Ranson v Customer Systems Plc

An employee does not become a fiduciary merely by being employed. The existence and scope of any fiduciary duty must be determined first from the employment contract; equity cannot impose duties which alter its proper operation. The contractual duty of fidelity is distinct from the single-minded or exclusive loyalty characteristic of fiduciary obligations and is shaped by the employee’s job and contractual functions. Subject to enforceable restrictions, an employee may prepare for and compete with the employer after employment ends. There is no general contractual or fiduciary duty to report the employee’s own wrongdoing, plans to compete, or approaches from potential clients. A reporting duty arises only where the contract, viewed with the employee’s functions, requires disclosure.

Mr Ranson was employed by Customer Systems plc as a senior information technology consultant and divisional manager. He resigned and, during his notice period, prepared to establish a competing consultancy. The Queen’s Bench Division, presided over by Sir Raymond Jack, found breaches of contractual fidelity and fiduciary loyalty arising from his dealings with potential customers and his failure to report them.

The appeal concerned whether an employee in Mr Ranson’s position owed fiduciary duties, whether his contract required him to report his preparations and contacts, and whether his dealings with Mr Clothier of Diageo and Mr Boardman of AstraZeneca amounted to breaches.

Appeal allowed. The findings concerning Mr Ranson’s dealings with Mr Clothier and Mr Boardman did not establish breaches of contract or fiduciary duty. A useful quantum hearing was unnecessary. One challenged paragraph did not concern a pleaded breach, and Customer Systems did not pursue damages for the breach found in relation to copied contacts and documents. Written submissions were invited on the precise order.

1. Employee and director duties. A director’s office and control of company property explain why directors ordinarily owe fiduciary duties. Appointment as a director does not itself create a contract of employment, and employment does not itself create fiduciary obligations. The court relied on the distinction drawn in [2004] EWCA Civ 1244 and treated the judge’s analogy with the director case Towers as liable to confuse the two relationships.
2. Contractual foundation. The employment contract is the starting point for deciding whether fiduciary duties arise and for defining their scope. The contractual duty of fidelity is shaped by the employee’s express and implied functions, including the job description. It requires loyal performance of the agreed work, but does not ordinarily require the single-minded or exclusive loyalty of a fiduciary. In the absence of enforceable post-termination restrictions, an employee may prepare for and compete with the former employer.
3. Duty to report. There is no general duty on an employee to report his own wrongdoing, breaches, plans to compete, or approaches from potential clients. A reporting obligation may arise from the particular employment contract and the employee’s functions. The court endorsed the general principle in University of Nottingham v Fishel and distinguished the director context considered in Item Software. The employer’s ability to protect its business does not, without more, create a reporting duty.
4. Application. The Diageo opportunity was initiated by Mr Clothier, concerned work to begin after Mr Ranson’s departure, and was outside Mr Ranson’s sales territory. No contractual term required him to report it. The dinner with Mr Boardman was preparatory social contact in Mr Ranson’s own time. Nothing specific was discussed, no business was diverted, and Customer Systems continued supplying AstraZeneca for months. Neither incident amounted to canvassing or breached a contractual or fiduciary duty.

1. Court of Appeal (Civil Division): The appeal from the findings of breach was allowed. The court held that the relevant conduct did not establish contractual or fiduciary liability and invited written submissions on the order.
2. Queen’s Bench Division: Sir Raymond Jack held that Mr Ranson had breached contractual fidelity and fiduciary loyalty in relation to certain customer dealings and copied business material.