Burnell v Trans-Tag Ltd [2021] EWHC 1457 (Ch)

Mr Burnell invested £250,000 in Trans-Tag Ltd, expecting shares in return under an agreement with Mr Aird. When shares were not issued, he sought repayment. The company counterclaimed for breach of directors' duties after Mr Burnell acquired the company's licensor. The court allowed partial recovery for both parties.

Facts

Trans-Tag Limited (TTL) was a company involved in the design, manufacture, and sale of tracking devices (Tags) and a vehicle security product (Restore). Mr Robert Aird, through Monogram Capital Limited, was the majority shareholder. Mr Alan Burnell became involved as an investor and CEO in 2016, advancing £250,000 as a loan in expectation of receiving shares making him an equal partner with Mr Aird. A Joint Venture Agreement and Licence Agreement with Trans-Tag Systems Oü (TTS), an Estonian company holding the intellectual property, governed TTL’s operations.

Disputes arose between Mr Aird, Mr Burnell, and other directors (Mr Kriisk and Mr Clark) over service agreements, shareholdings, and the running of the business. Mr Burnell was never issued the promised shares. Following Mr Kriisk’s resignation and a breakdown in relationships, Mr Burnell served a statutory demand against TTL and later acquired the shares in TTS, which subsequently terminated the Licence Agreement with TTL.

Issues

Claim

Whether Mr Burnell was entitled to repayment of the £250,000 loan from TTL on the grounds of failure of basis (total failure of consideration) due to TTL’s failure to issue shares to him as agreed. Whether Mr Aird was liable for breach of contract for failing to procure the issue of shares.

Counterclaim

Whether Mr Burnell was a director of TTL (de jure or de facto) and, if so, whether he breached his fiduciary duties (duty to promote the success of the company, duty to avoid conflicts of interest) or his equitable duty of confidence by acquiring TTS shares and causing the termination of the Licence Agreement.

Judgment

Claim

The court found that a completed agreement existed between Mr Burnell and TTL in February 2017, under which TTL was obligated to issue 90 shares to Mr Burnell upon receipt of his funds. TTL breached this agreement by failing to issue the shares. Mr Burnell was entitled to repayment of the £250,000 loan by way of restitution on the grounds of failure of basis:

“When Mr Burnell made the advances to TTL, the principal benefit for which he bargained was the transfer or issue of the shares to him so that he would become an equal partner in the business… Without the issue of the shares, Mr Burnell did not receive the main benefit for which he bargained.”

Mr Aird was also found liable for breach of contract for failing to procure the issue of shares, with damages capped at £67,500.

Counterclaim

The court found that Mr Burnell was a de facto director of TTL from 28 February 2017 until approximately 29 March 2017. However, he was not found to have breached his duties during his directorship in relation to orchestrating the resignation of Mr Kriisk or destabilising TTL.

The court did find that Mr Burnell breached his continuing duty under section 175 Companies Act 2006 (as extended by section 170(2)(a)) by acquiring shares in TTS and taking steps to terminate the Licence Agreement, thereby exploiting information and property of TTL:

“By acquiring shares in TTS and then taking action to terminate the Licence Agreement whether pursuant to the Chancery Division Proceedings or otherwise, Mr Burnell put himself in a position in which his personal interests conflicted with the interests of TTL as regards the exploitation of property of TTL – its rights under the Licence Agreement – of which he was aware when he was a director.”

Damages for TTL’s counterclaim were assessed at £200,000, representing the loss of TTL’s rights under the Licence Agreement.

Implications

This case provides important guidance on the application of section 170(2)(a) Companies Act 2006, which extends the duty to avoid conflicts of interest to former directors regarding the exploitation of property, information, or opportunities acquired during their directorship. The court confirmed that this is a continuing duty that can be breached by post-resignation conduct, but must be interpreted in line with common law principles governing “maturing business opportunities.”

The case also illustrates the distinction between de jure and de facto directorship, the application of the Duomatic principle, and the limits of claims for breach of confidence against former directors. It demonstrates that informal arrangements in small companies can create binding obligations, and that failure to issue agreed shares can constitute a total failure of consideration entitling the investor to restitution.

Verdict: Mr Burnell’s claim against TTL was allowed in the amount of £250,000. His claim against Mr Aird for breach of contract was allowed for any amount unrecoverable from TTL up to £67,500. TTL’s counterclaim was allowed with damages of £200,000, to be set off against Mr Burnell’s claim. An account of profits was also ordered against Mr Burnell.

Source: Burnell v Trans-Tag Ltd [2021] EWHC 1457 (Ch)