Ranson v Customer Systems Plc

The Court of Appeal allowed the appeal and held that the judge at first instance was wrong to find that the appellant, an employee and divisional manager, owed enforceable fiduciary duties to his employer in respect of opportunities that arose shortly before he left. The court emphasised that whether fiduciary duties arise depends on the contractual terms and the nature of the relationship: directors ordinarily owe fiduciary duties, but employees do not automatically do so. The employee's contractual duty of fidelity was recognised, but that duty must be interpreted in light of the contract; no contractual term imposed a duty to report the pre-exit contacts or to surrender the ability to compete after leaving. The court concluded that on the facts (Diageo was not within his territory, the Diageo contract was arranged by the contact independently, and no loss to CS arose from the social meeting with AstraZeneca) there was no relevant fiduciary duty or contractual breach requiring the remedy sought below.

Background and parties: Mr Ranson, employed by Customer Systems plc since 2001 and promoted to divisional manager, resigned in January 2009 and prepared a competing business, Praesto Consulting (UK) Ltd. Before and during his notice period he had contact with clients and prospective clients, notably a former client contact, Mr Clothier, who moved to Diageo, and Mr Boardman of AstraZeneca. CS sued, and Sir Raymond Jack found breaches of both a contractual obligation of fidelity and a fiduciary duty of loyalty in respect of certain actions by Mr Ranson. The appellant appealed that part of the judgment.

Nature of the appeal and issues: This was an appellate challenge to findings that Mr Ranson had breached fiduciary duties and contractual duties by (i) failing to inform CS of opportunities and contacts (Diageo and AstraZeneca), (ii) diverting an opportunity to his own company, and (iii) copying contacts and internal documents from his company mobile phone and files for use in the competing business. The core legal issues were whether an employee in Mr Ranson's position owed fiduciary duties distinct from contractual obligations of fidelity, and whether his contract imposed a duty to report his pre-exit activities.

Court's reasoning: The court analysed the distinction between directors and employees, noting that directors owe fiduciary duties by virtue of their office and relevant Companies Act provisions, but employees only incur fiduciary obligations where the contractual foundation and the nature of the role justify them. The contract of employment is the starting point for the content and existence of any fiduciary duty. The court reviewed authorities on the implied duty of fidelity, the implied duty of mutual trust and confidence and the circumstances in which employees may be required to report opportunities or refrain from preparing to compete. Applying these principles, the court found no contractual term that obliged Mr Ranson to report the contact with Mr Clothier or the social meeting with Mr Boardman, and Diageo was not within his territorial remit; the Diageo order was obtained because the Diageo contact independently favoured an independent contractor. The copying of invoices and forms and transfer of contacts did not establish a basis for the judge's fiduciary finding such as to sustain the earlier decision on that ground. The court therefore allowed the appeal and invited submissions on the formal order.

Wider context: The judgment stressed the risk of conflating contractual duties of fidelity with fiduciary obligations and reiterated that fiduciary duties are not "one size fits all"; they arise only where the contractual relationship and role justify imposing the single‑minded duty of loyalty.

Appeal allowed. The Court of Appeal held that the judge erred in finding that fiduciary duties arose from the circumstances and in finding breaches of fiduciary duty and contractual duties for failing to report pre-exit contacts. The court emphasised that fiduciary obligations for employees depend on the contractual terms and the nature of the employee's role; absent contractual terms imposing reporting obligations or exclusive loyalty, no fiduciary duty was established on the facts (Diageo was not within his territory, the Diageo work flowed from the client's initiative, and the social contact with AstraZeneca caused no loss to CS).

Appeal to the Court of Appeal (Civil Division) from the Queen's Bench Division, Sir Raymond Jack (HQ10X01669). Neutral citation in this court: [2012] EWCA Civ 841.