Cayman Islands News Bureau Ltd v Cohen

• Jurisdiction: Cayman Islands
• Judge: (Harre, J.)
• Judgment Date: 24 November 1988
• Court: Grand Court (Cayman Islands)
• Date: 24 November 1988

Grand Court

(Harre, J.)

CAYMAN ISLANDS NEWS BUREAU LIMITED

and

COHEN and COHEN ASSOCIATES LIMITED

P. Lamontagne, Q.C. and G.F. Ritchie for the plaintiff;

R.D. Alberga, Q.C. and R.L. Nelson for the defendants.

Cases cited:

(1) Boardman v. Phipps, [1967] 2 A.C. 46; [1966] 3 All E.R. 721, dicta of Lord Upjohn applied.

(2) Bray v. Ford, [1896] A.C. 44; [1895–9] All E.R. Rep. 1009.

(3) Canadian Aero Service Ltd. v. O”MalleyUNK(1973), 40 D.L.R. (3d) 371, dicta of Laskin J. applied.

(4) Industrial Dev. Consultants Ltd. v. Cooley, [1972] 1 W.L.R. 443; [1972] 2 All E.R. 162, dicta of Roskill J. applied.

(5) Island Export Fin. Ltd. v. Umunna, [1986] BCLC 460, distinguished.

(6) Reading v. Att.-Gen., [1948] 2 K.B. 268; on appeal, [1949] 2 K.B. 232; on further appeal, [1951] A.C. 507; [1951] 1 All E.R. 617, considered.

(7) Regal (Hastings) Ltd. v. Gulliver, [1967] 2 A.C. 134; [1942] 1 All E.R. 378, followed.

Companies-managers-breach of fiduciary duties-fiduciary duty of senior manager with major responsibilities same as director-liable to account for benefit of private contract obtained with third party in breach of fiduciary duties even though no prospect of contract being given to employer”s company

The plaintiff company sought an order in the Grand Court that the defendants account for all fees, remuneration and profit received under certain contracts and pay the sums found owing to the plaintiff.

The plaintiff had had for nearly 10 years a series of contracts with the Government of the Cayman Islands and Cayman Airways for information services, public relations and sales promotion. For two years it had employed the first defendant as managing director. He was responsible for all the day-to-day operations of the bureau including managing and directing the staff, acting as liaison between clients and the bureau”s overseas offices, promoting the interests of its clients through public relations and other types of promotional programmes, fulfilling its contractual obligations and budgeting for all its activities in relation to these. Specifically in relation to the chairman and principal shareholder of the bureau-Mr. Davies-the first defendant acted as adviser on all matters of importance concerning the clients and the Cayman Islands generally.

In keeping with his duties, the first defendant was required to advise Mr. Davies on the 1987 budget proposal which was to be submitted to the Government pending the annual renewal of its contract with the plaintiff company. At some stage before this proposal was submitted, he discovered that the Government had decided not to renew the contract due to its dissatisfaction with Mr. Davies. He did not inform Mr. Davies of this but instead, at the request of the Government, submitted in May 1986 his own proposal, in which he alluded to the fact that he intended to set up his own company, which would employ some of Mr. Davies” key staff. He also offered the services of the proposed company at a cost considerably lower than the plaintiff company”s budget for the current year and stated that he expected an increase in the charges of that company for 1987.

Some time later in July 1986, he submitted the 1987 budget proposal to Mr. Davies indicating that a 5–10% increase over and above the costs for 1986 would be appropriate. In the meantime, he had negotiated with Mr. Davies the renewal of his contract of employment (back-dated to May) for another 12 months, after which time either party could give three months” notice.

Up to this point the first defendant had given no indication to Mr. Davies that the Government would be terminating its contract with his company. In September, Mr. Davies was informed and the contract was awarded to the second defendant, a company of which the first defendant and his wife were the beneficial owners. The first defendant then sought to tender his resignation to the plaintiff company but was dismissed for misconduct with immediate effect.

The plaintiff then instituted the present proceedings seeking an order that the defendants account for all fees, remuneration and profits received or payable under the contracts and that the plaintiffs be paid all sums found due and owing. Interlocutory proceedings to decide whether the plaintiff was allowed to proceed by originating summons and whether the plaintiff could obtain summary judgment against the defendants are reported at 1986–87 CILR 370 and 1988–89 CILR 56 respectively.

In the present proceedings, the plaintiff submitted that (a) the first defendant was in breach of his fiduciary duty to it and (b) both defendants were trustees for the plaintiff of the benefit of the contracts entered into with the Government and Cayman Airways.

The defendants submitted in reply that they could not be held accountable to the plaintiff as the first defendant had not acted in breach of his fiduciary duty to nor had he taken advantage of his position as managing director of the plaintiff.

Held, granting the orders sought:

As a senior officer of the plaintiff company with major responsibilities, the first defendant”s fiduciary obligations towards the plaintiff company were the same as those of a director or trustee, requiring the observance of the general standards of loyalty, good faith and the avoidance of a conflict of duty and self-interest. It followed that he had been in breach of these fiduciary duties when he contracted with the Government to provide professional services which were the same as those the plaintiff company provided under its contract with the Government and were, in fact, the major components of a new contract which he had led his employers to believe he was pursuing on their behalf. Consequently both he and the second defendant were liable to account to the plaintiff company for the benefit of the contract and it was immaterial to this liability that the plaintiff company might not in any case have obtained the new contract in consequence of the deteriorating relationship between its chairman and the Government (page 208, lines 12–20; lines 33–36; page 218, line 17 – page 219, line 5).

10	HARRE, J.: By his originating summons the plaintiff
(‘CINB’) is seeking, as against the first defendant, a declaration
that the first defendant has been and is in breach of his fiduciary
duty to the plaintiff; declarations that the first and second defend-
ants, in their respective capacities, are trustees of the plaintiff of
15	all contracts to provide public relations and sales promotion ser-
vices entered into with the Government of the Cayman Islands or
Cayman Airways Ltd. (‘CAL’); orders that the defendants
account to the plaintiff for all fees, remuneration and other
profits received by and payable to them in respect of any such
20	contracts; an inquiry as to such fees, remuneration and other
profits; orders that the first and second defendants, in their
respective capacities, pay to the plaintiff all moneys found to be
due to it on the taking of such accounts; and further or conse-
quential relief, costs and interest.
25	The chairman and principal shareholder of CINB is Mr. Garth
Davies. He swore an affidavit in support of the summons, and
also gave oral evidence as did the first defendant, Mr. Cohen.
There is substantial agreement as to the facts of this case. What is
in issue is whether in the light of those facts the first defendant
30	owed a fiduciary duty to the plaintiff and if so whether he was in
breach of that duty. It is alleged that the second defendant is the
alter ego of Mr. Cohen.
From 1977 until 1986 CINB provided the Government with
public relations and sales promotion services under a series of
35	contracts. Those which are most directly relevant run from 1984
to 1986. There was provision in the contracts for termination on
or after a date fixed in the contract upon either party having first
given to the other 90 days notice in writing. It was, however, the
practice of CINB and the Government at the material time to
40	renegotiate contracts from year to year, or thereabouts.
There was also a series of agreements starting with an agree-

ment dated December 15th, 1977 made between CINB and CAL.
The last of these was dated June 23rd, 1984. The CAL contracts
provided that CINB would provide it with public relations and
sales promotion services and would maintain facilities in Grand
5	Cayman and Miami to perform the services set out in the con-
tracts. Like the Government contracts, the CAL contracts con-
tained provisions for termination on notice, but it was the
practice of CINB and CAL to renegotiate the contracts from time
to time. There was also an agreement between the Government
10	and CINB dated June 24th, 1981 for the provision of various
information services but this was terminated by due notice as of
November 14th, 1984.
CINB provided public relations and sales promotion services to
the Government and CAL until the end of 1986. Both contracts
15	were then terminated, and it is the events preceding and sur-
rounding the termination which are the subject-matter of the
present case.
Before I describe these events in detail I must refer to one
other characteristic of the arrangements between the Govern-
20	ment and CINB. It was normal Government practice for the
Director of Tourism, acting on instructions from the Financial
Secretary, to invite contracting agencies such as the plaintiff to
submit a budget for the following year. The submission of a bud-
get by the Government”s contracting agencies was part of the pro-
25	cess of preparation of the Government”s own budget. It was,
formally speaking, quite separate and distinct from the renewal of
a Government contract as such.
The essence of the

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