Outer House dismisses $150 million fraudulent conspiracy action by shareholder whose company folded after sale

Robert Kidd, the sole shareholder in ITS Tubular Services Ltd prior to his dealings with the Lime Rock group, had sought $150 million in damages. He argued that had he known about the actings of a partner at the firm representing him who had advised solicitors acting for Lime Rock, he would never have entered into the transaction at all.

The case was heard by Lord Tyre in the Outer House of the Court of Session.

Reasons to believe

On 26 September 2009 the pursuer entered into an investment and share purchase agreement with the third defenders in which Lime Rock would receive $45 million cash and a 34 per cent shareholding in Mr Kidd’s company, ITS. The sixth defenders, Ledingham Chalmers LLP, acted on behalf of Lime Rock in the transaction on the recommendation of Mr Ken Gordon, a partner in the firm of Paull & Williamsons LLP, which at the time of the transaction had both ITS and Lime Rock as clients.

Unknown to the pursuer, Mr Gordon provided advice to the Ledingham Chalmers solicitors who carried out Lime Rock’s instructions, who were convened as the seventh and eighth defenders, on how the vendor due diligence documentation produced on behalf of ITS differed from Lime Rock’s usual demands. ITS went into administration in April 2014 after a performance deterioration following the completion of the sale.

In 2014 the pursuer settled a claim against P&W’s successor firm, Burness Paull LLP, for £19 million. It was in the course of that action, in which BP admitted breach of fiduciary duty, that emails describing the role played by Mr Gordon came to light. In a preliminary argument the defenders contended that the present action was incompetent due to that settlement, however the Inner House held that the pursuer’s claim was not precluded.

It was averred by the pursuer that, but for LC’s assistance, the breaches by Mr Gordon would not have been committed and the conspiracy to commit fraud would never have come to fruition. The defenders denied an express agreement existed to defraud the pursuer, submitting that no evidence supported the pursuer’s contentions and there were legitimate, although admittedly incorrect, reasons why each of the defenders had believed Mr Gordon’s actions did not involve any wrongdoing.

A complete answer

In his decision, Lord Tyre said of Mr Gordon’s motivations: “As he acknowledged in cross-examination, he expected to get a hard time from Lime Rock, and in attempting to find a solution that would keep them happy, he closed his mind to what he saw as merely a potential issue of conflict. He was of course entirely wrong so to view it, and his failure to adhere to the standards reasonably to be expected of a solicitor was reprehensible. But it would be wrong to draw an inference that he acted dishonestly.”

He continued: “Mr Gordon is not a defender in this action, but his intentions are relevant because he is one of the alleged co-conspirators. If as I have found Mr Gordon did not act with the intention of unlawfully causing damage to Mr Kidd, it becomes much less likely that any of the other alleged conspirators did so. Each in his evidence to the court denied that they did so, and I am entirely satisfied that I should accept the evidence of each of them that they did not.”

Providing justification for this finding, Lord Tyre said: “Each of the named individual defenders gave a plausible and, in my view credible, explanation from his own perspective of why he had not considered that Mr Gordon’s actings amounted to wrongdoing. With the benefit of hindsight it can be seen that each of them was wrong about that, but for differing reasons.”

He went on to say: “The confusion among the various individual defenders was the consequence of Mr Gordon’s failure to define the scope of his involvement or to remain within the initially intended scope as the transaction proceeded. It amounts to a complete answer to the concerns expressed by [the pursuer’s expert witness] and raises no inference of unlawful means conspiracy on the part of any of those individuals.”

Lord Tyre concluded: “For these reasons, the pursuer’s case falls at the first hurdle. When examined in context, the evidence founded upon by the pursuer does not begin to support an inference of express or tacit agreement to cause injury to Mr Kidd to which any of the named defenders was a party. The first requirement of unlawful means conspiracy has not been proved.”

The pursuer’s pleas in law were therefore repelled and the defenders assoilzied from the conclusions of the summons.

Representation:
Pursuer: Smith KC, Anderson, Reid; Harper Macleod LLP
First to Fifth Defenders: McBrearty KC, McKenzie KC, Roxburgh; Gilson Gray LLP
Sixth to Eighth Defenders: Dean of Faculty (R Dunlop KC), Paterson KC, Boffey; CMS Cameron
McKenna Nabarro Olswang LLP