British Midland Tool Ltd v Midland International Tooling Ltd & Ors

Executive directors who participate in a plan for a competing business must protect their company while they remain in office. Where they know that a former director is soliciting the company’s workforce, they must take active steps to prevent the harm and disclose the plan to their fellow directors. A director cannot remain in office while concealing a plan whose success depends on that poaching.

A combination is an unlawful means conspiracy where its implementation necessarily entails those breaches and causes the company’s loss. Competition after proper resignation remains lawful. Information in manufacturing drawings is not confidential against a competing supplier where the customer may lawfully disclose and authorise its use.

The claimant, a specialist cutting-tool manufacturer, alleged that four of its directors and senior employees secretly planned a rival business, Midland International Tooling Ltd. The plan was funded by the seventh defendant and led to the departure of the directors and a substantial part of the claimant’s skilled workforce.

The claimant alleged unlawful means conspiracy, breaches of directors’ and employees’ duties, misuse of confidential information, conversion, solicitation of customers, and exploitation of corporate opportunities. It sought damages for the loss of its business, subsequent trading losses and closure costs.

The central issue was whether the defendants’ plan necessarily involved unlawful conduct and, if so, whether that conduct caused the eventual failure of the claimant’s business.

1. Judgment was for the claimant against the first and third to seventh defendants. The court held that the implementation of the plan necessarily involved breaches of fiduciary duty by the three directors who remained on the claimant’s board while Don Allen, after his retirement, recruited its workforce for the rival company.

2. The directors’ duty depended on the circumstances, but these executive directors had primary responsibility for the business and its workforce. They knew that a competitor was making a determined attempt to recruit the workforce. They were required to take active steps to thwart that process, including alerting their fellow directors. Their own participation and their equal status did not excuse non-disclosure. If they wished to compete without disclosure, they should have resigned once their intention was irrevocably formed and they had begun actual preparatory steps.

3. The resulting combination was an unlawful means conspiracy. The loss caused by the workforce exodus was foreseeable and intended for that purpose. MIT and Mr McGrath knowingly participated in the concealed plan. BTG was not shown to have been a conspirator at the relevant stage.

4. Electronic and hard-copy drawings had been improperly copied. Wayne Allen, Don Allen and MIT were liable for the electronic copying, but no material causal link was proved between that copying and the claimant’s claimed business loss. The claimant’s confidence claims concerning drawings failed because customers could lawfully disclose and authorise use of the underlying information. The method of electronic storage did not alter that conclusion.

5. The claims concerning the CADdraught disc, pricing information, customer solicitation and corporate opportunities failed or caused no recoverable loss. Ford’s decision to move business was principally based on its assessment of the parties’ capabilities after the rival company began trading.

6. Subject to further argument on identified matters, damages were assessed at £290,817 for the lost business, £435,560 for trading losses to 31 December 2000, and £391,337 for closure-related losses. Exemplary damages were refused.

not stated in the judgment.