Stobart Group Ltd v Tinkler [2019] EWHC 258 (Comm)

Andrew Tinkler, a founder and executive director of Stobart Group Ltd, was dismissed from employment and removed from the board following allegations of breaching fiduciary duties by briefing shareholders against the board and destabilising the company. The court upheld his dismissal, finding serious breaches of duty, but rejected the company's conspiracy claim.

Facts

Andrew Tinkler was a founder, substantial shareholder, and executive director of Stobart Group Limited, a FTSE 250 company. After stepping down as CEO in July 2017, tensions developed between Mr Tinkler and the board, particularly the Chairman Mr Ferguson. In early 2018, Mr Tinkler indicated to Mr Ferguson that he was considering stepping down from the board, but instead began privately communicating with major shareholders, criticising the board’s management and advocating for Mr Ferguson’s removal. Mr Tinkler sent a Letter to Shareholders and a Communication to Employees in June 2018 that the company argued was designed to destabilise the board. On 14 June 2018, a board committee summarily dismissed Mr Tinkler from his employment and removed him as a director. At the AGM on 6 July 2018, shareholders voted narrowly to re-elect both Mr Ferguson and Mr Tinkler to the board. However, the following day, the four remaining directors invoked Article 89(5) of the company’s Articles to remove Mr Tinkler again.

The Transfer to the EBT

Prior to the AGM, the board transferred shares from Treasury to the company’s Employee Benefit Trust (EBT). The first transfer of approximately 1.7 million shares was made to meet immediate LTIP obligations. A second transfer of approximately 5.3 million shares was made with a voting recommendation to the trustee to vote in favour of Mr Ferguson’s re-election.

Issues

The key issues before the court included: (1) Whether Mr Tinkler had breached his fiduciary and contractual duties; (2) Whether the company had established an unlawful means conspiracy claim; (3) Whether the committee was properly constituted and had authority to dismiss Mr Tinkler; (4) Whether the transfer of shares to the EBT was made for proper purposes; (5) Whether the exercise of Article 89(5) to remove Mr Tinkler was valid.

Judgment

Mr Tinkler’s Breaches of Duty

The court found that Mr Tinkler had committed serious breaches of his fiduciary and contractual duties in four respects:

“Mr Tinkler acted in breach of his fiduciary and contractual duties in the following respects… (1) speaking to the Company’s significant shareholders and criticising the Board’s management and the Group’s business and agitating for the removal of Mr Ferguson; (2) improperly sharing confidential information in the form of the Duranta budget with Mr Day; (3) writing the Letter to Shareholders and the Communication to Employees; and (4) orchestrating the ELT letter and the ‘petition’. Each of these constituted a serious breach of duty.”

HH Judge Russen QC stated regarding the Letter to Shareholders:

“In my judgment, the Letter to Shareholders was a disgraceful letter for Mr Tinkler to have sent in the light of my findings under Issue 1… and the absence of any proper basis for him to go straight to shareholders with a complaint that the Company had of late been lacking strong corporate governance.”

The Conspiracy Claim

The court rejected the company’s conspiracy claim, finding insufficient evidence of the requisite intention to harm the company or an agreement to pursue unlawful means:

“I feel unable, even by a process of inference, to conclude that Mr Tinkler and Mr Day acted with the intention of harming the Company. This means that the second component for a viable conspiracy claim is also missing.”

The Transfer to the EBT

The court found that the first transfer of 1.7 million shares was made for proper purposes to satisfy LTIP obligations. However, the second transfer of 5.3 million shares was made primarily to secure a favourable vote at the AGM:

“I have concluded that the decision to transfer the 5.3m was motivated by the primary purpose of securing the trustee’s favourable vote because that is what the contemporaneous evidence shows.”

However, because the transfer was voidable rather than void, and Jupiter had exercised independent judgment in voting, the court declined to invalidate Mr Ferguson’s re-election.

Mr Tinkler’s Dismissal and Removal

The court upheld the validity of Mr Tinkler’s dismissal from employment and removal as a director on 14 June 2018, as well as the subsequent removal under Article 89(5) on 7 July 2018:

“In my judgment, there is no basis for concluding that the Four Directors exercised the Article 89(5) power on 7 July 2018 for an improper purpose. Its exercise was therefore a valid and effective one.”

Implications

This case provides important guidance on directors’ duties, particularly the duty to exercise independent judgment and the duty to act in the company’s best interests. The judgment clarifies that individual directors cannot take unilateral action outside the board structure, even if they believe they are acting in the company’s interests. Directors must raise concerns at board level and cannot bypass the board by directly approaching shareholders with criticisms of management. The case also confirms that the proper purposes rule applies to share transfers from treasury to employee benefit trusts, and that such transfers must not be made primarily to influence voting at general meetings.

Verdict: The court found that Mr Tinkler had breached his fiduciary and contractual duties and that his dismissal from employment and removal as director were valid. The company’s conspiracy claim was rejected. The Four Directors breached the duty to act for proper purposes in transferring 5.3 million shares to the EBT, but Mr Ferguson’s re-election was not invalidated.

Source: Stobart Group Ltd v Tinkler [2019] EWHC 258 (Comm)