G Attwood Holdings Ltd & Anor v Woodward & Ors

The court held that a director may prepare to compete after resignation but must not exploit confidential company property, fail to disclose a nascent threat to the company or solicit the company's customers while still a director. The judge found that Mr Woodward breached his fiduciary duties and his contract by (i) failing to warn MEGL of a coordinated plan by a senior employee to set up a competitor, (ii) taking preparatory steps which included approaches to MEGL's customers, and (iii) retaining company documents after resignation for use in competition. The court rejected the claim for repayment of certain sums paid to Mr Woodward on the basis that they had been recorded as loans for administrative convenience and were not intended to be repayable. The without-notice search order was not set aside for material non-disclosure.

Background and parties.

The claimants were G Attwood Holdings Ltd and its subsidiary M&E Group Ltd (MEGL). The principal defendant, Mr Gordon Woodward, was operations director of MEGL and a director of the holding company. Mr Stephen Gwilliam was a senior employee and the third party, LTSL, was a company incorporated by Mr Woodward. MEGL accused the defendants of preparing and setting up a competing business while in MEGL's employment and of taking confidential documents and customer information.

Nature of the claim and relief sought.

• The claim alleged conspiracy, breach of contract and duty of fidelity, breach of fiduciary duty, misuse of confidential information, conversion and a claim for repayment of disputed payments. The claimants sought damages or an account of profits, delivery up of documents and injunctive relief including continuation of a springboard injunction.

Procedural posture. This was a first instance hearing limited to liability and injunctive relief. A without-notice search order had been obtained and executed; the defendants applied to set aside that order for alleged non-disclosure.

Issues framed by the court.

• What duties did Mr Woodward owe to MEGL as director and employee?
• Whether his conduct prior to resignation breached those duties (failure to disclose a nascent threat; impermissible preparatory acts; misuse or retention of confidential documents; appropriation of corporate opportunities).
• Whether the disputed payments to Mr Woodward were loans repayable to MEGL.
• Whether the search order should be set aside for material non-disclosure.

Court's reasoning.

The judge reviewed the authorities on directors' fiduciary duties and the permissible scope of preparations for post-employment competition. He found that preparatory discussions and business planning may be lawful, but that where a director becomes aware of a concerted plan by a senior employee to set up a competing business he must inform the company; failure to do so was a breach. The Business Start-Up Proposal dated 2 June 2008 evidenced that MEGL's customers had been approached and that contract opportunities had been discussed in principle; on that basis the judge found Mr Woodward had participated in impermissible preparatory steps and had retained confidential documents with the intention of using them in competition. The judge accepted documentary and credibility findings against the defendant. He rejected the repayment claim in relation to the disputed sums because the payments had been recorded as loans for administrative convenience and were not intended to be repaid. Finally, applying the standard for setting aside a search order, the judge concluded the alleged non-disclosures would not have altered the decision to grant the order and refused to set it aside.

Remedy. The court ordered assessment of damages and continued the springboard injunction in a modified form until 20 June 2009 (one year from resignation).

Claim succeeded in part. The court found that Mr Woodward breached his fiduciary duties and his contract by failing to alert MEGL to a nascent competing venture, by participating in preparatory approaches to MEGL's customers and by retaining confidential MEGL documents for use in competition. The court awarded an assessment of damages, continued the springboard injunction until 20 June 2009, rejected MEGL's claim for repayment of the disputed sums on the facts, and refused to set aside the without-notice search order for material non-disclosure.