Feeds

Customer database dispute continues

Value of card index the root of the issue

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The Court of Appeal last week allowed an appeal brought over the way a card index containing a customer database was valued for the purposes of assessing damages in a partnership dispute.

The index should have been valued as at the time the partnership dissolved and not in light of its subsequent successful use, the court said.

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 10 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, Deputy Judge Kevin Garnett QC said.

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," the Judge said. "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.

See: The ruling

Copyright © 2006, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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