in cross-examination, although he said he had thought at the time, and still thought, he was entitled to do that, evidence which I accept. The question is whether his belief that he was entitled to do that was correct.

The issue here is whether NWCF was Chester’s “professional adviser” and so entitled, under clause 13.2 of the Shareholders Agreement, to receive confidential information. Mr Deacon argued that the term “professional adviser” in Clause 13.2, on its proper construction and giving the term its conventional meaning, covers specialist professional advisers on matters of law, tax and accounting and does not extend to a third party simply engaged to conduct the process of marketing a shareholder’s shares for sale.

In my view, NWCF were Chester’s professional advisers. Mr Altman is an accountant and Mr Berger a solicitor; they are both professionally qualified. NWCF was retained to give Chester professional advice on how best to sell its shares.

Accordingly, the disclosure of information to NWCF was, in my view, authorised by clause 13.2 of the Shareholders Agreement, and I do not think any breach of duty was committed by the Defendants in making that disclosure. If NWCF had retained the information and not disclosed it to any third party, then in my view none of the Defendants would have committed any breach of duty.

As I have said, Mr Deacon accepted that part 1 of the marketing campaign, involving Carina O’Brien telephoning and emailing 82 prospective purchasers, without revealing Richmond’s name, did not involve the disclosure of any confidential information and in my view that is clearly correct. Accordingly, no breach of duty was committed at that stage.

Part 2 of the marketing campaign involved Mr Altman having conference calls with 25 prospective purchasers, and revealing Richmond’s name to 13 of them.

It is clear from the control schedule that some people who Mr Altman spoke to were not at all interested. For example, the control schedule records that, on 27 November 2009, Mr Altman spoke to someone at Penn Pharmaceutical Services. Mr Altman’s note says: “No interest in patient recruitment. All patient work in Asia”.

Others did express an interest and were given Richmond’s name. For example, on 13 November 2009, Mr Altman spoke to Simon Holmes of ICON Plc. Mr Altman’s note says: “Acquisitive - UK Phase 1 only if in hospital environment. Name given awaiting response. 8/12: SH confirmed discussed and not progressing further.”

It is not possible to be sure exactly what information Mr Altman gave the prospective purchasers who he spoke to on the telephone in the conference calls or what information was provided in the meetings with Synexus and Proteome. Mr Altman said he had taken notes of his conversations and the meetings, but no notes have been disclosed. He also said that, in the case of the conference calls, he noted anything of interest in the control schedule. It was not suggested that Mr Altman’s notes were in the control of the Defendants, and no application for non-party disclosure was made against NWCF. It was not suggested that the notes had been deliberately withheld. I think it likely that, even if we had Mr Altman’s notes, they would be unlikely to shed much light on what information he gave – he would have been concerned to note down the prospective purchaser’s position rather than what information he was providing.

However, it is clear from the contemporaneous emails that Mr Altman was being very careful indeed about what information he disclosed, because that is what Larry Levine had insisted on:

In his statement, at para 81, Larry Levine said: “In an attempt to retain the goodwill of the Founders and comply with their expressed wishes, I emphasised to Mr Altman the Founders’ concerns about confidentiality and asked him to be particularly careful and mindful of their concerns, which I expected him to do anyway, but there was no harm in emphasising it.” That accords with the contemporaneous documents and I accept that evidence.

That being so, I think it very unlikely that Mr Altman disclosed any confidential information about Richmond’s business of any substance or importance in those telephone calls or in the meetings. I think it likely he did make some general statements about Richmond’s business derived from the confidential information he had been supplied with, but I think that those statements would have been of a general nature, and would have put Richmond in the most positive light possible. Mr Altman was, after all, trying to sell shares in Richmond.

There is one example that Mr Deacon referred to where Mr Altman was asked a specific question. On 19 November 2009, Mr Véronneau of Almirall responded to the initial contact (which did not give Richmond’s name) by asking what therapeutic areas the company carried on clinical studies in, and specifically whether there were any in dermatology. Mr Altman then asked Mr Levine whether this was the case, on and he replied the next day saying he could not tell from the information he had. Mr Altman then replied to Mr Véronneau saying that it would be simpler to have a 5 minute conversation. The control schedule records that a conference call did take place and Mr Altman’s note was: “Pharmaceuticals focus - will not own CRO/only outsource to CROs”.

As I see it, that is not an example of Mr Altman disclosing specific confidential information about Richmond’s business. It looks from the documents as though he did not know and could not find out the answer to Mr Véronneau’s specific question, and it also seems reasonably clear that Almirall was not given Richmond’s name.

Mr Deacon submitted that there is one example which shows that Mr Altman gave information which would have enabled the prospective purchaser to deduce which company Mr Altman was talking about. The example is InCROM Group, where Mr Altman’s note of the conference call with Mr Sayama of InCROM in the control schedule says: “Green too big/number of beds therefore name not given.” Mr Deacon says that Richmond was one of only two CROs in the UK market with a 100-bed capacity, the other being Hammersmith Medicines Research Ltd (“HMR”), one of Richmond’s main competitors, and therefore Mr Sayama clearly would have been able to identify Richmond as the CRO that Mr Altman was discussing.

As to that, I am sure that Mr Sayama would have been able to work out that Mr Altman was probably talking about either Richmond or HMR, but I do not think he would have known which and it seems clear he had no interest in finding out.

A different question is whether, in his conversations and at the meetings, Mr Altman gave the impression that all the shares in Richmond were or might well be for sale, rather than just the shares owned by Chester. We know that he did so in the case of Jeff Williams of Clinipace. In my view, it is likely he did so on a number of other occasions as well, although it is not possible to be precise about when or how many times, because of the absence of any written records.

For the reasons I have given, I think it unlikely that, in those conversations, he gave any of the prospective purchasers any detailed information about Richmond’s business. I think it likely that he did make some general statements about Richmond’s business which were based on and derived from confidential information he had, but I think that the information he did disclose was probably anodyne. However, I do think it probable that, in some of those conversations, he gave the impression that all of the shares in Richmond were, or might be, for sale.

Sending the teaser to Synexus, Proteome, and United BioSource, and disclosing the modified business plan to Synexus and Proteome, did involve disclosing confidential information about Richmond’s business. However, I think it was of a type which could not reasonably be expected to enable competitor of Richmond to gain any advantage over Richmond. I consider that the teaser did tend to give the impression that all the shares were or might be for sale, albeit that the executive management team, who were the founders of the company, wished to continue to run the business.

The meeting with Synexus undoubtedly involved making some statements based on confidential information. However, I think it is clear both from what Synexus asked for by way of further information, and the information they were given, that Larry Levine and Mr Altman were very cautious about how much they gave away. I think again it is unlikely that, in that meeting, they gave Synexus any confidential information about Richmond the disclosure of which was likely to enable Synexus to gain any advantage over Richmond in the limited area where the two companies competed. It is reasonably clear, however, that, when Synexus made it clear they were only interested in buying all the shares in Richmond, Mr Altman and Larry Levine encouraged them to believe that was, or might be, a possibility.

As to the meeting with Proteome, given that they made it clear that they were not interested in buying any shares in Richmond, I think it unlikely that any confidential information apart from that in the modified business plan was disclosed to them.

Mr Deacon drew attention in his cross-examination of Larry Levine to an email from Larry Levine on 1 November 2011, following a meeting with the Founders at the Institute of Directors. In that, he said that Richmond had recently entered into a new 10-year lease with Mayday Hospital and that previously: “... the absence of a long term lease was a major negative expressed by potential purchasers of Chester’s shares approached by New World. One does not enter into lease of this nature when the business is going down”. Mr Deacon said that the use of the plural “purchasers” indicated that details of Richmond’s leases must have been disclosed to at least one purchaser apart from Synexus. Larry Levine did not agree with that – he said that only Synexus had treated the duration of the leases as a negative factor. I accept that evidence and I think Mr Deacon was reading too much into the use of the plural in the email of 1 November 2011. In other emails, Synexus was referred to in the plural – for example, in his email of 30 November 2009 Larry Levine said of Synexus “They will not just buy our stake”.

Mr Deacon argued that the reduction in Richmond’s turnover was of a kind which would be expected to occur as a result of the disclosure of confidential information, that there was no other reasonable explanation for the reduction, and therefore it was to be inferred that there had been disclosure of confidential information which had caused the reduction, going beyond that which is revealed by disclosure or the evidence of Mr Altman and the Levines. I will explain later in this judgment why I am unable to accept that submission.

Given my decision on the interpretation of the Shareholders Agreement, and my finding that some confidential information about Richmond’s business was disclosed by NWCF acting on behalf of Chester, it follows that, to that extent, Chester was in breach of the Shareholders Agreement and liable to Richmond for any reasonably forseeable loss suffered in consequence of that breach.

A more difficult question is whether telling prospective purchasers that all the shares in Richmond were, or might be, for sale, constituted a breach of the Shareholders Agreement. There are three issues here.

First, if someone makes false statements to the effect that an asset is for sale, can the owner of the asset sue for breach of a duty not to disclose confidential information, when the information is untrue?

As to this, Mr Deacon’s position was that such a claim could be brought provided that a duty of confidentiality would have been owed if the information had been true. Mr Doctor’s position was that, if an existing duty of confidentiality is owed, and breached, it is no defence to a claim for breach of that duty to show that some of the information disclosed was false. But otherwise, a claim for loss caused by someone making false statements must satisfy the requirements for the torts of libel, slander or malicious falsehood. Both counsel referred to a short passage in Toulson & Phipps: Confidentiality (3^rd ed) paras 3-093 to 3-095, but no other authorities.

This is a difficult and potentially important issue of law. It seems to me that whichever test is right, Richmond satisfies it here. Applying Mr Doctor’s test, Chester did breach a duty of confidentiality in marketing the shares, to the extent identified above, and it was in the context of disclosing confidential information that the false statements about all the shares being for sale were made. That being so, it is unnecessary and I think would be inappropriate for me to decide which test is correct, given that I was not taken to the authorities referred to in the textbook and the issue was the subject of only fairly brief submissions.

The second question is whether the information that all the shares in Richmond were for sale would, if true, have been confidential information. In my view, in the context of the present case, it clearly would. I derive support for that view from the fact that the NDAs with Synexus, Proteome and United BioSource all treated the fact that Chester’s shares were for sale as itself comprising confidential information.

The third question is whether the information that all the shares were for sale falls within clause 13.1 of the Shareholders Agreement as being “commercially sensitive information received or obtained as a result of or in anticipation of entering into or performing this Agreement which relates to ... the affairs of” Richmond. The Shareholders Agreement was made between Richmond, the Founders, and Chester. That being so, it seems to me to be right to interpret the phrase “which relates to ... the affairs of” Richmond as embracing commercially sensitive information relating to a prospective sale of the shares in Richmond, and not as being limited to information about Richmond’s business.

Accordingly, in my view, when prospective purchasers were told that all the shares in Richmond were or might be for sale, that did constitute a breach of clause 13.1 by Chester.

I do not think that the Levines breached the s.172 duty to act in a way they considered, in good faith, would be most likely to promote the success of Richmond for the benefit of its members as a whole. That duty is, as I have said, one which is only breached if a director acts in bad faith. In my judgment, the Levines believed they were entitled to do what they were doing and were acting in good faith. I draw support for that view from the fact that they were open about their intention to market the shares and disclose information under an NDA. Mr Altman’s email of 2 October 2009 to Mr Vaughan, sent again on 3 November 2009 told Richmond what Chester was proposing to do, and Larry Levine also told the board that on 26 October 2009. The Levines were very careful, as I have said, to control the flow of information about Richmond.

As to the s.174 duty, I think that a reasonably diligent person with the general knowledge, skill and experience that could reasonably be expected of a person carrying out the functions carried out by the Levines in relation to Richmond, and the general knowledge, skill and experience that the Levines in fact had, could reasonably have formed the view that they were entitled to cause Chester to market its shares in the way that NWCF marketed them, taking considerable care about the disclosure of confidential information. Although I have rejected Mr Doctor’s submissions as to the correct interpretation of the Shareholders Agreement and New Articles, I think that a reasonable person in the position of the Levines in 2009 could reasonably have taken a different view. Accordingly, I do not think there was any breach of that duty.

However, I do think that the Levines breached the s.175 duty, to avoid a situation in which they had a direct or indirect interest that conflicts, or possibly may conflict, with the interests of Richmond. For the reasons I have given above, I consider that the Levines were authorised by the Founders, as directors of Richmond at the date of the Shareholders Agreement, to act as representatives of Chester, even though that put them in a situation where there was the potential for a conflict of interest, provided that in so acting, they did not cause Chester to breach the terms of the Shareholders Agreement. As I have held that Chester did breach clause 13.1 of the Shareholders Agreement it follows that, to that extent, the Levines breached their s.175 duty. As I have said, I consider that it is no defence to a claim for breach of this duty that the director acted in good faith. Nor do I think it is a defence that the director reasonably, but wrongly, thought that he was entitled to do what he did.

It seems to me to follow from my findings so far that the Levines also breached the equitable duty of confidence to which they were subject.

It was not submitted by either counsel that, in the event that the Levines were held liable for breach of their s.175 duty, or their duty of confidence, there was any difference of in the correct approach to questions of causation or quantum than in the case of the breach of contract claim against Chester.

The argument that Richmond consented to what NWCF did was abandoned by Mr Doctor in his closing submissions, rightly so in my view.

The argument that Richmond is estopped from contending that what NWCF did was not a breach of duty by the Defendants was, however, persisted in. Mr Doctor cited ING Bank NV v Ros Roca SA [2011] EWCA Civ 353 as authority to the effect that an estoppel will arise where there is a relevant assumption of fact or law is made by A and acquiesced in by B, and it is unjust for party B to resile from that assumption. Mr Deacon did not quarrel with that as a summary of the law, and I accept it. However, I think that it is possible to be rather more precise about two elements of what is needed in order to make it unjust for B to resile from the assumption.

First, I think that, in order to create an estoppel by acquiescence, the circumstances in which B acquiesces in the assumption which A has made, must be such that B’s silence can reasonably be understood, and is in fact understood by party A, as meaning that B intends A to rely upon the assumption. Otherwise, I can see no injustice in B resiling from the assumption.

Second, I think that A must in fact have relied upon the common assumption, to a sufficient extent, rather than merely upon his own independent view of the matter. What makes it unfair for B to go back on the assumption is that B’s failure to object has been a material inducement to A to follow a particular course of conduct.

In the present case, I do not think that Richmond’s failure to object to what NWCF was doing could reasonably have been understood as meaning that Richmond assumed any element of responsibility for any assumption made by the Levines that what they were doing was lawful. I think the most that could reasonably have been inferred from Richmond’s failure to object, in the circumstances here, was a grudging and unhappy acceptance that Richmond could do nothing about the situation.

Nor do I accept that the Levines understood Richmond’s silence as meaning that Richmond accepted that what NWCF was doing was lawful. In his witness statement, at para 87, Larry Levine said that, after the board meeting on 26 October 2009 he:

“… took [the Founders] lack of reaction to my statement, expressing neither surprise that that we had finally reached the point of marketing to third parties, nor objection to our doing so, as agreement that we should do so and agreement to the inevitable disclosure of some information about the Company, even confidential information, to prospective purchasers who agreed to be bound by an NDA.”

I cannot accept that evidence, which is inconsistent with the emails referred to in paragraphs 142, 144 and 149 above.

In his oral evidence, in answer to a question from me about his state of mind when he wrote the email referred to in paragraph 142 above, he said something rather different:

“I believe that they had -- that we had advised them, that they had recognised the advice, that they hadn't said anything about what we had told them but that they were very unhappy about it, but that they had no choice in the matter and indeed, that we would have an ongoing challenge with them in relation to the disclosure of information.”

In my view, that is closer to the truth, but still not quite accurate. In my view, the true position revealed by the contemporaneous emails is that Larry Levine was very uncertain about what the attitude of the Founders was to the marketing exercise and how much they knew about it, and his approach was not to draw any more attention to what NWCF was doing than he absolutely had to. I do not think that state of mind comes anywhere close to one in which it can be said that Chester and the Levines acted in reliance on a common assumption that what NWCF was doing was lawful, such that it is now unjust for Richmond to resile from that assumption. The same would be true if I accepted Larry Levine’s evidence that he thought at the time that the Founders were very unhappy about the disclosure, but that they had no choice in the matter, and that there would be a challenge by them in relation to the disclosure of the material in due course. That would not be a state of mind which would make it unfair for Richmond to now assert its rights under the Shareholders Agreement. If A knows that B is very unhappy about what A is doing but believes he is powerless to stop A, there is nothing unjust about allowing B to claim that A was acting in breach of duty if it later turns out that B was wrong in thinking he was powerless.

Accordingly, I reject the Defendants’ argument that Richmond is estopped from denying that what NWCF did was a breach of duty by the Defendants.

Both counsel were agreed that the relevant question for me here is whether, on the balance of probabilities, such breaches as I find were committed by the Defendants were an effective cause of the reduction in the amount of business placed with Richmond in 2010-2012.

Mr Deacon submitted that where there is a breach of duty, in assessing causation, there are occasions when the court is permitted to draw an inference that there must have been a causal link, taking a common sense and pragmatic approach to the evidence, in the circumstances where the evidence is somewhat equivocal. In such cases, if the claimant proves that the defendant was in breach of duty and that damage occurred which was of a kind likely to have been caused by such a breach, this is enough for the court to infer that the damage was, on a balance of probabilities, caused by the breach, even if the claimant is unable to prove positively the precise causal mechanism. In support, he cited Clerk & Lindsell on Torts (20th ed) at [2-07], which says:

“The burden of proving causation rests with the claimant in almost all instances. The claimant must adduce evidence that it is more likely than not that the wrongful conduct of the defendant in fact resulted in the damage of which he complains. On the other hand, there are occasions when the court is permitted to draw an inference that there must have been a causal link, taking a common-sense and pragmatic approach to the evidence, in circumstances where the evidence is somewhat equivocal. So if the claimant proves that the defendant was in breach of duty and that damage occurred which was of a kind likely to have been caused by such a breach this may be enough for the court to infer that the damage was probably caused by the breach, even if the claimant is unable to prove positively the precise causal mechanism.”

This principle was not in dispute, although whether it was applicable here was strongly contested.

Counsel were agreed that the most recent guidance on the right approach to inferring causation from circumstantial evidence is that given by Toulson LJ in Milton Keynes Borough Council v Nulty [2013] 1 WLR 1183 at [32]-[37]. That case concerned a claim that an electrical engineer had negligently started a fire by carelessly discarding a cigarette in the processing area of a recycling centre. There was no direct evidence that he had done this, but the judge and the Court of Appeal held that the circumstantial evidence established that this was the most probable cause of the fire. Toulson LJ summarised the applicable law, and the core of what he said was as follows:

“[34] A case based on circumstantial evidence depends for its cogency on the combination of relevant circumstances and the likelihood or unlikelihood of coincidence. A party advancing it argues that the circumstances can only or most probably be accounted for by the explanation which it suggests. Consideration of such a case necessarily involves looking at the whole picture, including what gaps there are in the evidence, whether the individual factors relied upon are in themselves properly established, what factors may point away from the suggested explanation and what other explanation might fit the circumstances. As Lord Mance observed in Datec Electronic Holdings Ltd v United Parcels Service Ltd [2007] 1 WLR 1325, paras 48 and 50, there is an inherent risk that a systematic consideration of the possibilities could become a process of elimination “leading to no more than a conclusion regarding the least unlikely cause of loss”, which was the fault identified in The Popi M. So at the end of any such systematic analysis, the court has to stand back and ask itself the ultimate question whether it is satisfied that the suggested explanation is more likely than not to be true. The elimination of other possibilities as more implausible may well lead to that conclusion, but that will be a conclusion of fact: there is no rule of law that it must do so. I do not read any of the statements in any of the other authorities to which we were referred as intending to suggest otherwise.

[35] The civil “balance of probability” test means no less and no more than that the court must be satisfied on rational and objective grounds that the case for believing that the suggested means of causation occurred is stronger than the case for not so believing....”

There seem to me to be two quite different ways, in principle, in which the disclosure of confidential information about Richmond could, in theory, have caused loss to the company:

It seems to me that it would probably be very difficult to obtain direct evidence that the second kind of loss had been caused by the disclosure of information. However, I do not think the same would be true of the first kind. It seems to me that if rumours were circulating that there might be issues about Richmond’s future, it is likely that existing clients would ask questions. The way that Richmond’s business works is that many of Richmond’s clients pay for a material portion of their trials up-front or early in on the trial in advance of the work having been done, with no security for their payments. Any such client who was concerned about financial difficulties or the Founders leaving or Richmond having to leave the hospitals where it operated from would, I think, have been very likely to raise such concerns with the company.

I also think it likely that prospective clients would have asked questions. I think that, if there were rumours circulating about possible problems with Richmond, at least some prospective clients would have said to Dr Taubel or his staff: “We would like you to quote for doing some work for us, but we have heard rumours about possible difficulties. Before we can take matters further, could you please give us some reassurance on this”. Dr Taubel said that he believed that this would not have happened, but I found that evidence very unconvincing.

Richmond called no evidence from any client or prospective client that their decision not to use Richmond’s services was influenced in any way by rumours about Richmond’s financial or managerial stability. Nor did Dr Taubel or Dr Lorch claim that any client or prospective client had expressed any concern to them in 2010 or later about rumours they had heard about such matters.

The closest that the evidence came to anything of that kind was as follows. Dr Taubel said that, in September 2010, he had a conversation with an American client, who worked for a company called GTx, who enquired whether Dr Taubel would now spend more time sailing. Dr Taubel said he would not. Dr Taubel said that he now believes that the client was giving Dr Taubel the opportunity to tell him what was happening in regard to the supposed sale of Richmond which Dr Taubel now thinks the client must have heard about. Dr Taubel said he had known the client for several years and they had always had a personable and direct relationship built on a good rapport of professionalism and trust.

This client was not called to give evidence, and there was nothing other than Dr Taubel’s subjective belief to suggest that the client had heard rumours of a sale of Richmond. I do not think this evidence gives any support to Richmond’s case.

Dr Taubel said at para 118 of his witness statement: “The Claimant is now often required to disclose financial information to its customers and prospective customers in order to satisfy them of the Claimant’s financial stability, which it never had to before.” He did not say when that started to happen, but it seems clear from the way that the sentence is drafted and the context that Dr Taubel was saying that this is a fairly recent phenomenon. He did not say it had started to happen in 2010, which is what I would have expected if rumours were then circulating about Richmond’s financial stability as a result of the marketing process.

In cross-examination, Dr Taubel was questioned about that paragraph. He was shown a minute of a meeting of Richmond’s board of directors on 10 July 2007 which said: “AstraZeneca, who have provided Richmond with bridging studies work, have conducted a financial review of Richmond and despite a very strong clinical relationship, have put a hold on further work until the end of September 2007”. He was asked if AstraZeneca, which was a client of Richmond, was concerned about its financial stability at the time. Dr Taubel denied that. He said that they were only concerned about the volume of business they were placing with Richmond. He was then shown a later board minute which reported that Dr Taubel had met AstraZeneca and that some of the trials which had been taken away from Richmond had been done in the USA and the balance had not been done at all. The minute said: “It appears that the negative view on Richmond is based on D&B credit report.” Despite that, Dr Taubel refused to accept that AstraZeneca were concerned about Richmond’s financial stability at the time.

It seems clear to me from the board minutes at the time that AstraZeneca were concerned about Richmond’s financial stability and not merely the volume of business they were doing with Richmond. That was an example of Dr Taubel remembering events in the way which he thinks they should have occurred, rather than the way they did. More importantly, it is an example of what I think would have happened in 2010 if, as a result of the marketing campaign, clients or prospective clients had become concerned about Richmond’s financial stability. The fact that it did not then happen is, in my view, good evidence that there were no such concerns at that time.

I have referred at para 162 above to some Richmond internal documents in February 2011 recording various reasons given by prospective clients for not placing work with Richmond. Dr Taubel explained in cross-examination that, Richmond’s sales team would ask why Richmond were not being chosen for work, and they were given a variety of reasons, such as that Richmond’s prices were too high, or the timescale was wrong. No-one ever gave as a reason a concern about Richmond’s stability.

This is, in my judgment, impossible to reconcile with Richmond’s case. As Mr Doctor submitted, it means that not only were clients not telling Richmond about their concerns about its stability, they were giving false reasons when asked why they were not placing work with Richmond. That I cannot accept.

To the extent that Mr Altman did suggest to third parties that all the shares in Richmond were or might be for sale, I do not accept that a reasonable person would have inferred from that information that Richmond was in financial difficulties, nor that the Founders were about to leave the company. As Mr Doctor submitted, successful entrepreneurs frequently sell their businesses, or capital in them. Mr Marsden said in cross-examination that you could not conclude from the fact that all the shares in a company are for sale that the company is in deep trouble. The people selling might want to cash in their good fortune and retire. The teaser document said that the Founders wished to go on running Richmond’s business. The last thing that Mr Altman would be likely to have done, in trying to sell Chester’s shares, would have been to give an impression that Richmond was in trouble or that the Founders might leave.

Even if I had been satisfied that there was evidence from which I could infer that there were rumours about Richmond being in financial difficulties circulating in 2010, it would be difficult to attribute those rumours to anything done by the Defendants. Rather, it is more likely to have been attributable to word getting out about the service of the deadlock notice. In the Points of Defence served by the Founders in the s.994 claim, at para 114, they said that when the deadlock notice was served in 2010: “The Founders stated that the notice included the statement that the Company would be wound up in six months time and this was communicated, by Company staff, to clients and competitors”.

Mr Deacon submitted that the dissemination of business intelligence to Richmond’s competitors enabled those competitors to target Richmond’s clients directly to entice them away from Richmond and allow them to more effectively compete by providing them with a better understanding Richmond’s unique selling features, as well as any weaknesses in Richmond.

He did not point to any specific feature of the teaser document, or the modified business plan, or the additional information given to Synexus after the meeting with them, which could possibly have given a competitive advantage to the recipients of that information. In my judgment, there was no such feature.

Richmond called no evidence to suggest that Synexus, Proteome or United Biosciences breached the NDAs that they had signed. Nor was that suggested in submissions. It seems to me unlikely that there was any such breach.

I have already explained why I consider it improbable that, in the conference calls, Mr Altman gave away anything other than very general and anodyne information about Richmond’s business.

Accordingly, subject to the point to which I am about to turn, I am satisfied that there is nothing to suggest that any confidential information disclosed in the marketing process gave any competitor of Richmond any advantage.

Mr Deacon argued that NWCF must have disclosed confidential information causing harm to Richmond, because otherwise the sharp fall in Richmond’s turnover, following the marketing exercise, was inexplicable. He said that the timing of the reduction suffered by Richmond was entirely consistent with the Ds’ breaches being the cause of its losses. He pointed out that HMR showed an increase in revenue at the exact time that Richmond’s revenue declined and changed from a loss-making entity to an extremely profitable company at the time that Richmond’s sales were declining.

I cannot accept that argument. It is clear from the contemporaneous documents that were a number of reasons why the amount of business being placed with Richmond dropped sharply from mid 2010 which had nothing whatever to do with the marketing campaign. These were explored in the cross-examination of Dr Taubel. I will summarise each briefly.

First, Richmond increased its prices by 10% in early 2010: see para 154 above. It seems clear that this was done at a time when Richmond was very busy, and clearly the directors thought that the market could bear the increase. Unfortunately, that judgment was incorrect, as the facts summarised in the chronological section of this judgment make clear.

Second, serious disruption was caused to Richmond’s business by Ms Gowling’s illness and the deficiencies of her replacements: see paras 155-160 above. It is clear from the contemporaneous documents that, at the time, Dr Taubel thought this was having a very seriously detrimental impact on the business. In his evidence at this trial, he said the opposite. I think his assessment at the time was accurate. In his evidence, Dr Taubel asserted that Ms Gowling’s absence was unconnected with the decline in contracts received by Richmond because that decline started in the second half of 2010. But, as Mr Doctor submitted, clinical trials are not won overnight, so the absence of a sales director in one period might be expected to have an impact in the next; and it impossible to see why, if Ms Gowling’s absence in early 2010 was too far removed in time to cause a drop in sales later in that year, the marketing effort in respect of Chester’s shares even earlier was not.

Third, there was a general contraction in the contract research marketplace – Mr Marsden thought it was contracting at about 7% p.a.. There was also a change in the nature of the work which made pricing much more difficult to get right. Dr Taubel said in cross-examination that there was a change in trial type from fixed-price trials to more complex trials in biologics that were more difficult to arrange and estimate the likely cost of. He said that in 2010, Richmond decided to create a project management department “because the market had changed, in the sense that studies were much more complicated than they had been.”

Fourth, Richmond was involved in commercial disputes with some customers. One dispute which may well have caused serious problems was with InCROM, which is a subsidiary of a Japanese company, which used to be Richmond's Japanese agent. In 2008, Richmond and InCROM had a dispute which was settled at a mediation in the summer of 2008 on the basis that Richmond would pay InCROM £75,000. However, in March 2009, Richmond resiled from that agreement. In its solicitors’ letter of 3 March 2009, it said that, because of the economic downturn, a payment of that size was “no longer economically viable”, and Richmond was only willing to pay £40,000. Mr Sayama of InCROM replied, saying that this suggestion was: “...unacceptable and dishonours your client's reputation. This is not the attitude of a decent businessman”. Richmond would not change its position, and on 23 March 2009, Mr Sayama wrote accepting the £40,000 offer and saying: “We cannot but feel that your client has not kept to the spirit of the mediation and whilst legally our hands are tied, we consider your client's reneging on the agreement reached on the day of the mediation to be somewhat disgraceful and without honour.” Subsequently, in 2010, InCROM started working with HMR, and took to HMR studies they would previously have taken to Richmond. There were also disputes with other clients – Biotest and Romark.

Fifth, in 2011, another CRO, Parexel was “buying market share through aggressive pricing strategies”, according to Richmond’s own 2012 business plan.

Sixth, there was a problem with a trial for a client called Kissei in 2010. Some subjects who were supposed to be given a placebo were in fact given the active substance which Richmond was testing, due to a mistake in packing the bottles in the pharmacy. Richmond’s Board minutes for 2 September 2010 recorded: “The performance on the trial will have an impact on RPL’s reputation in Japan”. Dr Taubel said in his evidence that this incident had been managed successfully, but that is not what the contemporaneous board minutes say.

Seventh, there was a decline in Japanese work in 2011 caused by pressure from the Japanese government for work to be done at home and the tsunami on 11 March 2011. It is clear from the contemporaneous documents that the Japanese business remained strong until early 2011 but then declined. In his evidence Dr Taubel argued that the Japanese business had declined as a result of the Defendants’ activities, but it seems clear that this cannot have been the case.

In my view, those causes individually and collectively would probably have had the effect of reducing the business placed with Richmond substantially. That being so, there is simply no basis for inferring from the fact that the amount of business declined that the decline was caused by the Defendants’ breaches of their duties.

In his statement, at para 69, Dr Tabuel gave five examples of clients who he had expected would place work or further work with Richmond, but who did not do so, the implication being that there was no sensible explanation for this other than the negative effect of the marketing campaign. Mr Doctor was able to demonstrate in his cross-examination of Dr Taubel, however, that the description of events in Dr Taubel’s statement was partial and sometimes inaccurate.

If one looks at the table at para 85 above, one does not see a consistent pattern of business in the three years prior to 2010:

That being so, the fall from 2009 to 2010 does not seem very surprising. This was not a stable business with a steady predictable flow of contracting income. A dramatic change in the amount of business coming into the company in the middle of 2010 is not particularly surprising, and when one takes into account the factors identified above which clearly did affect Richmond’s business, there is nothing surprising about the company’s performance from mid 2010 on, and no basis for inferring that the drop in business is likely to have been caused by the Defendants’ breaches of duty.

In conclusion, I am satisfied that none of the breaches of duty committed by the Defendants caused any loss to Richmond. As I have said, Larry Levine was well aware of the fears of the Founders that marketing Chester’s shares might damage Richmond’s business, and he took considerable care to avoid any such damage occurring. In my judgment, he succeeded.

Given my finding on causation, this issue does not arise, and I will not prolong this already lengthy judgment by making hypothetical findings on how I might have assessed loss if I had decided that the Defendants’ breaches of duty probably did cause some loss of business. Suffice it to say that I would have taken a very broad brush approach, similar to that adopted by Neville J in Goldsoll v Goldman [1914] 2 Ch 603, to which Mr Deacon referred me.

In conclusion, my decision is that the Defendants did commit some breaches of their contractual, statutory and equitable duties to Richmond, but those breaches caused no loss to Richmond.

I will hear counsel on the appropriate order to make in those circumstances, but provisionally, it seems to me that the right course is to award nominal damages of £1 against Chester for breach of contract, and to dismiss the claims against Larry and Milton Levine.