The index should have been valued as at the time the partnership
dissolved and not in light of its subsequent successful use, said
the Court.
The case relates to the dissolution of a business known as Seeds
Direct, formerly run by Mrs Jane Gorne and her partners Alec Scales
and Philip Taylor.
The firm kept detailed records about its customers – contact
details, amounts and types of seeds processed and fees charged – in
a card index that by the time of the dissolution was over ten years
old.
However, the firm ran into financial difficulties when a
business partner, Seeds Processing International, collapsed, and Mr
Scales and Mr Taylor became unwilling to provide further
investment. As a result, Seeds Direct was dissolved in May
1993.
Shortly afterwards Mr Scales and Mr Taylor formed a new company,
TGS Seeds, with a third man, Jonathon Bill, and took the card index
for use in the new firm. TGS also managed to buy Seeds Direct’s old
computer, which still had some business information on it.
Mrs Gorne filed suit in May 1999, seeking damages for misuse of
confidential information held on the index, or an account of
profits resulting from its use.
A 2002 High Court ruling found that Mrs Gorne, Mr Scales and Mr
Taylor were equal partners in Seeds Direct. It also ruled that the
card index, and the information contained in it, together with the
information contained on Seeds Direct’s old computer, were all
assets of the partnership. They had been wrongfully taken and used
by Mr Scales and Mr Taylor for their own purposes, said Deputy
Judge Kevin Garnett QC.
He therefore ordered an inquiry as to the loss and damage
suffered by Mrs Gorne.
The issue came before High Court Master Bragge in November 2004.
(A High Court Master is a district court judge sitting in the High
Court.)
Master Bragge noted that the index itself was worthless; it was
the information contained in it that was of importance. Also, the
information contained on the computer was of little value. So, for
the purposes of assessing damages, the case focused on the value of
the information contained in the index.
Master Bragge adopted the approach of Mrs Gorne’s expert, who
advised that the card index accounted for most of Seeds Direct’s
goodwill, but as Seeds Direct’s accounts in the run up to the
dissolution were not representative, TGS’s accounts should also be
considered.
Accordingly, he ruled that the index should be valued as part of
a going concern, entitling Mrs Gorne to £152,341. Interest of
£106,638.70 brought the entire award to £258,979.70.
The partners of TGS appealed, arguing that Master Bragge should
have assessed the value of the index on the basis of the price at
which it could have been sold on the open market in May 1993.
Giving the majority opinion last week, Lord Justice Moore-Bick
agreed, advising that the method used by Mrs Gorne’s expert was
“liable to lead to an unsound conclusion.”
The businesses of TGS and Seeds Direct were distinct, he said.
Seeds Direct had not handed its business over to TGS as a going
concern; it had collapsed. In addition, the method used by the
expert introduced “a substantial measure of hindsight”, with the
result that it did not consider the position as at May 1993.
“In my view the exercise that a potential purchaser would have
had to carry out in order to decide how much to pay for the card
index in May 1993 is an exercise of a fundamentally different kind
from that undertaken by Mr. Land who set out to value it as an
asset forming part of a business that was a going concern,” said
the Judge. “It would have been based on different information and
would necessarily have involved a large element of judgment, even
an element of speculation.”
He ordered a further inquiry as to damages.
