Ward Evans Financial Services Ltd v Fox & Anor

A contractual prohibition on inducing a customer by disclosure or use of confidential business information requires the employee to deploy that information as the means of inducement. It is not enough that the employee possesses confidential information and that possession makes the employee an attractive successor to the customer.

A contractual duty during employment not to hold a material interest in a competing company where it impairs the employee’s ability to act in the employer’s best interests may be breached although the company has not yet traded. The court must assess the employee’s undisclosed conduct and its effect upon that ability. Causation and loss for that breach require separate determination.

The employer, a firm of financial advisers, claimed damages from two former employees for breaches of their employment contracts. While employed, the employees formed and sought regulatory approval for a company intended to compete after their employment ended. The company did not begin trading until after the second employee’s employment ended.

One employee told an existing client, in answer to its enquiry, that the new company could take over its pension-scheme work. The client later transferred its business. The employer relied principally on clauses 3.3.2 and 4.3 of a trust and confidence agreement.

His Honour Judge Altman, sitting as a Deputy High Court Judge in the Queen’s Bench Division, dismissed the claim. The employer appealed on whether the formation and use of the competing company breached the contractual obligations and whether the client transfer fell within clause 4.3.

1. The appeal was allowed in part unanimously. Pill LJ gave the reasoned judgment, with which Tuckey and Latham LJJ agreed. The finding of no breach of clause 4.3 was upheld, but the finding of no breach of clause 3.3.2 was reversed. The case was remitted to determine causation and loss arising from the latter breach.

2. Clause 4.3 prohibited inducing a customer to cease dealing with the employer by means involving disclosure or use of confidential business information. Pill LJ accepted that inducement could in some circumstances occur without solicitation. However, the clause required the deployment of confidential information as the means by which the customer was induced. The employee’s ability to present himself as able to act because he possessed such information did not satisfy that requirement. The client’s transfer therefore did not establish a breach of clause 4.3, even though operating the scheme after transfer could involve confidential information.

3. Clause 3.3.2 imposed a distinct obligation during employment. Each employee had a material interest in the new company while still employed. Their undisclosed steps to form and obtain authorisation for it, the failure of one employee to obtain new business for the employer, and the other employee’s dealings with the existing client showed that their interests impaired their ability to act at all times in the employer’s best interests.

4. The company’s dormancy until after termination did not prevent that conclusion. The breach lay in the effect of the employees’ competing interest and conduct while their contracts continued. As the first-instance judge had not considered causation under clause 3.3.2, and different considerations arose from clause 4.3, the Court of Appeal made no finding on loss. It remitted the matter for the necessary accounts and inquiries. The claimant received 60% of its appeal costs; costs below were remitted to the trial judge.

• Court of Appeal (Civil Division) — Allowed the employer’s appeal in part. It upheld the dismissal of the clause 4.3 claim, found breaches of clause 3.3.2, and remitted causation and loss.
• Queen’s Bench Division — His Honour Judge Altman, sitting as a Deputy High Court Judge, dismissed the employer’s damages claim for the alleged contractual breaches.