The Newgate Stud Co & Newgate Stud Farm LLC v Anthony Penfold & Penfold Bloodstock Ltd (2005)


The absence of informed consent was a necessary part of a claim alleging self-dealing by a company director. Accordingly, the absence of such consent was a material fact of the claim for the purposes of a waiver clause that did not apply to waive all claims a company might have against a former director, where the material facts of a claim were not known to any current member of the company's board of directors.


The defendants raised defences in respect of their liability to the claimant companies (N) for breach of the self-dealing rule by first defendant (P). The court also had to determine the issue of costs. N held and managed the horse racing and bloodstock interests of N's beneficial owner (F). P had been a director of both companies. In Newgate Stud Co v Penfold (2004) EWHC 2993 (Ch) the judge found that, whilst P was a director of N, P had sold, to partnerships in which he had a financial interest, one of F's horses without his consent, and had sold a second without adequate disclosure to F. However, the court rejected N's claims in respect of another horse, all N's allegations of fraudulent breach of trust, and most of N's dishonesty claims. After P's contract with N was terminated, negotiations led to a compromise agreement in which N agreed to waive all claims and rights of action they might have against P. That clause was subject to the proviso that the waiver would not apply where the material facts of a claim or right of action were not known to any current member of the board of directors. It was common ground that a six-year limitation period applied to the claim in respect of the second sale except to the extent that any of the remedies sought by N fell within the Limitation Act 1980 s.21(1)(b). P argued that (1) the claim against him arising out of the sale of the first horse was barred by the waiver clause in the compromise agreement because one of the directors (X) knew the material facts of that claim; (2) N's claim against P for an account of the partnership's profits or of profits attributable was not a claim within s.21(1)(b) to recover trust property, namely the horse concerned, or to recover any proceeds of trust property in P's possession or previously received by him; (3) the question of costs should be adjourned until after the outcome of the accounts and inquiries.


(1) The more natural and obvious reading of the waiver clause was that it applied if the facts were known to at least one director. The absence of F's consent was a material fact of the claim for the purposes of the waiver clause. Although technically the only facts that a company needed to plead for a self-dealing claim were the purchase or other acquisition of an asset by a director from the company, and informed consent was a defence, in reality the absence of informed consent was a necessary part of the claim. X did not have knowledge of the material facts of the claim or cause of action arising out of the sale of the first horse. Accordingly the defence based on the compromise agreement failed. N was entitled to an account of profits or equitable compensation in respect of the first sale. (2) A claim for profits was limited by s.21(1)(b) to profits received by the trustee. It was a question of limitation periods, not remedies, so that it was not relevant that by parting with possession a trustee could avoid the impact of the provision. Accordingly, N was not entitled to an account of profits made by the partnership from the second sale, JJ Harrison (Properties) Ltd v Harrison (2001) EWCA Civ 1467 , (2002) 1 BCLC 162 and James v Williams (2000) Ch 1 distinguished. However, it was right to order an inquiry as to the part or parts of the traceable proceeds from the second sale that at any time came into P's possession. (3) In circumstances where N had achieved a significant measure of success in the trial resulting in final orders in their favour, it would be unjust to delay their recovery of costs and make it potentially subject to a substantial recovery once the accounts had been taken. However, an order for costs in accordance with the general rule was not appropriate given that P had had some success. It was right to take into account that, although P failed on two of the claims, he succeeded on the allegations of dishonesty against him on those claims. Those allegations added to the length of the trial and the preparation for it. At the same time P's unsatisfactory evidence was also relevant conduct to take into account. P should pay 70 per cent of N's costs, to be assessed on the standard basis if not agreed between the parties. An order for an interim payment was appropriate.

Judgment accordingly.