Richard Baker Harrison Ltd v Brooks & Ors

Factual and Procedural Background

The claimant, Company A, a distributor of minerals and chemical raw materials, brought a claim against two former employees, the Defendants, for breach of contractual obligations including non-competition, confidentiality, and post-termination restrictions. The Defendants allegedly established a competing business, Company B, prior to their resignations and sought to divert business from Company A in breach of their contracts. The claim form was issued in December 2020, accompanied by an application for interim injunctive relief. The Defendants initially agreed to undertakings restricting their use of confidential information and adherence to post-termination restraints but reserved the right to challenge enforceability. The trial was limited to liability and enforceability of post-termination restrictions. The Defendants transitioned from legal representation to litigants in person during the proceedings, with one Defendant later obtaining new legal representation. The trial focused on the Defendants' conduct prior to resignation, particularly their involvement with Company B, which was incorporated during their notice periods and operated in the same market sector as Company A.

Company A discovered Company B's existence through correspondence and online profiles of the Defendants during their garden leave. The Defendants resigned in September 2020 after providing notice and were placed on garden leave. Company A's investigation revealed alleged unlawful competition, including attempts to divert supplier relationships and retention of confidential information by one Defendant. The Defendants denied breaching their obligations and challenged the enforceability of restrictive covenants. The trial involved detailed examination of witness evidence, contractual terms, and the Defendants' conduct.

Legal Issues Presented

1. What enforceable (express and/or implied) contractual and equitable obligations did the Defendants owe to Company A during employment?
2. Did the senior Defendant owe a fiduciary duty to Company A, and if so, what was its scope?
3. Did the Defendants breach any of their duties and/or induce breaches by each other?
4. Are the post-termination restrictive covenants in the Defendants' contracts enforceable?
5. Did the Defendants breach or threaten to breach their restrictive covenants, if enforceable?

Arguments of the Parties

Claimant's Arguments

• The Defendants breached express contractual obligations including duties of non-competition, confidentiality, and post-termination restrictions by establishing and operating Company B in direct competition during their employment and notice periods.
• There is clear evidence of wrongdoing, supported by contemporaneous documents and adverse inferences due to the Defendants' sparse and incomplete disclosure, including deletion of emails and failure to comply with disclosure orders.
• The senior Defendant owed a fiduciary duty to preserve key supplier relationships, particularly with a supplier whose exclusive contract was terminated, allegedly due to the Defendants' conduct.
• The restrictive covenants are reasonable and necessary to protect legitimate business interests such as confidential information, supplier and customer connections, and workforce stability.
• The Defendants actively solicited suppliers and customers, misused confidential information, and induced breaches of obligations by each other.

Defendants' Arguments

• The Defendants admit being subject to contractual obligations and restrictive covenants but deny breaching them.
• They contend the restrictive covenants are overly broad and unenforceable, particularly challenging their duration and scope.
• The senior Defendant denies owing a fiduciary duty to Company A.
• The Defendants assert that their steps toward establishing Company B were preparatory and consistent with future trading intentions that would not breach contractual restrictions.
• They deny controlling or directing Company B and claim it is a shell company with no active role played by them.
• The termination of the exclusive supplier contract was due to dissatisfaction with Company A's management, not the Defendants' actions.
• One Defendant denies taking confidential information for personal use.

Table of Precedents Cited

Court's Reasoning and Analysis

The court undertook a detailed analysis of the contractual terms, witness evidence, and contemporaneous documents, placing significant weight on the documentary record over oral recollections. The Defendants owed express contractual duties including exclusivity of service, confidentiality, and post-termination restrictions, as well as implied duties of good faith, fidelity, and mutual trust and confidence. The senior Defendant was found to owe a fiduciary duty in relation to key supplier relationships due to the nature of his role and autonomy in managing such relationships.

The court found the Defendants' evidence unreliable in key respects, noting significant admissions, inconsistencies, and deliberate non-disclosure of relevant communications, including emails and mobile phone records. The Defendants actively took steps to establish and operate Company B in competition with Company A during their employment and notice periods, including soliciting suppliers and customers, misusing confidential information, and inducing breaches by each other. The court drew adverse inferences from material non-disclosure and deliberate concealment of evidence.

The post-termination restrictive covenants were held to protect legitimate business interests including confidential information, supplier and customer connections, and workforce stability. The court applied established legal principles and a three-stage reasonableness test, concluding the covenants were reasonable in scope and duration given Company A's business model and the nature of the relationships involved. The Defendants breached these covenants by soliciting and dealing with Company A's key suppliers and customers through Company B.

Holding and Implications

The court UPHELD the claimant’s claim in its entirety with respect to liability and enforceability of the restrictive covenants. It found that the Defendants breached their express and implied contractual duties, including a fiduciary duty owed by the senior Defendant, and that the post-termination restraints were valid and enforceable.

The direct effect of this decision is that the Defendants are liable for breaches of contract and fiduciary duties, and the restrictive covenants will be enforced against them to protect Company A’s legitimate business interests. No broader precedent was established beyond the application of established principles to the facts of this case. The parties are to agree the terms of an order reflecting these conclusions or return for further submissions.