The Court of Appeal has dismissed a case brought by the former director of a Huddersfield employment agency who was found liable for more than £650,000 last year.
The hearing was livestreamed over the internet by the Court of Appeal due to its legal significance.
Sitting with Lord Justice McCombe and Lord Justice Bean, Lord Justice Lewison dismissed the appeal.
Leeds-based business law specialist Front Row Legal acted for Keystone Healthcare in their claims against Colin Parr. Managing Partner Richard Cramer said:
“We are delighted at the outcome of today’s Court of Appeal case. Before our barrister had made even a single submission to the court, the appellant Colin Parr had his appeal dismissed.”
Until 2014 Mr Parr was a director and shareholder in Keystone, which supplies agency staff to the NHS. Co-director Richard Ward agreed to pay Mr Parr £1.2 million for his 38 per cent shareholding and he subsequently left the firm.
Mr Parr then set up a new company in direct competition with Keystone, doing so in breach of his employment contract.
A little over 18 months later Keystone discovered that its payroll system had been compromised months prior to the departure of Mr Parr, and a series of bogus payments made to accounts controlled by him and IT consultant Mark Reynard. The misappropriated funds ran to more than £128,000.
Keystone immediately had the accounts frozen and launched legal proceedings. In February 2018 Mr Parr was ordered to repay the diverted funds. Then in June, High Court Judge Stephen Davies ruled that Colin Parr had been in breach of his duties as a director of Keystone and therefore must pay back the difference between the amount he received for his shares and the 50 per cent discount that would have applied, under the applicable “bad leaver” provisions, had the company been aware of the bogus payments. This overpayment amounted to £650.612.04, Judge Stephen Davies declared.
At the Court of Appeal, Lord Justice Lewison noted that:
“It is now common ground that, by participating in the fraud, and by failing to report his own misconduct, Mr Parr was in breach of the fiduciary duties which, as a director, he owed Keystone.”
The Judge continued:
“The essential point which [his legal counsel] takes on Mr Parr’s behalf is that there was a mismatch between the company to which the fiduciary duty was owed (Keystone) and the company which made the overpayment (Holdings). Mr Parr was not liable for losses sustained by Holdings, to which he owed no fiduciary duty. In essence, he says, the claim is a claim for the loss sustained by Holdings.”
But the Judge was unconvinced, saying:
“The factual difficulty is that, on my reading of the [earlier] judgment, the judge found at…that if Mr Parr had disclosed his wrongdoing he would have been removed as a director and also as a shareholder under the bad leaver provisions, which would have entitled Keystone to acquire his shares….It was for these reasons that the judge held at that there was a “sufficient nexus” between the breach of fiduciary duty and the enhanced price that Mr Parr received for his shares. In my judgment he was entitled so to hold.”
Front Row Legal Partner Richard Cramer explained:
“This effectively this brings an end to the two years of litigation and the dismissal of the appeal clearly shows that the result achieved by Keystone Healthcare 12 months ago at Manchester High Court was emphatic. It now means that Mr Parr, in addition to having to pay costs, is required to reimburse his former company with the significant sum overpaid for his shareholding, together with interest.”
Mr Cramer added:
“The legal team that worked on this matter, including Partner Robina Hussein and our barrister Martin Budworth, have achieved an outstanding result for Keystone Healthcare due to their hard work and dedication.”
Lord Justice Lewison’s ruling is available here.
Meanwhile, the hearing earlier this month is available to view online here.
Read Judge Davies’ 2018 ruling here.
For comment or more information, phone Richard Cramer on 07850 943892 or Robina Hussein on 07525 071 713.