G Attwood Holdings Ltd & Anor v Woodward & Ors

Factual and Procedural Background

These proceedings concern the extent to which a director may prepare to compete with the company he serves and the company's ability to restrain such competition after the director's resignation absent a restraint covenant. The claimants are two related entities, Company A and its wholly-owned subsidiary Company B. The first defendant, Defendant 1, was formerly a director and operations director of Company B, employed under a written contract. The second defendant, Defendant 2, was formerly employed by Company B as management accountant. The third defendant, Company C, was incorporated on Defendant 1's instructions shortly before the trial. The claimants contend that Defendants 1 and 2, intending to leave Company B and establish a competing business through Company C, took preparatory steps in breach of their duties as employees and, in Defendant 1's case, as a director.

Prior to trial, the claimants settled with Defendant 2, who gave evidence for them, and the proceedings continued against Defendant 1 and Company C. Company B operates in providing engineering and technical personnel to support military operations for the US Department of Defense in various locations. Defendant 1 had significant experience in this field and held key positions within the claimants' companies, including director roles and operational management.

Multiple attempts were made to sell Company B, including management buyouts involving Defendant 1 and others, but these failed. Following the last failed buyout, Defendant 2 resigned and Defendant 1 eventually resigned as operations director of Company B. Concerns arose regarding the retention and deletion of confidential information by the defendants, leading to a without notice search order executed at their premises. Documents recovered suggested possession of highly confidential company information. An injunction was granted to restrain the defendants from competing with Company B in certain respects, initially by consent and continued until trial.

The trial was limited to issues of liability and injunctive relief. The claimants sought damages and injunctions for various claims including conspiracy, breach of contract and fiduciary duty, misuse of confidential information, and recovery of disputed sums paid to Defendant 1. The court examined the duties owed by Defendant 1 primarily as a director, applying pre-Companies Act 2006 principles.

Legal Issues Presented

1. To what extent may a director prepare for future competition against his company without breaching fiduciary duties or contractual obligations?
2. Whether Defendant 1 breached his duties by failing to alert Company B to a nascent threat of competition from himself and Defendant 2.
3. Whether the preparatory steps taken by Defendants 1 and 2 before resignation constituted breaches of duty.
4. Whether Defendant 1 wrongfully retained confidential company documents after resignation for competitive advantage.
5. Whether Defendant 1 exploited business opportunities belonging to Company B after resignation.
6. Whether the disputed payments made to Defendant 1 were repayable loans or non-repayable bonuses.
7. Whether the search order obtained against Defendants 1 and 2 should be set aside for material non-disclosure.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by outlining the relevant fiduciary duties of a director prior to the Companies Act 2006, relying heavily on established case law to frame the analysis. It emphasised that a director owes loyalty and must avoid conflicts of interest, but is entitled to resign and compete after resignation, provided no misuse of confidential information or business opportunities occurs.

The court found that Defendant 1 breached his fiduciary duty by failing to alert Company B to the threat posed by Defendant 2’s preparations to establish a competing business, despite Defendant 1’s knowledge and involvement. Preparatory steps taken by Defendant 1 and Defendant 2, including approaching Company B’s customers and preparing business plans with statements indicating solicitation of Company B’s clients, exceeded permissible preparatory conduct and constituted breaches of duty.

Defendant 1’s retention of confidential documents after resignation was held to be a breach, as these documents provided a competitive advantage and were not returned despite explicit company requests. The court rejected Defendant 1’s explanations about the documents’ utility and his intentions.

However, the court did not find that Defendant 1 had appropriated business opportunities belonging to Company B. The evidence showed Company B was capable of pursuing contract opportunities independently, and Defendant 1’s knowledge was no better than Company B’s own position.

Regarding the disputed payments, the court concluded they were not intended as repayable loans but as bonuses or incentives, and thus rejected the claim for their repayment.

The defendants’ application to set aside the search order on grounds of material non-disclosure was refused. The court found that the additional undisclosed information would not have affected the decision to grant the order and that there was sufficient material to justify it.

Holding and Implications

The court found Defendant 1 in breach of fiduciary duties and contract by failing to warn Company B of the impending competition, engaging in preparatory steps including solicitation of Company B’s customers, and retaining confidential documents after resignation for competitive use.

The court granted an order for assessment of damages against Defendant 1 and continued the springboard injunction restraining competition activities for one year from Defendant 1’s resignation date, modifying the claimants’ requested period as excessive.

The court rejected the claim for repayment of disputed sums and refused to set aside the search order.

The decision directly affects the parties by confirming breaches and granting relief accordingly but does not establish any new precedent beyond applying existing fiduciary and employment law principles to the facts.