Lonmar Global Risks Ltd v West & Ors

Restrictive covenants in employment contracts are enforceable only so far as reasonably necessary to protect legitimate business interests, including confidential information, client connections and workforce stability. A 12-month restraint may be reasonable where the business operates on annual renewals.

Employment alone does not impose fiduciary duties. Such duties require particular contractual obligations placing the employee in a position where he must act solely in the employer’s interests. The ordinary duty of fidelity does not generally require an employee to report colleagues’ misconduct or intended competition.

Contractual damages require identifiable and provable loss. Inducement of breach and conspiracy likewise require proof of loss.

The claimant, a Lloyd’s insurance and reinsurance broker, sued three former employees and a competing broker for breach of contract, breach of fiduciary duty, inducing breaches of contract and conspiracy. The employees had moved, or intended to move, business and personnel towards the competitor.

The court considered the construction and enforceability of restrictive covenants, the scope of employees’ implied duties and fiduciary obligations, causation and loss, and counterclaims arising from summary dismissal and bonus arrangements.

1. Restrictive covenants. Applying the principles reviewed in Office Angels Ltd v Rainer-Thomas [1991] IRLR 214 and stated by Lord Wilberforce in Stenhouse Limited v Phillips [1974] AC 391, the restraints protecting client connections and workforce stability were reasonable. A 12-month period corresponded to annual renewals and the likely period of influence over former colleagues. The covenants were enforceable.
2. The phrase “unlawful termination” in the employee’s covenant meant wrongful termination of the contract at common law, not unfair dismissal under the Employment Rights Act 1996. The conversion of a discretionary bonus into a contractual scheme did not remove the non-solicitation and confidentiality restrictions.
3. Fiduciary obligations. Following the analysis in Nottingham University v Fishel [2000] ICR 1462, approved in Helmet Integrated Systems Limited v Tunnard [2006] EWCA Civ 1735; [2007] FSR 16, employment is not inherently fiduciary. A fiduciary duty arises only from particular contractual obligations requiring the employee to pursue the employer’s interests at the expense of his own. The defendants’ sales roles and lack of management responsibilities did not create duties to report competitors’ approaches or persuade clients and colleagues to remain.
4. The claimant established repudiatory breaches by Mr Niel Mee in introducing and assisting a client in relation to a competitor’s housing arrangement, and by Mr West in soliciting clients and conducting business for the competitor during employment. Those breaches justified summary dismissal. Mr Karpus’s failure to follow an instruction was a breach, but minor and incapable of justifying dismissal.
5. The substantive claims failed because the claimant proved no loss caused by the breaches. The inducement claim also failed because knowledge was insufficient to establish intention and, in any event, no damage was proved. The conspiracy claim failed for want of combination using unlawful means and loss.
6. Mr Niel Mee succeeded on a bonus counterclaim for €20,960.83. Mr Karpus was entitled to a declaration that his dismissal was unlawful and in breach of contract. The substantive damages claims were dismissed.