"To Be … or Not To Be" a fiduciary is one of the most important questions to address when companies are looking at ways to combat "unfair competition".
When a senior executive leaves and takes with him/her valuable information and contacts to help him in a new and competing business, there is no time to waste if the ex-employer wants to get a "springboard injunction" to prevent that executive and his new business unfairly taking advantage of that information and those contacts.
So says solicitor Gary Miller at law firm Mishcon de Reya (www.mishcon.com) in their latest injunction newsletter. We are reproducing their article here in full not just because we’re phenomenally lazy but also because it makes interesting reading for all employers. Read on…
Restrictive covenants, of course, and confidentiality provisions in a contract are the first line of defence for any prudent employer. But if it is clear that the leaving executive was actually a "fiduciary" i.e. occupied a senior position like a director (whether formally appointed to the Board or not) then a whole new world of relief becomes available to the employer, not just against the fiduciary but also against anyone knowingly assisting him.
Where the "fiduciary" has either started setting up his new business whilst still at the old employer (very common) or, worse still, has taken with him a project or opportunity that he acquired and incubated whilst at his old employer (also sadly very common), the courts will bend over backwards to restrain the fiduciary from taking advantage of the information/business opportunity that he took with him. The case of Attwood v Woodward below shows that the courts continue to take a hard line against "fiduciaries" who cross the line. Long may it last!
CASELAW REPORT: ATTWOOD v WOODWARD
The recent Judgment in G Attwood Holdings Limited and Another v Gordon Woodward and Others [2009] EWHC 1083 (Ch) is a helpful one for companies whose former directors set up in competition with them in four respects:
- It adds two matters to the list of relevant principles to be applied in cases where a company seeks to restrain the activities of a former director in the absence of restrictive covenants cases (see Foster Bryant Surveying Limited v Bryant [2007] 2 BCLC 239) namely (i) it is impermissible to copy or take documents belonging to the company for using them as an aid to competition after the relationship has ended and (ii) a director is obliged to alert the company to any nascent threat to its business, even if he is himself part of that threat
- it finds that the nature of the conduct of a fellow employee which gives rise to a duty to report on the part of the company director need not itself be such as would amount to a breach of that employee's duty of fidelity;
- It provided a firm answer to exactly when, and how, a director crosses the line into impermissible activity when preparing to compete with his company – namely when the possibility of contracts with the new company was discussed with the old company's customers; and
- It shows the Court imposing a Springboard Injunction of as long as one year despite the absence of any such restrictive covenants.
Chris Quinn, Barrister, Littleton Chambers
