G Attwood Holdings Ltd & Anor v Woodward & Ors

A director may prepare to compete after resignation and may use his general skill, knowledge and contacts, subject to continuing protection for confidential information and corporate opportunities. Before resignation, however, a director must assess the particular facts. He must alert the company to a nascent threat to its business, even where he is involved in the proposed competition. Preparatory activity becomes impermissible where it involves conduct inconsistent with fiduciary loyalty, such as soliciting the company’s customers. Taking company documents to assist competition is also a breach. A springboard injunction should last only for the period reasonably required to neutralise the competitive advantage obtained through the breach.

The claimants were companies operating in the market for engineering and technical personnel supporting United States Department of Defense contractors. The first defendant, formerly an operations director and employee, and the second defendant, formerly the management accountant, planned a competing business with a third company. The first defendant resigned before the competitor began trading. The claimants alleged breach of fiduciary duty, breach of contract, conspiracy, misuse of confidential information, taking company documents and diversion of business opportunities. They also sought repayment of sums recorded as loans and continuation of a springboard injunction. The central issues were whether the pre-resignation preparations and post-resignation conduct breached the first defendant’s duties, and what relief followed.

1. Liability. The claims for breach of fiduciary duty, breach of contract and conspiracy succeeded in substance. The first defendant breached his duties by failing to alert MEGL to the developing competitive threat, participating before resignation in preparations which included approaches to MEGL’s customers, and retaining company documents containing confidential or commercially useful information for use in competition.
2. Preparation for competition. The court accepted that a director may resign and then compete freely, using his general skill, knowledge and contacts. Preparatory discussions, funding investigations and business plans are not necessarily unlawful. The question is fact-sensitive. Here, the business plan stated that MEGL’s customers had discussed contracts with the proposed competitor. That evidence established customer solicitation and took the conduct beyond permissible preparation.
3. Nascent threat. A director must inform the company of an actual or threatened activity damaging its interests. That obligation applies even where the director is himself participating in the proposed competition. The first defendant’s involvement did not excuse his failure to warn MEGL.
4. Company documents and opportunities. Documents lawfully obtained during employment remained company property and could not be retained to assist competition. The claim concerning diversion of corporate opportunities failed because MEGL remained able to quote for the relevant opportunities and the first defendant was not shown to have appropriated opportunities belonging to MEGL.
5. Relief. Damages were ordered to be assessed. The springboard injunction was continued in modified form until 20 June 2009, one year after resignation. The claim for repayment of the disputed sums was rejected because they had not truly been intended as repayable loans. The application to set aside the search order for material non-disclosure was refused; the additional matters would have had no real impact on the decision to grant it.

Not stated in the judgment.