UTB, LLC v Sheffield United Ltd

The two claimant companies allege breach of duties owed to them by the defendant as their director and employee. The principal duty relied on is that set out in Companies Act 2006 s 172 to act as the director considers, in good faith, most likely to promote the success of the company as a whole. It is said that the defendant instead acted so as deliberately to harm the claimant companies and promote her own interests at their expense.

The First Claimant ("Wey") was incorporated and capitalised as a shell company with a view to acquisitions by Mr. David Massie, a corporate financier, and Mr. John Molyneaux, a stockbroker, in 2006. It acquired all the shares in the Second Claimant ("Zail") from the defendant in February 2011 and obtained a listing on what is now known as ISDX (at the time called PLUS).

The defendant Dr Atkins is a high profile figure in the education sector. She says in her witness statement that she has founded numerous charities and companies in that sector. She has held very senior roles in public and other bodies, including the chairmanship of a property development and management company with a turnover exceeding £300m. Relevantly to this claim, she has been for a number of years an external member of the Navy Board and Chair of its Audit committee, and she was from 2006-2010 the chairman of OFSTED, the regulatory body for schools and other institutions. When she ceased to hold that role she established Zail with a view to offering consultancy and other services in the education sector, aiming particularly at the developing market promoting and serving academies and free schools. These were new types of school, favoured by government policy and intended to operate under the control of their own governing bodies and free from local Authority control. In that sector, her contacts with education professionals and the Department for Education ("DfE") would be very useful.

Dr Atkins was introduced to Mr. Massie by Mr. Chris Phillips, and explained her idea that a business could be built managing and providing services to state sector schools which became academies and new schools established as free schools. Mr. Massie and Mr. Molyneaux were interested and terms were agreed for Wey to acquire Zail for shares. Dr Atkins was the sole director of Zail. She became a director of Wey and was appointed its Chief Operating Officer, with a service contract. Mr. Phillips and Mr. Molyneux were appointed directors of Wey (but not Zail). Mr. Phillips became the Chairman. Subsequently Wey (but not Zail) appointed Lynette Lackey as financial director, Gary Watson as a non-executive director and Christine Whatford, an educationalist introduced by Dr Atkins, as Director of Education.

The business model was based on the structure established by the DfE for the formation and running of free schools and academies. There were some differences between these two systems, deriving from the fact that free schools were to be newly established but academies would be intended to improve the performance of existing schools. But the essential elements were that there would be a sponsor, which could be a charitable organisation an individual or group of individuals or a commercial organisation. The sponsor would initiate and promote the establishment of the free school (or academy) but would not run it directly once it had been established. That function had to be performed by a separate not-for-profit organisation, typically referred to as a "trust" although not, it seems, generally established as a trust in the legal sense.

One form frequently used was a charitable company limited by guarantee, and the DfE provided a model form of Articles for such a company. Such a vehicle might be intended to be a "multi-academy trust" or MAT, ie one intended to run more than one academy, or one intended to run a single school. In the case of both free schools and academies, funding to run each school would be provided direct by the DfE to the trust, which would contract for the provision of all necessary employees goods and services.

Although I have not been taken through the full detail of the requirements for the establishment and operation of the sponsors and trusts, it is clear that the DfE reuired that the operating trusts should have a degree of separation from the sponsor and be required to operate in the best interests of the school as distinct from the sponsor. According to notes prepared by the solicitors who advised on the structure, if the sponsor had the right to appoint directors of the trust, any services it supplied must be charged at cost, and the sponsor's employees, shareholders and directors must form less than half of the trust's directors. This may not in fact have been a formal requirement initially; Mr. Scott's evidence was that initially the requirement was that such services must represent "best value" to the school, the "at cost" criterion being imposed later. Nevertheless, it was clearly regarded as acceptable that there could be a close relationship between trust and sponsor, and that the sponsor or related parties might provide services to the trust and be paid for doing so.

The commercial success of this model plainly depended, among other things, on:

The structure set up to implement the model was that Zail incorporated a charitable company limited by guarantee called Third Millennium Education Trust or TMET. Zail was the sole initial member of TMET and Dr Atkins was its sole initial director (the directors were, as is common in the case of charitable companies, referred to as "trustees"). Christine Whatford also became a director of TMET.

Mr. Massie's company IAF arranged for the shares in Wey to be listed, and for presentations to potential investors. This was dealt with by employees of IAF, mainly Chris Pinkerton and John Bridges, behind a "Chinese Wall" designed to ensure that Mr. Massie, who remained a substantial shareholder, did not become privy to price sensitive inside information.

The total amount raised from investors was significantly less than had been hoped. Initial hopes had been that £2m or more might be raised, on top of about £240,000 of cash already placed in the shell company by Mr. Massie and Mr. Molyneaux. Dr Atkins says that in the event about £347,000 was raised, and places the blame for the disappointing response on IAF. Mr. Massie says that £388,000 was raised, and says that a large part of responsibility must fall on Dr Atkins, who was the CEO and central person in the business operation, but failed to impress investors sufficiently at 50 or more presentations.

In its first financial year to December 2011 the business made a loss of £388,000. Further funds from new investors dried up. The board of Wey discussed its cash position, with Dr Atkins reporting that unless additional funds were raised the company would run out of cash in August of that year. It is I think plain from the evidence that Mr Massie began to be dissatisfied with Dr Atkins's performance as CEO and relations between them became abrasive. Mr Massie also regarded the other Wey directors as having exercised inadequate supervision over Dr Atkins, for instance in failing to question the way she had appointed personal friends as her PA and "diary secretary" at generous salaries. Dr Atkins appointed a second firm of brokers, Rivington, to seek additional funds from investors, despite Mr Massie's attempt to deter her. Rivington quickly resigned claiming that IAF had made their position impossible by insisting on attending every meeting they had with investors. Dr Atkins proposed other possible brokers, particularly KBR who said they had a possible group of investors for £500,000. Mr Massie objected both to KBR, in which he had no confidence as a fund raiser, and to the specific investment proposal which was for a large share issue at a much lower price than he had paid and would dilute his holding greatly. Dr Atkins obtained board approval for both measures notwithstanding this, but the proposed investment fell through when Mr Massie said he would regard the new investors as a "concert party" for the purposes of the Takeover Code.

Mr Massie began to take steps to assert more control. On 26 July 2012 he caused a notice to be sent requisitioning a meeting to remove Ms Lackey, Mr. Watson and Ms Whatford as directors and appoint himself and Mr. John Bridges, an employee of IAF as directors, with Mr Massie as company secretary. Mr Massie's alternative vision for further finance was that it would either be provided by investors introduced by IAF on terms acceptable to him, or that in the absence of such funds he would procure loan finance to enable the company to continue until investors could be found. That finance however would come on terms which gave him a much tighter control of the affairs of Wey. Dr Atkins, it is in my view clear, was vehemently opposed to Mr Massie increasing his influence.

At a Wey board meeting on 2 August 2012 (1485) Dr Atkins attended with an insolvency practitioner (Mr. Jesselman) who supported the view that she urged, namely that in the absence of investor funds the company would be unable to meet its liabilities after September. There was discussion of putting the company into administration or mothballing it and Mr. Jesselman supported Dr Atkins' position that in that event the company would be insolvent if it failed to pay her salary during her notice period, but she would agree to waive this if released from restrictive covenants in her contract. Mr Massie, I have no doubt, took the view from about this time if not earlier that Dr Atkins was trying to ensure that the company went into insolvency with the aim that she would be released from these restrictive covenants and so free to follow up for her own benefit the opportunities Wey had been pursuing.

On 14 and 15 August 2012 Ms Lackey, Mr. Watson and Ms Whatford resigned as directors of Wey (and Ms Whatford resigned as a director of TMET). Wey's board appointed Mr Massie and Mr. Bridges as directors and Mr Massie as company secretary, without the need for the general meeting Mr Massie had requisitioned. Relationships between Mr Massie and Dr Atkins were plainly very poor by this stage. Dr Atkins wrote the first of several emails to Mr. Phillips, the chairman, in which she would complain of Mr Massie's "bullying", "abuse", "discrimination" and "undermining my position as CEO". In others to colleagues she regarded as personally loyal to her she would call him "moron" and "dickhead". Mr Massie for his part referred to her in an email to other directors as a "headless chicken" and elsewhere to her "incompetence". He made many complaints of the inadequacy, as he saw it, of the financial information provided by Dr Atkins and her willingness to pursue business without what he regarded as an appropriate assessment of the commercial terms.

On 7 September 2012 Dr Atkins told the Wey directors that the company would run out of its remaining cash before the end of the month and that it was necessary to explore obtaining a loan that had been offered from Sandwood, Mr Massie's company. She prepared a paper setting out what she considered to be the funding requirement to pursue the opportunities currently in hand. That is the subject of a specific complaint, to which I will return, arising from the fact she described it in an email she did not intend to be seen by the other directors as containing a "totally fictitious cost base".

On 19 September Mr Massie said he would ensure further investment in the business either by equity investment or loan from Sandwood, and in the meantime make a short term loan to cover costs in September. The terms of a loan from Sandwood began to be discussed. They included a requirement that the board should interview Mr. Tom Scott, currently engaged as a self employed consultant at the instance of Dr Atkins, for the position of managing director of Wey. Dr Atkins regarded this, no doubt rightly, as threatening her own position. Nevertheless she appears to have accepted that it would happen and on 16 October circulated proposals for his employment, which Mr. Scott accepted on 18 October, with the title Chief Operating Officer of Zail.

At a board meeting on 20 September, and in subsequent emails, there was discussion of appointment of additional directors to Zail, since Dr Atkins was again the sole director after the resignation of Ms Whatford. This is a highly contentious matter to which I will return. The upshot was that according to the claimants, Mr. Bridges was appointed an additional director. Dr Atkins's position is that he was not appointed and she remained the sole director of Zail. Mr Massie having obtained the Companies House electronic access code from Dr Atkins filed a notice on 17 October stating that Mr Bridges had been appointed a director of Zail on 10 October.

On 18 October, the same day as Mr. Scott accepted his new role, according to Dr Atkins she was telephoned by a contact at the DfE and told

On the same day Dr Atkins notified the appointments of the new directors of TMET to Companies House, stating them to have been made on 23 October. She also notified their appointment by email to the DfE (2230) and received a simple ackowledgment. She does not appear to have told any of the other directors of Wey, however, that further directors or members had been appointed. Dr Atkins said in her oral evidence that she had told Mr Phillips, but there is no indication in the documents that he was aware of any such appointments until early December. She did send directors an email on 18 October referring to a "difficult" conversation with the DfE and the possibility that the grant might be paid to TMET instead of Zail (2069), but made no reference to changes to the directors or members.

The claimants' case is that these appointments were invalid since Dr Atkins was not the sole director of Zail at the time, and that in making or seeking to make them she was acting in breach of duty to both claimants by seeking, in the context of the power struggle on the board of Wey, to take control of the essential vehicle for implementing the business strategy away from Wey and Zail, vesting it instead in herself and persons whom she, and not Wey or Zail, were in a position to influence. It was, they say, part of her exit strategy.

On 24 October 2012 Dr Atkins gave notice to terminate her service contract (2237). There was some ambiguity in the documents as to whether 9 or 12 months notice was required, so her resignation letter said she would be prepared to work up to 12 months notice if that was the correct period. Dr Atkins was not made to go on "garden leave" but continued to work during her notice period. She continued to be subject to all her duties as an employee and a director.

The terms of the loan from Sandalwood were discussed at a board meeting of Wey on 25 October (2243). Dr Atkins had sought advice from solicitors about these terms (2227), which pointed out that the loan was envisaged to be repaid if further investment monies were received, and was to be secured and repayable on demand with repayment due in any event on 15 February 2013. Dr Atkins told the meeting that she was not confident that further funds would be received by that date and so would not sign any of the documents. Mr. Molyneaux, who chaired the meeting in the absence of Mr. Phillips, is minuted as telling the meeting that "if public fundraising proved unsuccessful… some of the board had previously stated that they would put funds forward."

On 5 November 2012 the Sandalwood loan was approved by the Wey board (2383). Dr Atkins voted against; the minutes recording her concern as to repayment. The Wey meeting had to be held by telephone because Dr Atkins said she was unavailable to attend. She does not appear to have told the Wey directors that the reason was that on the same day, and at the time proposed for the Wey meeting, she had convened a meeting of the directors of TMET which discussed the future working relationship between it and Zail (2391).

On 7 November Dr Atkins sent a lengthy email (2401) discussing the relationship between Zail and TMET and giving an account of the history of the discussions with DfE over Zail's role. This noted that in August Zail although a commercial company had been approved as a sponsor, but included:

“- 18^th October- DfE call, very concerned about Wey announcements and their concerns about Wey and Zail. DfE /OSC no longer content for Zail to be directly in receipt of funds from DfE. This renders the hard won changes to governance arrangements in TMET/Zail…vitually meaningless.

- 18^th October- Z A informs board of call with DfE

- October- DfE request TMET meet the minimum requirement of a DfE multi- academy trust (three members. Trustees who demonstrate education credentials)

-October- members and trustees added, sent to DfE approved by DfE”

Since TMET now had the grant funds and not Zail, she said, if Zail was to provide services and avoid "open procurement" it would have to "be seen to be providing services at cost", though she suggested consultants might be employed by Wey so that "Wey sells them to Zail at a profit, Zail sells them to TMET at cost!". The TMET board, she said wanted to see "a costed proposal from Zail setting out who and what would be delivered and giving clear undertakings that individuals named…would actually be available and delivered through Zail".

There then followed a series of emails in which Dr Atkins asked Mr Scott to put proposals for services to be supplied by Zail to TMET. These emails proceed very much on the footing that Zail is regarded as a third party arms length supplier which must pitch for work as any unconnected supplier might.

Mr Scott prepared proposal papers which were considered by the TMET board. TMET decided that while it might work with Zail in the short term it would not give any long term commitment or indication that Zail would be its first choice provider. Various of the recently appointed directors expressed the view that TMET should be able in future to obtain the services it needed directly rather than via Zail.

On 19 November solicitors acting for Dr Atkins wrote alleging that the circumstances of her resignation amounted to constructive dismissal, on grounds of Mr Massie having bullied her.

The "arms length" approach adopted by Dr Atkins on behalf of TMET clearly began to ring alarm bells. Towards the end of November Mr. Phillips sent a lengthy email asking a series of questions about the formal relationship between Zail and TMET, asking among other things why TMET was now presenting itself rather than Zail as the sponsor for academy school bids and stating that TMET had been set up to be "captive" to Wey and not intending that Wey would have to undergo competitive tendering to be awarded work. There were also questions about how it came about that the capacity grant had been awarded to TMET and not Zail, and asking for all relevant correspondence with the DfE. These questions received answers (2639) which, in my view, can only be seen as elliptical, even evasive. Dr Atkins referred to an email and board paper she said were attached, but there were no attachments sent.

Dr Atkins did however on 28 November send a copy of the 22 October written resolution appointing new directors and members of TMET (2648) saying that it had been omitted from her earlier email. That is the first occasion this had been shown to any Wey director. It appears its importance was not appreciated for several days.

On 6 December matters came to a head. A Wey board meeting was convened but Dr Atkins said she could not attend through illness. The board discussed the 22 October resolution, taking the view it was unauthorised and contrary to the agreed business model and against Wey's interests. On that and other grounds, it was resolved to suspend Dr Atkins. Mr Phillips emailed her (2916) to notify her of the suspension, directing her not to come to the office or communicate with clients, suppliers or the DfE. Mr Massie sent a separate email (2915) stating that he had now seen the 22 October resolution, purportedly passed by Dr Atkins as sole director of Zail, and that it was invalid because by that date Mr Bridges had been appointed an additional director. He asked her to notify the individuals concerned that their appointments were invalid. Dr Atkins left the office that day and, as she now accepts, deleted from the company's computer system her entire email inbox and sent message folder. She obtained a doctor's note the next day (2930) signing her off for two weeks on account of stress, and never returned.

Neither Dr Atkins's illness nor the terms of her suspension stopped her from engaging in an apparently undiminished flow of email communication pursuing the activities of TMET or being available to meet people other than those associated with Wey and Zail (see for example her email exchanges at p 2980 and p3000). On 9 December she gave her side of the dispute to the trustees she had appointed to TMET, suggesting draft letters to be sent to the DfE and Zail. The latter, amended by Mr. Mani, was sent under his name to the DfE the same day, offering to return the capacity grant in light of the dispute. It had an immediate effect; Mr Scott who had since 7 December been trying to establish his own contact with the DfE was told on 10 December (2960) that because of communication from the chairman of TMET "from this point onwards DfE will engage solely with the academy trust (TMET) and not the sponsor". His note as a result was that "TMET would appear to be attempting to establish themselves as an autonomous multi academy trust and if they succeed we will have no means to undertake school management contracts".

On 18 December Mr Phillips wrote requiring Dr Atkins to "renounce" her membership and resign her directorship of TMET. Similar letters were sent to the others she had appointed. Dr Atkins said the next day (3024) that she accepted that Wey could require her to step down and she was happy to comply. The other individuals concerned did resign as directors and renounce their memberships (there was a temporary issue over the resignation of the last of them, Ms Cofie, which would have reduced the number of directors below the minimum required by the Articles, but nothing turns on it). Dr Atkins however despite what she had said did not resign as a member or director of TMET.

At this time, bids to establish two free schools were being worked up in the name of TMET. Dr Atkins was participating in this, notwithstanding her suspension (3003). She referred to the bids being prepared by "Christine [Megson, a director of TMET now resigned], Linda and the Zail team". The deadline for submission of the bids was 4 January 2013. At a Wey board meeting on 20 December (3030) it was resolved to take any action necessary to enable the bids to be made through TMET but under the control of Wey/Zail. The same day Dr Atkins sought to cast doubt whether the resignations were effective, and urged that the directors of TMET appointed by her be invited to stay on to pursue the bids (3032). From this point on there was a severe struggle as to who would have control of TMET and the standing to make these bids.

Wey pursued two lines. A notice was served on behalf of Zail, as a member of TMET, calling a general meeting of the members of TMET to be held on 8 January to appoint three new directors of its choice. Simultaneously, Mr Massie wrote to Mr. Mani inviting the remaining directors to make those appointments themselves. Dr Atkins told Mr. Mani, correctly, that Zail could not itself call a meeting but was entitled to require the directors to do so and that she saw "no reason not to accommodate [Mr Massie's] wishes". In fact, the directors were obliged to call a meeting within 21 days of a valid requisition. In emails she continued to dispute the validity of Mr Bridges' appointment as director of Zail and so the right of Zail to claim that the appointments made by her were ineffective. She began to urge (see eg p 3049) that the capacity grant moneys be returned to the DfE.

At the same time, Dr Atkins was pursuing plans to incorporate a new charitable vehicle with a very similar name "Third Millenium Academies Trust" or TMAT which would have a similar membership and board of directors as that she had created for TMET. She presented this as a matter of correcting the fact that TMET had been incorporated without using the DfE's model form of Articles. When Zail came to appreciate that this incorporation was under way (3091) Mr Scott took the view it was a manoeuvre to ensure that if control of TMET was recovered by Zail, Dr Atkins and her associates would have another vehicle to act through under their own control.

In an email to Mr Scott on 31 December, Dr Atkins appeared to accept that Zail's appointments would take effect on 8 January, and that the bids would effectively be pursued thereafter under Zail's control (3052). She maintained however that the existing directors of TMET must first read and approve the bid document, saying "If you are submitting a free school bid under the umbrella of TMET I will endeavour to read and agree it, to meet your time scales[.] Ehsan [Mani] is [overseas] and might need more time than me." She repeated this to Mr. Phillips (3094) saying that she would make time to come to London and sign off the bids "so there should not be anything blocking [Mr Scott] from submitting them on time".

On 3 January Mr Massie emailed Dr Atkins referring to the deadline for the bid submission (3134.14). He said that Mr Bridges was available to sign for Zail but "if I understand the message correctly a TMET signature will be required… As you and Ehsan will not be in town, are you happy for say Gary Pinkerton to sign as your attorney?". Dr Atkins replied (3134.20) at 18.02 on 3 January saying that in her view it was necessary to incorporate TMAT first as the "delivery vehicle", offering to do this the same day if Zail would nominate three trustees for it, and offering to pass resolutions appointing Zail's proposed directors of TMET in advance of the meeting to be held on 8 January, with her and Mr. Mani resigning, in order that the new directors could sign the bid and associated declarations. She said "I will do whatever I can from here to get TMET sorted to your satisfaction". She said later the same day (3134.21) that she was not happy for Mr. Pinkerton to sign on her behalf, but would come to London herself the next day if necessary.

Mr Massie replied on the morning of 4 January (3234.23) suggesting that either TMET directors authorise him or Mr. Pinkerton to sign, or that a signature page be sent to Dr Atkins to sign and return electronically. In response Dr Atkins said (3134.25):

This email was, I am satisfied, sent in order to close off any opportunity for the bids to be submitted under the effective control of Wey or Zail. It reversed Dr Atkins's position taken the day before on constitutional methods of establishing TMAT as a vehicle under Zail's control, or returning TMET to Zail's control. Instead it insisted on the bid documents being approved by herself and Mr. Mani, and seemed to impose a new condition that any changes to the structure of TMET that she had put in place must first be approved by "the community groups", which must in practice have been impossible to fulfil in the time available. This proposal was not taken up. There is no direct witness evidence why, though I infer a possible reason may have been distrust of Dr Atkins's motives and a fear that the conditions she appears to have been setting would result in her declining, in the end, to sign with the result that the deadline that day would be missed.

At 14.57 on 4 January Dr Atkins sent a further email (3134.27) saying:

“… I am writing seeking confirmation that a Free School bid in respect of TMET has not been, and will not be, submitted today on the basis that I, as one of the two existing directors/ trustees of TMET, have not had a chance to read approve or sign any such bid on behalf of TMET…

Obviously if a Free School bid has been (or was to be) submitted in the name of TMET, without the authority of the existing TMET trustees, that is a matter I would feel obliged to take up with the DfE in my capacity as a director/trustee of TMET.”

There was no reply that day, but on the morning of 5 January Mr Massie sent an email saying that Mr Bridges had dealt with the matter the day before and "I understand a procedure was worked out … given our unusual circumstances whereby the DfE will accept a ratification of matters following the appointment of new Directors to TMET on Tuesday so neither your signature nor that of Ehsan was required." The unchallenged evidence of Mr Scott was that he had spoken to Linda Kennedy, the responsible official at the DfE, asked whether in the circumstances that the membership and board of directors of TMET was about to be changed the bid should be submitted with the names of the existing or proposed directors and had agreed with her that the bid documents should show the names of the new directors and be accompanied by a covering letter to state that they would be appointed on 8 January. Ms Kennedy had said that the documents would not be looked at before that date anyway. The bid had been prepared accordingly, making no reference to Dr Atkins or the previous directors of TMET. The required covering letter was sent (3134.22).

Dr Atkins's reaction was apoplectic. She emailed Mr. Mani (3134.31):

“I am speechless. There is nowhere in law that says it is OK to predict who might be future trustees/directors and submit a legally binding document on that basis.

As this might have serious consequences for TMET (and you and me!) I have sought legal advice as to what (if anything) we should do

… I will be writing to David Massie stating that I and Social Solutions [Ltd] will be opposing the appointment of the directors they recommend…

I have seen (through a friend [at] DfE…) the bid they submitted. They state the TMET members and trustees as [the proposed new appointments]…

… I had no idea that D M was capable of behaving like this.”

It has not been explained since what the feared serious consequences for TMET and the existing directors might have been. If that mechanism for the bid had been approved by the DfE, it is hard to see what objection it might have had. If Dr Atkins was concerned as to whether it had in fact been approved, she could have checked, either with Wey or with the DfE- as her email traffic makes clear she was exercising regular communication with her inside contacts, despite being forbidden to do so by the terms of her suspension. Dr Atkins knew, because she had by this time seen the bid document, that she was not named in it as a director. If the new board and membership structure was confirmed on 8 January, as she had up to then been prepared (and accepted she was obliged) to go along with, and had even offered to accelerate, it could be assumed that the new directors would be accepting responsibility for the bid document.

Dr Atkins told Mr Massie on 7 January (3134.32) she and Social Solutions Ltd (which she denied in evidence was owned by her but which she throughout has seemed to control) would send a proxy to the general meeting the next day to vote against the resolutions proposed. She urged Ms Cofie, notwithstanding her attempt to resign, to join in steps to oppose Wey's assertion of control. The two of them (Mr. Mani declined to participate, though he was still a director, see p 3134.57) held what they described as a board meeting of TMET on 8 January, the same day as the general meeting, at which they resolved to ask the DfE if they could pay the capacity grant back. This was stated to be because the trustees were not confident that they could spend the money by 31 March as required, but in reality it is clear from the documents produced (3134.35) that the real motivation was to prevent the money falling into the hands of the new trustees, who they said they were not confident would spend it as intended.

The same board meeting noted that Dr Atkins's proxy had not been admitted to the general meeting, and so denied that it had been validly held. Mr Massie said that they had been excluded on the basis that the 22 October resolution had been invalidly passed by Dr Atkins (3134.56), though as Ms Cofie pointed out this was inconsistent with his position that her resignation as a director could not take effect as it would leave less than three directors in office. It was also resolved that Dr Atkins should write to the DfE pointing out their objections to the bid as submitted.

Dr Atkins evidently spoke to a Mr. McAlea at DfE on 11 January 2013, since she sent him that day copies of the 22 October resolution and the Articles of TMET (3134.77) "as requested". She reported to Mr. Mani and Ms Cofie that this was a call from the "due diligence department" at DfE who had "noticed" that the bid named directors of TMET who were not appointed at that date and were "very concerned". As a result, she said, there was no need for her to write to the DfE as previously agreed. It would appear from these emails that Dr Atkins must have explained her side of the dispute with Wey/Zail but not told Mr. McAlea that Zail said it had agreed the bid format with DfE.

Also on 8 January, Dr Atkins used the electronic access code which she still retained to file at Companies House a notice stating that Mr Bridges had "resigned" as a director of Zail on 10 October 2012, the same day as had been notified for his appointment.

Dr Atkins and others she had previously involved in TMET pursued the formation of a new entity "Academies Combined" using the solicitors that had previously acted for TMET (3134.98).

On 14 January Dr Atkins sent an email to a number of consultants who had previously worked for Zail, saying (3134.105):

“… as you may be aware Christine Whatford Azhar Mobin and Di Smith have left Wey/Zail, Sophia and I are working out our notice periods, [and] Christine Megson['s] contract comes to an end at the end of March. So the people you agreed to consider working with are no longer there or soon to go. This may affect how comfortable you are to have your personal brands associated with Wey/Zail… If you no longer wish to be associated with Wey/Zail please email Tom Scott…”

An email to Mr Scott the same day told him that she had "thought it worth checking" with consultants if they were still happy to be referred to on Wey's website, and providing the name of the website designer in case they wished to be removed. Following what was a fairly unambiguous invitation from her, a number of the consultants did as she had suggested and told Mr. Scott they would no longer work for Zail or Wey.

On 17 January Mr. Phillips wrote to Dr Atkins enclosing a report prepared by the committee of directors formed to investigate matters after her suspension, which he said raised matters which if proven could amount to gross misconduct. She was asked to come to a disciplinary meeting on 24 January. With this in the offing, Mr Massie asked Mr Scott to ensure that he had control over access to the office building and computer systems as he said he did not wish there to be any risk of loss of records or tampering with the IT systems. Mr Scott told him that Dr Atkins's assistant had so far ignored all requests for the administrator username and password, without which he could not exclude Dr Atkins's access to the server. Mr Massie's assistant Ms Payne arranged for the IT company that had been looking after the Zail computer system to change the administrator password, remove Dr Atkins's access to the server and visit her home to delete all Wey/Zail information from the company laptop and phone held by her.

The disciplinary meeting did not take place, because Dr Atkins wrote on 22 January resigning with immediate effect, alleging "fundamental breach in the implied term of mutual trust and confidence".

On 25 January Dr Atkins sent an email to a number of individuals at DfE (3134.421) in which she said that "I suspect a fraud may have been committed in the name of TMET- As trustees we have learnt that without our authority or in fact knowledge Zail/Wey have submitted a free school bid to the DfE purporting to be from TMET… this matter is being looked into by the Free School Due Diligence Team…". The email went on to say, amongst a great deal of pejorative material about Wey and particularly Mr Massie, that of 16 people named in the bid as available to assist TMET in view of the dispute between Wey and TMET 10 were no longer willing to do so. Dr Atkins said that Wey was insisting on appointing new directors of TMET, although she said this had not yet taken effect she and the other directors would feel obliged to resign and appoint Zail's nominees by 31 January, and "if you would like us to return the grant before then please let us know…".

Not surprisingly, this led to a request for immediate repayment of the full amount of the grant (3134.497). Dr Atkins instructed TMET's bank to make that payment. Subsequently Zail's directors met the DfE to seek restoration of the grant. They were told that it could not be returned immediately but Zail could make a fresh application for the following year. When it did so, it was refused.

Examination of the Zail server revealed that Dr Atkins had deleted all her emails on 6 December 2012. With few exceptions, they could not be recovered. Although they had been backed up externally, it was discovered that the backup was deleted automatically after 30 days which by then had passed (3360).

On 9 February 2013 Mr. Mani resigned as a director of TMET. On 10 February Dr Atkins and Ms Cofie resigned, and confirmed the appointment of Mr. Massie, Mr Scott and Mr. Pinkerton as directors of TMET. From that point TMET was under the undisputed control of Zail.

The free school bid was refused on 28 February 2013. Two reasons were given (3390):

TMET changed its name to Wey Education Schools Trust ("WEST"), and under that name was re-approved as a sponsor of academies in May 2013. It pursued further applications, in particular a bid submitted in October 2013 to operate two new schools in Bristol. It was selected as the preferred sponsor by the local authority, but on 7 November 2013 the DfE notified WEST that it would not be approved for this role, citing concerns about Wey's financial viability. It is the claimants' case that the supposed financial concerns are smokescreens, and the real reason for refusal is the DfE's continuing mistrust and antipathy to them in light of Dr Atkins's actions.

The claimants' case is that Dr Atkins was in breach of her fiduciary and contractual duties to them in that she acted disloyally, preferring her own interests to theirs in a considerable number of respects. The agreed list of issues reduces the number of instances set out in the pleadings, which has given some focus to the case, though the matters explored in the evidence still ranged very widely. Since some of the matters in the list of issues are not alleged to have resulted in any loss for which a remedy is sought but merely to demonstrate Dr Atkins's general approach and pattern of behaviour, it will assist in focussing what follows if I start with those of the allegations that are said to give rise to specific loss. These are set out and quantified in the witness statement of Mr Scott and the report of the claimants' expert accountant Mr. O'Beirne as follows:

The key issues identified for trial were as follows.

On 30 July 2012 Dr Atkins incorporated Zail Education Ltd. She later incorporated ZA Partners Ltd and Zapedu Ltd. In each case she made herself the sole member and director and named the registered office as her home address. By 30 July tensions already existed over the finances and future of Wey and the suggestion is that these companies were established to be her own vehicles as part of an exit strategy Dr Atkins was by then preparing.

Dr Atkins's explanation is that Zail Education was formed for purposes of protecting that name. She points to a board minute of 26 July, at which date Ms Whatford was still a director, at which it was agreed that "Zail Enterprises" was not an ideal brand in the target market because of its connotation of private enterprise and profit and that "Zail Education" would be better, and noted that she agreed to register a domain name and a limited company with that name. Zapedu was formed because she says she was asked by Mr. Phillips to establish a company through which to conduct international work. Zail already had been engaged to work on a project for a school in Mozambique. That request is also recorded in the board papers of Wey (1237) as is the incorporation itself (1860)

Dr Atkins says that she set up all the companies online and used her own name and address for speed and in the knowledge they could be changed easily. She accepts that she could just as easily have registered Zail as shareholder and given its registered address. She has not given a separate explanation for "ZA Partners Ltd", which suggests an association of individuals formed around her rather than the company.

None of the companies has traded. No similar allegation is made in respect of the domain name so I assume that has been registered as owned by Zail and is under its control. The only use of any of the names is that a presentation document (1512) was prepared with the branding "Zail Education" (not "Ltd") and using the Zail logo of three circles. This was suggested as being a preparatory step to moving the business into the new company under her control, but in my view is more consistent with Zail itself using that branding for the future as Dr Atkins had proposed.

On her resignation Dr Atkins also offered her resignation from all three companies and to transfer the shares and registered offices to Zail. She thus made no attempt to conceal or retain them, still less to use them for her own benefit. In the circumstances I am not persuaded that their formation shows anything more than slapdash administration on her part, not amounting to a breach of duty of loyalty.

Throughout 2012 Dr Atkins pressed the issue of availability of finance to support Wey and Zail's continuing operations. Irrespective of who was responsible, the fact was that insufficient funds had been raised from new investors. She took the view that the statements that had been made about the availability of funds from Mr Massie and Mr. Molyneaux were not sufficient, and when the terms of the Sandalwood loan were made known, that they were not sufficient because of the fixed longstop repayment date. That could not be met from anticipated trading, so required either fresh investment, which was far from certain though may have been achieved if current trading improved and work in the pipeline was won, or a further refinancing by the same shareholders at the repayment date.

I accept that it may well have been in Dr Atkins's mind that if the company were to cease trading she would be in a better position, in that she would retain her contacts in the field and be able to exploit them if she were not bound by her restrictive covenants. When the issue was discussed at the August board meeting (1485) the context was a consideration whether the company could be mothballed without entering administration or other insolvency process, paying all present liabilities and putting the company in a state from which it could be reactivated. The view seems to have been that there were sufficient funds to pay current liabilities to trade creditors, but that would not deal with the continuing liability on Dr Atkins's service contract. This was a perfectly fair point to take; if the company was mothballed she would either have to be paid during her contractual notice period or dismissed with a claim for damages. She then offered to waive her notice entitlement if released from her covenants.

Equally I am in no doubt that Dr Atkins disliked and distrusted Mr Massie. She sent a number of emails to Mr. Phillips, whom she apparently regarded as her ally on the board, in which she makes this clear- see pp 1963 and 2265 for example. She plainly resented the degree of control Mr Massie was already exerting and could see that increasing. But throughout these emails, when she refers to the prospects of future finance and the degree of reliance that can be placed on shareholder promises, I do not detect any indication that she is seeking to manipulate the situation for personal reasons. She says in terms that she does not regard the assurances given as sufficient. She took advice from lawyers and an insolvency professional which to put it no higher supported her position. Other directors took a different view as to the likelihood of being able to repay or extend any finance taken from Mr Massie's company, and in the end she accepted that she would be outvoted and, having been outvoted, co-operated in allowing the loan documents to be executed.

This was in my view a matter on which reasonable directors could properly take different views. Dr Atkins' position was more cautious than that of the others, and she may well have been less willing to rely on Mr. Massie's indication of future funds than they were because of her dislike and distrust of him. In the absence of evidence, as distinct from suspicion, that Dr Atkins took the position she did to advance her personal position rather than her view (which differed from that of the other directors) of the best course for Wey, no breach of duty is shown. That in my judgment is the position here.

This issue is subdivided.

Dr Atkins's position is that she was entitled to pass this resolution as she was the sole director of Zail at the time, and therefore entitled on Zail's behalf to act as the sole member of TMET. The first issue therefore is whether she is right, or whether Mr Bridges had by then been validly appointed a director of Zail. The claimants' position is that Mr Bridges's appointment was made by decision of the board of Wey, acting as sole member of Zail. In closing, Mr. Clarke confirmed that this decision was said to have been made at the Wey board meeting on 18 September. It is accepted that it is not referred to in the minutes of that meeting.

The matter emerges in an email from Mr. Phillips on 28 September (1959). He responds to a suggestion by Dr Atkins that Di Smith and Gareth Long be appointed as directors of Zail following Ms Whatford's resignation. They were consultants with educational backgrounds. Mr. Phillips said:

“That was a matter we did not agree at the last board meeting. I am aware that we need to appoint people with that experience. I also believe it was the view of the board that the group company secretary and a non executive director be appointed to the board of Zail. I would therefore propose that we appoint the two candidates…and that John Bridges become a director and David Massie becomes company secretary.

I would further propose that a board meeting be convened to ratify these appointments as soon as possible…

I think it would be helpful if we could attempt to resolve this decision today. ”

The evidence of Mr Massie and Mr Bridges was that all directors of Wey other than Dr Atkins had subsequently agreed to Mr Bridges' appointment. Dr Atkins said she had sent several emails to Mr. Phillips objecting to the appointment. No such emails are in the bundle, but I accept they were sent because Mr. Phillips later confirmed he had received them. Dr Atkins said she had eventually accepted that Mr Bridges should become a director, but only on 2 November, and he should therefore be treated as a director from that date but not before. It was pointed out that she had never contended that Mr Massie was not validly appointed company secretary of Zail, and said that it was inconsistent for her to say that the same process had not been effective to appoint Mr Bridges.

Under Zail's Articles, directors could be appointed by resolution of the members or of the existing directors (784). Wey was the sole member, but no general meeting was held and no written shareholder's resolution produced. The strongest case that could be put was that a decision of Wey was equivalent to such a resolution on the principle that the unanimous act of the corporators is as effective as a resolution properly passed. But that would require a valid decision by the board of Wey.

I am not persuaded that any such decision was taken on 18 September. There is no such minute, and Mr. Phillips' email suggests only that there was a 'view' by the board, not that a decision to appoint particular people was taken. He proposes such a decision, with names, and invites the directors to take it that day. He is not inviting the directors to confirm a decision already taken, but to take a new decision following through on a matter they discussed (but by implication had not decided upon) at the board meeting.

Nor in my view does the agreement of a majority of the directors in response to Mr. Phillips' email amount to a decision by electronic participation in a meeting (Art 125 p 4160) since there was no meeting in which some absent directors could participate. Nor can it amount to a written resolution of the directors (Art 126) since that would have to be unanimous. The best that could be said would be that once Dr Atkins assented to the appointment it was in some way equivalent to such a decision.

I do not say that would be correct, but even if it was, such assent was not given, on Dr Atkins's evidence, until 2 November. In fact, she might be taken to have accepted it earlier since on 25 October she was told that Mr Bridges would sign Mr Scott's contract of employment "as a director of Zail" and does not appear to have objected (2247.1). But even if that is right it is after the date on which she signed the disputed resolution.

That date was 23 October when the solicitors prepared the resolution and Dr Atkins signed it, not 22 October as it was dated. But even so, on the strongest case that might be made, no effective decision of Wey had been taken by that date to appoint Mr Bridges. Mr Massie had filed a notice at Companies House on 17 October stating that Mr Bridges had been appointed on 10 October, but that notice of itself did not make the appointment. I find therefore that Dr Atkins did have the power to act as Zail's sole director when she did.

Thereafter, it is clear that Dr Atkins did accept Mr Bridges to be a director, since for instance she participated in a board meeting with him on 5 November. She subsequently maintained that he had never been appointed, but that was after the legitimacy of the 22 October resolution came into question and represents a volte face on her part, perhaps because she had not realised that it might be possible to argue that the appointment had taken effect but only after 22 October.

The question then arises whether Dr Atkins's exercise of that power in passing the 22 October resolution was for a purpose in accordance with her duties to Wey and Zail, or for the disloyal purpose of furthering her own interests at their expense as the claimants maintain. In this respect, having considered all the evidence, I am satisfied that the claimants' case is made out. Dr Atkins's object, I find, was to change TMET into an entity under the control of herself and associates loyal to her, effectively free of any influence from the directors of Wey, and particularly Mr Massie with whom she was in conflict, so that it could pursue opportunities in the education sector wholly independently of Wey and Zail.

Firstly, there is no doubt that this was the actual effect of what she did. By appointing five additional members, including herself and Social Solutions Ltd which she appears to control plus 3 others closely associated with her, she diluted Zail's power as member from being the sole member to one of six. She did so at a time when, as is clear from the above, her proposal to expand the board of Zail to include her nominees had been rejected and as she well knew the board of Wey would shortly, even if it had not effectively done so already, ensure that a majority of Zail's directors were those nominated by them. Two of the people she appointed were the very people she had proposed as Zail directors, so she well knew that the Wey board, including Mr. Phillips whom she regarded as an ally, were not prepared to appoint them to a position of power without further consideration, which would no doubt have included an assessment of whether they were sufficiently well disposed towards Wey's commercial objectives. I am in no doubt, given what followed, that Dr Atkins appointed them precisely because they were not.

Secondly, the new appointments were made at a time when Dr Atkins was actively preparing her own exit from Wey. The Sandalwood loan had been requested, despite her opposition, at the board meeting on 18 September. It was due to be approved at a meeting a few days later on 25 October. Realistically, it must be inferred that Dr Atkins had already determined that she would vote against it, and knew that this would further exacerbate the rift between her and the other directors. She prepared and submitted her own resignation on 24 October (2237). She must, in my view also have had this in mind between 18 and 23 October when she was putting into place her arrangements for TMET.

Thirdly, Dr Atkins knew that Mr Scott would shortly be coming on board as a full time employee at a senior executive level in circumstances where he would be likely to have the confidence of the Wey directors that she did not. It is apparent that she took steps to control what company information was available to him. It was at this time that she took steps to reorganise the data on the Wey server. This was explained in evidence as follows. According to Dr Atkins, the Wey server contained an unsorted mass of files including her personal information such as mortgage statements. Her email files, which were folders in Microsoft Exchange, included private emails unrelated to Wey's business, such as (remarkably) those sent and received in her capacity as a member of the Navy Board. She therefore arranged that a new drive be created on the server, called Z drive, onto which she would move personal files from the T and V drives previously used.

In fact what she did was to make a full copy of the T drive, which had all the company's information, onto the Z drive and which, it appears, she later transferred to her home pc when she left on 6 December. She then deleted from the T drive all material that, according to an email exchange with her personal assistant that has a rather conspiratorial flavour (2210) she did not "want prying eyes in….". This was done, it is clear from those emails, in order to remove material before Mr Scott was given access to the server. No one but Dr Atkins knows what files she moved or what she deleted. Given her later conduct in deleting all her emails sent and received on Zail's behalf and failing to disclose for two years that she had retained copies on her home computer, I am not confident that she made the selection solely on the basis of what was truly personal and what, in truth, belonged to the company.

Fourthly, I am not persuaded that Dr Atkins's explanation for the changes at TMET represents the whole story. She later said that in the "difficult" call she received from the DfE on 18 October, she was told

The first part of this was reported, albeit in oblique terms, to the Wey board promptly on 18 October (2069). Dr Atkins assured directors that payment to TMET was not a problem and could be worked round. There was every reason to believe this; as long as TMET commissioned from Zail and agreed to pay for the "capacity building" measures Zail envisaged, the money would have the desired effect of assisting Zail in meting the cost of those measures.

The second was not. There was no mention to any of the Wey directors, or Mr Scott, of any requirement from the DfE to alter the members or directors of TMET, or that such amendments had been made, until 7 November, and even then in a form which, it seems, did not immediately sink in. I am satisfied that Dr Atkins would have known that this was a matter of major importance to Wey, and one in which the main board directors would wish to be closely involved. It potentially represented a major change in the anticipated business model. The board would have wished to be satisfied whether any such requirement of DfE could be accommodated while maintaining a sufficient commercial expectation of work for the group. For that purpose it would have wished to approve any new appointees. There is nothing improper in this; it was inevitable in the business model Dr Atkins had herself established. The board would also have wanted to be satisfied that any such new requirements did not in practice mean that the business model had become unviable. More directly, given the tension between Dr Atkins and the majority of the board, the board would have wanted to ensure that new appointments were not a mechanism for an effective takeover by Dr Atkins.

Though the documents created by Dr Atkins at the time do mention her discussions with the DfE, they do not in my view support her contention that it was the DfE that insisted on the changes she made. The call from the DfE appears to have happened in the afternoon of 18 October. Dr Atkins proceeded immediately to hold board meeting of Zail, with minutes apparently prepared by herself (2067), which was held at 3pm, before anything was reported to Wey directors. She was the sole director attendee, though she records that two consultants (Ms Megson and Mr. Noden) were in attendance. Para 6.1 of those minutes refers to her having "just had a very difficult call from the DfE" from which it appeared that Zail as commercial sponsor would have to have a separate "sponsor vehicle". Though not expressly mentioned, I infer that this is intended to indicate that the grant money will or may now be paid to TMET as the sponsor vehicle.

Para 6.2 refers to the proposed new appointments to the board of TMET. It does not however say that the DfE had required additional appointments, but that "ZA had noticed that [the solicitors] had failed to appoint all the proposed trustees to the TMET board", and "ZA pointed out that TMET was required to have 3 trustees and currently only had 2, as such it made sense to add all the originally proposed trustees at this time…". The initiative is stated to come from herself, not the DfE. There is no evidence before me that there was in fact any failure to appoint "previously agreed" directors. If a total of 3 were required, it would only have been necessary to appoint one more. There is no indication of any reason for urgency.

Para 6.3 says that "in the light of the call from the DfE and the requirement that free school bodies have 3 members, ZA proposed that the following be added as members…". This does not say in terms that the DfE had required further appointments, though it no doubt implies that the call had prompted Dr Atkins to appoint them.

Dr Atkins then held a board meeting of TMET itself the following day, again apparently preparing the minutes herself (2070). These minutes make no reference to the DfE call, though they do appear to refer to the Zail board resolution passed the day before. Resolutions were passed to make the same appointments of directors and members.

Dr Atkins contacted the solicitors who had formed TMET on 23 October, when she had had difficulty registering all the changes she thought she had made at Companies House (2214). She said "for reasons best not gone into here the DfE are keen to see more than Zail as members…". Their advice was that a resolution of the members of TMET was required and they then prepared the draft members resolution which they advised "will need to be signed on behalf of Zail Enterprises" (the current sole member). Either the solicitors or Dr Atkins must have backdated that resolution to 22 October.

Dr Atkins notified the "sponsor broker" at DfE, a Ms Miner, (with whom she seems from other emails to have been on very close terms of personal friendship) that additional members and trustees had been appointed (2230). It is not clear from the email whether the 22 October resolution was itself attached, though I assume it may have been. The email itself does not mention the names, but speaks of significantly enhancing the "governance capacity" of TMET and ensuring "that the trust board has education and business practice at its heart" and concludes "I trust these changes will meet with your approval". There is no reference to any previous request from the DfE or that the appointments were in response to such a request. If the names were given, there is no information about the individuals concerned, as might have been expected if the DfE had indicated officially that it wished to be satisfied as to the qualities of the appointees. Even if those individuals were personally well known to Ms Miner, it might be expected that a CV would be provided for the record, or at least some reference be made to their known expertise being what the DfE were looking for. The response merely notes the changes. It does not give any indication that an official request has been satisfied, or that the changes will be evaluated against requirements previously imposed.

To the extent this exchange suggests that any discussion had taken place previously between Dr Atkins and Ms Miner about the membership or board of TMET, it does not, therefore, appear to have been in the nature of an official requirement, however phrased, that additional expertise be shown on the board or that a minimum of 3 members must be in place.

Dr Atkins copied her DfE email of 23 October to her personal assistant and to two other consultants. She did not send it to any Wey director, or to Mr Scott. Nor did she take any other steps to ensure they were aware of it, for several days at least. On 30 October Mr Massie began to make enquiries about the relationship between Zail and TMET, in response to her email on 26 October stating that the grant had been approved but "as I suspected it is being paid to TMET". He asked her specifically "who are the trustees" (2277), and does not appear to have received an answer.

On 29 October Dr Atkins had an email exchange with Sarah Phillips, a consultant, apparently having told her that the grant had been awarded. Ms Phillips asks whether Zail is the sole member/sponsor of TMET and is told (inaccurately) that there are four. Her response is "That's brilliant-I'd thought from the diagrams in the summer that Zail was the only member… so could control [the] trust and even dismiss you as directors …". Dr Atkins replies "Last week I added 3 new members with the help of the solicitors and DfE!". This suggests the initiative may have come from Dr Atkins and the DfE's involvement was a means to an end.

Dr Atkins points to the fact that in her paper for the board meeting on 7 November she told the board that the DfE had requested a minimum of 3 members and trustees with educational credentials, and said "members and trustees added, sent to DfE and approved by DfE". She did not however say in that paper how many directors or members had been appointed, or who they were.

She also discussed at that meeting the need for Zail to pitch for work from TMET on an arms length basis. It was from this point that the Wey directors and Mr Scott began to enquire further. In emails between herself and Mr Scott about pitching for work, Dr Atkins maintained the impression that this was a matter of form and that if the form was observed, Zail could expect to be awarded the work. Her emails to her colleagues at TMET however give a different impression. She sent the 7 November board paper to some of the TMET board, and others, the same day (2406). In her covering email she said

“The note below is the one I sent the Wey board following our meeting on Monday. Of course we do have total autonomy and the right to say stuff you to Zail/Wey, however at this stage I think it is best to be as positive and helpful as possible. I hope I have captured your/our concerns properly about the people in Zail. It may well be that when Tom asks the consultants to sign delivery agreements they all say no! In which case we and Zail will have to think again. ”

On 16 November a board meeting of TMET resolved that Zail would not be the "sole funnel" for services to operate schools and that they be put out to tender on account of the risk of association with Zail (2579.1). Dr Atkins abstained from this decision on account of conflict, and minuted her "disappointment", but it was she who gave a briefing about Zail's finances and the risk she said the DfE perceived in Zail. Other directors it is clear took the view that TMET should look to provide such services themselves (see 2575).

At this time, it is apparent that a number of consultants who had previously worked for Wey were indicating to Mr Scott that they would no longer do so. In many cases they indicated that the reason was that they did not wish to be associated with Wey now that Dr Atkins was leaving. Of course, they were perfectly entitled to do so and in circumstances where they had been recruited by Dr Atkins and may have agreed to work because of their personal connection with her, some such reaction would be understandable. It would however be a breach of Dr Atkins's duty of loyalty, which she still owed notwithstanding she was working her notice as an employee, to seek to orchestrate or encourage such decisions. There is some indication that she may have done.

On 22 November there is an email chain involving Dianne Smith, a consultant and one of Dr Atkins's appointees to TMET. She says (2609):

“Whilst withdrawing my services from Zail in support of Zenna and TMET my huge dilemma has been Heyford [an academy bid then in progress] …I… feel devastated to see this might be ploughed now because of our internal politics. Zenna despite our conversation on Saturday ...I must reconsider my decision and hold the ring for Heyford… so the upshot is Christine I will [stay on b]oard for Heyford but recognise we need to get in place an effective transition plan if as we have discussed I move into a delivery role for TMET.”

Ms Megson's response to Dr Atkins is "Can you weave a little magic please?". These emails were not put to Dr Atkins so she may have an explanation for them. I should also say that the words "stay on" are my interpolation of words obscured in the bundle copy. But the clear implication of these emails, in my view, is that Ms Smith is referring to a previous conversation in which Dr Atkins has persuaded her to withdraw her services from Zail on the Heyford project in the expectation that she will in future be contracted direct by TMET, that Ms Smith has changed her mind about that because she fears it will damage prospects for the Heyford school, which she cares about, and accordingly despite what she had previously agreed with Dr Atkins she will continue to work for Zail on that project. Further, in asking Dr Atkins to "weave a little magic" Ms Megson appears to be suggesting that Dr Atkins try and persuade Ms Smith to change her mind back again and stick to what she had previously agreed.

Zail was engaged to provide consultancy services for the Heyford school. It appears that the school began to be concerned that consultants who had been working for Zail on that project might no longer be available to it, and sought assurances from Mr Scott that particular people would be available. In the absence of such assurances they threatened to terminate the contract. Mr Massie considered that Dr Atkins had failed to negotiate a contract that would have prevented them from doing so. There is no doubt that there was an issue with certain consultants at this point who were not being promptly paid. It was a condition of the Sandalwood loan that all such payments be approved by it and Mr Massie constantly pressed Dr Atkins for information about which consultants were being employed, what they were working on and why their invoices were justified. Dr Atkins maintained that she sent this information on many occasions, though, so far as can be seen from the material before me, she does not seem to have provided much detail beyond a list of amounts she stated should be paid (see for example p 2913).

On 4 December Ms Smith sent a further email (2894) referring to the Heyford project, saying "Talked to Gareth [Long] as well today… clearly both of us up for moving Heyford contract to 'the Learning Crowd' although my role is absolutely whatever works best for TMET." The Learning Crowd is an association of consultants. Mr. Long, one of Dr Atkins's appointees to the board of TMET is a Director of it. Dr Atkins said in evidence she now provides services through that organisation. This email, in my view, is clearly on the basis that a plan has been proposed by Dr Atkins to Ms Smith and Mr. Long that the Heyford contract be moved from Zail to The Learning Crowd, and they are both "up for" doing so. It suggests that whether or not the difficulties in paying the consultants were engineered or connived at by Dr Atkins, she was keen to exploit them to ensure the work was taken away from Zail and serviced through TMET.

Dr Atkins did eventually send the 22 October resolution to Wey directors, by email on 28 November. It took a few days for a response, perhaps while its importance soaked in.

When enquiries were made about the process by which the grant was paid to TMET instead of Zail, and the reasons for the 22 October resolution, Dr Atkins's reaction was combative. On 20 November Mr Scott asked Christine Megson, who had been the nominal point of contact for the grant application, for "the correspondence from DfE that explains their decision to fund TMET rather than Zail" (2588). Ms Megson gave him an evasive response and when pressed referred the email to Dr Atkins, saying to her "I am being pressed for information which I don't have and even if I did, this is not my business to share". This suggests she thinks that whatever passed between the DfE and Dr Atkins was a private matter for Dr Atkins and not the legitimate business of the company. Dr Atkins sent Mr Scott an astonishingly aggressive response asserting that this was a matter for TMET alone, into which he should not be enquiring (2577). That was quite incorrect as it plainly concerned Zail, which had been expecting to receive the grant and of which Mr. Scott was now COO.

When the issue of the 22 October resolution was raised after the board meeting of 6 December, Dr Atkins's reaction was to delete her emails and leave the office.

I conclude that the likely explanation is that it did become clear in the conversation that Dr Atkins had with the DfE on 18 October that the grant would be paid to TMET and not Zail. There is insufficient evidence to conclude that this was instigated by Dr Atkins as the claimants suspect, but wherever it originated from, it prompted Dr Atkins to formulate a plan that she, and not Zail, should take control of TMET and with it the grant and potential to develop future opportunities. I do not doubt that DfE would in fact have wished to see appropriate educational expertise available, and appropriate arrangements to ensure proper use of public funds. But I do not believe these requirements were the cause of the changes Dr Atkins made or that she made those changes in the interests of Wey and Zail. Had she been acting in their interests, she would have disclosed any such new requirements to the Wey board and made recommendations as to how they could be accommodated. Instead she took whatever indications she might have received informally as the pretext to make clandestine changes that effectively transferred control of TMET to herself. I find therefore that the allegation of breach of duty of loyalty in that respect is made out.

There was in my judgment no proper basis for Dr Atkins to allege that there might have been any fraud in the submission of the January free schools bid. When pressed as to what constituted the fraud, she could only say that it lay in the pretence that the named persons were directors of TMET at the date of the bid. But she had been told by Mr Massie on 5 January that the DfE were aware that their appointment would take place a few days later, so she had no reason to think there had been any deception. If she doubted what Mr Massie had told her, she could have enquired further as to what the DfE had been told, but she did not.

Further, there was no basis for her to consider that there was anything improper in the submission of the bid by the intended new directors when DfE might have expected it from the previous directors. She had herself offered to resign and procure their appointment some days beforehand, so that they and not she could make the submission. Had that been done, the DfE would have received exactly the document they did, signed by exactly the people who did sign it. Nor had she any reason to think the bid document made untrue statements about, or on behalf of, the former directors- no such allegation has been made since, and having seen the bid document through her own channels she was aware of its content.

Rather, the accusation Dr Atkins made seems to have been a working out of the struggle she engaged in over control of the TMET board. She objected to the threats of action made by Mr Massie to the people she had appointed, as a result of which they had agreed to stand down. As a matter of pure technicality, as I have found, she was right in the stance that she took about the formal validity of their appointment. She was however in breach of duty in doing what she had, and was seeking to defend the position she had created in furtherance of that breach. But having reached the point at which her allies had agreed to stand down and she agreed to resign herself and transfer control, acknowledging Wey's entitlement to require her to do so, she then changed her mind and insisted at the last minute that she must approve and sign the bid document, imposing conditions that (at the least) created the risk that she would not do so and the deadline would be missed.

When she found that her obstacles had been bypassed, Dr Atkins reacted with fury. She went back on all previous assurances about transfer of control and cooperation in the meeting to be held on 8 January and reverted to making all the objections she could. That itself was a breach of duty; having been in breach of duty in making the appointments it was her duty to her employer and the company of which she was a director to take any proper steps it reasonably required to rectify the position.

I do not accept that Dr Atkins acted out of any motive of public spirit or duty, but rather did so to pursue her own agenda in the dispute she had with the rest of the board and Mr Massie in particular. If she had been contacted by the due diligence unit to enquire about the discrepancy in the names of the directors, she could have told them that it had been agreed that these persons would be appointed, and that she had been told the DfE had been made aware of it but she did not herself know if this was the case. Instead she seems to have initiated that contact herself and been keen to use it to put the version of events she had now settled on and to magnify the impression of impropriety she was seeking to convey. At p 4660 is her email exchange with the relevant official. She sent him various documents, though it is not clear exactly which. He responds "thank you again for your call and these documents", and she replies "your frank and forthright approach was very welcome and is much appreciated". So it appears she felt he had taken on board her message.

Accordingly, even if she genuinely felt there was some public interest in ensuring that the DfE knew that the named directors were not appointed on 4 January, she had already ensured that it was in possession of that information on 11 January and had no need to write again, still less to raise the allegation of fraud, in her email of 25 January. She made a point of the fact that, according to her, the named persons had not in fact been appointed on 8 January as expected, but if that was so it was entirely because she had gone back on her previous assurances that she would cooperate in holding the meeting to do so.

I find therefore that this allegation of breach of duty is made out.

Dr Atkins submitted at the board meeting of 18 September an estimate of the funding she said was required for Wey to continue over the next few months. It included a schedule of consultants she said should be taken on to prepare for and pursue forthcoming projects. It was described in the board paper as an estimate and not a projection. It was much criticised at the meeting, for instance on the ground that items were duplicated and she had not justified why all the people identified needed to be engaged immediately. It later emerged from a recovered email (1785.1) that she told Ms Megson that it was a "totally fictitious cost base" and she had "made up days and daily rates and total costs! But the posts are real as are the people".

In evidence Dr Atkins said this was simply loose language and the figures produced were her best estimates of the hours that would be required and the rates at which she would be able to secure the people concerned. I accept that they were genuine estimates, in the sense that they were not intended to be deceptive or misleading. I am not however persuaded that they were prepared with any real degree of care or consideration. The overall impression given by the email is that it was prepared for the purpose of persuading new directors who, she felt, did not understand the business or what was required to take it forward. There is no indication that, as the claimants suggested, it was designed to reinforce an argument that the company was insolvent. There was no backup for the figures produced, and the language used suggests they appear to have been "finger in the air" estimates rather than anything considered in detail. But if they were slapdash and unprofessional, I am not persuaded that they were prepared for any improper purpose.

Accordingly I reject that allegation of breach of duty of loyalty.

TUTC was, or was hoped to be, a client of Zail. The consultancy contract previously in force had been with Spurs, but there is no doubt that its aim was to set up TUTC with the hope, from Zail's perspective, that it would commission further work from Zail. If it did, as Dr Atkins accepted, she would have been in a position of conflict. It was therefore in my judgment in breach of duty for her to accept this position without the consent of the board of either Wey or Zail. She did not take any step to secure either (even by seeking to act as sole director of Zail, though whether that would have been sufficient is doubtful to say the least). She did not disclose this appointment when questioned about the circumstances in which Spurs terminated its consultancy agreement shortly afterwards.

Although the claimants are clearly (and understandably) suspicious about those circumstances, no separate allegation has been made about them. There is an issue about whether Dr Atkins is responsible for any loss (and if so what) arising from the failure to win any further work from TUTC or Spurs, which must be considered (only) as to whether it flows from her breach in accepting appointment as a director of TUTC. None of the other pleaded breaches can be relevant.

It is accepted that what in fact happened was that TUTC decided to commission direct the services it required to develop the next stage of its programme. It did not use any outside provider equivalent to Zail, though it appears it may have directly engaged individual consultants who might otherwise have been provided through Zail at a profit. Dr Atkins disclosed that she herself has been paid for providing such services.

There is however no evidence as to how this came about and what role if any Dr Atkins played in it. It would be perfectly plausible that she might for instance have persuaded the board of TUTC that it could achieve savings by employing staff and consultants direct. The claimants are understandably suspicious. But there is no evidence that she did so, and it is equally plausible that the other directors may have come to that conclusion on their own. It would be speculative to assume that Dr Atkins's presence on the board was the reason why TUTC did not place any further work with Zail.

Mr. Clarke puts the matter on the basis of a loss of a chance. There was he submits a real chance that further work would have been won, but none was. Zail might not have been awarded all of it, but could have expected some. In my judgment however this does not get round the difficulties of causation. A loss of chance case proceeds on the basis that "but for" the act complained of, the claimant would have had a chance of achieving some benefit. For example, if a solicitor had not negligently failed to issue proceedings in time, his client might have succeeded in an action.

But the presence of Dr Atkins on the board of TUTC did not of itself mean that no further work would be awarded, such that the court might assess how much might have been otherwise. Whether or not work was awarded to Zail depended on the decisions taken subsequently by the TUTC board. If Dr Atkins played any role in those decisions it could have been favourable or unfavourable to Zail. She might have abstained on grounds of conflict. But there is no evidence of what role she played, and no allegation that if she played any such role she was in breach of duty to Zail in doing so.

The proven breach of duty was not therefore the cause of the loss of a chance of work, but merely one step leading up to the decision that destroyed that chance. It is not shown to have made that decision itself more or less likely to have occurred. In my judgment therefore, it is not shown to have caused any loss, either directly or by a loss of a chance.

This is a short point, dependant almost entirely on the impression gained from reading the email. In my view it is not a neutral piece of information but a clear invitation to the consultants to tell Mr Scott that they would no longer work for Zail. It was in breach of the terms of her suspension to be contacting the consultants at all, and I am in no doubt that this communication was designed to harm Zail and was in breach of Dr Atkins's duty of loyalty.

This allegation is therefore made out.

Dr Atkins was notified of her suspension by email from Mr Phillips sent at 5.35 on 6 December 2012 (2916). She was required by that e-mail on behalf of Wey and Zail "not to attend the Company's offices or meet or speak with customers, clients, suppliers and in particular, the DfE… in relation to your position as the group's nominee on TMET, you should take no action without first obtaining any written clearance…". It is not suggested that the companies were not entitled to impose these conditions, or that it was not her duty to comply with them. Paragraphs 38 and 39 of the Particulars of Claim alleged breaches in a number of respects. In general terms, as will be apparent from my summary of the facts set out above, I am satisfied that apart from not attending the company's offices Dr Atkins effectively ignored these instructions and continue to act as she pleased in pursuit of her own agenda and interests and in disregard of those of the claimant companies.

As to the specific allegations:

On 6 December 2012, as referred to above, Dr Atkins deleted from the Wey computer system all the folders containing her email traffic in and out using her Wey email address. She also deleted the Z drive, to which she had copied all of the documents formerly contained on the T drive. She maintained that she had not done so in order to deprive the company of access to this material, which on the face of it was the company's property, but simply because it included personal e-mails and in order that it should not be accessible to any unauthorised person who happened to be in the office. She denies that she did so because she was leaving the office on 6 December knowing she would not return.

I reject this explanation. It is not only inherently implausible, but inconsistent with the surrounding circumstances, in that:

This deletion took place on 6 December, when it must become clear to Dr Atkins that her position had become untenable because the other directors had now discovered and appreciated the significance of the steps that she had taken to seize control of TMET, and that her actions would be challenged. On the balance of probabilities I consider that the true explanation is that, as the claimants suggested, she had determined that she would not be returning to work and was doing what she could to conceal her actions from the investigation that she must have expected would follow. In fact the companies were rather slow off the mark in beginning this investigation, with the result that no attempt was made to look at the computer system and preserve any information on it until after the 30 day backup period had elapsed such that recovery of the deleted material was not possible. That worked out to Dr Atkins' advantage, an advantage she sought to maintain by denying and obstructing access to the material in her possession for as long as she could.

The claimants also alleged that Miss Atkins deleted material other than e-mails. This is based on their impression that the documents remaining on the computer constitute much less than those they would expect to have been generated for the purposes of its business during Dr Atkins' period in office. Dr Atkins accepts that she deleted some documents from the T drive, but maintains that these were only personal documents and not those relating to the company's business. There is unfortunately no way of knowing whether she is telling the truth about this. The material recovered from her home computer consists only of e-mails, but it appears that the terms under which the search of her computer was made were such that only e-mails were looked for. In the circumstances, whilst the claimants' suspicions that other documents that property belonged to the company have been deleted, there is no sufficient evidence before me to conclude that this was in fact the case.

In early 2012, Dr Atkins had been acting as an adviser, on behalf of Wey, on the establishment of an international school in Mauritius. In about May 2012, Dr Atkins reported to the board that as a result of this successful consultancy, Wey had been agreed to be appointed to operate and run the new school. She went so far as to tell Mr Massey, in writing, that there was a signed operating contract. As a result of this, an announcement was made to the market that, whilst it did not expressly state that there was a signed written operating contract, implied that there was a binding contract to operate the school. There is no doubt that this was seen as a significant positive announcement and that the board, and the market, were led to expect that substantial revenues would result from acting as the school operator.

In fact there was no written contract and although, according to Dr Atkins, those promoting the school had agreed in principle that Wey would be the operator, there was no binding commitment from them to that effect. The company continued to be paid for consultancy advice, but the promoters terminated the consultancy when Dr Atkins ceased to be associated with Wey.

Mr Wilson submitted that this was simply careless communication on Dr Atkins' part. I do not accept that; it is in my view clear from the correspondence at the time that Miss Atkins was under pressure as to her own performance and keen to report a success. I find that she embellished the facts in order to do so, no doubt hoping that the written contract she anticipated would follow before long. This caused the company to make a misleading announcement to the market, which later had to be retracted when the true picture became known. This no doubt would have been a serious embarrassment to the company and may well have damaged its reputation with investors. It would no doubt a breach of duty of good faith to the company.

Nevertheless, as Mr Wilson points out no financial loss or damage is pleaded to have resulted from this breach.

There were a limited number of respects in which it is alleged that the breaches resulted in financial loss to the claimant companies. I consider these in turn, starting with the more minor ones.

For the reasons given above, I have rejected the claim that Dr Atkins' breach of duty in accepting a directorship of TUTC caused any loss of the claimants.

It is said that Dr Atkins was in breach of duty in commissioning work from Mr Scott without authorisation from Mr Massie or Sandwood, contrary to the terms of the loan agreement by which that company was providing working capital funding, and that consequently she should repay the fees paid without authorisation to Mr Scott. Dr Atkins contends that Mr Massie knew perfectly well that Mr Scott had been engaged as a consultant and that his services were required to perform the consultancy contract relating to the Heyford Park school. It is perhaps somewhat ironic that Mr Scott sufficiently won the confidence of the directors that he was appointed managing director in effective succession to Dr Atkins.

It is not necessary in my judgment to go into the details of whether Dr Atkins acted contrary to her instructions from the board in either engaging Mr Scott or continuing his services when payment of fees had not been authorised by Mr Massie. The claimants do not suggest that Mr Scott's services were unnecessary, or less valuable to the company than the fees he was paid. In those circumstances, there is no evidence of any loss to the company for which Dr Atkins might be liable.

It is pleaded that Miss Atkins was under a duty to disclose to the company her own breaches of duty, and that had she done so the company would have been entitled to dismiss her without notice, and that it would have done so by about 1 August 2012. A claim is made for her gross salary, plus National Insurance contributions, from that date until the eventual date of termination on 28 January, 2013.

Mr Clarke submitted that it was established by Item Software v Fassihi [2004] EWCA Civ 1244 that a director showed a fiduciary duty to disclose his own breaches of duty to his company, and that damages could be awarded for breach of this duty. In fact in that case Arden LJ, with whom the other justices agreed, said at paragraph [41] that she did not consider that there was any separate and independent duty to disclose misconduct to his principal, or to disclose information of relevance or concern to it. Instead, she expressed the matter in terms of the director's fundamental duty of loyalty to act in what he considered in good faith to be in the best interests of the company. Performance of that duty might in certain circumstances require that a director should disclose to the company actions that he had taken which were themselves in breach of duty to the company.

In that case, the director (F) had set up a separate company with the object of persuading a customer to switch a valuable contract, which was then under renegotiation, from the claimant company to F's new company. The renegotiation was being conducted by another director (D). D was not aware that F was attempting to win the business himself, and in consequence allowed himself to take a hard line in negotiation which resulted in the customer terminating the contract. The relevance of the finding of an obligation to disclose misconduct was that if D had been told that F had established a competing company he would have taken a softer line and the business might have been retained.

It is apparent from Arden LJ's discussion that the extent and the consequences of a duty to disclose misconduct raise difficult issues. Item is not authority for the proposition that every breach of obligation by a director must be confessed to his company, or that if there is an obligation to disclose in a particular case and the breach would justify dismissal, that the company is entitled to recover salary paid to the director from the date of that breach. What is necessary is that the conduct of the director concerned is something which his duty in general would have required to report to the company. It is easy to see how such an obligation would be implied where the conduct consists of something done by the director in secret in his own interest, such as establishing a competing business, but not all breaches of duty might lead to the same conclusion. Would it necessarily be the case, for instance, that a director who makes an exaggerated claim for expenses has a separate duty to report that he has done so?

In the present case, the suggested breaches of duty beginning at about the start of August 2012 concern matters such as setting up the similarly named shelf companies under Ms Atkin's own control, and questioning the solvency of Wey. I have concluded that these were not in fact breaches of duty on her part. The first incident which in my judgment may properly be said to import a requirement of disclosure was the putting in place of new members and directors of TMET on or about 23 October, 2012. The obligation that Dr Atkins owed Wey and Zail in relation to TMET was to use her powers as director of Zail and as Zail's representative on the board of TMET in good faith in the best interests of Zail and not for her own purposes. She instead acted in her own interests, and initially at least concealed what she had done. Thereafter she made partial disclosures, in terms designed in my judgment not to arouse suspicion and to present the changes made as having been effectively at the insistence of the DfE when, as I have found, this was not the case. She only disclosed the actual changes she had made when she sent a copy of the 22 October resolution, which was on 28 November.

In my judgment, the duty to act in good faith in the interests of the company required Dr Atkins to disclose what she had done and so, at a minimum, to disclose promptly the resolutions that she had passed and the number and names of the appointments that she had made. In the circumstances, she delayed in doing this for a little over a month. That was a breach of duty.

As to what would have happened if she had complied with her duty, it would not in my view be right to conclude that she would have been immediately summarily dismissed so that payment of her salary would have ceased at that time. The best indication comes from what actually happened after 28 November, when the information was in the hands of the other directors. It took a few days for its significance to sink in, and they then convened a directors' meeting at which Dr Atkins was not dismissed but suspended on full pay pending an investigation. Thereafter the company did not make any rapid move to investigate what had happened with a view to dismissing her, but concentrated on steps to reverse the practical effect of her actions while she remained suspended. The investigation seems to have taken about 6 weeks. Her employment did not actually come to an end until 22 January, 2013, when she resigned herself, alleging constructive dismissal, rather than attend the disciplinary meeting resulting.

It would be an impossible task is to determine with hindsight exactly how matters would have played out if Dr Atkins had fully disclosed the steps she had taken immediately after 23 October, 2012. Doing the best that I can in the circumstances, I think that a fair estimate would be to assume that the eventual end of her employment would have been brought forward by a period corresponding to the delay in making full disclosure, ie approximately one month, and accordingly award Wey damages equivalent to one month's salary and benefits in respect of that breach.

I have held above that although I find Dr Atkins was the instigator of the suggestion that additional directors and members be appointed to TMET, there is insufficient evidence to find that she also instigated the change in recipient of the capacity grant from Zail to TMET. That change, as she said herself to the board, could be worked around. It appears the other directors were not initially alarmed, presumably because, being unaware of the changes in the structure of TMET she had made, they at first thought that the grant moneys were still effectively under their control in TMET's hands and so available to meet the costs they were intended to cover (see Mr Scott's witness statement at p 147). This would entail incurring the capacity building costs in TMET, no doubt by that body paying for work done or paid for by Wey or Zail.

The effective cause of the money ceasing to be so available was the decision to repay the grant to the DfE. Although this was directly preceded by a request from DfE, that in turn was, I am satisfied, only made because TMET, at the instigation of Dr Atkins, forcefully pressed and urged that the moneys should be paid back. I am satisfied that this was done because Dr Atkins and her associates were about to lose control of TMET and did not want the money to fall into the hands of directors appointed by Wey. Since it was in breach of duty of loyalty to Wey and Zail that Dr Atkins had procured that control of TMET be removed from Zail, it was equally in breach of duty for her to deprive TMET of what appears to have been its only substantial asset before Zail was able to recover control. I am not persuaded that the stated reasons for doing so were genuine; there is no evidence to support the supposed fear that the money might be misapplied, and even if there was reason to doubt whether the money could be spent by 31 March as required, no sensible director of a grant receiving body would return grant funds before the end of the funding period without first exploring all opportunities for properly using them in that period.

It does not however automatically follow that Wey or Zail have lost the benefit of the whole £97,000. The conditions of the grant (set out in the funding agreement at 3134.465) required that the money be spent on qualifying expenditure incurred in the period to 31 March 2013, and contained provisions against artificially incurring or accelerating expenditure to bring it into that period. I must therefore be satisfied on the balance of probabilities that, had Dr Atkins not acted in breach of duty, the money could have been properly applied to cover costs that Wey or Zail in fact incurred.

This is not a matter that can be assumed, and is not directly addressed in the evidence. Mr Scott's evidence, which is supported by the documents, is that Dr Atkins became increasingly difficult about proposals for services to be provided by Wey and Zail, pressing for TMET to engage in open procurement and threatening to give the grant back if he objected. I accept that evidence, and am satisfied that, as shown by her private correspondence referred to above, Dr Atkins was being deliberately difficult while maintaining a front to appear reasonable.

It is clear from the documents (2440) that she accepted that £10,300 of expenditure had been incurred which could be reimbursed (plus VAT presumably). I assume however that it was not, since the whole of the grant was returned. In other respects however it seems that Mr Scott's proposals were never accepted and I assume therefore that Wey and Zail did not in fact provide any such services to TMET.

I have no evidence before me that in the event Wey or Zail actually incurred any costs that could properly have been recharged to TMET, or that Zail might have been paid out of the grant funds if those funds had been paid to Zail as originally anticipated. No doubt if Dr Atkins had not been obstructive there would have been a better opportunity to identify spending that could have been made and properly reimbursed. But since these opportunities were not identified, the assumption must be that the expenditure they would have entailed was not in fact made, and accordingly does not represent a loss to Wey or Zail. If there had been expenditure that was in any event incurred or required such that the chance of recovering it from the grant was lost, it would be for the claimants to provide evidence of it, which they have not done.

Accordingly under this head, I award the claimants £10,300 plus VAT, with the proviso that credit must be given for any part of that amount that has been already paid by TMET.

By far the largest element of the damages sought falls under this head. The claimants face the difficulty that the decision not to approve their bid to sponsor the Bristol schools was made by letter of 7 November 2013 (4855), over 8 months after Dr Atkins's allegations of fraud were made. By that time Wey and Zail had had ample opportunity to present themselves to the DfE and undo any misconceptions brought about by Dr Atkins's email and her other contact with DfE officials thereafter. The reasons for rejection stated in that letter were based on Wey's financial performance and security, of which some detail was given.

The claimants say these reasons were unconvincing and inconsistent and that the DfE later backtracked. It should be inferred that they were not genuine and the true reasons were continuing mistrust and antipathy brought about by Dr Atkins's unfounded allegations in January. In pursuit of this, extensive disclosure has been sought and obtained from the DfE of its internal emails and documents relating to the Bristol decision. The high point of this case on the documents is a paper prepared on or about 15 November 2013 for a meeting to discuss, inter alia, the Bristol project and Wey's further representations made following the refusal letter. That paper (4865) includes the following:

“ Wey Enterprises Ltd was originally approved as a sponsor in August 2012, with Third Millennium Education Trust (TMET) as the Academy trust. Zail Education Limited purchased Wey Enterprises Ltd from Zenna Atkins, the former Chair of Ofsted. There were (sic) then a dispute between Zenna Atkins and Zail Education Limited which resulted in a whistleblowing allegation from Zenna Atkins to the Department and the return of the sponsor capacity funding of £93,000 that they had received. Zenna Atkins alleged that Wey Enterprises Ltd had submitted a free school bid under the name of TMET without the trustees' consent and that this was a false representation. Consequently the free school bid was rejected. Zenna Atkins stepped down as a director from Zail Education in October 2012 and there will shortly be an employment tribunal for constructive dismissal. As the Directors of Wey Enterprises Ltd had changed, they went through the sponsor approval process again and were re-approved in May 2013, having set up a new Academy trust, Zail Education Schools Trust. ”

I do not doubt that this indicates that the reason for refusing the free school bid submitted in January 2013 was the allegations that Dr Atkins had made. But that application was not in respect of the Bristol schools, and no evidence has been put forward of any financial loss resulting from that decision. It does not follow that the same motivation necessarily pervaded all the subsequent decisions made by the DfE.

There is no other indication in the documents that it did so. Rather, they set out consistently, in my view, the concerns that officials at the DfE had about the financial performance of Zail and whether Mr Massie was a suitable person to be in charge of a sponsor company. It may well be that these concerns had been initiated by what Dr Atkins said, but it is clear in my view that by this stage the effective reason for holding those concerns was information that the DfE had itself obtained in the meantime.

There are many documents which set out these concerns, but it is sufficient for present purposes to quote from the succeeding paragraphs of the paper referred to above:

“A number of colleagues have raised concerns about WEST as a sponsor and in particular concerns around their finances. We asked the EFA to complete due diligence exercise on WEST, which concluded that there would be a significant financial risk with permitting WEST to take academies into its MAT. Zail and Education Limited and Wey Enterprises are both loss-making companies, Zail Education Limited incurred a loss of £455k in December 2012 and Wey Enterprises incurred a loss of £45k. We wrote to WEST on 7 November informing them then that we would not be endorsing Bristol County Council's decision that they should be the preferred sponsor … because we were concerned about their financial viability. WEST replied that if the Department withdrew this letter their sponsors would guarantee a bank loan of £250k to WEST. Given that the sponsor is a loss-making company the EFA's assessment was that it was likely that they would try to secure this loan based on projections of income from future Academy projects. EFA's assessment was that the promise of injection of short term capital did not mitigate the financial risks of allocating projects to WEST as the financial performance of the companies had been poor for several years.

David Massie is the interim chairman of Zail Education Limited. The EFA have completed a wider due diligence exercise on David Massie's companies, which shows that most are loss-making, some have gone into liquidation and there appears to be a pattern on inter-company loans. Based on the above information and view is that WEST should not sponsor the two projects in Bristol or any future projects. Zail Education Limited has submitted previous FOI requests to the Department and we think there is a risk that they may take this decision to judicial review. ”

Mr Clarke submitted that these reasons were poor, and have subsequently been resiled from. WEST has since been approved as a sponsor, notwithstanding Mr Massie's involvement. It was illogical to cite concerns about financial viability and dependency on future income from sponsoring schools in Zail's case when other sponsors were approved that were newly established companies with no financial track record and no funding other than what they would generate from activities as a sponsor. There was no good reason to criticise Mr Massie's background; the fact that he had been a director of companies that had gone into liquidation was not a necessary indication of insolvency let alone impropriety, and insofar as there were insolvencies he is an entrepreneur and it is to be expected that not every project he engages in will be a success.

There may be force in these points. But even if they are right, it does not show that the DfE's stated reasons, however much the claimants may disagree with them, were not genuinely the reasons for its decision. I am not persuaded that I can infer that these concerns and the investigation of them were mere pretexts and the true reason was either Dr Atkins' ventilating her side of the dispute with her contacts at the Department or the unjustified allegation of fraud that she had made. Nor can it be assumed or inferred that but for these actions the DfE would have accepted the explanations Wey gave for the matters that they were concerned about. To the extent that these actions on her part may have triggered or contributed to the formation of these concerns, in my view that had clearly been long since been overtaken by the DfE's own investigations and the opinions formed from it.

I conclude therefore that any breach of Dr Atkins' part was not an effective cause of the rejection of the Bristol schools bid or of any losses that flowed to the claimants from that decision.

In case I am wrong in that conclusion, I consider briefly the amount of loss that I would have assessed had I determined the issue of causation in favour of the claimants. The computation of loss consists essentially of three elements:

In essence, all of these estimates are in fact made by Mr Scott, and Mr O'Beirne's report is limited to a review of those figures. He endorses the methods Mr Scott has used to compile them as being reasonable, but does not offer his own comment beyond that.

Mr Scott's estimates of income are based on 5% of the estimated turnover of the schools. That figure he said was reasonable, and anticipated in the budgets that had been approved by the local authority. It was comparable to the experience of the claimants on other projects. No evidence was offered to challenge it, and I would have accepted it.

The estimate of direct costs was based on 50% of the projected income. This figure was derived from a comparison with the equivalent figures in the claimants' audited accounts for 2013 which showed that a margin over direct costs of 53% had been achieved (716). In relation to this, Mr Wilson objected that it would have been a requirement of the contracts that any services provided would have to be provided "at cost" and it was therefore inconceivable that a profit element of 50% would have been allowed. There were a number of responses to this objection; firstly Mr Scott said that it was accepted that "at cost" did not mean that the charge for services had to be equivalent to the direct cost of providing them. They could legitimately be a margin representing a contribution to overheads and other costs of the service provider, and the DfE would not regard this as a "profit".

Mr Clarke submitted that in any event the requirement that services be provided "at cost" was only introduced to the regime possible through free schools and academies after the date on which the Bristol contract would have been entered into. Prior to them, he said, the requirement was only that it must be demonstrated that services represented "best value" and that if services were provided at agreed prices that complied with this criterion it would not matter (and in any event the school purchasing the services would not know) if the provider achieved a margin over its costs. There was some confusion at the hearing as to exactly when this requirement was introduced to the DfE's formal documentation. The impression I have from the documents I have seen is that the department's policy in this area was evolving, and that it was clearly a sensitive matter that this relatively new area of government policy, involving substantial direct payments from public funds, should not be seen as providing an opportunity for commercial profit in the provision of services previously provided by local authorities.

Whatever the position in relation to the formal documents, I would have proceeded on the basis that the "at cost" requirement was the DfE's policy at the material time and likely to have applied to the operation of the Bristol contracts. That is explicitly stated in the letter of 7 November, 2013 (4856). That being so, and although there was no countervailing evidence, it seems to me that an assumption that a margin over direct cost of 50% might be achieved is likely to be overly generous. Elsewhere in Mr O'Beirne's report he notes that Mr Scott estimated the margin in respect of the services that would have been provided to TUTC at 35%. That seems to me a more reasonable figure, which I would have adopted.

So far as the length of the contract is concerned, it would have been for an "Evergreen" seven-year term, i.e. an initial period of seven years, and subject to determination on seven years notice at any time. Thus, Mr Clarke said, unless notice was immediately given, the contract would inevitably run for more than seven years and it was reasonable to assume that there would be no reason to terminate it at any early stage. Mr O'Beirne said in his report that the 25 year period assumed was "conjectural" and the actual period of operation could be more or less than that term.

There is of course no way of making any accurate projection of the period of operation of such a contract. It might be brought to an end by any number of matters, some of which might have entitled it to be terminated on less than seven years notice, potentially including default by Zail, its insolvency, or a change in government policy requiring a termination of existing contracts and change to a new basis of provision. Given that policy was evolving, and particularly if it was felt that the initial regime was proving too generous to providers, it is by no means implausible to think that some such change might have been required.

In the circumstances, it seems to me it would be appropriate to be cautious as to the assumed length of contracts such as this. The figure I would have adopted would be 10 years, representing a balance between the risks of termination for cause, which might happen at any time, and by reason of change of policy, which might be relatively unlikely in the early years of contract but perhaps an increasing risk after say the first four or five years.

If it becomes relevant, the figures set out in Mr O'Beirne's report can I am sure be recalculated on the above basis.

Appendix A to the claimants' schedule of loss (756), which is adopted in Mr. O'Beirne's report, sets out costs said to have been incurred by management and external consultants as a result of Dr Atkins' alleged breaches. These consist in part of sums paid to IT consultants to investigate and seek to remedy the loss of data, and in part on amounts claimed at the rate of £100 per hour in respect of various directors for the time said to have been spent dealing with the consequence of the breaches, in particular damage to the claimant companies' relationships with the DfE. The total comes to £16,203.88 p

These amounts, Mr Clarke submitted, would in principle recoverable by the court could be satisfied that they properly represented (in the case of the charges for the time of directors) time spent on investigating and/or mitigating the breaches in question, involving staff being significantly disrupted from pursuing their normal activities (see R&V Versicherung AG v Risk Insurance and Reinsurance Solutions AG (No3) [2006] EWHC 42 (Comm) at [77]). Mr Wilson did not disagree in principle, but submitted that I could not be satisfied on the evidence that the time referred to was in fact spent in such investigation or mitigation.

The view that I take of these estimates is that they are in fact extremely modest and likely to be very conservative estimates indeed. The combination of Ms Atkin's breaches in destruction of data, encouraging the consultants working for the claimants to desert and deliberately poisoning the companies' relationships with the DfE struck at the very heart of their business and realistically must have required the devotion of substantial management time to address. No doubt it is true that some of the consultants may have resigned anyway when Dr Atkins left and that there may have been difficulties in any event with the DfE in relation to the claimants' financial standing. But these matters must have been made much worse by Dr Atkins's campaign of deliberate hostility and in my view the amounts sought represent a reasonable estimate of the additional time her actions must have entailed.

The schedule of loss includes a claim for general damages for disruption and an account of profits made by Dr Atkins as a result of her breaches, but neither element was pursued before me.

I note that Dr Atkins has filed what she refers to as a "counter-schedule of loss" (757). This is not a submission by her as to the amount of the claimants' losses she admits, but a statement of what she says are her own losses of income as a result of termination of her employment. She has not however made any counterclaim in these proceedings for wrongful dismissal or otherwise.

There will be judgment for the claimants for the damages I have assessed above. I invite the parties to agree the order resulting and will list a hearing at which this judgment will be handed down. There need be no attendance on that occasion. If there are matters arising parties should provide dates of availability and an agreed time estimate to my clerk and a further hearing will be listed.