Surveyors – Co-director of appellant firm resigning – Agreement during notice period to work for firm’s main client once resignation becoming effective – Client ceasing to retain firm – Whether breach of fiduciary duty – Whether duty to account – Appeal dismissed
The appellant was a surveying firm of which the first respondent and F were co-directors, with F being the majority shareholder. The first respondent tendered his resignation in response to persistent criticism from F and the latter’s decision to end the employment of the first respondent’s wife, who had also worked for the firm. Up to that point, F and the first respondent had both dealt personally with the affairs of the firm’s major client, ALS. ALS proposed, in the interests of continuity, that its surveying work should continue to be divided between the two, with each working for it on a full-time basis. The first respondent agreed to work for ALS through the second respondent, a new company set up by him, with ALS paying the company’s expenses together with a “salary”. He began work for ALS on that basis once his resignation had taken effect. F rejected a similar proposal and suggested that the appellant firm should handle all ALS’s work by contracting it out to an outside agency. ALS was unhappy with that proposal and ceased to employ the appellant’s services.
The appellant brought proceedings against the respondents, alleging that the first respondent had breached his fiduciary duty during his notice period. Dismissing the claim, the judge found that no duty had been breached, and that, even if had there been such a breach, the company had suffered no loss by way of damages as a result. He found that far from the first respondent trying to divert a business opportunity to himself, the case was one of a customer-led initiative with a view to finding an acceptable solution to the problem arising from the first respondent’s departure; the only reason why the appellant had lost ALS as a client was F’s attitude. On appeal, the appellant contended that despite the judge’s findings, the respondent’s actions during his notice period amounted to a classic breach of fiduciary duty, and that the consequent duty to account was dependent not upon loss but upon the existence of a profit connected with the breach.
Held: The appeal was dismissed.
The principles whereby a director must act towards his company with honesty, good faith and loyalty and must avoid any conflict of interest were exacting requirements: Hunter Kane Ltd v Watkins [2002] EWHC 186 (Ch) and Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378 considered. However, their application in different circumstances required care and sensitivity both to the facts and to other principles, such as the personal freedom to compete where that did not intrude upon the misuse of the company’s property, whether in the form of business opportunities or trade secrets. Accordingly, the authorities showed some flexibility both in the reach and extent of the duties imposed and in the findings of liability and non-liability. In the case of retiring directors, where the critical line between being or not being a director became hard to police, the courts had adopted a pragmatic solution based upon a common-sense and merits-based approach. That approach was sound and reflected the equitable principles at the root of those issues:In Plus Group Ltd v Pyke [2002] EWCA Civ 370, Canadian Aero Service Ltd v O’Malley (1973) 40 DLR 371, Island Export Finance v Umunna [1986] BCLC 460 and CMS Dolphin Ltd v Simonet [2001] BCLC 704 considered.
The first respondent’s resignation was innocent of any disloyalty or conflict of interest, as was his acceptance of an offer of future employment, and he had not taken or exploited any property or maturing business opportunity. His resignation had no ulterior purpose. In human terms, it had been forced upon him by the appellant’s attitude and the sacking of the respondent’s wife. The respondent had effectively been forced out of the firm and had not resigned in order to take work or clients away from it. The respondent had merely agreed to be retained by ALS after his resignation; that was a customer-led initiative to solve the problem caused to ALS by the respondent’s departure. Moreover, while a liability to account extended to profits even where no loss was suffered, the judge had made no finding of any transfer to the respondents of existing projects, or of any profit made by them from any assumed breach. In the circumstances, the judge had been entitled to find that there was no breach of fiduciary duty and no liability to account.
Richard Lord QC (instructed by Blandy & Blandy, of Reading) appeared for the appellant; Charles Douthwaite (instructed by Awdry Bailey & Douglas, of Wootton Bassett) appeared for the respondents.
Sally Dobson, barrister
