Interactive Technology Corporation Ltd v Ferster, Court of Appeal - Civil Division, July 05, 2018, [2018] EWCA Civ 1594

Resolution Date:July 05, 2018
Issuing Organization:Civil Division
Actores:Interactive Technology Corporation Ltd v Ferster
 
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Neutral Citation Number: [2018] EWCA Civ 1594

Case No: A3/2017/0581

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Mr Justice Morgan

[2017] EWHC 217 (Ch)

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 5 July 2018

Before:

LORD JUSTICE DAVID RICHARDS

and

LORD JUSTICE NEWEY

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Between:

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Graeme McPherson QC and Michael Bowmer (instructed by DAC Beachcroft LLP) for the Appellant

The Respondent did not appear and was not represented

Hearing date: 18 April 2018

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Lord Justice David Richards :

  1. This appeal concerns the meaning and effect of an order for the assessment of equitable compensation made by Morgan J following the trial of claims for breach of fiduciary duty. The claims were made by the appellant company (ITC) against a former director, the respondent Jonathan Ferster. The respondent has since been made bankrupt and neither he nor his trustee in bankruptcy has appeared on this appeal or taken any part in it.

  2. The relevant claim for the purposes of this appeal was that Mr Ferster had dishonestly caused the company to pay substantial unauthorised remuneration to him in excess of the salary of £120,000 per annum to which he was entitled. Morgan J found this claim to be established. The exact amount of the unauthorised remuneration has yet to be established but Mr Ferster has accepted that it is not less than £4.48 million.

  3. After Morgan J handed down judgment on 15 November 2016, a hearing took place on 19 December 2016 to deal with consequential matters, including the terms of the order to be made. As regards relief in respect of the unauthorised remuneration, each party put forward a draft order which differed marginally but Mr Andrew Thompson QC for Mr Ferster said the differences were immaterial. As Morgan J later recorded in his judgment dated 10 February 2017 (the February judgment), giving his reasons for the Order now under appeal, there was essentially common ground that the court should make an order in the terms of the draft provided by Mr Alan Gourgey QC on behalf of ITC.

  4. The order was as follows:

    ``Judgment be entered for ITC for equitable compensation to be assessed in respect of the payment to Mr Jonathan Ferster of unauthorised ``remuneration'' from ITC that was in excess of Mr Jonathan Ferster's entitlement under Paragraph 6 above (``the Unauthorised Remuneration'').

  5. In his skeleton argument for the hearing on 19 December 2016, Mr Gourgey said:

    ``ITC is entitled at its option to repayment of the unauthorised remuneration taken by Jonathan or to equitable compensation for breach of fiduciary duty. For the reasons given in the Judgment (Judgment, ¶ [229]), an assessment of equitable compensation will be greater than an order for the repayment of the unauthorised element. ITC's current intention is to elect at the hearing for the remedy of equitable compensation. The equitable compensation is likely to be made up of (1) the amount of the unauthorised remuneration and (2) national insurance paid by ITC on the unauthorised remuneration. ITC reserves the right to seek in due course by way of consequential relief an order that Jonathan is liable to indemnify ITC in respect of any tax penalties and interest levied by HMRC following the reinstatement of ITC's accounts to reflect the amount of remuneration that was properly payable to Jonathan.''

  6. After agreement had been reached on the terms of the order, Mr Gourgey made submissions in support of an application for an interim payment in respect of the equitable compensation. Mr Thompson responded that it was far from certain that ITC had suffered any loss which could form the subject of compensation. He submitted that on the evidence given at trial as to the market value of Mr Ferster's services, the remuneration received by him did not exceed that market value, with the result that ITC had suffered no loss. This was a new argument that had not been pleaded nor mentioned in any previous written or oral submissions. It was, of course, contrary to the position taken by Mr Gourgey in the passage from his skeleton argument that I have quoted and which, it may fairly be said, was his understanding of the effect of the order that he had proposed and that Mr Thompson had agreed on behalf of Mr Ferster.

  7. The judge pointed out the major point of principle that now appeared to divide the parties. Mr Gourgey submitted that the losses...

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