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||Neutral Citation Number:  EWCA Civ 1176
||Case No: A3/2012/2273
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM Birmingham District Registry
HHJ Simon Brown QC
||Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE RYDER
SIR BERNARD RIX
SIR STANLEY BURNTON
|| Leonard Coppage (1)
||- and -
||Freedom Security Limited (2)
||- and -
||Safety Net Security Ltd
(Transcript of the Handed Down Judgment of
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Richard O'Dair (instructed by Mayflower Solicitors) for the Appellants
Mark Anderson QC with Ms Yasmin Yasseri (instructed by Cox Cooper Solicitors) for the Respondent
Hearing date: 5 March 2013
HTML VERSION OF JUDGMENT
Crown Copyright ©
Sir Bernard Rix:
- On 9 July 2008 Leonard Coppage, the first defendant in this litigation and in this court the first appellant, joined the claimant, here the respondent, Safetynet Security Limited ("Safetynet), a security company employing security guards and door supervisors in the Birmingham area. Its sole shareholder and chief executive is Mr Otis Hanley. Mr Coppage's role in Safetynet immediately on joining the company is not clear but he became a director of it on 5 May 2010 with the title of business development director and entered into a new contract of employment at that time (the "contract").
- The contract contained a restrictive covenant in the following terms:
"It is a condition of your employment, that for a period of six months immediately following termination of your employment for any reason whatsoever, you will not, whether directly or indirectly as principal, agent, employee, director, partner or otherwise howsoever approach any individual or organisation who has during your period of employment been a customer of ours, if the purpose of such an approach is to solicit business which could have been undertaken by us."
- The principal issue in this appeal is whether that covenant is binding on Mr Coppage, as the judge found, or, as Mr Coppage submits, is unenforceable as being in unreasonable restraint of trade. It appears that the clause was present in Mr Coppage's contract of employment at all times. There are also issues concerning breach of fiduciary duty, and quantum. The judgment in question on this appeal is that of HH Judge Simon Brown QC dated 15 August 2012, sitting in the Birmingham mercantile court.
- In his defence, Mr Coppage described himself as "a key figure in [Safetynet's] business operation being the main person who was able to and did bring and retain new business". Although the judge plainly regarded Mr Coppage as a highly unsatisfactory witness, he nevertheless accepted this description of his role in the company, which does not appear to have been disputed. In an affidavit Mr Coppage described himself as employed "to be the face of the business". The judge recorded that in a witness statement Mr Coppage had boasted that at least one fifth of Safetynet's client base and income was as a result of his "pizzazz".
- Whatever the substance of this boast, on 14 April 2012 Mr Hanley began a redundancy consultation with Mr Coppage. Mr Hanley considered that there was no need to employ a business development director and planned to take more of this function back to himself. At trial Mr Coppage counterclaimed for repudiatory breach of his employment contract on the basis that the redundancy exercise was a sham. However, the judge found that this was not so and rejected the counterclaim. Together with the other findings at trial, that is no longer in issue.
- In the event, Mr Coppage resigned by email on 16 April 2012. What happened immediately thereafter was the catalyst for this litigation. An hour later, Mr Joshua Hadley, a 21 year old trainee electrician and part-time door supervisor, who had also been employed by Safetynet, resigned. On 17 April, it was Mr Hadley who incorporated the second defendant, Freedom Security Solutions Limited, ("Freedom"), here the second appellant. However, the judge found in effect that Mr Hadley was the mere face of Mr Coppage's enterprise and that it had been Mr Coppage who had been the directing mind of Freedom from its incorporation, even though he formally became its director only on 30 April 2012. Indeed, disclosure of telephone records revealed that there were 62 calls from Mr Coppage to Mr Hadley between 12 and 30 April, and 84 text messages in the same direction in the month of April. The judge therefore held that Freedom was liable alongside Mr Coppage for the breaches of Mr Coppage's restrictive covenant which he found had taken place in the immediate aftermath of Mr Coppage's resignation.
- The details of those breaches are as follows. On 18 April, two days after Mr Coppage's resignation and the day immediately after the incorporation of Freedom, two Safetynet customers, Lab 11 and Prince Albert, sent emails to Mr Hanley terminating their contracts. On 21 April, a third customer, Qclub, did the same. And on 30 April, two more, Fixxion Warehouse and Rainbow, followed suit, openly stating that they were moving to Freedom. At trial there were substantial issues as to whether this had occurred because Mr Coppage had solicited the custom of these five former customers of Safetynet or had simply occurred because of dissatisfaction with Safetynet. In a substantial central passage of his judgment, the judge set out his reasons for rejecting as false the defence evidence that there had been no solicitation by Mr Coppage. Disclosure of telephone records in the course of the litigation, after the defendants had committed themselves to false denials of any contact between Mr Coppage and the five Safetynet customers, was very damaging and led the judge, among other reasons, to the conclusion that Mr Coppage had deliberately sought to mislead the court. There had in fact been 135 calls and 175 texts from Mr Coppage to the five customers between 12 and 30 April 2012. All five had become customers of Freedom. They had given evidence to the judge in support of the defence, but the judge accepted none of that evidence. The judge found:
"43. Contrary to suggestions in their affidavits, there is no documentary evidence that any of the five customers were dissatisfied with the service that the Claimant was providing prior to 16 April 2012. Of the five customers who left, four were relatively new customers, but one, Rainbow, had been a customer of the Claimant since April 2008. In the face of the wilful inaccuracy of the affidavits, the customers' evidence that their reason for terminating their relationship with the Claimant was not by reason of solicitation is rejected…
48. I disbelieve each of the Defendants' witnesses that solicitation did not occur. I find them to be lying and acting under the control of Mr Coppage. But for the solicitation, in my judgment, the customers would have continued in their working relationship with the Claimant being bound by their contracts until a period of notice had expired as they had no complaints about Safetynet the company, just about Mr [Hanley] personally."
- Safetynet's claim was premised on a breach of the non-solicitation clause in Mr Coppage's contract and/or on breach of fiduciary duty. The judge found each of those claims to have been satisfied. He went on the find damages of at least £50,000 proved. On this appeal, while unable to challenge the judge's findings of fact, the appellants raise three grounds of appeal. First, they submit that the non-solicitation clause was unreasonable because it ought to have been restricted to the non-solicitation of current customers, viz customers "within 6 or perhaps 12 months of the termination of the contract". It is suggested that only the interpolation of words such as "the last 12 months of" into the clause in question, so that it reads "you will not…approach any…organization which has during the last 12 months of your period of employment been a customer of ours" could save the clause from unreasonableness and invalidity. It is submitted that because the clause could have been so drafted, therefore it ought to be held to be unreasonable as affording the employer greater protection than was necessary. Secondly, they submit that the parties had joined issue for the purposes of the breach of fiduciary duty claim on post-termination events and that the law stigmatises only some breach of fiduciary duty which is at least initiated before that duty terminates with resignation. Thirdly, as to quantum, they submitted that the judge had no basis on which he could have found a loss of £50,000.
Ground 1: the validity of the non-solicitation clause
- The law relating to restrictive covenants in the employment context was not in dispute, although at trial and again on appeal the parties were able to point to different aspects of the jurisprudence in support of their respective cases. I take the following general principles from the discussion of the subject to be found in Chitty on Contracts, 31st ed, at paras 16-105ff and in the jurisprudence there cited. (i) Post-termination restraints are enforceable, if reasonable, but covenants in employment contracts are viewed more jealously than in other more commercial contracts, such as those between a seller and a buyer. (ii) It is for the employer to show that a restraint is reasonable in the interests of the parties and in particular that it is designed for the protection of some proprietary interest of the employer for which the restraint is reasonably necessary. (iii) Customer lists and other such information about customers fall within such proprietary interests. (iv) Non-solicitation clauses are therefore more favourably looked upon than non-competition clauses, for an employer is not entitled to protect himself against mere competition on the part of a former employee. (v) The question of reasonableness has to be asked as of the outset of the contract, looking forwards, as a matter of the covenant's meaning, and not in the light of matters that have subsequently taken place (save to the extent that those throw any general light on what might have been fairly contemplated on a reasonable view of the clause's meaning). (vi) In that context, the validity of a clause is not to be tested by hypothetical matters which could fall within the clause's meaning as a matter of language, if such matters would be improbable or fall outside the parties' contemplation. (vii) Because of the difficulties of testing in the case of each customer, past or current, whether such a customer is likely to do business with the employer in the future, a clause which is reasonable in terms of space or time will be likely to be enforced. Moreover, it has been said that it is the customer whose future custom is uncertain that is "the very class of case against which the covenant is designed to give protection…the plaintiff does not need protection against customers who are faithful to him" (John Michael Design Plc v. Cooke  2 All ER 332, 334). (viii) On the whole, cases in this area turn so much on their own facts that the citation of precedent is not of assistance.
- In this context, on behalf of the appellants Mr O'Dair's attitude to jurisprudence has been somewhat ambivalent. In his skeleton argument he cited a number of cases but suggested that the decision in this court is open. In his oral submissions, he began by submitting that the case was not governed by precedent but ended by suggesting that the court was in effect bound to apply Arbuthnot Fund Managers Ltd v. Rawlings  EWCA Civ 518. There appears to have been a similar ambivalence below. The judge understood Mr O'Dair to have conceded that there was "no obligation" to limit the clause to the non-solicitation of customers who had been customers within the last 12 months of employment. However, Mr O'Dair has satisfied us that all he had conceded was that precedent did not demand that the clause in this case be held unreasonable, but that he had still submitted, with the aid of authority, that in this case the clause ought to be held unreasonable.
- In the circumstances, it is necessary to refer to a small number of decisions.
In G W Plowman & Son, Ltd v. Ash  1 WLR 568 (CA) the defendant covenanted not to "canvass or solicit…any farmer or market gardener who shall at any time during the employment of the employee hereunder have been a customer of the employer". The restraint was to last for 2 years post-termination. At an interlocutory stage, this court held that even though the clause applied to customers who had ceased to be customers before the end of the defendant's employment and to customers whom the defendant did not know, the clause would support the injunction ordered. Harman LJ emphasised the interlocutory nature of the court's decision (at 570-571), and that cases depended so much on their own facts that no one case "is a binding authority for any other" (at 572). On the issue in this case, he said (at 572):
"Thirdly, it is said (and this is, in my opinion, the nub of the matter) that, though customers are limited to those who were customers during the period of employment, it does not exclude people who have ceased to be customers and therefore form no part of the goodwill of the employer, nor does it confine itself to customers with whom in some way or other the employee has come into contact. It is on that ground, I think, that the learned judge refused the motion. I have felt great doubt on this point but on the whole, if a man was a customer at the beginning of the employment I do not see why hope should be abandoned of his becoming a customer again at the end of it and why, therefore, people who have, for the time being at any rate, ceased to be customers have fallen outside the proprietary interest."
- Davies LJ agreed. He said (at 573):
"The difficulty with regard to ex-customers, or discontinued customers, as they were described in the course of the argument, did at one time appear to me to be a real one; but the answer, I think, is that already given by Harman LJ, in his judgment, namely that the employer is entitled to retain the possibility that those who at one time during the employee's employment placed orders with the employer and have discontinued their custom might come back again. It is to be remembered throughout the whole of this case that this covenant, whatever its meaning, is strictly limited to the period of two years after the cessation of the employee's contract."
Russell LJ, in agreeing on this point, emphasised that a contrary conclusion would be going beyond any of the decided cases, which he for one was not prepared to do on a motion for interlocutory relief (at 574).
- In Gledhow Autoparts v. Delaney  1 WLR 1366 (CA) the defendant covenanted not to solicit orders from anyone "situate…within the districts in which the traveller has operated during the course of this agreement". The covenant was to last for three years post-termination. The clause was held to be unreasonable because it went beyond solicitation of established or even potential customers (i.e. those on whom the traveller had called but who had not given him an order) and extended to absolutely anyone within his district. Therefore it was nothing but an anti-competition rather than a non-solicitation clause. Sellers LJ said, however (at 1373C):
"If this provision had been restricted to customers, then I think there could be no doubt that it would have been enforceable and I would agree with the judge in that respect."
Similarly, Diplock LJ said (at 1377H):
"I do not doubt that had the appropriate type of covenant been drafted – one, in particular, restricted to customers and possibly (though I express no final view on that) including persons on whom he had called although not customers – such a covenant might have been justified for the protection of the proprietary interests of the plaintiffs. But a much wider covenant was sought, one which extended to garages on whom the defendant might never call at all."
- In Office Angels Ltd v. Rainer-Thomas and O'Connor  IRLR 214 (CA) a 6 month non-solicitation clause ("will not … solicit … any person … who was … a client of the company at any time during the period that the employee was employed") was held unenforceable in circumstances where it applied to 6-7,000 customers all over England, in 34 branches of the employer, whereas the employee concerned had never had experience of more than about 100 of them in a single branch. In effect it was another non-competition clause (at para 62, per Sir Christopher Slade). That was the context, and discrepancy, of which Sir Christopher observed (at para 49):
"The Court cannot say that a covenant in one form affords no more than adequate protection to a covenantee's relevant legitimate interests if the evidence shows that a covenant in another form, much less far-reaching and less potentially prejudicial to the covenantor, would have afforded adequate protection."
Mr O'Dair relies on that dictum, but in my view it does not carry across well to the current circumstances, where the evidence showed that 98 out of the 106 customers which Safetynet had had at any time during Mr Coppage's employment had remained current customers at the time of his departure. I will refer to these statistics again below.
- Finally, I come to the decision on which Mr O'Dair placed most reliance, which was Arbuthnot, an unreported decision of this court (comprising Chadwick LJ and Newman J) to which I cannot find any reference in any treatise (unlike Plowman v. Ash which is still referred to as the leading authority in this context). The question there was whether an interlocutory injunction against an ex-employee should be maintained pending trial. It was maintained, albeit with slight modifications, and to that modest extent the ex-employee succeeded on appeal. The ex-employee had been a director of a fund management concern for just over four years. There was a 12 months non-solicitation clause of some complexity, which provided that he would not during that period following ceasing to be employed –
"solicit…any person…who has at any time during the twelve months period immediately preceding such cessation of this agreement done business with the Company or the Group and whom he has introduced or with whom he had any business dealings or knowledge."
Thus the clause both looked forward and backward 12 months respectively.
- What concerned Chadwick LJ about this clause was that he considered that the restraint would operate where there had been an introduction (at any time) by the ex-employee but no business dealings by him with that client for 12 months. He was also concerned that mere "knowledge" of the client was insufficient, again if there had been no business dealings with the client in the last 12 months. This court therefore maintained the injunction against solicitation, but deleted from the terms of the injunction any reference to "whom the defendant introduced" and the words "or knowledge". This is somewhat puzzling, because if the clause was, as Chadwick LJ seems to have thought, plainly too wide in these respects, it is not clear how the injunction could have survived at all pending trial (unless possibly pursuant to some blue pencilling test). Perhaps the best way of regarding this decision is that it merely reflects a view of the clause's meaning and reasonableness pending trial. I confess, however, to some disquiet. On my understanding of the clause, the alternatives of introduction, business dealings, and knowledge, each on the part of the ex-employee, were not limited to the period of twelve months prior to cessation of employment: that only applied to business dealings between the client and the firm. In effect there was a double limitation: (i) there had to have been business dealings between the client and the firm within the final year of employment: and (ii) there had to be some point of connection between the client and the ex-employee, and that I would have thought operated at any time. I can well understand an employer's concern about an ex-employee soliciting current clients (who have done business within the year) in any case where the ex-employee had some personal connection with the client, defined as introduction, business dealings, or knowledge. In particular, I can well understand an employer's concern about the solicitation of a customer whom the ex-director had introduced. However, Chadwick LJ understood the temporal limitation of 12 months to be introduced from the first part of the clause into the second part of the clause, but only so as to limit the matter of the ex-employee's business dealings (see at para 28). For myself, I would have thought that rather difficult. Be that as it may, it was only because of the limitation of the ex-employee's personal dealings with the client to the last 12 months that it seemed strange to Chadwick LJ that it would make any difference whether or not the ex-employee had introduced the client at any time.
- For all these reasons, I find Arbuthnot a rather difficult case on which to build any lessons. It is an interlocutory case in which the employer's interim injunction was maintained, albeit in modified form. It concerned a clause which was expressly limited to current (within the last 12 months) clients: it was not a decision, contrary to Plowman v. Ash, that suggests that such a limitation is necessary to a reasonable clause. What it was concerned to investigate, pending trial, was the nature of the connection between ex-employee and company client to justify the restriction on solicitation. On the court's construction of the clause, the essence of it was that the ex-employee had himself to have had business dealings with the client within the 12 months prior to the cessation of his employment. On that essential premise, there was necessarily some potential redundancy about other points of contact. In sum, I am not assisted by this decision.
- I turn from this consideration of jurisprudence to apply the general learning to be derived from it to the particular circumstances of the case. It is not suggested that the judge erred in any defined point of principle. In a brief passage (at para 17 of his judgment), he concluded that the non-solicitation clause in question was reasonable. He emphasised two points: one, that Mr Coppage played a large role in Safetynet as its outward "face"; secondly, that Mr Coppage accepted in evidence that he had contact with all of the company's customers since he had taken on the role of operational director.
- I can find nothing wrong with the judge's approach. For my own part I would emphasise the following considerations. First, the clause in question is plainly a non-solicitation clause and not a non-competition clause in form; and in practice that is underwritten by the twin facts that (a) 98 out of a possible 106 customers remained current at the time of Mr Coppage's departure, and (b) on Mr Coppage's own evidence he and Freedom have not had any problems obtaining work outside Safetynet's customer base (judgment, at para 13). (The evidence as to the customer lists showed 93 current customers plus the 5 solicited away by Mr Coppage, plus only 8 which had ceased to provide business to Safetynet within the last 12 months of Mr Coppage's employment.) Secondly, the post-termination restraint was only six months. This is to my mind a fundamental consideration of reasonableness. One might debate matters such as the extent to which a non-solicitation clause is drafted in terms which go no wider than the legitimate protection required by an employer's proprietary interests: but if the restraint period is as short as six months, that must be a powerful factor in assessing the overall reasonableness of the clause.
- Thirdly, Mr Coppage was a key employee. He was the "face" of the company and, as the judge found, in his latest role had been in contact with all of Safetynet's customers since May 2010. That indicated that he realistically had the power to influence all customers with whom he had come into contact, both current and past.
- Fourthly, Mr O'Dair argued that the evidence concerning customer numbers demonstrated that Safetynet had a "stable customer base", and that that in turn showed that there was no need for any protection beyond the last twelve months of Mr Coppage's employment. He described this as the strongest argument in the appellants' favour. I disagree. The stability of the customer list and the small minority of relevant customers who had ceased to provide business within the last twelve months showed that it was entirely reasonable to draft the clause (in Plowman v. Ash style) to relate to all customers within the period of Mr Coppage's employment (a fortiori in the light of his contract's latest incarnation as of 5 May 2010 when he became a director of the company). The facts of this case are at the wholly opposite extreme to those of Office Angels. It cannot possibly be said in this case that the insertion of a twelve month retrospective limitation would have been "much less far-reaching and less potentially prejudicial". Mr O'Dair also submitted that, although jurisprudence left a decision theoretically open, nevertheless "in principle" a non-solicitation clause ought to be limited by a retrospective limitation along the lines of "within the last 6 [or 12] months" before cessation of employment. However, as indicated above by my consideration of the jurisprudence, I can find nothing to support such a conclusion: in this respect, contrary to the submission made by Mr O'Dair, I do not regard Arbuthnot as the modern answer to Plowman v. Ash, or as a case which ought to be preferred to it. It is Plowman v. Ash which continues to be regarded by treatises as the leading case in this context: see for instance Chitty at para 16-112, footnote 639.
- Fifthly, even if or to the extent that it might be contemplated that a potential small cohort of ex-customers presented a problem, account has to be taken of the limitation to the clause provided by its concluding proviso, which it will be recalled provided "if the purpose of such an approach is to solicit business which could have been undertaken by us". In my judgment, "could" there is not a reference to a mere theoretical possibility, but to a commercially practical reality. If the ex-customers concerned had left under bad terms, such that there was no realistic possibility of Safetynet recovering their business, then I do not think that the solicitation of such customers would have been a breach of the clause. As it is, there are no findings about the circumstances of the 8 customers concerned. For all we know, those 8, it will be recalled less than 10% of the customer base as a whole, have either dropped out of current custom because of their own business failure, in which case they become irrelevant, or gave up use of Safetynet's services because of dissatisfaction with them, in which case the renewal of their custom is unlikely although not impossible, or simply failed to have need of such services, in which case, although there may be a potential for renewed custom, that may be unlikely not only for Safetynet or any provider. Given the wide range of these and other possibilities, and the smallness of this cohort in comparison with the general customer base, it seems to me to be entirely reasonable to express the clause in the way in which it has been expressed: namely, to assume that a customer within the period of Mr Coppage's employment as the "face" of that business is prima facie out of bounds, for the strictly limited period of six months, but subject to a proviso that there is a commercially realistic possibility of Safetynet providing services for the customers concerned. In effect, the proviso emphasises that the purpose of the clause is to counter the diversion, from employer to employee, of realistically available custom of customers who would be known to Mr Coppage through his employment.
- Sixthly, Mr O'Dair submitted that the clause must be regarded as unreasonable because, at the outset of Mr Coppage's contract of employment, it could theoretically be posited that he could have worked for Safetynet for (say) six years and be prohibited from soliciting an ex-customer who had been a customer at the outset of his employment but had left a short two weeks later: but that is an example of an argument from merely theoretical or fanciful possibilities which the jurisprudence decries. Similarly, in the modern context of unfair terms legislation, it has been said that –
"the court should, I think, take care to consider the clause as a whole in the light of the circumstances when the contract was made, in order to judge in the round whether it satisfies the requirement of reasonableness. The court should not be too ready to focus on remote possibilities or to accept arguments that a clause fails the test by reference to relatively uncommon or unlikely situations"
per Mance J in Skipskredittforeningen v. Emperor Navigation SA  2 BCLC 398 at 413, cited with approval in Regus (UK) v. Epcot Solutions  EWCA Civ 361,  1 All ER (Comm) 586 at .
- In sum, in a context where the application of familiar principles is highly sensitive to the individual facts of each case, I can see no reason on the facts and circumstances of this case and the clause in question to differ from the judgment of the trial judge that the clause did not fail the test of reasonableness. It was for these reasons that at the hearing of this appeal I joined in rejecting the appeal on the issue of liability.
Ground 2: breach of fiduciary duty
- The essential issue under this ground of appeal is whether something more than solicitation of a company's known customers after resignation as its director is required for breach of fiduciary duty. It is submitted on behalf of the appellants that nothing more was alleged by the claimant and in any event nothing more was found by the judge, and that this is insufficient to found a breach. It is not entirely clear whether the respondents submit that nothing more is required, but they have certainly submitted that a wider case was made, and found by the judge, to the effect that Mr Coppage planned his resignation, the incorporation of Freedom, and the solicitation of Safetynet's known customers, and had started that solicitation, all while still a director.
- The subject matter of breach of fiduciary duty is now governed by statute: see sections 170-177 of the Companies Act 2006. The duty to avoid conflicts of interest is stated in section 175, as follows:
"(1) A director of a company must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company.
(2) This applies in particular to the exploitation of any property, information or opportunity (and it is immaterial whether the company could take advantage of the property, information or opportunity)."
- Section 170 provides that this duty, like other duties, may continue to operate even after a person ceases to be a director, as follows:
"(1) The general duties specified in sections 171 to 177 are owed by a director of a company to the company.
(2) A person who ceases to be a director continues to be subject –
(a) to the duty in section 175 (duty to avoid conflicts of interest) as regards the exploitation of any property, information or opportunity of which he became aware at a time when he was a director…
(3) The general duties are based on certain common law rules and equitable principles as they apply in relation to directors and have effect in place of those rules and principles as regards the duties owed to a company by a director.
(4) The general duties shall be interpreted and applied in the same way as the common law rules or equitable principles, and regard shall be ahd to the corresponding common law rules and equitable principles in interpreting and applying the general duties."
- These new provisions both replace and build on common law rules and equitable principles. What is not clear, however, is how the new statutory provisions and the existing common law principles are intended to bed down together. In a case in this court decided on facts occurring not long before the 2006 Act came into effect, which reviewed much of the then existing jurisprudence in connection with possible breach of fiduciary duty by a departing director who then goes into competition with his former employer, Foster Bryant Surveying Ltd v. Bryant  IRLR 425, it was held that a director's fiduciary duty ceased on resignation as a director, but that the duty might be broken where the director, at a time when he was still a director, had acted in anticipation of his resignation.
- In the present case, the judge's treatment of this issue is brief and uninformative. He cited sub-sections 170(2) and 175(1) and (2) of the 2006 Act, but no more, and merely reverted to his finding of solicitation (at para 48). To a large extent this reflected the apparent issue defined on the pleadings, for the particulars of claim merely rolled up allegations of breach of both the non-solicitation clause and of fiduciary duty all together; the defence pleaded that Mr Coppage's fiduciary duty ceased on 16 April 2012 and that no particulars of breach prior to that date had been provided; and the reply merely denied that the fiduciary duty ceased on termination of employment as alleged. Nevertheless, it can be said that certain findings of the judge, such as the telephone calls and texts to customers from 12 April, suggest pre-resignation activity, as does the speed with which Mr Hadley resigned on 16 April and set up Freedom on 17 April. All that suggests forward planning. As the judge observed, albeit in dealing with Mr Coppage's counterclaim for repudiatory breach, Mr Coppage had used the problem of his potential redundancy to create an opportunity to "go alone". Nevertheless, the judge nowhere grasps the nettle of saying whether anything more is required for breach of fiduciary duty beyond solicitation after resignation: and at one point, the significant concluding paragraph 43 under the heading of "Findings of fact and evaluation of the evidence", he seems to refer to 16 April 2012 as a watershed (see para 43 cited above).
- In these circumstances, where the appeal on ground one was dismissed, and where we did not call on the respondent for full argument, it seems unnecessary, and dangerous, to try to decide this issue. I would not wish to say anything more about it.
Ground three: Quantum
- The judge accepted Mr Hanley's evidence that, but for the wrongful solicitation by Mr Coppage, Safetynet would have earned, in gross fees, £159,587.31 from the five customers whom Mr Coppage took away with him. Mr Hanley's figures were supported by documentary evidence of the use made by the customers of Safetynet's services. The only response to the claim in the defence was to put Safetynet to proof. Safetynet had, however, limited its claim in its claim form to £50,000, as often happens. It is to be observed that these proceedings were issued and came to trial very promptly, so much so that the judge handed down his reserved judgment on 15 August 2012. In the circumstances, Safetynet did not go to great lengths to itemise its expenses, but Mr Hanley gave evidence that, although there was likely to have been some savings in salaries and overheads, the likely consequence of the customers' sudden departures was idle staff and that the loss of income was considerable. There was no cross-examination of Mr Hanley or of any of Safetynet's witnesses on the question of quantum, nor was any evidence adduced on the part of the appellants on quantum. Of course, Mr Coppage, as a leading executive of Safetynet for a number of years, would have known everything there was to know about its profitability. However, he neither proffered any evidence nor instructed any cross-examination about it.
- The judge was well aware that the figures before him were gross and not net figures. Nevertheless he was satisfied that £50,000 was a minimum to which Safetynet was entitled.
- Mr O'Dair now submits that the judge was not entitled to reach that conclusion. He points out that the burden of proving loss lies on a claimant. The judge was of course aware of that. Mr O'Dair's submission has to be, and is, that the loss of profits claim could not succeed in the absence of evidence relating to expenses. As a proposition of law, that is in my judgment hopeless. Alternatively, he submits that the judge's award was arbitrary and as such an error of law. I do not agree.
- The judge did not make an arbitrary award: he had before him acceptable evidence of the gross revenue lost from the five customers, as well as Mr Hanley's general evidence concerning profitability, and he was entitled to form a view as to the minimum sum to be earned as a matter of profit out of that revenue. There was no evidence from the well-informed Mr Coppage to the contrary. There was and has been no submission that Safetynet had failed to provide any documents which it ought to have disclosed, or failed to provide any further information requested. None has been. The judge was a judge of the mercantile court in Birmingham, and concerned with a Birmingham based business. There was also evidence before the court of Safetynet's general profitability and its assets. Courts often have to do the best they can, sometimes on scanty evidence, to assess damages, and I cannot regard this case as being in any way out of the ordinary. It is not in the least unlikely that Safetynet's net loss of profit should have been at least about 30% of its gross revenue, especially in the circumstances governing the sudden and unexpected departure of the five customers.
- It was for these reasons that on the hearing of this appeal I joined with the court in the dismissal of the appellants' third ground concerning quantum.
- In sum, these are the reasons which weighed with me for the dismissal of this appeal at the time of its hearing.
Sir Stanley Burnton:
- I agree with the reasons given by Sir Bernard Rix for our decision to dismiss this appeal.
- It follows that I share his concerns as to the decision of this Court in Arbuthnot Fund Managers Ltd v. Rawlings. In my judgment, that decision should best be regarded as confined to the specific contractual provision in question and to the particular facts of that case.
Lord Justice Ryder:
- I also agree with the reasons given by Sir Bernard Rix and Sir Stanley Burnton for our decision to dismiss this appeal.
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