Keystone Healthcare Ltd & Anor v Parr & Ors

Introduction

The parties

The witnesses

The facts

The claimants’ claims

The Payroll Fraud claim

The Termination Payment claim

The Consultancy Payments claim

The Overpayment claim

The Diversion claims

The Invoice Frauds claims

Conclusions

Introduction

The first claimant company, Keystone Healthcare Limited (“Keystone”) is a company which carries on business as a healthcare employment agency and which was, between April 2009 and September 2014, owned and controlled by Mr Richard Ward, his wife Mrs Helen Ward, and the first defendant Mr Colin Parr. This litigation arises out of Keystone’s complaints against Mr Parr both in relation to his conduct whilst a director of Keystone and his post termination conduct.

In summary, Keystone contends that:

In the course of the proceedings and after a contested hearing Keystone obtained summary judgment against Mr Parr and Mr Reynard in relation to the Payroll Fraud. Moreover, Mr Parr has admitted the Termination Payments claim. He has also made certain admissions in relation to some of the other claims, specifically in relation to some of the Invoice Frauds. However, the bulk of the claims remain in dispute.

There is only one issue to resolve in relation to the Consultancy Payments claim. In relation to the Overpayment claim, given the result of the summary judgment it cannot be disputed that Mr Parr was obliged but failed to disclose the Payroll Frauds. However, there are some significant remaining disputes as to whether or not the claim is made out in law on the particular facts of the case and as to the quantification of the claim.

The Diversion claim is the most complex of the remaining claims. The claimants’ case as pleaded in the Particulars of Claim may be summarised as follows:

This is disputed by Mr Parr and Medipro. In particular:

The legal effect of what Mr Parr and Medipro has done, according to the Particulars of Claim, is that:

Although there has been no order formally directing that there should be a split trial it has been agreed on all sides and case management has proceeded on the basis that the Diversion claims should be limited to trial on the issues of liability only, since Keystone has reserved its right to elect as between remedies once the court’s findings in relation to the issues of liability are known.

The case was listed for trial commencing 19 March 2018. I heard oral openings and contested applications on day 1, heard oral evidence over the following 6 days from a number of witnesses of fact followed by expert evidence from two valuers on day 8 and then adjourned for written closing submissions followed by oral submissions on 15 May 2018. So far as the facts are concerned I must of course decide the case to the civil standard on the balance of probabilities. So far as the law is concerned, as well as referring to the authorities I have been referred to and found most helpful the summaries and discussions of the relevant principles in the 2^nd edition of “Fiduciary Duties: Directors and Employees” by Andrew Stafford QC & Stuart Ritchie QC (“Stafford & Ritchie”).

The parties

Both Keystone and Medipro are healthcare staff agencies, providing temporary and full-time staff for individual hospitals and trusts both within the NHS and the private sectors. I shall refer to the staff as workers and to the hospitals and trusts as clients. Both companies specialise in providing workers to work in operating departments, generally either registered nurses or registered operating department practitioners (“ODPs”). ODPs are healthcare professionals engaged in providing care for patients in operating departments in the pre-operative (anaesthesia) phase, the intra-operative (surgical) and post- operative (recovery) phases and are regulated by the Health and Care Professions Council (“HCPC”).

I will refer to the history of and business conducted by the respective companies and to Mr Parr and Mr Reynard in more detail below.

The witnesses

Mr Ward was the principal witness for Keystone. He began his career as an ODP after leaving the armed forces and, having moved into healthcare agency, founded Keystone in 2005 with his wife and another married couple who exited the company in April 2009. Although I accept his evidence that his wife did have significant expertise in compliance and recruitment and did play a substantive role in Keystone it is clear that as between the two of them he has been the driving force behind the company, as evidenced by the absence of any relevant correspondence emanating from Mrs Ward and her absence as a witness in this trial. He brought Mr Parr into Keystone in 2008 in the context of a merger between the business conducted by Keystone and the similar competing business then being conducted by Mr Parr as the sole proprietor of a limited company. After Mr Parr left Keystone in 2014 he has resumed his position as the effective driving force of the company and has driven forward this litigation.

It is clear that he feels extremely strongly about the conduct of Mr Parr, Mr Reynard and Ms Whitehurst, with some justification. He was cross-examined at length. Whilst he was an honest witness I have to treat his uncorroborated evidence with appropriate caution given my conclusion that his strength of feelings hampered him from giving evidence dispassionately. I was particularly concerned that he appeared – the pleading was obscure in terms of what it actually alleged - to be willing to advance or support a claim of dishonesty in relation to the submission of invoices by a solicitor without any proper investigation and when in my view such evidence as there was afforded no proper basis for the allegation to be made.

Ms Hayman was the other witness called by Keystone, by whom she is employed as a finance administrator. She gave evidence which was clearly honest and reliable but which was of limited relevance. Principally she gave evidence as to Mr Parr having spent a week observing the finance department at work in September 2013. Keystone relies upon this to invite me to draw the inference that his purpose in doing so was to acquire information as to financial matters which would assist him in setting up in competition with Medipro. It did not seem to me that her evidence by itself justified that conclusion.

Mr Parr began his career as an ODP and subsequently set up his own healthcare agency business before merging his business with Keystone in 2008. Mr Reynard is an IT consultant who provided services to Keystone and who, Keystone claims, was heavily involved in the frauds committed against it and also – although no claim is made against him in this regard – in the Diversion claims. Ms Whitehurst was an employee of Keystone who left at the same time as Mr Parr, then forming Medipro and since running it – on her case and that of Mr Parr - as its sole director and shareholder.

Mr Parr and Ms Whitehurst both gave evidence and were cross-examined at length and in detail. Unfortunately for these core defendant witnesses their evidence on the key disputed issues in the case was in virtually every important respect inconsistent with the documentary evidence and the inherent probabilities and, it follows, I am unable to accept their evidence in relation to those issues. I should say that I have reached this conclusion by reference to the evidence overall and without being influenced by the fact that Mr Parr has already been found to have been guilty of and admits involvement in the Payroll Fraud. Nor do I reject their evidence in its entirety; by reference to the documents and the probabilities I was satisfied in relation to some issues that their evidence was truthful.

Mr Reynard has been a litigant in person throughout the course of this case. He attended on the first day of trial when he complained that he had not been provided with a copy of the trial bundle and, hence, was not in a position to cross-examine Mr Ward or to give evidence. I should say that having been taken through the correspondence there was nothing to criticise the claimants’ solicitors for in this regard. It was simply that the solution they had proposed for delivery of the trial bundle, which was for Mr Reynard to attend their offices to collect his copy of the bundle in circumstances where they could not guarantee delivery of the bundle to his home at a time when he would be ready to receive it, was not acceptable to him given his transport facilities and other commitments. On a pragmatic basis I suggested and he agreed that he should remain in court to hear Mr Mason for Mr Parr cross-examine Mr Ward in relation to the Invoice Frauds, which is the only live claim remaining as against him, and then leave in order to familiarise himself with the contents of the trial bundle before returning on the Monday of week two of the trial to cross-examine Mr Ward if he so wished and to give evidence. On the Sunday before he was due to do so he contacted the court to explain that, having heard Mr Parr’s evidence, he did not wish to attend court to give evidence. I ensured that he was advised that if he did not do so I would be unable to place any or any significant weight on his witness statements but he did not change his mind and, hence, did not give evidence nor did he produce any closing submissions or attend the day fixed for closing submissions.

Ms Brack is a clinical team manager with an NHS Trust which operates the ECT Becklin Centre which, as its name indicates, provides electroconvulsive therapy treatment (“ECT”) to patients. The Becklin Centre used Keystone to obtain healthcare workers but, from 2014, ceased doing so and instead has used Medipro’s services. Whilst her oral evidence modified in some respects her evidence in her witness statement nonetheless it was clear to me that she was honest and essentially reliable.

Mr Dixon was the first of a number of ODPs who were called by Medipro to give evidence, the others being Ms Astbury, Mr Stansfield, Mr Blair, Ms Craven, Ms Spink, Mr Gallagher and Mr Williams. Although their evidence was not uniform the common feature of their evidence was that they had all worked for both Keystone and then for Medipro, that they had not been approached by Medipro and that their decision to join Medipro was entirely their own decision. Their reasons for joining Medipro varied but included better pay, better service and dissatisfaction with Keystone’s attacks on Medipro. Furthermore, none reported dealing with anyone other than Ms Whitehurst so far as Medipro was concerned. They all came across to me as honest and broadly reliable although some witnesses were – as would be expected – a little more reliable in their recollection than others. They were also all broadly supportive of Medipro and hostile to Keystone and I must treat their evidence with some caution as a result. Nonetheless, whilst some were subjected to cross-examination in relation to some aspects of their evidence the essential thrust of their evidence as summarised above was not subjected to serious challenge.

Mr Steadmans set up a design agency known as Unbranded Digital which has, since April 2016, rented office space from Mr Parr at the building from which Medipro also operates. He gave evidence in his witness statement that he had manned the Medipro telephone for Ms Whitehurst in February 2017 when she was on holiday and the building was under surveillance by a surveillance operator instructed by Keystone. I found no reason to doubt his evidence on that essential point although, insofar as relevant, I do not place great weight on his evidence generally given that there was at least one significant error in his witness statement as to whether or not there was a written tenancy agreement between his company and Mr Parr.

Mr Flint is the claimants’ expert and Mr Davidson is Mr Parr’s expert. They both produced reports in December 2017 and both contributed to a joint statement in January 2018. There is a significant difference between them as to the amount which would have been required to be paid to Mr Parr for his shareholding in Keystone had he been required to sell that shareholding under the bad leaver provisions of the shareholders agreement and articles of agreement of that company, which I shall have to resolve in the course of the overpayment claim. Both were clearly knowledgeable as regards share valuation, although the expertise of both was primarily in the field of forensic and expert witness accountancy rather than in the sale and purchase of businesses. In cross-examination Mr Mason accused Mr Flint of cherry-picking the information most favourable to the claimant’s case and I am bound to say that in my judgment this criticism was justified in some respects. On balance I found Mr Davidson a more reliable expert witness than Mr Flint and in most respects I prefer and accept his opinion.

The facts

Although there is much that is uncontentious there are also many hotly contested factual issues which I shall need to and do resolve in this section under the following sub-headings.

The 2011 shareholders agreement

The healthcare staff agency business sector

Negotiations leading up to the SPA and the entry into the SPA

Ms Whitehurst and Mr Reynard

Keystone’s information and IT systems

Keystone’s factual case in relation to the defendants’ conduct before the departure of Mr Parr and Ms Whitehurst

The evidence in relation to the incorporation and setting up of Medipro

Medipro’s diversion of business from Keystone and how it was achieved

The 2011 shareholders agreement

I have already referred to the formation of Keystone and to the fact that Mr Parr joined Keystone by way of a merger in 2008 between Keystone and his similar business. By April 2009 Mr and Mrs Ward held 62% of the shareholding and Mr Parr held 38%. Mr and Mrs Ward and Mr Parr were all directors. In 2011 the three entered into a shareholders’ agreement. It is unnecessary to refer to it in great detail.

What is important for present purposes is that it imposed a number of obligations on each of the shareholders and also made provision for a defaulting shareholder to have his/her shares compulsorily sold to the company or to the remaining shareholders. When read with the articles of association, the effect was that in the event of a shareholder committing a material breach of the shareholders agreement, the compulsory transfer and bad leaver provisions of the articles of agreement came into effect. These provided for the departing shareholder’s shareholding to be valued and for either Keystone or the remaining shareholders to have the opportunity to acquire that shareholding at a 50% discount.

The shareholders agreement also contained a number of restrictions on competition which were superseded by the SPA and are not relied upon (although they are relevant in one respect to the valuation of the Overpayment Claim) and a provision (clause 15.3) relating to confidential information which, although not expressly referred to in the statements of case, is of some relevance to the breach of confidence claim made by Keystone and is addressed below at that point.

The healthcare staff agency business sector

It is necessary to say something about the business sector in which both Keystone and Medipro are engaged. They are both healthcare staff agencies, providing temporary and full-time workers for individual client hospitals and trusts both within the NHS and the private healthcare sector. So far as Keystone is concerned it has always concentrated on providing healthcare staff for operating departments, particularly but not exclusively ODPs. NHS clients have provided between 70% and 80% of its work. Medipro has also concentrated in that area and also now has a similar work split as between the NHS and the private sectors. The healthcare sector in general and the NHS sector in particular is, as one would expect, highly regulated so as to ensure that healthcare staff provided through agencies are appropriately qualified, regulated and trained.

Moreover, given the financial constraints upon the NHS and the concern over recent years that an over-large proportion of the overall NHS budget has been spent on agency staff there has been increased regulation as to the rates chargeable to the NHS by agencies and the amounts payable to agency staff. It is common ground that rate caps were first introduced in November 2015 and that the rates were further capped in February and again in April 2016. It is also common ground that by 2016 agencies were required to ensure that their workers were employed on PAYE contracts as opposed to providing services as independent contractors (whether as individuals or through limited companies) save where the worker could demonstrate that it was complying with IR35 legislation and from July 2016 were also required to limit the wage rates which they were allowed to pay their workers.

What has always been the case is that all such agencies have to obtain, retain and maintain relevant information and documentation in relation to the workers on their books. These compliance requirements include such matters as verification of the workers’ identities, their qualifications and professional status and registration, their right to work in the UK, their medical condition, their entitlement to work with children and other vulnerable patients and their compliance with their continuing training obligations. These are, therefore, onerous requirements which, if not complied with, will jeopardise an agency’s prospects of obtaining business from clients. It is evident that an agency which has a good system for obtaining, collating and upgrading these details will have a competitive advantage over one that does not. To take a simple example, if an agency books a worker to work a shift with a client but the client discovers that the agency is unable to produce the necessary compliance information and documentation in time or at all then the likelihood of obtaining further work from the client will be reduced and the disgruntled worker may well transfer his/her custom to another agency.

In order to provide workers to NHS clients agencies are, subject to certain exceptions, required to hold a framework agreement in a form approved by the NHS client. These framework agreements contain detailed provision as to the relationship between the agency and the NHS client. They include terms regulating the rates which the agency can charge. The agency has to make an application for a framework agreement providing the requisite information. Applications can only be made at certain times, so that a new agency such as Medipro may have to wait for some time before it can secure a framework agreement and proceed to supply NHS clients. That happened here with Medipro. One exception, relevant to this case because it applied to the Becklin Centre, is known as a “break glass” exception where NHS clients who have justified a need for particular medical staff which cannot be satisfied through the agreed rate structure are permitted to obtain staff from agencies who do not hold a framework agreement and to whom higher rates can be paid.

As well as holding a framework agreement, an agency also has to be accepted as an approved supplier by the NHS client in question. In relation to break glass NHS clients and private clients whilst there is no requirement to hold a framework agreement the agency must be accepted as an approved supplier, which includes satisfying the private client as to their compliance systems. There are wide variations in the nature of the relationship which an individual agency may have with an individual client. At the simplest level it may simply be one of a number of agencies which the client may use to obtain its staffing needs, with no contractual relationship beyond the ad hoc contracts for the provision of individual staff to cover individual shift requirements. Indeed, it appears that there are a number of large operators (one such being a business known as “de Poel”) who have the principal contract to provide staff to the client but who also operate a platform which approved healthcare agencies are permitted to access to have the opportunity to provide staff where the large operator is unable to fill particular shifts.

Alternatively, whilst there may be no formal contractual relationship, an agency may be the de facto supplier of staff to the client for its particular needs in relation to particular categories of staff and, hence, enjoy a close, long-standing and productive relationship with the client. That has been the case here as regards both Keystone and Medipro in relation to the niche ODP sector. In some cases an agency may enter into a contractual relationship with a client which makes provision as to such matters as payment rates, minimum staff provision commitments and detailed compliance obligations. In other cases it may have a contractual preferred supplier status, under which it is entitled to have the first opportunity to meet the staffing requirements of the client, whether generally or specifically. It appears that there are some cases in which the client is willing to grant a healthcare agency exclusivity supply rights although this appears to be relatively rare, certainly so far as Keystone and Medipro are concerned; when Mr Ward was asked about this he was able only to give one example of Keystone having entered into such a relationship.

It is also common ground that whilst healthcare agencies such as Keystone have a contractual relationship with the workers who register on their books that is not a relationship which typically imposes any exclusivity obligation either way. Thus healthcare agencies are not obliged to find work for the workers on their books nor to guarantee them a minimum salary, nor are workers tied to any particular agency. Workers are free to, and often do, register with more than one agency. Indeed it would appear from the evidence in this case that where (as often happens) a particular worker has worked for some time for a particular client through a particular agency but wishes to switch to a different agency that worker could simply inform the client that this is what s/he wishes to do. If the client is willing and able to deal with that agency then that is what would happen and, in general terms and in the absence of something specific to the contrary, the original introducing agency would have no comeback against either the worker or the client or the new agency. A worker might decide to do this if – as happened in this case – s/he was able to obtain better rates or pay from one healthcare agency or even if, as some of Medipro’s worker witnesses said, they felt better served in a more general sense by one agency as compared to another.

It follows that, as Mr Ward said, the development and maintenance of close and productive relationships both with the individual clients and the individual workers is key to the success of a healthcare agency in what is, clearly, a competitive market (at one point in cross-examination Mr Ward described it as a volatile business) where healthcare agencies are vulnerable both to changes in regulation and to changes in the particular requirements of particular clients as well as to competition from rival healthcare agencies.

One particular worker who has featured in this case is a Mr Lawrence Caldicott, a consultant anaesthetist, who moved over with Mr Parr to Keystone in 2008 and who subsequently moved over to Medipro in 2014. He provided shift cover to the Becklin Centre and under an arrangement with Keystone was entitled to an uplift of £50 per shift as recompense for ensuring that if he could not cover a shift he would arrange for another anaesthetist to do so. He had a close relationship with Mr Parr and certain payments due to him were in fact paid into Mr Parr’s bank accounts. It is important to stress however that no fraud has been alleged against him nor has he, so far as I am aware, been informed of this case and the allegations made against Mr Parr and Mr Reynard in which his name features, so that it is no part of my function to make any findings against him or which indicate in any way that he has been knowingly involved in any discreditable conduct.

Negotiations leading up to the SPA and the entry into the SPA

In the first year after the merger, Keystone did extremely well. Whilst there is some dispute as to how much of that was due to Mr Ward and how much to Mr Parr that is not something which I need to resolve. It appears however that subsequently turnover and profitability declined and by late 2011 there were discussions about the possibility either of Mr Parr leaving Keystone or of Mr and Mrs Ward and Mr Parr selling their interest in Keystone to an external investor. In March 2012 it was agreed to instruct a business consultancy known as Business Consultancy and Marketing Services (“BCMS”) to offer Keystone for sale; however no purchaser could be found who was prepared to proceed at a price acceptable to Mr and Mrs Ward.

There was some question in evidence as to whether or not Mr Ward had investigated the likely value of Keystone but I accept his evidence that he had not and was proceeding on the basis that he would wait and see whether or not anyone would offer enough for the business to persuade him and his wife to sell their interest in it. It appears that by 2013 the business was on the up again and Mr Ward was less interested in selling than he had been whereas Mr Parr was still very much interested. It also appears that by this stage the relationship between Mr and Mrs Ward on the one hand and Mr Parr on the other hand had deteriorated. Mr Ward explains that it was this deteriorating relationship and his concerns about Mr Parr’s behaviour which convinced him that it was necessary to attempt to buy Mr Parr out. Mr Parr contends that it was the fact that he had secured interest from a third party investor to acquire his share in the business which forced Mr Ward into action. However Mr Parr has been unable to provide any evidence to support his case in this respect and, having heard Mr Ward, I prefer his evidence that it was his concern about Mr Parr that persuaded him to do so, as he did in the spring of 2014.

I accept Mr Ward’s evidence that he was prepared to agree to pay Mr Parr what he was asking for, which was £1 million clear after tax, on the basis first that the relationship between himself and his wife on the one hand and Mr Parr on the other had very substantially broken down, second that he anticipated being able to make Keystone sufficiently profitable going forwards to justify the expenditure and, third, that he was able to borrow enough money from the bank to do so.

In June 2014 Mr Ward was able to obtain finance from HSBC bank to allow him to agree to acquire Mr Parr’s shareholding for £1.2 million which it was envisaged would cover the tax payable on the disposal. During the course of the trial he was asked to and did provide disclosure of documentation passing between himself and the bank which showed the terms on which the bank was prepared to fund Mr Parr’s buyout.

It is common ground that the buyout was structured on the basis that Holdings would be incorporated, as it was in July 2014, in order to acquire and hold the entire shareholding in Keystone. Thus it was Holdings which acquired and paid Mr Parr for his shareholding. Since Mr and Mrs Ward are the sole shareholders in Holdings their shareholding in Keystone has effectively been hived up into Holdings. It is in consequence of this structure which was, of course, fully known to Mr Parr at the time, that Mr Mason has taken an ingenious legal point to the effect that the Repayment Claim cannot succeed as a matter of law even if it succeeds on the facts, the merit of which I shall have to consider in due course.

The share purchase agreement and associated agreements were completed on 16 September 2014. Mr Parr received £1,242,195 for his shareholding, which equated to £1 million after tax.

It is common ground that the bank required Mr Parr to accept restrictive covenants under the SPA to ensure that the viability and profitability of the business was not prejudiced by competition from him. It is also clear that whilst he was willing to agree he required an exception to allow him to work as an ODP post departure. It is suggested on his behalf that this was because his plan at the time was not to set up in competition with Keystone but to move into property investment and undertake work as an ODP as well. As a forensic point it is well made, however in my view it is not determinative because it is also consistent with his seeking to cover his tracks vis-a-vis his true intentions in relation to Medipro.

I now turn to the evidence as to the circumstances in which Medipro was set up and the allegations made by Keystone as to what was done.

Ms Whitehurst and Mr Reynard

I should begin by saying something about Ms Whitehurst’s and Mr Reynard’s connection with Keystone.

In 2007 Ms Whitehurst joined Medipro aged 19 years as an office clerk, gradually working her way up so that by the time she left in September 2014 she was employed as a recruitment consultant. The terms of her employment contract contained a confidentiality provision in standard terms. There was some dispute as to her seniority within Keystone and the level of her skills and experience; this being in the context of an issue as to whether or not she was capable of running Medipro as an agency on her own. In my view she clearly had the skills and experience required to undertake the core agency role of dealing on a day-to-day basis with workers and clients so as to ensure that the client’s requirements for workers were met. She also clearly had the skills and experience required to ensure that the agency adhered to, and could demonstrate adherence with, its compliance requirements. However, equally clearly, she did not have any previous experience in the financial side of the business, whether at a high level in terms of dealing with banks and invoice discounting companies in relation to funding requirements or with accountants or the like, or at a lower level in terms of operating the Sage financial software package so as to generate invoices and remittance advices and to ensure that workers were paid and Keystone received payment from its clients. Nor, equally clearly, did she have the high level managerial or sales skills and experience which Mr Ward and Mr Parr had, such as in dealing with the clients at a higher level in terms of winning and securing business, in dealing with regulatory requirements such as the framework agreements, in dealing with the IT requirements of the business or other matters such as insurance and the like. Nonetheless I am prepared to accept, having heard the evidence and listened to her under cross-examination, that she is naturally bright and capable so that with the benefit of appropriate direction and training she would be able to pick up the essentials of running a relatively small healthcare agency relatively quickly.

In 2010 Keystone first used the services of Mr Reynard as an IT consultant, then operating under the business name of Code Blue Technologies. He was contracted to install and to develop the software database system known as File Maker, which at that stage Keystone wished to use as a finance database. It is clear that Mr Reynard developed a close relationship with Mr Parr and he also developed a good relationship with Mr Ward, so that he was used as Keystone’s IT consultant on an as and when needed basis subsequently, before becoming contracted on a full time basis in November 2013. The services he was employed to provide under that agreement related to modernising the accountancy function. He was to receive £24 /hr with a guaranteed minimum number of hours. That was increased to £35 / hr with effect from February 2014. Mr Ward said that Mr Reynard was brought in by Mr Parr and it was suggested by Mr Budworth in closing submissions that this was part of the plan to facilitate the extraction of information and processes for use by Medipro. However it is quite clear that Mr Ward was fully aware of and approved the consultancy agreement (indeed he signed it for Keystone). The real question therefore is as to what Mr Reynard actually did which Keystone contends was part of the plan.

It is plain from the evidence and from the email exchanges to which I have been referred that Mr Parr developed a very friendly relationship both with Ms Whitehurst and with Mr Reynard. There was a good deal of what was referred to as office banter between Mr Parr and Mr Reynard as well as between Mr Parr and Ms Whitehurst, sometimes involving all three of them. The emails between Mr Parr and Mr Reynard contained a number of references to the Payroll Fraud and to the alleged Invoice Frauds, to which I shall refer. They also contained a number of derogatory references to Mr Ward. The claimants sought to place a sinister interpretation on these email exchanges, contending that they evidence the plan to set up a competing business. It seems to me that the majority to which I have been referred are at worst equivocal and more often display no more than idle office banter. Some, I accept, were unpleasant, including a discussion between Mr Parr and Mr Reynard as to how they might poison Mr Ward with poisonous mushrooms. Mr Ward links this to an incident when he was ill after drinking a hot drink made by Mr Reynard. Whether the drink had been spiked can only be surmise however in my view none of this has any real relevance to the points at issue.

Keystone’s information and IT systems

I should also refer to the evidence about the information gathered by Keystone and the systems developed by Keystone in order to collate and retain information which it contends was confidential.

So far as the systems are concerned the most significant in relation to this case is the File Maker system. It is common ground that File Maker is a commercial database platform which Keystone, in the same way as any other commercial organisation might, acquired a licence to use from the system owner. It is Keystone’s case and Mr Ward’s evidence that it retained Mr Reynard to undertake substantial development work to build upon that basic platform in order to provide the functionality to do what Keystone wanted it to do which was, effectively, to be a system which could be used to operate the whole of its business. Mr Ward’s evidence [RW6 #26] was that over an extended period from 2013 Keystone paid Mr Reynard in the region of £150,000 to create a bespoke database to collect, maintain and validate compliance details of workers. Mr Reynard admitted in a statement made in August 2017 [13/3221] that the File Maker system was developed by him over 6 years from 2010 to 2016 as a workflow system to enable users to action everyday tasks involved with the daily running of the business. He says that he spent from 2010 to 2012 developing the finance side, from 2013 onwards developing the worker database (including processes for compliance and interviews) and from 2014 onwards developing the prospect database and domiciliary care database. He claims that in relation to the worker database it was necessary for Ms Whitehurst to send him copies of all existing documentation so that he could make any necessary alterations before adding them to the database. He claims that the process was not complete by the time Mr Parr and Ms Whitehurst left the business. He denies that he provided the system or its content to Medipro.

Some reference was also made to “Webroster”, which was a proprietary computerised booking system with a built-in text messaging system used both by Keystone and subsequently by Medipro. Reference was also made to an application known as “Kapow”, which is a proprietary text messaging service which can be attached to and be used with File Maker. These text messaging systems are particularly useful for communicating with workers as regards urgent matters such as requests to cover shifts or confirmation of bookings. According to Mr Ward an advantage of Kapow is that it records both sending and receipt which is useful where it is important to know that a message has been received by the worker.

Keystone’s factual case in relation to the defendants’ conduct before the departure of Mr Parr and Ms Whitehurst

Chronologically, Keystone relied first upon evidence as to what it claimed had been done in February 2012. In short, Keystone discovered that on 20 February 2012 Ms Whitehurst had used the office system to scan and upload individual worker packs for 7 of Keystone’s workers which had then been attached to emails to be sent to Mr Parr, the majority to his personal email address. These packs contained the original worker application form and all relevant and necessary supporting information to enable Keystone or any other healthcare agency to supply that worker to a client. It is Keystone’s case that the 7 workers comprised a run of alphabetical names which had for some reason been maintained in the system so that the overwhelming likelihood was that the worker packs for all of the other workers had been scanned and sent.

Neither Mr Parr nor Ms Whitehurst were able to provide any sensible explanation as to why these worker packs were being scanned and emailed by the latter to the former at this time. Ms Whitehurst suggested that she must have been asked by Mr Ward to scan the worker packs as part of his wish to make Keystone’s data available in electronic form and emailing them to Mr Parr’s email address can only have been an error, but it is difficult to see how the error could have happened on 7 occasions and indeed how on the majority of those occasions it was to his personal email address.

In my judgment the only credible answer is that even at this time Mr Parr and Ms Whitehurst were in discussions about setting up a rival agency, no doubt because at that time Mr Parr was keen to exit the business but could not see any way to doing so. I am satisfied that they decided to scan (because at this stage the process of uploading the files onto File Maker had not yet begun) and email all worker packs for this purpose. However, what is plain is that within a short time Mr Ward had agreed with Mr Parr to investigate the sale of the business, so that this activity was put on hold. It is not, therefore, directly material, at least in chronological terms, to the case based on setting up in competition over two years later in September 2014.

Moreover, there is no evidence which indicates that Mr Parr or Ms Whitehurst retained this information. Indeed, by reference to the evidence as to Ms Whitehurst’s activities in August 2014 I am satisfied that they had not, since otherwise there would have been no need for her to have scanned and sent further worker packs for specified employees in circumstances where it is not suggested by Keystone that these workers were not also on its books in 2012.

Keystone relied on Ms Hayman’s evidence to prove that when in November 2013 Mr Parr spent a week or so in the finance department this was for the ulterior motive of gaining an understanding of the finance side of the business preparatory to setting up a competing agency. In my judgment however her evidence does not provide a sufficient platform for that conclusion. It is just as consistent with Mr Parr wanting to know how the department operated in order to make savings through redundancy, as indeed is what happened. Although Keystone also invited me to draw a sinister inference from Mr Parr wanting details of the staff passwords to access Webroster I am not persuaded that I should do so in circumstances where: (a) Mr Parr had access to Webroster anyway; (b) the suggestion that he wanted access through other passwords to disguise his own access to Webroster foundered on Mr Ward’s own evidence that it was simply a booking system in circumstances where Keystone had advanced no explanation as to what sinister purpose Mr Parr might have had in obtaining concealed access to that system.

Keystone also suggested that when Mr Reynard was brought back into Keystone at around the same time to undertake the next stage in the development of File Maker this was for the purpose of developing the software for the new competing business as opposed to for Keystone’s benefit. I reject this assertion. It is clear from the contemporaneous emails - for example that at [7/1639] – that this was all completely open and that there was no question of seeking to conceal matters from Mr Ward. By way of further example Keystone relied on a minute of a meeting in January 2014 [7/1769] which it was suggested showed Mr Parr and Mr Reynard persuading Mr Ward to use a cloud-based back-up system for data from which they could more easily extract data for use by the new company. In my judgment a correct reading of the memo showed that this idea had been generated by Mr Reynard but taken up by Mr Ward as a perfectly sensible IT solution and proves nothing at all so far as this case is concerned.

Keystone relies upon various emails from Ms Whitehurst to Mr Reynard sent from March 2014 to June 2014 attaching various documents, summarised in RW7 at [62]. Keystone’s case is that all of these documents were intended for use by Medipro and that they were sent to Mr Reynard in order to enable him to make them available to Medipro once it was operational. Ms Whitehurst’s explanation in cross-examination was that she was sending these documents to Mr Reynard at his request and in order to enable him to transfer the system from a paper-based system to File Maker. There is undoubtedly evidence that this process was indeed underway in March 2014 – see the email from Ms Whitehurst dated 6 March 2014 at [7/1705] to which Mr Ward was taken in cross-examination. I do not, therefore, conclude that the plan was actively underway as from March 2014.

However the picture by June 2014 is different in my judgment. By this point in time there is clear evidence that a decision had been made to set up a new company. This is explained in my view by the fact that by this time Mr Ward’s bank had confirmed its agreement in principle to loan sufficient monies to buy out Mr Parr, so that by this stage Mr Parr knew that unless something went wrong he would soon be leaving Keystone with a substantial sum.

This knowledge is consistent with a thread of emails between Mr Parr and Mr Reynard sent on 2 June 2014 [7/1774 - 1777] in which Mr Parr referred, in the context of a suggestion by Mr Reynard as to how to steal more money from Keystone via another scam, to his possibly “being unemployed and on benefits in 4 months”. These emails, read in context, show in my view Mr Parr and Mr Reynard discussing a plan to extract more money from Keystone in a way which would be undiscoverable by Mr Reynard deleting the relevant information in the context of a further plan to set up a competing business.

Keystone also relied upon what they alleged was a surreptitious visit by Mr Parr and Ms Whitehurst to the Becklin Centre on 4 June 2014 which, it contends, was a visit planned with the intention of informing Ms Brack and her colleague Mr Handley of their intentions to set up a new agency and to persuade her to use it. Keystone had supplied workers to the Becklin Centre ever since Mr Parr had transferred the business to it as part of the merger in May 2008 and Mr Parr had a longstanding business relationship with Ms Brack.

Whilst there are conflicting pieces of evidence about this I am satisfied that the predominant reason for the visit was to introduce Ms Whitehurst to the relevant personnel at the Becklin Centre so as to facilitate her introduction to them once Medipro was up and running. However and insofar as relevant I do not accept that anything was said at the meeting about a new agency being set up by Mr Parr and Ms Whitehurst or that there was a specific pitch by the two for the business at that meeting. In summary, my reasons are as follows:

On 10 June 2014 Ms Whitehurst sent Mr Reynard a copy of Keystone’s staff handbook [8/1812]. This set out over 28 pages the detailed provisions applicable to workers taken on by Keystone. She also sent a copy of Keystone’s contract of employment for workers taken on by Keystone. She also sent a copy of Keystone’s interview pack for prospective workers. On the same day she also sent Mr Reynard Keystone’s application pack for prospective workers [8/1882]. On the 18 June 2014 she sent him Keystone’s worker compliance check list [8/1900]. This was effectively the documentation which Keystone used to recruit workers and which could also be used as part of the documentation which it could submit to demonstrate its compliance with the regulatory requirements.

Whilst it might have been argued that this was only required for the same reason as previous documentation, namely for Mr Reynard to upload onto Keystone’s File Maker system as part of the File Maker development process: (a) there is no reference in the covering emails to this being the intention; (b) disclosure has revealed that in September 2014 Medipro made what was effectively a complete copy of the staff handbook [9/2290] and used it as part of its business. Point (b) shows that the staff handbook must have been copied on by Mr Reynard outside of his Keystone email address to enable Medipro to have access to it and it undermines the defendants’ case that the transmission in June 2014 was for entirely innocent purposes. Mr Parr accepted in cross-examination that the documents sent in June 2014 represented a body of learning which had taken a considerable amount of time to acquire and that some of it, for example the contract of employment, would have been paid for.

On 11 June 2014 Mr Parr emailed to his private email address a copy of Ms Whitehurst’s written statement of particulars of employment [8/1896]. There is no sensible explanation for this other than that it was the start of the process of preparing the way for her resignation in order to become involved in the competing business.

On 18 June 2014 Mr Reynard’s Keystone computer was used to search for Medipro and other potential company names. There is no sensible explanation for this other than that Mr Reynard was already involved in the plan to set up a competing company and was assisting in searching for a suitable company name.

On 17 June 2014 arrangements were made for Mr Parr and Ms Whitehurst to meet a representative of a company known as Personal Checks for training on Disclosure Barring Services (“DBS”). Personal Checks was the company which Keystone used, and which Medipro also uses, to verify its compliance information for individual workers as regards DBS. Whilst it is true that the arrangement appears to have been made openly I am quite satisfied that this was part of the preparation process for setting up the competing company because there is no other sensible reason for this meeting to have been taking place at this time, particularly in the context of the other activity at this time already referred to.

The same picture emerges in subsequent months. Thus on 15 July 2014 Mr Parr and Mr Reynard were making arrangements to see accountants for VAT advice [8/1915]. Mr Parr suggested that this was to do with an issue which had arisen about Keystone’s VAT registration but he was unable to explain how it was that Mr Reynard was also involved if that was the case. It appears that later that month Mr Parr’s departure from Keystone was announced and there was an exchange of emails between Mr Parr and Mr Reynard indicating that a plan had been made to enable Ms Whitehurst to avoid having to reveal whether she already knew about it [8/1921]. In August 2014 Ms Whitehurst and Mr Parr were arranging a meeting with a representative of a company known as Healthier Business which undertook a similar role to Personal Checks in relation to workers’ immunisations.

Moreover, on 19 August 2014 at 07:18 hrs, early in the morning before the office was open, Ms Whitehurst copied and then emailed to her personal email address worker information of a similar nature to that emailed in February 2012. In cross-examination Ms Whitehurst admitted that she had come in early to do this so that no-else was around to see her do so. The workers in question (Daniel, Eastwood, Bleasby, Wilshaw, Durant) were workers who were taken on by Medipro from an early stage. They were also workers who were not called by Medipro in support of its case. Ms Whitehurst admitted that she had emailed these documents because these were workers who tended to work for the Becklin Centre which was the client she was going to target first. This is plain evidence in my view that the plan to set up the competing business was moving into the last preparatory stages. Although Ms Whitehurst maintained that this was her doing and had nothing to do with Mr Parr I am unable to accept this as truthful. I am quite satisfied that this was part of a joint venture between the two of them, given the evidence as to his knowledge and involvement in these activities both before and after this date.

The evidence in relation to the incorporation and setting up of Medipro

A key issue in this case relates to the circumstances in which Medipro came to be formed and set up in business. It was incorporated on 24 September 2014, just over a week after Mr Parr and Ms Whitehurst left Keystone, with Ms Whitehurst being registered as the sole director and sole shareholder. Keystone’s case is that she is simply a front for Mr Parr. I am completely satisfied that this is the case, having considered the relevant documents and listened to the relevant evidence. My reasons by reference to what happened are as follows.

It is clear that Ms Whitehurst did not conceive of the name Medipro by herself. As I have said Mr Reynard’s Keystone computer was used to search for Medipro and other potential company names both on 18 June and again on 9 September 2014. The obvious inference is that this followed a discussion between Ms Whitehurst and Mr Reynard. It is implausible that Mr Parr was not also involved in this discussion and I am satisfied that he was.

Ms Whitehurst has provided no disclosure in relation to the formation of Medipro and was able to give no convincing evidence as to how she came to do so. She does not say that she sought or obtained any advice from anyone as to how to go about setting up a limited company to start a business and it is plain in my assessment that without such advice she would not, given her work and life experience, have known how to do so. When asked why she set up a limited company she said: “I just asked around I suppose” but claimed to be unable to remember who she had asked. She also said that she had produced no business plan and that her original plan was simply to approach the Becklin Centre and Leeds for work after she had left Keystone. She said that she had not spent time producing the necessary documentation to demonstrate that Medipro could comply with the regulatory requirements. I reject this evidence as incredible. No-one in Ms Whitehurst’s position would think of resigning from secure employment in order to set up in a business like this by herself with no backing and no plan and no access to funds to keep her afloat or to provide cash flow to equip Medipro with the necessary equipment to set up in business. She must have known that to make it work the new business would need a plan to attract workers and clients and – given her role on the compliance side at Keystone - would need to be able to demonstrate compliance before it could obtain work. It is obvious in my judgment that it was Mr Parr who had the plan and who directed her as to what to do.

Mr Parr’s departure was of course planned, whereas Ms Whitehurst’s departure came out of the blue so far as Keystone was concerned. However it is apparent from the email evidence that in June 2014 Mr Parr had already obtained and sent to his personal email address her written statement of particulars of employment and that in September 2014 had supplied her with a first draft of her resignation letter. In cross-examination she accepted that she had asked him for help and he had agreed to do so. In my view the only reason for this was that her resignation was part of a plan already arranged and agreed with Mr Parr. It was Ms Whitehurst’s evidence that she had already decided in September 2014 to set up a competing agency. However it is clear in my view from the company name searches of June 2014 that she had already made this decision by June 2014 and it is also clear in my view that she had discussed this with Mr Parr and that he was fully aware of her plans. Indeed, it is obvious that she must have done, since otherwise he could not have come to offer her the use of commercial premises for her new agency, to which subject I now turn.

It is common ground that Medipro began and has continued to carry on business from commercial premises in Mirfield, West Yorkshire. Ms Whitehurst is the registered proprietor of those premises. However, it subsequently emerged as a result of Mr Parr’s disclosure that she holds the premises on trust for Mr Parr who is, as it transpires, the sole beneficial owner. The property was acquired in Ms Whitehurst’s sole name on 10 October 2014 but using funds provided solely by Mr Parr with a declaration of trust being executed the same day. Anyone searching the Land Register would not, judging from the information provided at trial, have discovered that Mr Parr was the true beneficial owner of the premises.

The explanation put forward by the defendants as to why Medipro should be operating from premises owned by Mr Parr if there is no connection between him and Medipro is that Mr Parr acquired the property as an investment and, becoming aware of Ms Whitehurst’s plan to set up in business, decided to grant a tenancy of part of it to Medipro, part of it to another company, and to use part of it for his own office. No tenancy agreement has ever been produced in relation either to Medipro or the other tenant and it was said in evidence that none was ever created. Mr Parr said that it was agreed that £6,000 per annum should be paid under the tenancy. However there is no evidence of any payment under the tenancy until July 2016, almost 2 years later, when the bank statements revealed that £12,000 was paid by Medipro to Mr Parr. In cross-examination Mr Parr said that he had allowed Medipro time to pay. However the bank statements also revealed that in October 2016 he repaid the £12,000 to Medipro. He said that it was because Medipro was struggling financially and he did not want to put pressure on it. None of this makes any sense whatsoever, and there is no documentation to prove that there was or ever has been any genuine relationship of landlord and tenant as between Mr Parr and Medipro.

Furthermore, none of this even begins to explain why Mr Parr chose to put the property into Ms Whitehurst’s name. His only explanation in cross-examination was that he thought it would help her get a mortgage to purchase her own property. It is difficult to see how this could possibly have assisted her in that regard or, even if it might, why Mr Parr should have chosen this route. I am quite satisfied that this was never the real explanation or motive. The far more likely explanations and, I am satisfied the true explanations, are that: (a) first, it was important for Medipro to appear to have its own premises – whether directly or in this case indirectly from its apparent sole director and shareholder - in order to demonstrate its financial status when applying for a framework agreement; (b) second, he wanted to conceal his ownership of the property from Keystone, in circumstances where he was providing the premises to Medipro free of charge because it was in substance his company and his business and he wanted to get it up and running and to be successful.

Medipro obviously required funding. Ms Whitehurst has produced no documentary or other evidence as to how she, as someone with no track record in running her own business and no assets to secure any borrowing, could have or did obtain funding. Medipro’s bank statements show that it opened a bank account on 26 September 2014 and received as payment of £3,000 on 26 September 2014 which provided it with immediate cash flow. It has provided no disclosure as to its banking relationship with the bank.

In contrast, the financial investigation conducted by the independent forensic accountant instructed by Keystone demonstrates all too clearly how it was that Medipro was bankrolled by Mr Parr in a number of different ways.

It was established by the forensic accountant that a sum totalling around £105,000 was provided by Mr Parr to Ms Whitehurst. It was established that of this approximately £36,000 was paid to purchase an Audi motorcar for Ms Whitehurst. This was described as a personal loan although, as Mr Parr admitted, no terms as to repayment were ever agreed and no repayment has to date ever been made. In cross-examination he said that because she needed a car he offered to lend her the money on the basis that she could pay him back whenever she could. He described it as a “soft loan”. None of this makes any sense unless this was, as I am satisfied it was, Mr Parr providing Ms Whitehurst with what was in effect a company car for Medipro. Whilst Mr Parr was, I accept, well off as a result of his successful involvement with Keystone and then having been paid a substantial sum under the SPA I am unable to accept that he would simply bankroll a relatively expensive car on those terms if he had no interest in Medipro.

Leaving aside some other small payments, Ms Whitehurst’s explanation in her witness statement as to the remainder of around £68,000 had been that it represented payment for refurbishment works that she had organised for Mr Parr for three properties which he owned, including the Medipro premises and two domestic properties. She produced invoices from a building contractor, a Mr Cockcroft, to seek to justify this and also said that she had paid him £10,000 for work done on one domestic property.

Having failed to address this point in his witness evidence, when he was asked about it in cross-examination Mr Parr accepted that apart from the £10,000 none of this had anything to do with the refurbishment of these properties and the remainder simply represented another series of personal loans which he had made to Ms Whitehurst which she had asked him if she could have for her own personal reasons. This admission was an acceptance of the inevitable, since the forensic accountant had already established that around £62,000 had been paid by Mr Parr direct to Mr Cockcroft which was obviously inconsistent with Ms Whitehurst’s account. Whilst Mr Cockcroft’s witness statement was served by Medipro I have no doubt that it was procured by Mr Parr given his close connection with Mr Cockcroft; if it had nothing to do with him Mr Parr would doubtless have alerted his solicitors who, in turn, would doubtless have notified Keystone’s solicitors if, upon reading the statements of Ms Whitehurst and Mr Cockcroft, he had appreciated that what they were saying was fundamentally wrong and misleading.

When she was asked to confirm her witness statements Ms Whitehurst accepted that these payments had been made to Medipro and not to the builder as she had stated in her witness statement. In cross-examination she was asked why she had given an explanation which was simply untrue in relation to what was a substantial amount of money. She said that she had panicked because she was scared. She claimed that she had not told Mr Parr that she had used these monies to provide Medipro with funds. I am afraid that I am satisfied that this is a further lie, made because she is still seeking to maintain the fiction that there is no connection between Mr Parr and Medipro.

Furthermore Mr Parr’s account was equally unconvincing, in that he was suggesting that he was willing to make a series of very substantial informal loans to Ms Whitehurst when, as he admitted, these were also all “soft loans” made in circumstances where he was unable to say that he knew why Ms Whitehurst wanted these substantial sums and when there was no documentary proof of any of these loans and when, in reality, he had no idea how much he had loaned Ms Whitehurst over this period. I am satisfied that if it had not been for the forensic accountant exposing his direct payments to the builder Mr Parr would have attempted to support Ms Whitehurst’s account and that his evidence was simply another untruthful account to seek to conceal what was, in my view, plainly the true position which was that these were substantial payments for Medipro’s benefit.

Matters became worse still when Mr Parr was taken to a further analysis undertaken by the forensic accountant, which revealed that from 26 September 2014 onwards he had made a series of substantial cash withdrawals from his bank account which had been followed by a series of cash payments into Medipro’s bank account. It is plain in my view that the first cash payment into Medipro’s account on 26 September 2014 was funded by cash withdrawals from Mr Parr’s account over previous days. Whilst it is true that there was not always a direct correlation between the cash withdrawals and the cash payments, there was clearly a sufficient correlation to draw a clear inference that Mr Parr was using cash in order to provide funding for Medipro. Mr Parr was unable to provide any satisfactory explanation as to why otherwise he might have been making these substantial withdrawals, other than to suggest that yet again it represented a series of loans to Ms Whitehurst for her own personal purposes.

The link became stronger still when he was taken to a further analysis undertaken by the forensic accountant which cross-referenced the amounts which had been fraudulently transferred from Keystone into Mr Parr’s account with payments out from that account into another of Mr Parr’s accounts from which cash had been withdrawn and, I am satisfied, subsequently paid to Medipro. In short, it is clear, I am satisfied, that Mr Parr was using money which he was stealing from Keystone to fund Medipro. The link became unbreakable when he was referred to the further analysis undertaken by the forensic accountant, which revealed a number of occasions when Mr Parr had transferred substantial amounts from his account into that of Ms Whitehurst which had then been transferred by Ms Whitehurst into Medipro’s account. As Mr Budworth suggested to Mr Parr in cross-examination, it is clear that this represented yet another attempt by Mr Parr to provide funds to Medipro but to seek to disguise that he was doing so.

Further evidence of the link between Mr Parr, Ms Whitehurst and Medipro was provided by further analyses undertaken by the forensic accountant. First, analysis revealed that beginning in October 2014 Mr Parr was making regular monthly payments to Ms Whitehurst, typically £2,100 although it sometimes varied, which were entirely consistent with his paying her salary for her work done in Medipro. He contended that it was nothing to do with Medipro and yet another instance of her asking him and his agreeing to assist her meet her personal liabilities, but I have no doubt that this explanation is untrue. It does not explain why Ms Whitehurst should want to receive this specific amount of £2,100 on such a regular basis. Indeed, in April 2015 the monthly amount of £2,100 was paid to Ms Whitehurst in part by Mr Parr (£1428) and the remainder by Medipro itself which clearly illustrates, as Mr Budworth suggested in cross examination, that by this stage Medipro had enough to pay part of the monthly salary. In May 2015 the full £2,100 was paid by Medipro. The inference is compelling and unanswered.

The accountant’s forensic analysis also demonstrated that by April 2016 both Mr Parr and his wife were receiving regular monthly payments of £672 each. Mr Parr accepted in cross-examination that this was the maximum amount which could be paid without national insurance contributions becoming payable. It had been an amount paid by Keystone both to Mr Ward and Mr Parr previously. By reference to the documentation produced by Mr Parr as to the work he had undertaken for Medipro, both in terms of conducting interviews for prospective workers and in terms of the shifts he had done as an agency worker for Medipro, it is clear that these payments could not be explained as payments for those services. The inevitable inference, which in my view is unanswerable, is that these were payments being made by Medipro to Mr and Mrs Parr on the basis that they were being treated as providing regular monthly services to Medipro. There is also evidence of Medipro making payments to Mr Reynard in March and May 2016 and when asked about these Ms Whitehurst gave wholly unconvincing explanations demonstrating, in my view, that she had no idea because it was Mr Parr and not her who had made them. All this was entirely consistent with Mr Parr being the sole owner and controller of Medipro, especially in circumstances where Mrs Parr was not performing any services at all for Medipro. He was, plainly, directing Medipro as to what payments it should make.

In re-examination Mr Mason sought to draw some of the sting from this evidence by pointing to payments made by Mr Parr to Ms Whitehurst going back to May 2014. However this does not assist Mr Parr for two reasons: (a) first, by this stage I am satisfied that the plan to set up in competition was already hatched, so that the payments are explicable on that basis; (b) second, the payments are of a different magnitude in terms of amount, frequency and absence of pattern.

The reference to interviewing prospective workers is significant because it is accepted by Mr Parr and Medipro that from the outset it was Mr Parr as a qualified and registered ODP who would conduct these interviews in circumstances where Ms Whitehurst as someone with no equivalent medical experience or qualifications or registrations was not permitted to do so. It is quite clear in my judgment that this was the plan from the outset and demonstrates the extent of Mr Parr’s involvement in Medipro.

Ms Whitehurst was asked in cross-examination about her involvement in Medipro making a successful application in 2016 for a framework agreement. She said that she had done it herself, using the online guidance available when making the application. However when she was asked how she went about providing the requisite evidence of financial security she plainly had no idea what was required. When she was asked about details she was unable to provide them even though this was less than 2 years ago and would, if her account was true, have represented a significant personal achievement for her which enabled Medipro to access the NHS market which now represented 75 – 80% of its work. Medipro had made no disclosure of anything relating to the application for a framework agreement. Keystone invites me to conclude that this process was undertaken by Mr Parr. Mr Budworth invites me to draw an inference from the use by Medipro of an email address bearing the name “Toby Stead” which he submits is a disguise for Mr Parr. After some prevarication Ms Whitehurst was ordered to and did provide an explanation and further disclosure which, in summary, amounted to an assertion that this was a fictional person used to persuade clients and the framework agreement providers that Medipro was not simply a one person organisation. The difficulty with that argument is that on 15 August 2017 Ms Whitehurst had forwarded on to that address an email from a framework agreement provider a request for up to date management information when the provider had already sent it to that address as well. The plain inference is that this was the email address which had been used to submit the framework agreement application and the reason why Ms Whitehurst was forwarding the message on to the same address was not for some outward display but because she knew that someone would receive the message. The obvious inference in my judgment is that it was Mr Parr who, I am satisfied, was behind the submission of the framework agreement application all along.

Keystone also relies on surveillance evidence from February 2017 when Ms Whitehurst was away for 2 weeks on holiday. This revealed that Mr Parr had opened up the premises each day and that he was seen in the office. Mr Parr explained that in fact he opened up the premises to the Unbranded Digital office because he maintained an office in the premises and that all that the photograph of him in the office showed was that he was in the Unbranded Digital office talking to Mr Steadman.

I accept that there is some support for the evidence of Ms Whitehurst and Mr Steadman in an email which the former sent to a client on 31 January 2017 [12/3143] in which she explained that whilst she was away the phone would be covered by Justin and she would also have access to her email to attend to anything urgent.

I am prepared to accept that Mr Steadman did indeed cover the phone for Ms Whitehurst whilst she was on holiday. It is not surprising that Mr Parr was not answering the phone since it is clear that he has always been careful to ensure that he has not been directly connected to the management of Medipro. However the difficulty for Ms Whitehurst is that her account does not explain how it was that whilst she was away Medipro was making a series of payments to its workers. When asked how this was done she said that she had asked Mr Reynard to come in and do it for her. She said that he knew how to do it from his time at Keystone and that he was able to check the timesheets, enter the information onto excel and sage and make payment. She said that he had agreed to do it for no charge.

There had been no previous mention of this by her and there was no evidence that Mr Reynard had been seen to attend the Medipro office whilst she was away. Her explanation frankly makes no sense and is absurd. Mr Reynard had no knowledge or familiarity with these processes other than his programming experience whilst at Keystone, which is very different from the activity itself. It would have taken a considerable amount of time and effort for her to explain all this to Mr Reynard, not to mention the security implications of allowing him access to Medipro’s bank details. I have no doubt that in fact it was Mr Parr who undertook this activity and that he was able to do so from his office at the Medipro premises using his knowledge of Medipro’s business derived from his intimate involvement with it from its inception.

In his closing submissions Mr Mason contended that there was no evidence from clients or agency workers showing Mr Parr having a direct involvement in the business. I accept that this is the case. That, I have no doubt, is because it was always intended that Ms Whitehurst should undertake the front of house operations as regards dealings with clients and agency worker and that Mr Parr should remain in the background other than conducting the initial interviews which Ms Whitehurst could not do and which Mr Parr believed, correctly as it transpired, that Mr Ward would do nothing about without further proof of more direct involvement.

Medipro’s diversion of business from Keystone and how it was achieved

In summary, it is Keystone’s case that Medipro is a virtual replica of Keystone which has poached a number of key workers and key clients from Keystone by copying its business, making use of its documents and systems, and by using its knowledge of the rates paid by Keystone to its workers and the rates charged to its clients to undercut those rates and thus attract business – particularly from clients with a longstanding relationship with Mr Parr and key workers – away from Keystone to Medipro.

In summary, whilst Medipro accepts that it now supplies a number of workers to clients who Keystone used to supply to those same clients, it contends that this was achieved solely as a result of its more competitive rates and its better service.

I should record at the outset that a point made by Keystone is that Medipro have been able to poach workers away from Keystone by paying them in excess of the relevant rate or salary caps in place from time to time. Whether or not that is true is not a matter for this trial. It has nothing to do with this diversion claim. It may be relevant at any trial of the quantification of the diversion claim but it is not relevant to the issues of liability, since it cannot be said that Mr Parr or Keystone owed any obligation enforceable to Keystone not to pay workers in excess of any relevant rate or salary cap. The only potential relevance of the rates or salary paid by Medipro to its workers would be if it was the case that Medipro was making use of confidential information taken from Keystone which showed the rates paid to workers in order to be able to poach workers by offering higher rates, but whether or not those higher rate exceeded the permitted cap is itself irrelevant.

As a result of the regulatory regime described above without a framework agreement Medipro was unable to supply workers to NHS clients other than to break glass clients such as the Becklin Centre. Medipro was unable to obtain a framework agreement until August 2016. Until then it was necessarily limited in the clients it could supply and, therefore, which it was worthwhile approaching.

Medipro’s records show that it began making payments to workers in late October 2014, when it made payments to Mr Lawrence Caldicott, Mr Parr and Mr Eastwood. Further payments to workers were made in late November 2014.

One of the first clients approached by Medipro was the Becklin Centre. In his evidence [RW6 #16] Mr Ward said that from early December 2014 they lost their business from the Becklin Centre. It is common ground that although the Becklin Centre was part of an NHS trust, it was entitled to do business with Medipro from the outset, even though it did not have a framework agreement, because the Becklin Centre benefited from the “break glass” exception to the normal rule. It is also common ground that Medipro began supplying the Becklin Centre with workers from that time. The evidence given by Ms Whitehurst and Ms Brack, in summary, was that initially Ms Whitehurst approached the Becklin Centre with a view to becoming an approved agency but failed to do so as it had not produced the documentation necessary to satisfy the necessary compliance requirements. Subsequently, once Medipro had produced the necessary documentation, the Becklin Centre approved it as an agency and began to use it in place of Keystone because it offered more competitive rates than Keystone. It is fair to say, as Ms Brack accepted in cross-examination, that the financial saving secured by the Becklin Centre as a result of the rate differential was modest, however it appears that since the mandate was to use the services of the agency offering the most competitive rates, all other things being equal, it was sufficient to persuade the Becklin Centre to use Medipro in place of Keystone. Later, after rate caps were introduced, although Medipro was unable to offer more competitive rates than any other agency the Becklin Centre has continued to use Medipro in preference to any other agency because it was satisfied with the service provided by Medipro.

What is clear is that Medipro would not have been able to obtain bookings let alone the whole of the business from the Becklin Centre in place of Keystone if it had not been able to: (a) persuade the workers who regularly provided services to the Becklin Centre through Keystone to transfer to Medipro so that the Becklin Centre could be assured that it would be provided with workers with whom they were familiar and satisfied; (b) demonstrate to the Becklin Centre’s satisfaction that it undertook, and had the documentation to prove that it had undertaken, the necessary compliance procedures; (c) offer a slightly more competitive rate than Keystone.

I am satisfied that Medipro was able to approach the Becklin Centre at an early stage, albeit initially unsuccessfully, because it had used the documentary information copied and emailed from Keystone in order for Ms Whitehurst to: (a) make contact with the workers to invite them to register with Medipro and to explain that she already had all the information necessary for that purpose; (b) produce what she believed was the requisite compliance documentation. The intention was to be in a position to compete far earlier than otherwise would have been possible and whilst, as events transpired, Medipro could not obtain work from the Becklin Centre as soon as it would have liked, it still obtained a springboard advantage in my view from what it did have.

I also accept Mr Ward’s evidence at [WS6 #16] as to the level of business lost as a result of losing the Becklin Centre work. In cross-examination he was asked why Keystone had not disclosed invoices to establish the level of business done with the Becklin Centre in the three months before September 2016. He agreed to search for and to provide them if he could. So far as I am aware he did so and the invoices thus produced supported his evidence.

In Keystone’s Schedule of Losses and in his evidence [WS6 #18] Mr Ward referred to further clients where it was said that significant business had moved to Medipro. In cross-examination he accepted that having seen Medipro’s disclosure two of these, BMI Thornbury and York NHS, had not been supplied with workers by Medipro. This perhaps illustrates the volatility of the market, in that Keystone had lost business which it believed was due to Medipro but which in fact must have been for some other reason. However as regards the remainder it is common ground that Medipro has indeed supplied workers to these clients where Keystone had also previously supplied workers. It is worth noting however that it is only the Becklin Centre where Keystone has lost all of its former business; in relation to all of the remainder, being Bradford Royal Infirmary, Leeds Nuffield and York Nuffield, the Private Clinic Leeds and Manchester, Spire Leeds, Leeds NHS Trust and Ramsay Yorkshire Clinic, Keystone continues to do some business with those clients and, indeed, in relation to the largest (Leeds NHS Trust) continues to do a very substantial proportion of its former work.

I have already noted that the true nature and extent of any loss suffered by Keystone as a result of Medipro’s activities and any gain made by Medipro from its activities are not matters for this trial. Nonetheless Mr Ward was cross-examined in some detail about his evidence as to the impact of competition from Medipro upon Keystone. In particular, he was cross-examined on the basis that if the impact of that competition had been as great as he has claimed it would have been referred to in the key performance indicators section of the directors’ report in the statutory accounts for Keystone for the year ended 31 March 2015 and 31 March 2016. In contrast, it was noted, specific reference was made to the impact of the new rates introduced within the NHS on the profitability of the business. Insofar as it is relevant, it is not clear to me that it would have been necessary to make reference to that competition in the statutory accounts; accordingly, I do not place any weight on that point. I do however accept that Mr Ward was guilty of some exaggeration when he estimated that in the early stages Keystone was losing around £5,000 per week in gross profit margin from the work taken by Medipro.

For present purposes, I am satisfied that Medipro was able to obtain bookings from these other clients in the same way as it did with the Becklin Centre, namely by: (a) persuading the workers who regularly provided services to those clients through Keystone to transfer to Medipro; (b) demonstrating to the clients’ satisfaction that it undertook, and had the documentation to prove that it had undertaken, the necessary compliance procedures; (c) offering a slightly more competitive rate either to its workers or to the clients or both.

I have already observed that there is no hard evidence that Medipro made contact with Keystone’s workers in order to persuade them to register with Medipro. Many of the workers gave evidence that they became aware of Medipro through casual discussions with other agency workers in circumstances where, as they said, many workers were registered with more than one agency and talk about which agency offered better rates and/or obtained more bookings and/or offered a better service was rife. Nonetheless I have no doubt that Ms Whitehurst did indeed approach many of these workers, on the balance of probabilities using contact details which she had taken from the worker packs. I am satisfied that they were taken from Keystone in order to enable her to do so.

In fairness I should also say that I have little doubt that she probably could have tracked many if not all of them down from social media or from workers who had already transferred and many would have approached Medipro anyway once they became aware – as I have no doubt they would – that it was being run by Ms Whitehurst and that it was offering competitive rates and a good service.

In the same vein Mr Ward was cross-examined at some length about his contacts with clients and workers and, it was suggested, the shortcomings both in Keystone as a business and in him as a point of contact which led to clients and workers choosing to go elsewhere. It is true that there is some evidence of some general dissatisfaction with Keystone although, having heard the evidence, I am not satisfied that there was any substantial dissatisfaction before December 2014. It is clear for example that Ms Brack has subsequently taken against Mr Ward as a result of what she sees as his determination to expose Mr Parr and Medipro and also because he refused to provide workers on one occasion in late 2017 on the basis, according to him, that he was not prepared to take the risk of those workers being poached by Medipro. Mr Ward was cross-examined on the basis that his approach had alienated a number of workers and clients. This is only directly relevant to the quantification of the Diversion Claims and I say no more on it other than to observe that the impression I have gained is that there appears to be an element of inflexibility in Mr Ward in his dealing with workers and clients.

Keystone also complains that Medipro has, through Mr Reynard as referred to above, taken and is using the Keystone developed File Maker database. Medipro denies that it uses File Maker in any format, let alone the version developed by Mr Reynard whilst engaged by Keystone.

It is necessary to consider with some care the evidence relied upon by Keystone in support of its case in this respect.

Keystone contends that there is evidence which shows that Mr Reynard made a copy of File Maker for use by Medipro in September 2014. It seeks to rely on a report from a Malcolm Naylor who is a File Maker developer at a company known as Serif Systems which records his investigation in September 2017 of a file in a shared folder on Mr Reynard’s old computer. He says that he discovered that the file was copied onto the shared folder on 18 September 2014, from where it would have been accessible from outside the premises. He says that the file was the main Keystone database holding records of locums and hospitals (i.e. workers and clients) and timesheets, payments and invoices.

Although this evidence is not in the form of a witness statement nor an expert report (there being no permission to rely on expert IT evidence) no express challenge has been raised to its contents by the defendants. However, it does not establish that Mr Reynard in fact accessed the file after 18 September 2016 (and the statement is silent as to whether or not that is something which could have been investigated) so that it is only evidence of opportunity to obtain Keystone’s version of File Maker as opposed to evidence of Medipro’s actual usage of Keystone’s version of File Maker.

In his evidence [RW7 #68] Mr Ward refers to a timesheet inadvertently sent by a worker to Keystone on a Medipro form [12/3191] which he identifies as a version produced in 2011 and relies on this as showing that Medipro must have obtained this from the File Maker database which was copied by Mr Reynard onto his shared folder in September 2014.

Mr Ward gave evidence and made observations [RW7 #74.3] in support of Keystone’s case in this regard.

His first point is that documents disclosed by Medipro bear automated dates which he says show that must have been produced using File Maker because that has a function which automatically inserts the date on which it was printed. In cross-examination Ms Whitehurst was referred to a Medipro appraisal request form [9/2326] which bears her name as the name of the locum and a date of 18 October 2017. It was put to her that this had been provided following a request for an electronic version in native format which Keystone knew could not be provided from File Maker and showed that the form had been created using File Maker. She denied this, claiming that she had simply typed in these details. She was then taken to a Medipro reference request form which had also entered a date and her name and position and gave the same explanation. I have to say that her explanation made very little sense to me in that there is no conceivable reason for her to have typed in these details if she was simply responding to a request to provide a pro forma document. Furthermore if, as she claimed, these forms had been produced for Medipro by its fellow tenant Unbranded Digital it is surprising that they could not have been produced in electronic native format.

However, I must bear in mind that there is no independent evidence from anyone at File Maker or from anyone who works with File Maker which confirms what Mr Ward asserts are these particular properties of File Maker. Mr Budworth made an application during the course of Ms Whitehurst’s cross-examination to adduce documents said to have been produced by Keystone using File Maker to support his case in this respect but I refused to allow him to do so on the grounds of lateness and prejudice. Thus, whilst I consider that this evidence provides strong support for Keystone’s case I am not satisfied that it is in itself conclusive.

His second point related to Medipro’s failure to provide invoices to its clients and remittances to workers which he said was because they would have revealed that they had been produced using File Maker. However Medipro did – albeit belatedly during the course of the trial - disclose invoices to clients and remittances to workers which were not put to Ms Whitehurst as demonstrating that they were produced on File Maker. This therefore is a point going against the inference which Keystone seeks to invite me to draw.

His third point related to Medipro’s use of the Kapow messaging application which, he said, must mean that it is also using File Maker. However in the absence of evidence that Kapow cannot be used as a stand-alone system which would be of use to an agency such as Medipro I do not consider I can place any significant reliance on this point.

His fourth point related to the evidence of payments to Mr Reynard from Medipro. It does appear curious to say the least that Medipro did make substantial payments to Mr Reynard in respect of which no relevant invoices or other documentation has been produced. In evidence Mr Whitehurst gave some confused and confusing and – frankly – wholly incredible story about using Mr Reynard to obtain a replacement server which in the end never materialised.

On the balance of probabilities I am satisfied that Mr Reynard did indeed make a copy of Keystone’s version of File Maker in September 2014 and that this was provided to and used by Medipro. Although the evidence is not conclusive, in my judgment the combined effect of its copying in September 2014 and the evidence as to the self-population of information in the forms on which she was cross-examined, coupled with the other evidence as to what I am satisfied Mr Parr, Mr Reynard and Ms Whitehurst did in order to equip Medipro to compete against Keystone, is compelling.

What is of importance, I should stress, is not so much the use of the File Maker software itself but the access that it has given Medipro to the worker and client details and the access to guidance and forms which has enabled it to compete with Keystone in the market in relation to these workers and clients as a healthcare agency which can demonstrate its ability to meet the necessary compliance requirements.

Keystone also complains that Medipro has been using the same providers as it has used in relation to insurance (Towergate Insurance), messaging system (Kapow), verification of workers’ occupational health compliance (Healthier Business), agency booking IT system (Webroster) and accounting (Sage). However in my judgment there can be no valid complaint in these respects; there is nothing confidential in relation to the use of these providers or objectionable about Medipro using their services.

As regards the rates paid to workers and the charges charged to clients, Mr Ward agreed in cross-examination that Ms Whitehurst would inevitably have known these details as part of her job. Obviously the rates paid to workers by Keystone are known to the workers and, once rate caps were introduced, were public knowledge anyway. The same is true as regards the client’s knowledge of the charges charged by Keystone. There can be no complaint by Keystone about price competition in itself by Medipro with Keystone. However, Keystone is entitled in my judgment to complain about Medipro being provided with documentary information in File Maker which is confidential in that form and in that database to Keystone, such as remittance statements and invoices and which enables Medipro to have immediate access to this data.

The claimants’ claims

I shall deal separately with each of the claims made by the claimants.

The claim by Keystone against Mr Parr and Mr Reynard in relation to the Payroll Fraud

The claim is founded on an allegation that Mr Parr and Mr Reynard were party to a fraud under which from April 2014 to September 2014 Keystone’s payment systems were altered by Mr Reynard, using his IT skills, to direct concealed payments into an account owned and controlled by Mr Parr. This fraud was discovered in 2016, after Mr Reynard had left Keystone that year, and was the subject of an investigation and report by forensic accountants which led to the current action being issued against Mr Parr and Mr Reynard and freezing orders obtained against each.

At a hearing on 2 January 2017 the Chancellor, Sir Geoffrey Vos QC, entered summary judgment against Mr Parr and Mr Reynard for £128,022 in relation to the Payroll Fraud claim, which Mr Parr has satisfied.

It follows as I have said that the Payroll Fraud claim is no longer live. It is however relevant as the background to the other claims, particularly the Consultancy Fee claim (addressed at (8) below), the Overpayment claim and the Invoice Frauds claims. It is also a part of Keystone’s case in relation to the Diversion claims that Mr Parr channelled monies stolen from Keystone to finance Medipro.

The Termination Payments claim

This claim is consequential upon the Payroll Fraud because it is based on the proposition that Mr Parr received £30,000 under a Settlement Agreement entered into at the same time as the SPA in which he warranted that there were no circumstances amounting to a repudiatory breach of contract which would have entitled a summary dismissal, whereas by reason of his involvement in the Payroll Fraud that was not the case so that Keystone is entitled to recover the £30,000.

By an open letter dated 6 March 2018 Mr Parr accepted liability to repay the termination payment together with interest and costs, which offer has been accepted so that this claim is no longer live.

The Consultancy Payments claim

This claim is advanced on the basis that Mr Parr was in breach of his fiduciary duty in failing to disclose to Keystone Mr Reynard’s misconduct in relation to the Payroll Fraud. The consequence alleged is that had he done so Keystone would have terminated Mr Reynard’s consultancy and, thus, not made any payments to him over the period from May 2014 to June 2016, so that Keystone seeks to recover those consultancy payments from Mr Parr.

Mr Mason for Mr Parr accepted in his opening skeleton at [17], sensibly and properly in the light of the authorities, that Mr Parr was obliged to disclose Mr Reynard’s misconduct to Keystone. Moreover, it cannot realistically be doubted that, had he done so, Keystone would have terminated Mr Reynard’s consultancy. However it is contended that Keystone is not entitled to recover the consultancy fees paid to Mr Reynard on the simple basis that Mr Reynard was not simply engaging in the Payroll Fraud but was providing services of real value to Keystone over this period, so that there is no basis for recovery of the consultancy fees in circumstances where Keystone has already recovered the direct losses it has suffered as a result of the Payroll Fraud.

In my view this is a defence which may properly be advanced. In his written opening submissions Mr Budworth contended that it may not be open to a defendant to raise this argument as a defence to a claim for equitable compensation for breach of fiduciary duty, to which the common law rules of causation and measure of damages do not apply. I do not accept this argument. It is clear that whilst there is a difference between common law claims for damages and claims for equitable compensation even in the latter case there is still a requirement for causation to be established; see the decision of the Supreme Court in AIB Group v Redler [2014] UKSC 58, discussed in Stafford & Ritchie from [9.149] and in relation to forfeiture of fees or remuneration from [9.198]. Moreover, as to the specific point raised here, in my view Mr Parr is entitled to contend that Keystone was obliged to account in equity for the benefit obtained from continuing Mr Reynard’s consultancy: see the decision in Brandeaux Advisers v Chadwick [2010] EWHC 3241 (QB), discussed in Stafford & Ritchie at [2.168].

It seems to me that whether or not this is advanced on the basis that the breach did not cause any genuine loss or that Keystone must give credit for the amount which it would have had to pay an alternative replacement IT consultant and there is no evidence or basis for suggesting that it would have been any less than it in fact paid Mr Reynard, this defence must succeed. It is plain from the evidence that Mr Ward was perfectly happy to retain Mr Reynard’s services, not just whilst Mr Parr was with Keystone but for almost 18 months thereafter, and it is clear that this was on the basis that he believed that Keystone was receiving value for the payments it was making to Mr Reynard. It is also clear from the evidence that over this same period Mr Reynard was undertaking the further phase of the developments to the File Maker system which Mr Ward was most keen to pursue in order to make File Maker the system on which Keystone’s complete business ran. In the Particulars of Claim at [13] Keystone specifically pleaded that it paid £150,000 for the development of the File Maker system, of which a considerable proportion must relate to payments made to Mr Reynard over this period. It is obvious that Keystone obtained value from Mr Reynard’s work. In cross-examination Mr Ward admitted that Mr Reynard’s work was of value and that he was impressed with what he had done.

It should be remembered that Keystone has already sought and obtained equitable compensation for the sums actually removed from its account by the Payroll Fraud. It is not a case where a fiduciary is employed to undertake a specific role in relation to which he is dishonest; it is a case of a consultant providing genuine and valuable services over an extended period but, in the course of that period, engaging in theft from his employer under a conspiracy with the employer’s director who is a fiduciary. I do not see any proper basis for requiring the fiduciary to repay to the company all of the consultancy payments made to the consultant in addition to making reimbursement of the monies stolen from the company.

The Overpayment claim

This is the most complicated of the claims consequential upon the Payroll Fraud and the failure by Mr Parr to disclose the Payroll Fraud to Keystone. It is pleaded [Particulars of Claim, 57 - 58] that Mr Parr was under a duty as a fiduciary to report his own wrongdoing to Keystone, being the Payroll Frauds and the Invoice Frauds, but failed in breach of fiduciary duty to do so with the result that the claimants had suffered loss. It is then pleaded [Particulars of Claim, 59] that had he performed his duty to Keystone the claimants would have been entitled to and would have summarily dismissed him from his employment and to terminate his office as director. It is also pleaded [Particulars of Claim, 60] that under the terms of the shareholders agreement signed by Mr Parr termination of his employment for whatever reason deemed him to have served a transfer notice in relation to his shares. It is pleaded [Particulars of Claim, 61] that in such circumstances and, being aware of its right to do so, Holdings would have been able to acquire Mr Parr’s shareholding in Keystone compulsorily at a fair price, instead of being prepared to pay what it claims was a “hefty premium for the desire to remove Mr Parr at effectively whatever price it took”. It is pleaded that in such circumstances it would not have paid any more than £515,000 with the result [Particulars of Claim, paragraph 71(7)] that Mr Parr is liable to pay damages for breach of fiduciary duty regarding the monies paid by Holdings.

In my judgment it is plain from the authorities, in particular the decision of the Court of Appeal in Item Software (UK) v Fassihi [2004] EWCA Civ 1244, discussed by Stafford & Ritchie from [2.151], that Mr Parr as a director and hence a fiduciary was indeed obliged to disclose his own involvement in the Payroll Fraud to Keystone. Thus I am satisfied that liability is established. However there are a number of significant issues raised in relation to causation and quantification, which I address below under the following section headings:

The terms of the shareholders agreement and the Articles

Is this claim maintainable by Keystone or by Holdings?

The valuation of the claim for reduction in the consideration paid under the SPA

Adjustments to the annual accounts

Which accounts should be used

The appropriate capitalisation factor

Other evidence relevant to the correct figure for annual maintainable profits and/or the multiplier

Conclusions

The terms of the shareholders agreement and the Articles

Although there was no provision in the relevant shareholders agreement such as pleaded in paragraph 60 of the Particulars of Claim – which must I think be a reference to a previous agreement - nonetheless it is plain from the shareholders agreement which was in existence at the time that what was defined and referred to in clause 10 as an “obligatory transfer event” would occur in the event that a party committed a material or persistent breach of the agreement. This would clearly include Mr Parr’s involvement in the Payroll Fraud, given that under clause 2.2 each shareholder was obliged to use his reasonable endeavours to promote the success of the business for the benefit of the shareholders as a whole, that under clause 7.1 the parties were to procure that Keystone should at all times maintain accurate and complete accounting and other financial records, and that under clause 21 the members were obliged to conduct all transactions between themselves and Keystone in good faith. The effect of an obligatory transfer event occurring was that under clause 10.2 Mr Parr was deemed to have given a transfer notice (as defined in the articles) in respect of his entire shareholding in Keystone to be sold at the sale price (also as defined in the articles) but less the 50% bad leaver discount as provided for in the articles at [18.6].

The articles of association contained a number of relevant definitions, including: (a) a compulsory transfer, as being a transfer pursuant to a deemed transfer notice given under article 17.2; (b) a “compulsory transfer event” as including the commission by a member of a “material breach”, which was defined as being a material or persistent breach of any “relevant agreement” which, as defined, would include the shareholders agreement; (c) the “compulsory transfer date” as being, in the case of commission of a material breach, the date of “notice of that fact being given to that member by another member”. Clause 17.1 provides that if a compulsory transfer event occurred a transfer notice was deemed to have been served at the time prescribed in article 17.1. Under clause 17.2 a transfer notice was deemed to have been served on the first anniversary of the compulsory transfer date, save that the majority shareholders were entitled to serve notice to contrary effect, in which case it would be deemed to be given immediately.

Under clause 18.4 the sale price was to be determined, in the absence of agreement, by an independent expert valuing the sale shares on the basis specified in that clause. As relevant this included requirements that the shares should be valued:

Under clauses 18.10 and 18.11 it was open to Keystone to purchase the sale shares at the determined sale price if permitted by the Companies Act 2006, failing which it was open to the remaining shareholders to purchase the sale shares.

Is this claim maintainable by Keystone or by Holdings?

Although not pleaded expressly in his defence, it appears that at the pre-trial review Mr Mason for Mr Parr raised a point arising out of the distinction between Keystone, to whom the fiduciary duty was owed and Holdings, which had acquired Mr Parr’s shareholding and, hence, on the claimants’ case had suffered the loss.

In his opening written submissions Mr Budworth submitted that this argument had no merit. His primary argument was that Mr Parr’s obligation as a defaulting fiduciary was to disgorge any benefit obtained by him as a result of his default, regardless of whether the party to whom the duty was owed had suffered actual loss. Hence, he contended, it was open to Keystone, both on the pleadings and in law, to recover the overpayment regardless of the fact that it was Holdings which had made the overpayment. In support of this submission he relied upon the decision of the Court of Appeal in Murad v Al-Saraj [2005] EWCA Civ 959. He raised a number of secondary arguments, although in his oral opening written submissions he made it clear that he regarded his primary argument as his strongest and most straightforward.

There was some discussion in oral opening submissions as to whether or not it was necessary for both the claimants and Mr Parr to amend to plead their respective cases in this regard. The eminently sensible position adopted by both counsel and endorsed by me was that it was not necessary to do so insofar as the arguments raised in the opening submissions were matters of law based either on undisputed facts or facts already fully addressed in evidence, whereas it would be necessary to do so insofar as the arguments raised were dependent upon establishing facts which were not disputed and not already fully addressed in evidence. Neither party made any application to amend in this respect.

The starting point for the discussion is that it is apparent that it is Keystone to whom Mr Parr owed a fiduciary duty whereas it is Holdings which has made the alleged overpayment. Accordingly, on a conventional approach to a conventional common law damages claim, it can be objected by Mr Parr that the party with the claim has suffered no loss whereas the party who has suffered loss has no claim. That is plainly a substantial objection which requires consideration in the context of the nature of this case and the nature of the claim being made.

It is sensible to begin by considering the circumstances in which Holdings came to acquire Mr Parr’s shareholding in Keystone. It is clear from the evidence that the initial discussions and agreement proceeded on the basis that Mr Parr would sell his shareholding to Mr and Mrs Ward, as the only other shareholders in Keystone. It is also clear from the evidence that Holdings was incorporated in July 2014 at the instigation of those advising and representing Mr and Mrs Ward on the basis that the transaction could most conveniently be effected by all three existing shareholders transferring their shareholding in Keystone to Holdings, with Holdings paying Mr Parr the agreed price and with Mr and Mrs Ward becoming equal shareholders in Holdings. That is precisely what was done through the share purchase agreement which was entered into in September 2014. There can be no suggestion that Mr Parr was not fully aware that this was the arrangement and that he was perfectly content to proceed in this way.

In contrast, had Mr Parr disclosed his wrongdoing to Keystone at the time, then it is clear that once the compulsory transfer process was invoked Keystone would have had first option to acquire the shares (if permitted to do so) and Mr and Mrs Ward would have had the second option. It is well known that there is a general prohibition against a company acquiring its own shares other than where the acquisition falls within one of the permitted exceptions. Doubtless one of the reasons for structuring the transaction to involve Holdings was so that the commercial lending from the bank could be to a limited company connected to but separate from Keystone. Neither party has suggested that in this hypothetical scenario Keystone might not have acquired the shares. It is plain from the accounts for the y/e March 2015 that substantial dividends were paid out that year so that it is not self-evidently impossible that it could have been done.

The next step is to consider the circumstances in which and the reasons why Mr Parr was under a duty to disclose the Payroll Frauds. It is clear that a director who steals money from the company which he serves breaches his core fiduciary duty of loyalty by dealing with company property as his own. It is also clear in my judgment that a director who fails to disclose his dishonest self-dealing and who fails to account to the company for the money which he has stolen from the company also breaches his fiduciary duty of loyalty in those further respects. As Arden LJ said in Fassihi at [41], the obligation to disclose misconduct is not a separate and independent duty but part of the fundamental fiduciary duty of loyalty. She explained at [63 - 68] the policy reasons for holding this to be the case, particularly that the company is entitled to have this essential information in order to make proper decision-making.

In the context of this there are two obvious reasons why Keystone would have wished to have this information: (1) first, to enable Keystone to take steps to prevent it from happening again, which would include considering the termination of Mr Parr’s appointment and that of Mr Reynard; (2) second, to enable Keystone to take steps to recover what had been stolen from it and to compel Mr Parr to disgorge benefits obtained from his disloyalty.

Accordingly, whilst it may be said by Mr Parr that there was no separate or specific disclosure obligation in the context of the proposed SPA, since that was not a proposed transaction as between himself and Keystone, nonetheless it was an obligation which ought to have been disclosed much earlier than in the context of the SPA in order to enable Keystone to decide, in the widest sense, how best to respond to Mr Parr’s dishonest conduct going forwards, which would have included his removal not only as director and employee but also as shareholder pursuant to the articles which entitled Keystone to acquire his shares.

In the circumstances it cannot in my view properly be said by Mr Parr that there is no sufficient nexus between his breach of fiduciary duty in failing to disclose his wrongdoing and the consequence whereby a negotiated exit was concluded under which he departed his role as director, employee and shareholder in return for very substantial payments which took no account of his non-disclosed wrongdoing. Whilst not expressly relied upon in the Particulars of Claim, I observe that under clause 5.2.2 of the SPA he warranted that there was no “outstanding … liability (actual or contingent) … between the Company and Mr Parr at the date of this agreement” which, on its face, was breached given his liability to repay the amounts stolen by him from Keystone prior to that date.

In his written opening and closing submissions Mr Budworth referred to the judgments of Arden LJ and Jonathan Parker LJ in Murad at [66-67] and [99-111] respectively in support of his argument that Mr Parr was obliged to disgorge the benefit he had made from his breach of fiduciary duty regardless of whether or not Keystone as the party to whom the duty was owed had suffered loss. It is clearly the case that both judges held that it was irrelevant that the fiduciary could show that the claimant would not have made a loss, albeit that – as they made clear – this was in the context of a claim for an account of profits as opposed to a claim for equitable compensation for breach of fiduciary duty. The legal analysis of claims for accounts of profits in cases of breach of fiduciary generally and the decision in Murad is considered in some detail by Stafford & Ritchie from [9.43]. It is suggested at [9.58] that there must be a nexus between the breach of duty and the profits to be accounted for. It is also observed at [9.94] that whilst Clarke LJ considered that the strictness of the approach endorsed by the majority ought to be relaxed, and that both Arden and Jonathan Parker LJJ considered that this might happen in the future, neither considered that the facts of that case, involving a dishonest breach of fiduciary duty, was likely to justify a less strict approach. In any event under the claim as advanced here Mr Parr is already obtaining a credit in the sense that the claimants are not seeking the return of the whole of the consideration paid under the SPA but are limiting their claim to the difference between what he actually obtained and what he would have obtained under the bad leaver provisions.

As I have already observed, the Overpayment claim is pleaded under the existing Particulars of Claim only as a claim for damages for breach of fiduciary duty. It follows that strictly speaking there would need to be an amendment in order to make this claim as a claim for an account of profits. However, given the genesis of this line of defence and the agreement at the outset of the case I am satisfied that no amendment is necessary but, even if I was wrong about that, there could be no possible objection to an amendment being allowed.

It follows in my judgment that this objection to the Overpayment Claim fails.

In the circumstances I need to consider the alternative arguments propounded by Mr Budworth only briefly.

First, he submitted that Mr Parr was a de facto director of Holdings and, hence, owed it a direct fiduciary duty. This in my view is plainly unsustainable for the reasons identified by Mr Mason in his closing submissions. Mr Parr never undertook any act or responsibility vis-à-vis Holdings which, of course, was formed specifically to acquire his shareholding in Keystone in the context of his departure from Keystone. In any event, even if he owed Holdings a direct fiduciary duty there can be no basis for saying that he owed Holdings a duty to report his prior misconduct in relation to Keystone.

Second, Mr Budworth contended that Mr Parr owed a fiduciary duty to Holdings as a shareholder in Keystone. Whilst it is not in dispute that in certain circumstances such a duty may arise there is no basis for concluding that it does in this case. The relationship between Mr Parr on the one hand as a departing shareholder and Holdings on the other as an incoming shareholder, acquiring his shares under the SPA as an arms’ length transaction, was plainly not a fiduciary relationship. Insofar as this was argued, it is also plainly not the case that the relationship between Mr Parr and Mr and Mrs Ward was a fiduciary one; again this was an arms’ length relationship which it was necessary to define and circumscribe by reference to a shareholders agreement which expressly imposed a mutual duty of good faith (clause 21) but not a fiduciary duty and which contained a whole agreement clause (clause 16). Moreover, as Mr Ward confirmed in cross-examination, by the time of the SPA the relationship between himself and his wife on the one hand and Mr Parr on the other was less than close with a mutual desire to unyoke their relationship which, in my view, is entirely inconsistent with a continuing fiduciary relationship.

Third, he argued that the SPA was a relational contract into which a duty of good faith should be implied. Again however, as Mr Mason submitted, this is a hopeless argument. The SPA was an arms’ length contract between an individual and a company with no relationship other than that of seller and buyer of shares and where the owners of the company, Mr and Mrs Ward, had no existing nor continuing fiduciary relationship with Mr Parr.

Fourth, and finally, he contended that the SPA was induced by deceit. However, as Mr Mason submitted an allegation of deceit would clearly have needed to have been fully and properly pleaded and particularised so that it could have been addressed in the evidence. Moreover, there is no evidence of any statement or representation having been made which could form the subject matter of such a claim. In the absence of a fiduciary duty or a duty of good faith there is no possible basis for importing an obligation to speak. Again, therefore, this argument must fail.

The valuation of the claim for reduction in the consideration paid under the SPA

The parties have been permitted to and have relied upon expert evidence on the issue of the value of the shares and I have heard from Mr Flint and Mr Davidson respectively. They agree on the fundamental approach to be adopted. Thus they agree that the most appropriate valuation method is the future maintainable earnings method, which seeks to establish the amount of earnings, in the form of profits before tax (Footnote: ¹), which the company can sustain for the foreseeable future, multiplied by a capitalisation factor representing the number of future years’ earnings which a prospective purchaser might consider acquiring. Thus the correct approach is to: (a) ascertain the correct figure for annual maintainable profits, which involves: (i) starting with the figure derived from the appropriate company accounts; (ii) making appropriate adjustments to that figure; (b) multiplying the figure for annual maintainable profits by the appropriate capitalisation factor (or multiplier); (c) reducing by 50% to apply the bad leaver provisions of the articles; (d) applying the final figure to the proportion which the sale shares bears to the whole shareholding. They also agree, in accordance with the pleaded case [Particulars of Claim, paragraph 61] that the valuation should be prepared as at September 2014. There are, however, a number of matters on which they and the parties disagree which have a significant effect on the valuation and which I must, therefore, determine.

In summary, the disagreements are as follows: (a) which years’ annual accounts should be taken into account, and whether or not management accounts for the period ended September 2014 should also be taken into account in arriving at the figure for annual maintainable earnings; (b) what adjustments to the annual accounts should be made; (c) what the appropriate multiplier should be.

In my view, issue (b) is a separate stand-alone issue which can conveniently be considered first, whereas issues (a) and (c) cannot completely be separated and I will consider them subsequently. That is because if, as the experts agree, the aim of the exercise is to ascertain what the business can expect to achieve by way of net profits going forwards and to ascertain the number of years within which the business can expect to achieve those net profit going forwards, it is obvious that – all things being equal – the greater the number of accounting years taken into account the more confidence a prospective purchaser could feel that the company could achieve the same performance going forwards and vice versa. In cross-examination Mr Flint agreed that the multiplier used would vary according to how sure the prospective purchaser was in relation to the figure for annual maintainable earnings.

Adjustments to the annual accounts

It is common ground that adjustments should be made to the figure derived from the profits. First, it is common ground that in the case of companies, such as the present, which are run by the business owners, the total remuneration package which they received may not equate to the cost which the company would incur if the business was run by employed corporate managers instead. Second, it is common ground that unusual or non-recurrent transactions should be deducted. However, the experts are unable to agree as to the appropriate adjustments should be made in both cases

It is common ground that in this case the actual directors’ remuneration (including NIC and pensions) should be replaced by the notional cost of employing two corporate managers to fulfil their function undertaken by Mr Ward and Mr Parr. (I have already referred to and determined in the claimants’ favour the issue as to the work done by Mrs Ward, but it is not suggested that this is material to the current exercise.) The experts are unable to agree as to what the notional cost should be.

Mr Flint has used the figure for median gross annual earnings for corporate managers and directors in the Yorkshire and Humber region derived from the ONS survey in order to ascertain the cost of supplying two such corporate managers and directors as replacements for Mr Ward and Mr Parr. Mr Davidson has also taken into account the (higher) regional figure for marketing and sales directors and the (broadly equivalent) regional figure for health service managers and directors and has adopted the higher marketing and sales director figure on the basis of this being a “reasonable approximation of the level of salary Mr Parr and Mr Ward may have expected to receive at market rate”; his report at [4.19]. Having heard the evidence on this point, it does seem to me that a prospective purchaser would have to budget to obtain two replacements who would perform the full range of activity previously performed by Mr Ward and Mr Parr, which would include sales and marketing and business development in the wider sense, which would not be performed by simple managers and directors. I therefore prefer and adopt Mr Davidson’s approach in this respect which, as I understand it, favours the claimants’ overall case in any event: see the figures in his report at [4.23].

It is common ground that an amount corresponding with the payments made to Mr Parr’s wife and in respect of her NIC in each of the relevant years should be added back.

There is an issue as to whether approximately £52,000 of professional fees which were incurred in the year ended 31 March 2013 in putting the company up for sale should be added back, as Mr Davidson considers they should be. This ties in with the issue as to whether or not expenditure on legal and professional fees of £22,794 incurred in the year ended 31 March 2014 should also be added back, in whole or in part. Mr Davidson considers [4.9] that on a rough and ready basis it should be discounted by some 50%. In cross-examination it was pointed out to Mr Davidson that there was a significant variation in legal and professional fees from 2010 to 2015 and I agree. In the end I am not persuaded that the differences are so significant as to justify a deduction being made in this respect or that it is appropriate to cherry-pick individual costs from the totality.

There is also an issue as to whether or not expenditure on websites and software of £31,527 incurred in the year ended 31 March 2014 should be added back, in whole or in part. Mr Davidson considers [4.8] that since much of this relates to payments made to Mr Reynard for the development of the bespoke File Master system, then it should be treated as exceptional expenditure and, he considers, discounted by some 50%. In cross-examination Mr Flint agreed that the ongoing expenditure on upgrades, replacement and maintenance would not be as great. However in cross-examination Mr Davidson agreed that IT costs had been even higher in 2015 than in 2014. Again it seemed to me that the picture was not as clear as suggested by Mr Davidson and, hence, that there should be no adjustment as regards this expenditure in this year.

Which accounts should be used

There are two areas of disagreement between the experts in relation to the accounts which should be used for this exercise. The first is as to which years’ annual accounts should be used. The second is as to whether or not management accounts for the period ending September 2014 should also be taken into account. In my view the issues are connected.

The annual accounts for the years ending 31 March 2010 to 2015 inclusive are summarised by Mr Davidson in his report at [2.16]. In outline the position is as follows:

It will be seen that there is a gradual improvement in both turnover and profit from 2010 to 2011 before a sharp decline in 2012 followed by a resurgence in 2013 to better than 2011 levels and a further steady improvement in 2014 and a significant improvement in 2015. In his report Mr Davidson records Mr Parr explaining the reduction in 2012 as due to cuts in NHS spending and comments that the business was very dependent on governmental NHS spending policy. In his report at [2.35] Mr Flint had suggested that “between 2010 and 2014 … there are no discernible trends either upwards or downwards”. In my judgment that is quite obviously wrong; there is an obvious discernible upwards trend, albeit temporarily reversed in 2012 and, with respect to Mr Flint, I struggle to see how he could have considered otherwise.

So far as the first issue is concerned, Mr Flint considers that the appropriate course is to take the average of the five years’ annual accounts ending March 2010, 2011, 2012, 2013 and 2014, whereas Mr Davidson considers that the appropriate course is simply to take the annual accounts ending March 2014.

Mr Flint in his report at [2.39] had ascertained both a simple and a weighted average for the four years ending March 2013 and the five years ending March 2014, producing a range between £560,000 and £644,000. He had then selected what appears to be an arbitrary middle figure of £590,000. Leaving aside the merits of taking a four or five year approach it is not apparent from his report why he has adopted as one alternative a period which excludes the most recent year’s annual accounts (i.e. those as at March 2014) nor what weighting he has undertaken. It seems to me however that if I was to adopt his approach then there could be no basis for not taking the annual accounts for March 2014 into account. This produces a simple average of £613,641 and a weighted average of £644,000.

In contrast Mr Davidson has adopted a starting point of considering only the two years’ annual accounts prior to the valuation date [4.5] but then, taking into account what he considers would have been revealed by the management accounts for the period ended September 2014 [4.25], concluding that “based on what would likely have been known at the time it seems reasonable to assume that the adjusted profits … achieved in the year to 31 March 2014 would have been more representative of the position going forwards than the average based on the two years to 31 March 2014” [4.26]. In cross-examination he maintained this approach, adding that he would never take more than the past 3 years accounts into account on the footing that performance in years before that would not be a reliable guide to performance going forwards.

So far as the second issue is concerned, Mr Davidson considers that in addition to considering the annual accounts as at March 2014 the most recent management accounts should also have been requested and considered because that would have assisted in deciding whether the level of profits shown by the most recent annual accounts was likely to be sustainable in the foreseeable future. However, Mr Davidson acknowledges in his report at [4.29] that a prudent prospective purchaser would have had reservations as to whether the position would be sustainable and, if so, for how long. He therefore concludes that it would be appropriate only to increase the figure for the year ended 31 March 2014 by a 10% uplift. His conclusion at [4.29], using the ONS data to arrive at adjusted net profit before tax (his “scenario 1”), is that the appropriate figure for net maintainable earnings is £904,088.

It can be seen that although both experts have begun by taking precise figures derived from the accounts to which they have had regard and then making various adjustments to those figures their end result is based on something of an arbitrary rounding up or rounding down.

In relation to the period ending September 2014 the claimants contend that the valuation should not take any results for that period into account for a number of reasons.

The first is a legal argument, which is that in this hypothetical scenario since the Payroll Fraud began in April 2014 (Footnote: ²) that is the date from which Mr Parr was in material and persistent breach of the shareholders agreement and the date when Mr and Mrs Ward would have exercised their right under the shareholders agreement to acquire his shareholding on a compulsory basis. On that basis the valuation would have proceeded on the basis of the accounts up to that date and no further.

I entirely accept that under article 17.2(a) Mr and Mrs Ward would have been entitled to give notice for the transfer notice to be deemed given immediately (see above). Mr Budworth contends that they undoubtedly would have done so. I am not satisfied that they would. That is because whilst it is now apparent that it would be in their financial interests to argue that they would have done, the question cannot be judged with the benefit of hindsight. It is not obviously apparent that they would have known at the time that by waiting any longer the price they would have had to pay would have been significantly greater. That depends upon how the business performed over the next 12 months, which could not have been confidently predicted. Furthermore, before serving such a notice they would have had to be confident of their position and, importantly, that they were in a financial position to pay for the shares. What happened in reality was that it took from March 2014 to June 2014 to obtain even an in principle offer from the bank, a further month to provide the projections required by the bank, and a further month still to obtain a formal offer. Finally, it took a further month for the transaction to complete. In the mean-time they would have been entitled to remove him as a director and Mr Parr would have been prevented, by article 17.4, from exercising his rights as a shareholder. Thus there was no obvious urgency in going down this route. It seems to me to be more likely for the notice to have been given in around September 2014, once Mr and Mrs Ward were confident that it was in their best interests to proceed with the compulsory transfer of the shares at that stage. This is consistent with the claimants’ pleaded case and with the instructions given to the experts as well as the agreements reached between the experts, even if that date was not reached on the basis of this analysis.

Furthermore, even if the notice had been given in April 2014, that is simply the date at which the value of the sale shares to be ascertained. That does not mean that the independent expert engaged in that process would have been prohibited from having regard to subsequent information in reaching that valuation. If, as seems entirely plausible, it would have taken around six months for the independent expert to be appointed, in circumstances where articles 18.4 and 18.9 (b) clearly envisaged that there should be an opportunity to seek to agree the sale price first, then there is no reason why the independent expert should not have requested, and Keystone provided, management accounts covering that six-month period.

The second is Mr Flint’s opinion that any management accounts covering that six-month period would have been only a snapshot, with no context as to their consistency with previous trading. I do not accept this point. No-one is suggesting that the management accounts for that six month period should have been looked at in isolation from the previous years’ annual accounts. I prefer Mr Davidson’s opinion that this information would have been particularly important because: (a) it was the most recent financial information, where what the expert would be interested in was what the business was likely to achieve going forwards; (b) the expert would be particularly interested in seeing whether or not the improved position revealed by the March 2014 accounts was continuing. Indeed in cross-examination Mr Flint accepted that if a valuation was to take place on the basis of a multiplier of 3 the management accounts for that period would be relevant.

The third is Mr Flint’s observation that the management accounts for this period may have been influenced by the Payroll Fraud perpetrated by Mr Parr and Mr Reynard. However he offered no analysis of the potential impact of this nor, for that matter, of the Invoice Frauds, and in cross-examination accepted that its impact would have been relatively marginal. I prefer and accept Mr Davidson’s opinion that this would not have been material either in terms of its overall value or its impact on a prospective purchaser going forwards, once the fraud had been discovered and the perpetrators removed from the business.

This ties into a further point, which is that Mr Davidson was criticised for using the annual accounts for March 2015 and applying them on a straight line basis to ascertain the position as at September 2014. It was said that in the absence of actual management accounts, it was wrong to place reliance on later annual accounts, especially given the possibility that for any number of reasons, seasonality and the positive impact of Mr Parr’s departure being two which were mentioned, the performance for the second half of the year might have been significantly different and better than the performance for the first half of the year. This in my view is a profoundly unattractive point for the claimants to take given that, as Mr Davidson stated in his report at [2.19], the reason he was not provided with the 6 monthly management accounts was that the claimants’ solicitors contended - wrongly in my view - that they were not relevant. It has never been suggested that management accounts were not available, especially since it is known that Keystone had its own in-house finance department operating its own computerised financial system which was sufficient to enable its accountants to prepare detailed financial forecasts to send to the bank in July 2014. Furthermore, there is no evidence whatsoever that the healthcare agency business is seasonal as between the first and the second half of the financial year and nor is there evidence that the financial performance of Keystone was adversely affected by the presence of Mr Parr.

In the circumstances I accept Mr Davidson’s opinion that since the accounts for the y/e 31 March 2015 revealed significantly enhanced turnover and net profit it is reasonable to suppose that the 6 monthly management accounts would have done likewise. His approach, in the absence of the management accounts, is to assume that the management accounts would have revealed the same improvements as shown by the annual accounts for the year ended 31 March 2015.

The appropriate capitalisation factor

Mr Flint has used data provided by the accountancy firm BDO and by the UK 200 Group of accountants and lawyers which indicates that: (a) according to BDO at that time an average factor of 8 was being applied, with the median value of deals being £32M; (b) according to UK 200 an average factor of 5.1 was being applied, based on average deal size of £4.4M. He has reduced this to 3 to 4 based on: (a) his view that both average deal sizes are higher than the value in question in this case; (b) the evidence from BCMS (the agents acting for Keystone at the time it was put on the market in early 2014) that the only offer received was based on a capitalisation factor of 3.

Mr Davidson has used as his starting point the average factor of 5.1 taken from the UK 200 data but has accepted that the element of uncertainty due to the foreseeable potential impact of rate caps ought to be taken into account, thereby resulting in a capitalisation factor of either 4 or 5.

In my judgment the correct interpretation of the UK 200 data is that if the mean multiplier was 5.1 with an average deal size of £4.4M then the average maintainable earnings figure would be £862,745 (i.e. £4.4M divided by 5.1). This is considerably higher than Mr Flint’s figure but somewhat less than Mr Davidson’s figure. On any view it seems to me that discounting down to 3 purely on the basis of the assumed difference in value of the figure for annual maintainable earning in this case compared with the average in the UK 200 data was not justified or, even if some reduction was justified, excessive.

It was suggested to Mr Davidson in cross-examination that a prospective purchaser would be concerned by and would discount its offer due to the impact of the Payroll Fraud and the Invoice Frauds as revealed by due diligence. Mr Davidson did not agree, on the basis that once the fraudulent activity had been uncovered and the perpetrators removed a prospective purchaser would be reassured that this activity would have no impact on performance going forwards. I accept that opinion. Indeed it would appear that the impact of the frauds would have been to depress the apparent profitability of the company in any event since their impact was, in general terms, to include items of expenditure as genuine when in fact they were not.

It was suggested to Mr Davidson in cross-examination that the multiplier for companies with smaller annual maintainable earnings was lower and he accepted that in general terms this was true. He agreed that this was because companies with larger annual maintainable earnings tended to be less likely to be owner managed and hence less susceptible to variation on the departure of the owner manager.

It was suggested to Mr Davidson in cross-examination that the multiplier would be adversely affected because Keystone was operating in one sector only which was particularly vulnerable to governmental change in relation to NHS agency pay charges and rates. He agreed, confirming that this was why he had not taken the increased profitability in the 6 months to September 2014 fully into account and why he had taken a conservative multiplier of 4 as an option.

It was suggested to Mr Davidson in cross-examination that the element of uncertainty in this case would be exacerbated due to the risk of competition from Mr Parr as a departing director shareholder. The difficulty with this argument is that whilst it is true that in this hypothetical situation there would be no SPA containing freely negotiated post-sale restrictions on competition, nonetheless the shareholders agreement contained post-departure restrictions which would have applied in such a case and there has been no case, nor reasonable basis for a case in my view, that these could have been successfully attacked as unreasonable.

Other evidence relevant to the correct figure for annual maintainable profits and/or the multiplier

There is some evidence which is said by one or other or both to be of potential relevance both to the annual maintainable profits figure and to the multiplier.

The most obviously relevant, not least because as stated above article 18.4(f) expressly requires the experts to take into account the terms and value of any offer made by a third party, is the evidence about the terms of the offer made by Hamilton Bradshaw in March 2014. The claimants provided to Mr Flint an email dated 1 March 2017 from a Ms Chandler-Haynes of BCMCS, the sales agents who Mr Ward and Mr Park used to seek to sell the company in 2012, which provides details of the Hamilton Bradshaw offer. It says that its final offer was £2,529,000 for the entire shareholding based on “3 x EBITDA”. That would ascribe a value for annual maintainable profits of £735,000. Whilst Mr Flint has placed reliance upon the multiplier of 3 apparently adopted by Hamilton Bradshaw he has not taken into account the implicit figure for annual maintainable earnings. When he was asked about this, he pointed to the further comment in the email which stated that the offer was based on a “cash free /debt free basis” so that the equity value, deducting £800,000 for invoice financing, equated to £1,729,000.

However, in my view there are a number of difficulties with this argument. The first is that there is no evidence of the amount of the invoice financing at that stage, whether in the accounts or otherwise. The second is that no account has been taken of the cash in the business, other than to discount on the basis that it represented working capital. The third and, perhaps, most important point is that Ms Chandler-Haynes goes on to say in her email that the situation would be different for someone who was staying in the business, such as Mr Ward, and it is clear that the value of Mr Parr’s shareholding which she gives in that case is based on the higher figure of £2,529,000. Since the valuation which the expert is conducting under the relevant provisions of the articles is expressly on the basis of a sale to the company or to the remaining shareholders it is difficult to see why a figure based on a quite different prospective purchaser should be adopted.

Mr Mason in cross examination criticised Mr Flint, rightly in my view, for seeking to place reliance upon the multiplier figure without also taking account of the figure for annual maintainable earnings. Mr Flint’s suggestion that the offer may have been made without Hamilton Bradshaw having conducted much due diligence seemed to me to be complete speculation and as relevant to casting doubt on the multiplier adopted as to the figure for EBITDA also adopted.

More generally, in my judgment it would be unsafe to place conclusive weight on this evidence one way or another. It is limited evidence about one offer which was received some time before the relevant valuation date. In particular there is no evidence as to what information was made available to Hamilton Bradshaw, in particular any management accounts for any period after March 2013 which would have revealed the significantly improved turnover and net profits within that period. More generally, in order to place real weight on this evidence in relation to its individual components it would have been necessary for considerably more information to have been made available as to the Hamilton Bradshaw offer. Otherwise the court is at risk of being misled into placing more weight on this email than is justified by its brevity, particularly when it has been obtained by Mr Ward in circumstances which are not apparent either from his own evidence or from other documentation. It is not in the form of a witness statement from Ms Chandler-Haynes or whoever else at Hamilton Bradshaw dealt with the matter nor does it attach relevant information from BCMCS’ file, so that neither the quality of any undocumented recollection nor the quality of the contemporaneous documentation relied upon has been able to be examined. It is plainly not in the form of admissible expert evidence. In the circumstances it seems to me to be relevant as one piece of information, particularly useful as a reality check against the experts’ respective positions, but no more than that.

Mr Mason placed weight on the fact that Mr Ward was prepared to offer and indeed to acquire Mr Parr’s shareholding for £1.2 million using a 100% loan facility from HSBC bank who must, he argued, have been satisfied that the shareholding was good security for the loan. As he observed, this would place a value of around £3.15 million on the company which on any view was significantly in excess of the valuation placed on it by Mr Flint. The claimants argued that this was of limited relevance since: (a) it was Mr Ward’s evidence that he was prepared to pay Mr Parr’s stated figure (he said Mr Parr was only prepared to sell if he received £1 million net from the deal) purely in order to get rid of Mr Parr as a malign influence and on the basis that he could increase the profitability of the business going forwards without Mr Parr’s presence; (b) there is no evidence that the bank conducted its own valuation of the company and were willing to lend on the basis of having security over the full value of the company in addition to a personal guarantee from Mr Ward.

Whilst I accept that there is no real evidence of this figure having been arrived at by Mr Ward or supported by the bank on the basis of a careful or independent business valuation, I accept that it has some relevance as a piece of information on the basis that I am not satisfied that Mr Ward would have been prepared to pay whatever Mr Parr asked unless he believed that it bore some general resemblance to market value; there is no independent or contemporaneous documentary evidence of relations between Mr Ward and Mr Parr (or between Mr Parr and the staff other than Ms Whitehurst and Mr Reynard) as being quite so dire at the time as Mr Ward now seeks to portray them.

There was also some suggestion in cross-examination of Mr Flint that Mr Parr’s evidence was that an approach had been made to him by another healthcare agency to acquire his shareholding for £1.1 million but I did not read his evidence in that way and nor do I place any weight on that evidence given that there is no evidence as to the basis underlying the figure suggested, if indeed it was.

Mr Flint was criticised for not having regard to evidence about annual valuations of the shares which, under the terms of the share purchase agreement and associated cross option agreement, ought to have been produced at the same time as the annual accounts. That criticism seems to me to be substantially unjustified, since there was no evidence that these annual valuations have ever been undertaken and since Mr Davidson had not considered them either. Whilst there was an initial valuation in the cross option agreement which would have valued Mr Parr’s shareholding at £967,742 that was produced in 2011 and there is no evidence as to how it was arrived at, so that in my view it is of little if any weight.

Conclusions

In my view, having carefully considered the evidence and the opinions expressed, I am satisfied that Mr Davidson’s approach is largely to be preferred with one exception, which is to take the figure for March 2013 as well as the figure for March 2014. The average of those two years is to be taken and an increase of 10% is to be made to that average to produce a final figure for annual maintainable earnings. A multiplier of 4 is then to be applied to that figure to produce the final valuation for the entire shareholding.

In short, I am satisfied that the notional expert would not have placed any reliance on the figures from 2010, 2011 or 2012 as being too remote from the relevant valuation date to be of any real assistance. I consider that the expert would have placed most reliance on the annual accounts for 2013 and 2014 as representing actual profits earned in the 2 most recent annual accounting years and would have taken the average for those two years as a reasonably prudent starting point. I also consider that the expert would have had regard to the management accounts for the period to August or September 2014 and, seeing the continued significant improvement, would have increased that average by 10%, as Mr Davidson did in relation to his 2014 figure. Finally I am satisfied that the expert would have considered that some discount needed to be made from the multiplier of 5 suggested by the UK 200 data and that whilst 3 was too low 4 was reasonable given the risks and the rewards.

Putting that into actual figures, the starting point is to take the pre-tax net figures in Mr Davidson’s report at [4.23] for scenario 1 and then to deduct the additions of £52,000 for 2013 and £16,000 and £11,000 for 2014 wrongly made by Mr Davidson in his report at [4.6], [4.8] and [4.9] respectively. That produces a revised total of £584,773 and £794,898 which produces an average of £694,835.50. Adding an uplift of 10% produces a final figure of £3,057,276.30. This seems to me to be consistent both with the HB offer which would not have taken into account the improved 2014 figures and also with the actual offer made by Mr Ward and accepted by Mr Parr.

It is common ground that Mr Parr’s shareholding of 240 of 620 issued shares gave him a 38.7% shareholding so that his share would be valued at £1,183,165.93. This falls to be reduced by 50% in accordance with the bad leaver provision in the articles and hence Mr Parr would have been entitled to £591,582.96.

This must then be contrasted with the relevant comparator. The claimants’ case is that the comparator is the amount actually paid by Holdings to acquire Mr Parr’s shareholding, namely £1,242,195.

In his report Mr Davidson had been asked to consider the market value for Mr Parr’s shareholding in September 2014 (on the basis that the purchaser had no knowledge of the Payroll Fraud) in addition to the value in accordance with the bad leaver provisions. Having done so, his opinion is that as at September 2014 Keystone had a value of between £3 million and £4 million however, after applying a minority shareholder discount, he arrives at a valuation of Mr Parr’s shareholding of between £750,000 and £1 million. His assessment is that Mr and Mrs Ward were clearly prepared to pay more than that to Mr Parr on the basis that this would give them complete ownership of Keystone. In such circumstances, he considers that the consideration actually paid by Mr and Mrs Ward for his shareholding represent a reasonable assessment of the value of that shareholding.

However in my judgment it is not relevant for the following reasons:

In the circumstances the valuation of this claim is £1,242,195 less £591,582.96, namely £650,612.04.

The Diversion claims

In summary, there are the following claims which I have to consider:

The claim against Mr Parr for breach of the restrictive covenants

The claim against Mr Parr for breach of fiduciary duty

The claim to a proprietary remedy against Mr Parr

The claim against Medipro for dishonest assistance or knowing receipt

The claim for infringement of database right

The claim for misuse of confidential information

I have already made factual findings in relation to these Diversion Claims but I must now go on to consider the consequences of those findings by reference to the individual claims asserted.

The claim against Mr Parr for breach of the restrictive covenants

The restrictive covenants entered into by Mr Parr are contained within clause 6 of the SPA. Clause 6.2 set out a series of separate covenants given by Mr Parr, the effect of which I shall seek to summarise below as relevant to this case. They were all however subject to the overriding proviso in clause 6.3 to the effect that Mr Parr should not be prevented from “personally undertaking agency, NHS, NHS professionals, staff hospital bank work and private hospital work as an Operating Department Practitioner”.

Clause 6.6 contained an acknowledgement by Mr Parr that each of the covenants in clause 6.2 was considered fair and reasonable and Mr Mason realistically does not seek to suggest that this is not the case.

Clause 6.2.1 prohibited Mr Parr from carrying on or being employed, engaged, concerned or interested in, or in any way assisting, a “Restricted Business” for a period of three years. A “Restricted Business” is defined as “any business which is or would be in competition with any part of the Business as the Business was carried on at the Completion Date”. There is no express definition of “Business” which is a point which I shall address below.

Clause 6.2.2 prohibited Mr Parr from: (1) canvassing, soliciting or otherwise seeking the custom of any “Restricted Customer” with a view to providing services to them in competition with the Business; (2) inducing or attempting to induce them to cease or refrain from conducting business or reduce the amount of business conducted with Keystone for a period of three years. Restricted Customers were defined as clients or customers of Keystone or those in the habit of dealing with Keystone as at the Completion date or in the 6 months previous to that date.

Clause 6.2.3 prohibited Mr Parr from having any business dealings with a Restricted Customer for the same three year period in competition with the Business.

Clause 6.2.4 prohibited Mr Parr from soliciting or having any business dealings with any supplier of goods or services to Keystone if that caused such supplier to cease supplying or reduce its supply to Keystone.

In his closing submissions Mr Mason took a preliminary point that these clauses are not enforceable by Keystone since it was not a party to the SPA. He acknowledges the difficulty with this argument is that clause 6.4 provided that the covenants in clause 6.2 might be enforceable both by Holdings and Keystone. In my view this express provision clearly takes precedence over the general prohibition against assignment without consent or in specified circumstances appearing in clause 8 or the general prohibition against third party rights appearing in clause 15. He submits that there is a difference between the enforcement by Keystone of these covenants (presumably by injunction) and awarding Keystone damages as regards their breach. I see no proper basis for limiting clause 6.4 in this way. I have no doubt that enforcement by a claim for damages (which can of course be awarded in addition to or in lieu of an injunction) falls within the right conferred by clause 6.4.

Clause 6.4 also provided that the restrictive covenants applied to actions carried out by Mr Parr in any capacity (whether as shareholder, partner, director, principal, consultant, officer, employee, agent or otherwise) and whether directly or indirectly, on his behalf or on behalf of or jointly with any other person.

As regards the claim for breach of clause 6.2.1 in his closing submissions Mr Mason took a construction point that it was unacceptably uncertain since there was no definition of “the Business” which, as appears above, controls the definition of the Restricted Business. It is true that there is no express definition and that there ought to have been. However, it is plain from the wording of clause 6 as a whole that the Business means the business of Keystone as carried on at the Completion Date. Indeed the link between Keystone and “the business” (albeit in lower case) is made explicit in clause 5.2.1. The court must adopt a common-sense approach to construction and may have regard to the factual matrix which, as is clear from any sensible reading of the SPA, involves a sale of the shares in Keystone which is the company which carries on the business. In the circumstances I am satisfied that this point is without merit.

Given the factual findings made above it is perfectly clear in my judgment that Medipro is and has at all relevant times been effectively owned and controlled by Mr Parr and, therefore, that clause 6.2.1 has been breached. It is plain that Ms Whitehurst acts under the direction of Mr Parr in relation to all important decisions affecting Medipro. It is also plain that he has either a complete or at the very least a significant interest in Medipro. Because of the continued refusal by Mr Parr and Ms Whitehurst to acknowledge or to disclose the true position I am not in a position to make any firm findings as to whether or not as between them Ms Whitehurst holds her shareholding in Medipro entirely on trust for Mr Parr or whether there is some agreement under which the interest is shared between them in some proportion. That however does not matter since on any view the connection between Mr Parr and Medipro is plainly sufficient to engage clause 6.4.

It is clear from my findings that the way in which Medipro was incorporated with Ms Whitehurst as the ostensible sole shareholder and sole director and the way in which Mr Parr’s ownership of the premises was disguised engage the concealment principle as expounded by Lord Sumption JSC in Prest v Petrodel Resources Ltd [2013] UKSC 34, as summarised and as discussed by Stafford & Ritchie at [9.66]. It follows in my judgment that if Keystone elects to pursue an account of profits Mr Parr is liable to Keystone on the basis of the profits made by Medipro.

It is important that I make it clear that my finding that there has been a breach of clause 6.2.1 is made on this firm and over-arching basis rather than solely on the lesser basis that the “assistance” provided by Mr Parr to Medipro, by providing it with funds and by providing it with rent-free accommodation from the outset and by interviewing prospective workers is itself a breach, since the damages which might be awarded for those more limited breaches may be different to and less extensive than those which may be awarded on the basis of the more wide-ranging breach which I have found.

In case I am wrong about this, however, I should also address the lesser basis. In his closing submissions Mr Mason argued that providing monies to Ms Whitehurst personally did not amount to assisting Medipro as a Restricted Business. I accept that by itself it would not. However, providing monies to Ms Whitehurst with the clear intention and common understanding that she would use them to fund Medipro, as I am quite satisfied happened here, does amount to a breach of clause 6.2.1. He also argued that providing it with accommodation on a market rate basis would not breach the covenant. Again I agree but providing the accommodation on what was, I am satisfied, clearly intended and understood to be a rent free basis until such time as Medipro could afford to pay rent, did amount to a breach.

Finally, Mr Mason argued that interviewing prospective agency workers was within the exception provided for by clause 6.3 (see above) since that was an activity which could only be undertaken by an ODP. However it is not an activity which is expressly included in clause 6.3 and I am satisfied that it cannot be said that it is implicit in clause 6.3 that any activity which may lawfully be carried out by an ODP – even if it is an activity which can only be carried out by an ODP – is within that exception. The fact that Mr Ward became aware of this activity a year or so before issuing proceedings but took no action at that point is irrelevant to any issue of liability.

In his closing submissions Mr Mason observed that there was no direct evidence of soliciting or poaching by Mr Parr personally. I agree but that does not help him. So far as clauses 6.2.2 and 6.2.4 are concerned, on the basis that the activity undertaken by Ms Whitehurst acting for Medipro is to be treated – as I am satisfied it should – as activity directed by and in the interests of Mr Parr then I am satisfied that the solicitation of and dealing with Keystone’s clients and workers amounts to a breach of these clauses. As I said when addressing the facts, I have no doubt that it was always intended that Mr Parr should leave the direct contact to Ms Whitehurst.

In his opening written submissions Mr Budworth intimated that Keystone would be seeking “Wrotham Park” damages as against Mr Parr for breach of his restrictive covenants. He referred to the decision of the Court of Appeal in One Step (Support) v Morris-Garner [2016] EWCA Civ 180 in support of his argument that this remedy was appropriate in this case. However, after the evidence had closed but before the date for oral submissions the Supreme Court gave judgment in that case: [2018] UKSC 20. The summary at [95] given by Lord Reed, expressing the view of the majority, contains the following paragraphs which are important so far as this case is concerned in relation to what Lord Reed said it was preferable to refer to as negotiating damages [3]:

“(6)

Common law damages for breach of contract are intended to compensate the claimant for loss or damage resulting from the non-performance of the obligation in question. They are therefore normally based on the difference between the effect of performance and non-performance upon the claimant’s situation.

(7)

Where damages are sought at common law for breach of contract, it is for the claimant to establish that a loss has been incurred, in the sense that he is in a less favourable situation, either economically or in some other respect, than he would have been in if the contract had been performed.

(8)

Where the breach of a contractual obligation has caused the claimant to suffer economic loss, that loss should be measured or estimated as accurately and reliably as the nature of the case permits. The law is tolerant of imprecision where the loss is incapable of precise measurement, and there are also a variety of legal principles which can assist the claimant in cases where there is a paucity of evidence.

(9)

Where the claimant’s interest in the performance of a contract is purely economic, and he cannot establish that any economic loss has resulted from its breach, the normal inference is that he has not suffered any loss. In that event, he cannot be awarded more than nominal damages.

(10)

Negotiating damages can be awarded for breach of contract where the loss suffered by the claimant is appropriately measured by reference to the economic value of the right which has been breached, considered as an asset. That may be the position where the breach of contract results in the loss of a valuable asset created or protected by the right which was infringed. The rationale is that the claimant has in substance been deprived of a valuable asset, and his loss can therefore be measured by determining the economic value of the right in question, considered as an asset. The defendant has taken something for nothing, for which the claimant was entitled to require payment.

(11)

Common law damages for breach of contract cannot be awarded merely for the purpose of depriving the defendant of profits made as a result of the breach, other than in exceptional circumstances, following Attorney General v Blake.

(12)

Common law damages for breach of contract are not a matter of discretion. They are claimed as of right, and they are awarded or refused on the basis of legal principle.”

Allowing the appeal, the Court held that the judge at first instance ought not to have permitted the claimant to elect to choose negotiating damage and instead the hearing should proceed on the following basis [100]:

“It should not be, as he ordered, an assessment of the amount which would notionally have been agreed between the parties, acting reasonably, as the price for releasing the defendants from their obligations. The object of the exercise is that the judge should measure, as accurately as he can on the available evidence, the financial loss which the claimant has actually sustained. How that assessment is best carried out is, in the first instance, a matter for the judge to consider, proceeding in accordance with this judgment. If evidence is led in relation to a hypothetical release fee, it is for the judge to determine its relevance and weight, if any. It is important to understand, however, that such a fee is not itself the measure of the claimant’s loss in a case of the present kind, for the reasons which have been explained.”

In the light of that decision Mr Budworth sensibly acknowledged in oral closing submissions that it was not open to him to invite me to order that damages be assessed on this basis.

The claim against Mr Parr for breach of fiduciary duty

The way in which the claim was analysed in Mr Budworth’s written opening was that this was a classic case of a director resigning with a view to diverting the benefit of Keystone’s existing business contracts with its workers and its clients to Medipro. He cited the synthesis of principles expounded by Mr Bernard Livesey QC in Hunter Kane Limited v. Watkins [2002] EWHC 186 (Ch) which, as Rix LJ said in the subsequent case of Foster Bryant Surveying v Bryant [2007] EWCA Civ 200, had been taken largely from the judgment of Lawrence Collins J in CMS Dolphin Limited v. Simonet [2001] 2 BCLC 704 and the authorities there cited and discussed:

“1.

A director, while acting as such, has a fiduciary relationship with his Company. That is he has an obligation to deal towards it with loyalty, good faith and avoidance of the conflict of duty and self-interest.

2.

A requirement to avoid a conflict of duty and self-interest means that a director is precluded from obtaining for himself, either secretly or without the informed approval of the Company, any property or business advantage either belonging to the Company or for which it has been negotiating, especially where the director or officer is a participant in the negotiations.

3.

A director’s power to resign from office is not a fiduciary power. He is entitled to resign even if his resignation might have a disastrous effect on the business or reputation of the Company.

4.

A fiduciary relationship does not continue after the determination of the relationship which gives rise to it. After the relationship is determined the director is in general not under the continuing obligations which are the feature of the fiduciary relationship.

5.

Acts done by the directors while the contract of employment subsists but which are preparatory to competition after it terminates are not necessarily in themselves a breach of the implied term as to loyalty and fidelity.

6.

Directors, no less than employees, acquire a general fund of skill, knowledge and expertise in the course of their work, which is plainly in the public interest that they should be free to exploit it in a new position. After ceasing the relationship by resignation or otherwise a director is in general (and subject of course to any terms of the contract of employment) not prohibited from using his general fund of skill and knowledge, the ‘stock in trade’ of the knowledge he has acquired while a director, even including such things as business contacts and personal connections made as a result of his directorship.

7.

A director is however precluded from acting in breach of the requirement at 2 above, even after his resignation where the resignation may fairly be said to have been prompted or influenced by a wish to acquire for himself any maturing business opportunities sought by the Company and where it was his position with the Company rather than a fresh initiative that led him to the opportunity which he later acquired.

8.

In considering whether an act of a director breaches the preceding principle the factors to take into account will include the factor of position or office held, the nature of the corporate opportunity, its ripeness, its specificness and the director’s relation to it, the amount of knowledge possessed, the circumstances in which it was obtained and whether it was special or indeed even private, the factor of time in the continuation of the fiduciary duty where the alleged breach occurs after termination of the relationship with the Company and the circumstances under which the breach was terminated, that is whether by retirement or resignation or discharge.

9.

The underlying basis of the liability of a director who exploits after his resignation a maturing business opportunity of the Company is that the opportunity is to be treated as if it were the property of the Company in relation to which the director had fiduciary duties. By seeking to exploit the opportunity after resignation he is appropriating to himself that property. He is just as accountable as a trustee who retires without properly accounting for trust property.

10.

It follows that a director will not be in breach of the principle set out as point 7 above where either the Company’s hope of obtaining the contract was not a ‘maturing business opportunity’ and it was not pursuing further business orders nor where the director’s resignation was not itself prompted or influenced by a wish to acquire the business for himself.

11.

As regards breach of confidence, although while the contract of employment subsists a director or other employee may not use confidential information to the detriment of his employer, after it ceases the director/employee may compete and may use know-how acquired in the course of his employment (as distinct from trade secrets – although the distinction is sometimes difficult to apply in practice).”

In his closing submissions Mr Ward contended that this was the only way in which the case was pleaded so that the evidence adduced as to Mr Parr’s financial support for Medipro was irrelevant. However in my view the case as pleaded at [53] is wider than Mr Ward contended, so that [53] has to be read in the context of the preceding paragraphs from [41] onwards alleging that Medipro was set up to compete with Keystone, using its database and confidential information and approaching its clients and workers and being funded by Mr Parr.

Mr Ward also contended that it could not be a breach of fiduciary duty for a director simply to set up in competition once he had resigned from the company he had served. I agree. However given my factual findings this is a clear case of breach of fiduciary duty going well beyond lawful competition following resignation. Once Mr Parr knew, by June 2014 at the latest, that Mr and Mrs Ward were going to buy him out, he immediately proceeded in conjunction with Ms Whitehurst and Mr Reynard to start to make preparations for setting up a competing business which would, effectively, mirror Keystone’s business and which would seek to obtain business from those clients and those workers who Mr Parr believed would be receptive to an approach by undercutting Keystone on rates and by offering - through Ms Whitehurst - a personal service which he believed would be an improvement to that offered by Keystone. He was, therefore, seeking to acquire for himself Keystone’s opportunity to carry on doing business with those clients and those workers. He did so in the full knowledge that he was subject to post-departure restrictions under the shareholders agreement and that he would be accepting similar post-departure restrictions under the SPA as part of the agreed consideration for his being paid a very substantial amount for his shareholding. He procured Mr Reynard and Ms Whitehurst to breach their duties of loyalty to Keystone by illicitly copying documentation held by Keystone which would enable the new business to approach the key workers and to produce the compliance documentation required to obtain business from the key clients. He set up Medipro as a company with which he ostensibly had no connection so as to seek to throw Mr Ward off the scent and so as to seek to deny involvement with Medipro if challenged.

As Rix LJ said in Foster Bryant at [65] “although general principle is not in doubt, the extent of a director’s duty in particular situations may depend on the circumstances”. He referred at [74] to what Etherton J had said in Shepherds Investments Ltd v. Walters [2006] EWHC 836 to the effect that establishing the precise point at which the preparations for the establishment of a competing business by a director becomes unlawful would depend on the actual facts of the particular case. Here I have no doubt that on these facts that the line was crossed and the point had occurred well before Mr Parr resigned as a director on 16 September 2014.

In the circumstances I am satisfied that Keystone is entitled to an account of profits or to damages at its election for breach of fiduciary duty.

The claim to a proprietary remedy against Mr Parr

In his closing written submissions Mr Budworth submitted at [100 – 102] that the circumstances in which the business was obtained by Medipro from Keystone’s clients justified a proprietary remedy which, he submitted, was not a matter of discretion and which should be awarded on the basis of an assessment of the capitalised value of that business. Whilst the claim to a proprietary remedy was pleaded only as against Medipro it appears also to be made against Mr Parr and since the two are connected it is convenient to address the claim against Mr Parr first at this point.

In support of that proposition he referred extensively to the decision of Lewison J in Ultraframe v Fielding [2005] EWHC 1638 (Ch). In that judgment Lewison J conducted, from [1511] onwards, a detailed analysis as to the circumstances in which a claimant may obtain a proprietary remedy against a defaulting fiduciary. The following points emerge as relevant to this case:

Whilst Stafford & Ritchie consider (in their discussion at [9.248] and following) that there may be grounds for questioning the correctness of the conclusion in Ultraframe that a business cannot be the subject of a proprietary claim, particularly in the light of the later decision of the Supreme Court in FHR v Cedar [2014] UKSC 45, I am satisfied that I should follow Ultraframe in this case and that any challenge to the correctness of that decision should be for a higher court in a case where the point may become relevant.

It would appear that Mr Budworth may have recognised this difficulty since in his written closing submissions at [100] he appears to have limited the claim to the capitalised value of the “business disclosed by Medipro from the former 8 Keystone clients”. Moreover, in oral closing submissions he contended that the business which Keystone conducted with those clients amounted to goodwill and thus which, on Lewison J’s analysis, was property which could be the subject of a proprietary claim.

The difficulty with the written submission is that there is no obvious basis for holding that Keystone has a proprietary claim in relation to these particular elements of Medipro’s business or that it is entitled to relief on the basis of a capitalised value of that part of the business. If Keystone wished to make a proprietary claim it would have to identify property which it wished the court to declare Medipro held – or has held - on trust for it. It is clear that Medipro does not have, any more than Keystone ever had, any contractual relationship with the particular clients capable of amounting to property.

The difficulty with the oral submission is that I am not satisfied that a claim to a proprietary interest in relation to any goodwill as regards these particular clients has been clearly made or established. The following points are material:

Mr Budworth urged me to uphold a proprietary claim on the basis that it represented a just result in the circumstances of this case and, moreover, one which could readily and without prolonged enquiry be established and quantified by reference to the capitalised value of the business as at date the business was taken. However in my view there are at least three objections to that argument. The first is that on the law as I understand it either there is a proprietary claim or there is not. The court cannot allow a proprietary claim simply because it appears just or more convenient in the particular circumstances of the case. The second is that if the facts justify it Keystone may obtain the same relief on the taking of the account without needing to secure a proprietary claim: see the analysis by Lewison J of Upjohn J’s decision in Re Jarvis [1958] 1 WLR 815 and the decision of the House of Lords in Boardman v Phipps [1967] 2 AC 46 at [1534-1535 and 1542-1546] and see also his conclusion as to governing principles as regards the taking of an account at [1588]. The third is that, as evidenced by the observations of the Supreme Court in the One-Step case considered above, it is not obvious that a claim for the capitalised value of a diverted business is necessarily a simpler and more straightforward way of making a claim than is a claim to ascertain the profit obtained by a defendant from his breach of duty.

Finally, and for the same reasons as stated above in relation to the claim for breach of the restrictive covenants it is clear in my judgment that if Keystone pursues a claim for an account of profits then Mr Parr is liable to an account on the basis that he is liable for the profits made by Medipro. Whilst I note that in Ultraframe Lewison J reached – at [1550-1576] - a different decision, that was a decision on the particular facts of that case, in the context of the defendant’s counsel having accepted that a fiduciary would be liable for profits made by a third party where the corporate veil could be pierced [1550] and where Lewison J having concluded that the fiduciary would be liable for the company’s profits where it was a “mere cloak or alter ego of the fiduciary” [1576]. Given the subsequent recognition by the Supreme Court in Prest of the concealment principle in my view the same result would apply in this case.

Moreover, as I have already observed, in Ultraframe Lewison J set out the governing principles applicable to the taking of an account at [1579-1588] and, at [1588(v)], observed that “in some cases it may be appropriate to order the making of a payment representing the capital value of the advantage in question, either in place of or in addition to an account of profits”.

Since this was not something which Mr Budworth expressly argued in closing submissions it would be wrong in my view for me to accede or otherwise to that option in this judgment. It clearly has its attractions but equally there is the objection to which I have already adverted that not all of the business was lost to Keystone. If it is to be pursued by Keystone either as an alternative to an account of profits or as the basis on which the account is to be taken then it should be the subject of express notification and submission at the post-handing down judgment hearing.

The claim against Medipro for dishonest assistance or knowing receipt

The essential ingredients of each were summarised by Lewison J in Ultraframe at [1478] and [1480] – [1481] respectively, where he said this:

Whilst there has been some debate, following the decision of the Privy Council in Barlow Clowes v Eurotrust [2006] 1 WLR, as to whether the second limb of that test is still a necessary pre-requisite of liability, that is not something which I need to determine on the facts of this case.

Lewison J gave further consideration to the relevant principles in relation to dishonest assistance at [1495] – [1510] to which I have regard

As regards the claim for knowing receipt, Medipro contended in its written opening at [31] that the legal basis of this claim is fundamentally flawed since Keystone did not have any intangible property which it could be said that Mr Parr wrongfully diverted from Keystone, such as the benefit of any exclusive contractual relationship with any of the relevant clients or personnel. This would not necessarily have provided an answer had I concluded that Keystone did have a proprietary claim however, given my conclusion in that respect, the claim as made on that basis must fail.

However the claim for dishonest assistance does not require any interference with property, tangible or otherwise. It does require knowledge. In closing submissions Mr Budworth made it clear that Keystone’s case was that Ms Whitehurst’s knowledge of what both Mr Parr and Mr Reynard had done and what she had done was plainly sufficient to establish knowledge. I agree. This is not a case on the findings I have made where it can be said that Ms Whitehurst did not know as much as Mr Parr as to the true position. Moreover, even if I was wrong about that it is apparent that given my conclusions as to Mr Parr’s true role in relation to Medipro the knowledge of Mr Parr will be imputed to that of Medipro.

In my judgment it is plain that both Ms Whitehurst in her capacity as ostensible sole shareholder in and director of Medipro and Mr Parr in his capacity as concealed owner (or co-owner) and controller (or co-controller) of Medipro knew full well that what they were doing in relation to Medipro was in breach of Mr Parr’s fiduciary duties as a director owed to Keystone. That is one of the reasons, I am satisfied, why he sought to conceal his activities from Keystone and why Ms Whitehurst has connived in this throughout. In short, I am satisfied that the entirety of Medipro’s conduct in undertaking the competing business with the conscious benefit of the use of information obtained from Keystone and targeting its workers and clients and using funds obtained from Keystone and seeking to conceal Mr Parr’s interest in Medipro represents a campaign of dishonest assistance provided to Mr Parr in relation to his breaches of fiduciary duty.

It is not necessary that the assistance should have taken place at the time of the breach, although a causal link between the assistance and the breach must be established. On the factual findings I have made the breaches of fiduciary duty were all committed with the intention that the beneficiary of the fruits of that activity should be the new company which was to be set up post Mr Parr’s departure from the company. It follows in my judgment that Medipro did indeed dishonest assist Mr Parr in his breach of fiduciary duty.

It is clear from the judgment of Lewison J in Ultraframe at [1589-1601] that Medipro will be liable to Keystone either for the loss suffered by Keystone as a result of Mr Parr’s breach of fiduciary duty or for the profit which it made as a result of assisting in the breach. Although in closing submissions Mr Ward contended that it was not appropriate for the court in the exercise of its discretion to order an account given what he submitted was the limited assistance to Medipro afforded by Mr Parr, given my factual findings as to the extent of his involvement I am satisfied that Keystone is plainly entitled to an account. Accordingly, it follows that on the facts of this case Medipro’s liability will be co-extensive with that of Mr Parr.

The claim for infringement of database right

A database is defined to mean a collection of independent works, data or other materials which are arranged in a systematic or methodical way and are individually accessible by electronic or other means. A property right, known as a 'database right', subsists in a database if there has been a substantial investment in obtaining, verifying or presenting the contents of the database. Infringement occurs where a person extracts or re-utilises all or a substantial part of the contents of the database without the owner’s consent.

Mr Ward contends that Keystone’s pleaded case for database right infringement is expressly – see [47] - limited to the allegation in relation to February 2012. Mr Budworth disputed this. He submitted that whilst [47] refers specifically only to the February 2012 transmission nonetheless the database right infringement claim is not expressly so limited and extends, in accordance with the pleaded case at [47.1 and 47.3] to the further transmissions from June 2014 onwards and the copying of the File Maker programme. Whilst the pleading is not in this respect a model of clarity I accept that the pleaded case is wide enough to extend to the totality of the conduct complained of in this respect. I also accept that Medipro could have been in no doubt, in preparing for and in arguing its case at trial, that this was Keystone’s case. There is no injustice to Medipro, in my judgment, in permitting Keystone to rely on the totality of the conduct complained of.

It therefore extends not only to the scanning and emailing of the worker packs which, at that stage, existed only in paper form but also to the use of the equivalent information as contained in File Maker. Even if that was not so, nonetheless it is clear that a paper database is within the scope of the Database Regulations and I have no doubt that the worker packs collated and maintained by Keystone as at February 2012 fell within the definition of a database and that it enjoyed a database right in that database given the time and effort which had plainly been expended on its collation and maintenance, by Ms Whitehurst amongst others. The same conclusion plainly follows in relation to the information on File Maker.

Moreover, given my factual findings as above I am satisfied that Mr Parr and Medipro infringed Keystone’s database right in the information by extracting it in the course of Medipro’s business and that Keystone is entitled to relief in that respect, although there is no reason to believe that the relief available under this head of claim will differ from or be any more extensive than the relief available in relation to the claims which I have already considered and upheld against Mr Parr and Medipro, given that the database right infringement claim is really part and parcel of the overall conduct complained of.

The claim for misuse of confidential information

I have already referred to the fact that the shareholders agreement contained in clause 15 a confidentiality provision which, in summary and as relevant to this case, provided that Mr Parr should as regards information which he had in relation to Keystone’s customers, suppliers, business, assets and affairs and which was not public knowledge use all reasonable endeavours to keep confidential and on request return any documents containing such information upon termination of this agreement. It was expressly provided that the obligations under clause 15 should continue without time limit and notwithstanding termination of the agreement itself.

This, therefore, was an express contractual obligation which governs his obligations as owed to Keystone in relation to confidential information aside from the obligations in respect of such information which he also owed to Keystone in his capacity as its director and fiduciary.

Keystone did not seek to impose any specific relevant obligation in respect of confidential information upon Ms Whitehurst. So far as Medipro is concerned, self-evidently it had no contractual relationship with Keystone and, hence, the basis for its liability must be found in the application of the principle, expounded by Lord Nicholls in Campbell v MGN Newspapers [2004] 2 AC 457 at [14], that the law imposes a duty of confidence whenever a person receives information he knows or ought to know is fairly and reasonably to be regarded as confidential.

I have already made findings as to what Mr Parr did or procured Ms Whitehurst and Mr Reynard to do in relation to the worker packs and in relation to other documents used by Keystone in its business. Given my findings as to the true nature of the relationship as between Mr Parr, Ms Whitehurst and Medipro it cannot be argued that the knowledge of Mr Parr and Ms Whitehurst is not to be imputed to Medipro as an independent legal entity.

Nonetheless Mr Ward for Medipro contends that all this is irrelevant, since none of these documents were truly confidential to Keystone.

He submits that many, if not all, of the primary documents relating to a worker were the worker’s property and that all that Keystone would have would be copies. He pointed out that most if not all of the health records would be submitted to and retained by Healthier Business and would be accessible by the worker whose records they were. He also put to Mr Ward in cross-examination that the information and documentation related to the worker and was information and documentation which the worker would be able and perfectly entitled to supply to anyone, including any other agency.

I accept that it is clearly the case that the information and documentation had been obtained by Keystone from the worker and that the worker would have been entitled to provide the same information and documentation to anyone else. Nonetheless it is also clear in my judgment that any competing agency, particularly one set up to compete directly with Keystone in relation to its workers and its clients, would find it extremely useful to have this information because it would enable it to make contact with the worker to persuade him or her to join the new agency on the basis that they need provide nothing more to register with the new agency and do nothing more than to attend an interview and because it would enable the agency to inform prospective clients that it had all the necessary information and documentation required to demonstrate compliance with the regulatory requirements in terms of the supply of that worker to work for that client.

It was also put to Mr Ward in cross-examination that none of the documentation which was emailed was anything other than historical and of no use to any rival agency at that stage.

It is true that some of the documents, for example the original application forms, had been created some time ago. However, I accept Mr Ward’s evidence that this did not mean that all of the information, for example in the application form, was out of date and hence of no use. The same is true of information for example in relation to bank details and also in relation to the worker’s inoculation history.

Mr Ward for Medipro also pointed out that the staff handbook was provided to every worker on Keystone’s books and indeed, according to Mr Parr in answer to Mr Ward, was provided to every worker attending an interview even if they were not subsequently taken on. He also took Mr Parr to similar documents which he said could be found online. In his closing submissions he considered a number of separate documents and submitted that individually they could not be said to be confidential.

In my judgment none of these points assist the defendants. That is for two reasons.

The first is that Mr Parr was under an express contractual duty of confidentiality. That was expressly said to extend to all information regarding its customers, suppliers, business, assets and affairs save where public knowledge. There is no reason in principle why this contractual obligation should not be upheld without the need to show that the scope of the information referred to would be confidential even without that contractual provision. I do not consider that it is relevant that some of the information in the worker packs was already in the possession of the workers or other agencies and was not information which was the property as such of Keystone or that other information, for example the staff handbook and employment contracts, was widely disseminated to workers without apparent restriction. The plain fact is that all of this information in the hands of Keystone was information which could not and should not have been passed out of Keystone’s control unless authorised for example by the staff handbook being given to a worker. It was not public knowledge.

The second is that for similar reasons the information contained in the worker packs and in the other business documents was all known full well by Mr Parr and Ms Whitehurst to be a key part of Keystone’s business. Mr Parr cannot possibly say that he, as a director and fiduciary who was well aware of the processes by which this information had been obtained, was unaware of its importance to Keystone as a package and of its use to any potential competitor such as Medipro who had not produced an equivalent package of information. I am perfectly satisfied that he knew that ensuring that Medipro obtained this information with a view to short circuiting the process, which it would otherwise have been required to undertake, of obtaining its own versions of such documents without having to contact workers to obtain the necessary information from them about them, without having to trawl through the guidance available on the internet as regards the regulation of agency healthcare workers, and without having either to draft the requisite documentation or to instruct and pay lawyers to do so, was commercially extremely valuable to Medipro. It was information which he knew he was not entitled to disclose or to procure its disclosure for the benefit of Medipro as a competitor company.

It is not a sufficient answer for Medipro to say, as Mr Ward sought to do in his closing submissions, that Keystone’s documents, produced in house, containing guides to its staff as to such matters as how to undertake and record the checks to be carried out with the disclosure barring service and how to undertake and record the checks to be carried out to ensure that workers had the right to work within the UK could have been produced from scratch by someone else using information freely available on governmental websites. The fact was that Keystone, as both Mr Parr and Ms Whitehurst well knew, had already done this and produced these guides, which Ms Whitehurst was used to operating, and which were not intended for anyone else to use for non-Keystone purposes.

I am also satisfied that Ms Whitehurst knew all this as well, given her role within Keystone specifically in relation to compliance. In the circumstances it is again simply not possible to argue that this information was not confidential or that its disclosure was not a breach of duty.

In his closing submissions Mr Ward argued for Medipro that it was also necessary for Keystone to prove that there had been an unauthorised use of that information to the detriment of the party communicating the information. I am satisfied that this information has been used by Medipro in assisting it to set itself up to compete with Keystone and, therefore, that this ingredient is also made out. The question as to what benefit it has obtained and/or what detriment has been suffered by Keystone as a result of the use of this confidential information will be a matter for any quantification trial although again it appears unlikely that it will be any different from the relief awarded in relation to the claims already considered.

In the circumstances I am satisfied that the claimant has made out its case as against Medipro. Medipro is liable on the simple basis that Mr Parr’s knowledge is to be imputed to Medipro and on the further basis that, given my findings, Ms Whitehurst’s knowledge is sufficient to justify imposing liability upon it as a third party which knowingly received and used confidential information.

There is a pleaded claim for “delivery up of confidential information”. At present I am not entirely convinced that this is appropriate, in that it would need to be a very specific order which related only to specifically identified categories of information contained in specifically identified documents and/or files. Insofar for example as information taken from worker packs remains within the version of File Maker which I have held was taken and used by Medipro any competitive advantage obtained by the use of such information would long since have expired in my view. Damages or an account of profits would appear to be a sufficient remedy.

The Invoice Frauds claims

As I have said, these are claims which are pursued against Mr Parr and Mr Reynard. They are pleaded in Particulars of Claim at [27 - 34] and I shall address them separately.

I should however begin by making three preliminary observations.

The first is that at [26] of the Particulars of Claim there was an introductory paragraph which read as follows: “further, the first and second defendants have dishonestly caused the first claimant to make, unknowingly, other false payments. The claimants rely on the following based on their inquiries to date” and that, following the individual allegations which included certain allegations added by amendment, at [35] it was pleaded that: “in the premises the first and second defendants are liable to pay monies had and received in amounts to be confirmed following full disclosure and the taking of necessary accounts and inquiries”. Insofar as it is asserted by Keystone that it is entitled to rely upon specific separate allegations of fraud over and above than those which are contained in the following paragraphs or that there should be some further process of investigating further alleged frauds at some further hearing I do not accept that assertion. It was never contemplated that this claim, unlike the Diversion claims, should be a two stage process.

The second is that in his closing submissions Mr Mason contended that insofar as the remaining disputed claims were not properly particularised or evidenced by Keystone they must fail on that basis alone. Insofar as such claims are not properly particularised or evidenced then I agree that this is something to which I must have regard, but I do not accept that in itself it must lead to the dismissal of such claims. Apart from anything else, if the reason for the lack of particularisation or evidence is continuing concealment by the defendants then it would be a remarkable outcome if that could result in their dismissal.

The third is that, as I have said, Mr Reynard did not give evidence, nor did he produce any opening or closing written submissions and nor did he attend the day fixed for closing submissions. His defence to the majority of the Invoice Frauds was simply to say that they were “nothing to do with me” and he only made positive statements in relation to 3 of the specific allegations. In his short witness statement made for trial he made a general observation, consistent with Mr Parr’s evidence, that there had been an agreement or understanding between Mr Ward and Mr Parr that they should both seek to maximise their claimable expenses in order to reduce their liability to tax, and that as a part of this arrangement he had been asked to produce false invoices which, on occasion, he had done. Otherwise, he dealt specifically only with two of the allegations. As I explained to him on the first day of trial, if he did not choose to give evidence the weight which I could place on his witness statements would be limited. In the circumstances I have to determine the claim against Mr Reynard on the basis of this somewhat limited material from him.

I now turn to address each of the individual claims.

Keystone’s case is that these invoices purported to come from a company known as VAT Quest, whereas in fact the payments were made to Mr Parr and to his wife.

Shortly before the beginning of trial Mr Parr admitted liability for these claims, together with interest and costs, so that they are no longer live as against him.

Mr Reynard’s position was that this had nothing to do with him. There does not appear to be any evidence directly linking him with these invoices or payments. In oral closing submissions Mr Budworth invited me to find against Mr Reynard on the basis that he was jointly responsible with Mr Parr for conspiring to produce false invoices in relation to this claim. I am not satisfied that this claim has been made out separately as against Mr Reynard.

The complaint is that although Keystone authorised one payment to sponsor this football club, which was managed by Mr Reynard, further unauthorised payments totalling £6,000 were made of which £3,000 was paid into an account associated with Mr Reynard.

Mr Parr acknowledges that this was the subject of false invoices, however he contends that the monies have been accounted for and payments in relation to them deducted from the final payment due to him on the termination of his employment in September 2014. He refers to an email from the finance department to Mr Ward dated 15 September 2014 [9/2221] in support of his case. However this only refers to a payment of £600 being deducted from his final payment in relation to Silsden and, as Mr Budworth put to Mr Parr in cross-examination, it would be remarkable if it was agreed that Mr Parr should have to repay what was a genuine payment but not to repay what was a fraud on the company. In the circumstances I am satisfied that Mr Parr is liable for this fraud in the sum claimed.

As with VAT Quest Mr Reynard’s position is that this is nothing to do with him. However given his receipt of half of this amount into his bank account, given his involvement with the football club concerned, and more generally given his involvement with the Payroll Fraud and my overall conclusions as to his close involvement with Mr Parr in relation to Medipro and his failure to give evidence I am satisfied that Keystone has made out its case against Mr Reynard in this respect.

As with VAT Quest this claim has been conceded by Mr Parr. I am not satisfied that the evidence is sufficient to show that Mr Reynard is also liable for this claim.

Keystone relies upon an Excel spreadsheet produced by Mr Reynard [7/1701] which it says records Mr Parr and Mr Reynard having agreed to make inflated claims for payment for Mr Reynard’s services in May 2016 with the proceeds of the fraud being split equally between them.

Keystone also contends that there was a similar agreement for a split of the increased hourly rate obtained by Mr Parr for Mr Reynard in January 2014, relying upon the Excel spreadsheet and the discovery that following this rate increase Mr Reynard’s payments were paid into Mr Parr’s bank account until Mr Parr left Keystone in September 2014. They also rely on an invoice submitted by Mr Reynard in March 2014 and approved by Mr Parr [11/2920] which claims the increase backdated to the date of the original consultancy agreement.

In my view what this spreadsheet demonstrates is two separate arrangements. The first is an agreement to inflate the total number of hours by 27.75 hours, resulting in an excess claim for payment by Mr Reynard which is fictitious and fraudulent as against Keystone and for which, I am satisfied, both Mr Parr and Mr Reynard are liable to Keystone. Although Mr Parr denied any involvement in this scam I am satisfied on the balance of probabilities that he was a party to it given the close relationship between the two men in relation to the frauds against Keystone generally and given that the spreadsheet refers to this amount being split equally the plain inference, I am satisfied, being that the two men were to share equally in the proceeds.

The second, and separate arrangement is to show separately the total amount on the basis of the agreed increased hourly rate of £35 and on the basis of the previous hourly rate of £24. It is the second lower amount which was to be shown to “Claire”, who is Mr Reynard’s wife and from whom, Mr Reynard explained, that increased payment was to be concealed because it was to be used to fund a trip to Las Vegas which Mr Reynard and Mr Parr were planning to take. Again, however, the spreadsheet records that the difference is to be divided equally. Nonetheless having regard to my assessment of Mr Parr as being someone who would not have taken money away from Mr Reynard when otherwise it would have been used for Mr Reynard to fund a joint trip to Las Vegas which Mr Parr would plainly have afforded anyway but which Mr Reynard could not I am satisfied that the arrangement was not that he should benefit from the rate increase and nor did he. Moreover, having heard Mr Ward under cross examination, I am perfectly satisfied that there is no basis whatsoever for seeking to treat as fraudulent the agreement, willingly agreed and signed off by Mr Ward, under which an increased hourly rate was to be paid to Mr Reynard.

In the circumstances I am satisfied that the second element of the complaint is not established. It is therefore unnecessary for me to address the schedule produced by Mr Budworth in oral closing submissions which sought to quantify the second element of the claim in the sum of £42,603.77.

The amount involved in relation to the first scam on the face of the document was £962.50. In oral closing submissions Mr Budworth accepted that there was no evidence as to the extent, if at all, to which the same fraud occurred in relation to all of the invoices submitted by Mr Reynard from February to September 2016 inclusive. In the circumstances I award Keystone £962.50 under this claim.

Keystone relies on invoices found on Mr Parr’s computer from two cleaning companies which, it says, closely resemble invoices produced in relation to the consultant Mr Caldicott (see below under ECT), in respect of which it is common ground that Mr Parr produced invoices and received payment. Relying upon this and upon the lack of supporting information Keystone invites the court to infer that these are “false payments orchestrated by Mr Parr”.

Mr Parr contends that these invoices relates to cleaning services undertaken by Keystone’s employees and, hence, that they represent genuine claims for services genuinely provided.

Under cross-examination Mr Ward accepted that he was aware of a genuine arrangement, sanctioned by him, under which Mr Parr and other employees of Keystone undertook cleaning work at operating theatres which was invoiced through Keystone. Indeed Ms Hayman confirmed in her evidence that she was part of this arrangement, although she was one of the employees who, rather than receiving payment in cash, insisted that she received payment through her PAYE employee status. Mr Ward’s position appears to be that he had no knowledge of these invoices before coming across them on Mr Parr’s computer so that he was unable to confirm whether or not they referred to this activity and, hence, were genuine. When asked, he accepted that he could not positively say that these were fraudulent invoices, as opposed to invoices in respect of which there were questions to be asked. His position was that he awaited hearing what Mr Parr would say about it when cross-examined.

Under cross-examination Mr Parr maintained his account. He accepted that the invoices were fictitious in the sense that no such companies existed but maintained that this was purely a device for accounting purposes to enable cash payments to be made to the Keystone employees who had done the cleaning work.

I am satisfied from the evidence that this was a genuine arrangement which did not involve any concealment from Mr Ward or any theft from Keystone or any concealed profit finding its way to Mr Parr so that this claim fails.

This claim has been withdrawn. As I said when referring to Mr Ward’s evidence, I was unable to understand the basis on which this claim was advanced and persisted in until trial without Keystone or its legal advisers taking the elementary step of corresponding directly with the firm of solicitors to ascertain if the invoices were genuine or not. Had they done so they would have discovered that they were genuine and the claim would undoubtedly either never have been pursued or persisted in until such a late stage.

This refers to payments made by Keystone to Mr Caldicott for working shifts at the Becklin Centre, also referred to as the ECT Centre, to which reference has already been made. I have also already referred to Mr Caldicott in my summary of the facts and explained that it is common ground that: (a) there was a close relationship between Mr Parr and Mr Caldicott; (b) for many years Mr Caldicott was registered with Keystone to provide medical services at the Becklin Centre; (c) it was agreed that in return for taking it upon himself to arrange an alternative if he could not provide those services Mr Caldicott should be paid an additional premium of £50 per shift. During the course of investigating the Payroll Fraud Keystone discovered that a number of the fraudulent payments were remitted into an account in the name of Mr Caldicott. On that basis it is pleaded that “the premium may in fact have been taken by Mr Parr”.

Under cross examination Mr Ward accepted that he had reported this matter to the police who had taken no action on the basis, so it was suggested to him, that Mr Caldicott had confirmed that he had received additional premiums.

Under cross-examination Mr Parr explained that he had effectively taken charge of the relationship between Mr Caldicott and Keystone due to the disorganisation of the former in relation to financial and administrative matters and refuted any suggestion that he would have stolen monies intended for his friend.

In my judgment there is no evidence that Mr Parr has done so and I accept that it is improbable that he would have taken monies intended for his friend. For that reason alone this claim fails. Even if I was wrong and he had done so, it is not immediately obvious that Keystone would be entitled to recover the money in any event, since insofar as there was any breach it was of a duty owed to Mr Caldicott and not Keystone and I doubt that the disgorgement analysis would extend that far. Whilst it is possible that there was some side agreement between Mr Caldicott and Mr Parr under which the former agreed that the latter could retain some of the payments as recompense for his services, that is not the way the case is advanced and for the same reasons as above it is not immediately obvious why Keystone should be entitled to require Mr Parr to disgorge that money if that is what happened. It is important to remember that Keystone does not challenge the agreement under which Mr Caldicott was entitled to the £50 and, in the absence of any suggestion or reason to believe that the arrangement should be vitiated because it was always intended to benefit Mr Parr and not Mr Caldicott from the start, there is no obvious or compelling basis for interfering with any private arrangement which may have been made between the two men.

The complaint is that Mr Parr and Mr Reynard agreed to and did inflate an invoice for car rental by adding £2000 to the true amount and that it was paid in the full amount by Keystone in the belief that it was genuine.

Mr Parr admits that the invoice was falsely inflated, however he contends that the invoice was credited against his final salary payment in the same way and by reference to the same email as referred to in relation to Silsden Juniors above.

It is clear from the email in question at [9/2221] that £3000 was indeed removed which related to the minibus. The total of the actual original invoice was £1,325, whereas the total of the fraudulent amended invoice was £3,325. Whilst it is not entirely clear why the amount removed was £305 less than the invoice claimed, on any analysis it is clear that the fraudulently inflated £2000 was indeed credited. In the circumstances it is clear that this claim must fail.

The complaint is that Keystone have discovered an email dated 7 April 2014 [7/1745] referring to a fraudulent scheme to enable 10 licences to be claimed as having been acquired by Mr Parr when in fact only one was required, with doctored invoices being submitted in support and paid by Keystone in good faith.

Mr Parr claimed that in fact no such claim had been made. Under cross examination Mr Ward accepted that there was no evidence that this scheme had in fact been put into effect. However Mr Ward had referred in his witness statement to invoices which he said showed this plan being put into effect. In cross-examination it was put to Mr Parr that an invoice dated 7 April 2014 [8/1910] was the fraudulent invoice, in the amount of $650 (£395.80 equivalent). Although Mr Parr stated that he did not recognise this invoice on balance I am satisfied that this does represent a fake invoice fraudulently submitted and paid and hence that Mr Parr and Mr Reynard are jointly and severally liable for the amount of £395.80.

The complaint is that whilst it was agreed that Keystone should host a farewell party for Mr Parr at a restaurant of this name, Mr Parr procured Ms Whitehurst to produce a false deposit slip to say that an £800 deposit was required to secure the booking which Keystone paid in good faith.

Mr Parr accepts that this is what was done. His case is that by this stage he had no faith that Mr Ward would repay the cost of this party so that he arranged for this to be done to ensure that he obtained at least some funds up front from Keystone. In short, although he has to accept that the payment was obtained by a deception, he contends that nonetheless the expense was sanctioned and is genuine. His difficulty is that he has been unable to produce any evidence as to the costs actually incurred for this farewell party. He accepts that in fact no one turned up to this farewell party, according to Mr Ward because it was cancelled by Mr Parr, so that only Mr Parr and Mr Reynard attended.

Since it is inherently unlikely that two people could have run up a bill for anything like £800, at least on any genuine basis, and since I have no doubt that Keystone would never have agreed to pay this cost had it known that the event was for the benefit of the two men who had perpetrated the Payroll Fraud upon it, I have no doubt that Mr Parr’s defence should be rejected and that he is liable for this amount.

There is, however, no basis in my view for holding Mr Reynard liable for this claim.

In summary, Mr Parr is liable as to £8,158.30 (together with the amounts already admitted, insofar as not already discharged) and Mr Reynard is liable as to £7,358.30.

Conclusions

For the reasons I have given in my judgment:

All further matters, including the terms of the order to be made and directions in relation to the quantification of the outstanding claims, will be addressed once this judgment has been handed down.