COMPANY LAW – BREACH OF FIDUCIARY DUTY
BREACH OF CONTRACT : BREACH OF FIDUCIARY DUTY : CONSPIRACY : CONTRACTS OF EMPLOYMENT : DIRECTORS’ POWERS AND DUTIES : EMPLOYEES’ DUTIES : INCORPORATION OF COMPANY TO ACT IN COMPETITION : APPROACHES TO CUSTOMERS : RETENTION OF CONFIDENTIAL DOCUMENTS OR DOCUMENTS OF BUSINESS UTILITY
Two companies were entitled to damages for breach of fiduciary duty and breach of contract where a former director and employee had, prior to his resignation, failed to alert them to the impending threat of competition from a new company he had incorporated, approached their customers, and retained documents containing information that was confidential to them or otherwise of business utility.
The claimant companies (G and M) claimed damages for conspiracy, breach of contract and breach of fiduciary duty owed to M by the first defendant (W). M was a wholly-owned subsidiary of G. Its business was the provision of engineering and technical personnel to support the military operations of the United States Defense Department. W was formerly a director of both G and M and, as its operations director, was responsible for the day-to-day management of the business of M. He was also employed by M under a contract of employment. The second defendant (S) was formerly employed by M as a management accountant. The third defendant company (L) had been incorporated on W’s instructions to pursue the same business as M. Both W and S subsequently resigned from M and G and M issued proceedings against them. It was G and M’s case that W and S, having formed the intention to leave M and set up business together in competition with M through the medium of a new company, had taken steps to that end that amounted to breaches of their duties as employees, and in W’s case as a director. G and M were granted a search order and, upon its execution, confidential documents relating to M were recovered from both W’s and S’s premises. Following their interim application, G and M were granted a “springboard” injunction restraining W, S or L from providing technical support or engineering services in competition with M. That injunction continued until trial by consent. Shortly before the trial began, G and M came to terms with S, and the proceedings accordingly continued against W and L alone.
HELD: W was entitled, as soon as he had resigned as a director, to compete against M in any way he chose and to use for that purpose the skill, knowledge and contacts that he had acquired whilst working for M. G and M’s claim could only succeed if they established that W had failed to alert M to a nascent business threat, or that the preparatory steps he took before resigning as a director amounted to a breach of duty, or that he took with him when he resigned material belonging to M to assist him in competition, or that he exploited after his resignation business opportunities which were properly to be regarded as belonging to M, Foster Bryant Surveying Ltd v Bryant (2007) EWCA Civ200, (2007) Bus LR 1565 and Hunter Kane Ltd v Watkins (2003) EWHC 186 (Ch) applied. On the evidence, W had been in breach of the duty he owed to M as a director of it by failing to alert it to the impending threat of competition from himself and S; by taking preparatory steps which included approaches to M’s customers; and by retaining after his departure, with a view to using them in competition, documents which belonged to M and contained information that was confidential to M or otherwise of business utility. W’s seniority within M also meant that the second and third of those breaches also amounted to breaches of his contract of employment. G and M had, accordingly, established their complaints of breach of fiduciary duty, breach of contract and conspiracy (by virtue of the fact that W and S had acted in combination to damage M by breaking their contracts of employment and, in W’s case, his fiduciary duty as director). The court therefore granted an order for the assessment of damages and continued the springboard injunction until a year after W’s resignation to provide M with proper protection against W’s activities.
Judgment for claimants
[2009] EWHC 1083 (Ch)
