Hydra Plc & Ors v Anastasi & Ors

Restrictive covenants must be construed in their contractual and factual context. A non-solicitation covenant may protect the stability of a small workforce without distinguishing between senior and junior employees, provided it is reasonably necessary to protect a legitimate business interest. An indirect-supply covenant is not breached where a distributor supplies a reseller who independently supplies the claimant’s customer, if the transaction is not in competition with the claimant.

Employees are not ordinarily fiduciaries. Fiduciary duties depend on the particular duties undertaken and the employee’s position. A salesman’s duty of fidelity does not generally prohibit preparatory steps towards future competition, subject to express covenants, confidentiality and the prohibition on exploiting maturing business opportunities. Procuring breach of contract requires inducement, knowledge and intention to interfere. Dishonest assistance requires objective dishonesty.

Hydra, a reseller of networking and security products, brought claims against a former consultant, a former employee and their new business. It alleged breaches of a compromise agreement, restrictive covenants, implied duties and fiduciary duties, together with procuring breach of contract and dishonest assistance.

The dispute concerned the enforceability and scope of restraints on approaching customers, soliciting employees, supplying goods, dealing with key personnel and suppliers, and the alleged diversion of business opportunities. The court also considered whether the former employee’s role gave rise to fiduciary duties beyond ordinary duties of fidelity, confidence and good faith.

1. Clause 3(d) of the Compromise Agreement. The reference to a pipeline was sufficiently certain. The relevant customers and products could be ascertained without significant difficulty. The claimant bore the burden of proving which entries formed part of the pipeline and had not established every disputed entry.
2. Clause 3(e). The covenant not to solicit or entice away any employee for 12 months was enforceable. Hydra was a small company with 12 employees, and the covenant protected the stability of its workforce. “Entice” meant conduct such as tempting, luring or persuading. If construed more broadly as preventing an employee from joining a business merely because he approached it, the covenant would be unreasonably wide.
3. Mr Marsh’s covenants. The covenant against supplying restricted goods or services in competition with Hydra did not prevent a genuine distributor from selling to a reseller who later supplied a Hydra customer. The words “directly or indirectly” prevented evasion through an intermediary but did not remove the requirement that the supply be in competition with Hydra. The covenant was also construed in the context of the agreement, the parties’ intention and the contra proferentem principle. Mr Anastasi was a key person because he was engaged as a consultant or agent and worked in a sales capacity. Mr Marsh was technically in breach by entering into partnership with him.
4. Fiduciary and implied duties. Mr Marsh owed duties of fidelity, good faith, confidence and not exploiting Hydra’s maturing business opportunities. His position as an external salesman, without senior management responsibility, did not create the additional pleaded fiduciary duties. The express confidentiality clause excluded a separate implied duty of confidence. Employees were not required to disclose their own past misconduct in the circumstances of this case.
5. Other liability. The elements of procuring breach of contract were inducement, knowledge of the contract and intention to interfere with its performance. Constructive knowledge or recklessness could satisfy the knowledge element. Dishonest assistance required objective dishonesty. The evidence did not establish inducement, intention to interfere, dishonest assistance, diversion of business opportunities or actionable loss.
6. Disposition. The court found limited breaches by Mr Marsh, including breach of his obligation to devote working time to Hydra and disclosure of a sales forecast. It found no tortious, equitable or contractual liability on the part of Mr Anastasi or Tomax. Further submissions were required on damages and consequential orders.