First Subsea Ltd v Balltec Ltd & Ors

A conspiracy to compete is not necessarily a conspiracy to injure. The tort of conspiracy to injure by unlawful means requires a combination, an intention to injure, unlawful means, and knowledge of the facts making the means unlawful. Preparatory discussions, legal advice and exploratory negotiations do not necessarily establish a combination.

A director’s fiduciary duties are fact-sensitive and do not automatically disappear because the company excludes the director from management. The duty to report a threat is an aspect of loyalty, not a free-standing obligation. Restrictive covenants must be justified by legitimate business interests and cannot prevent experienced employees from pursuing lawful work in their specialist field for longer than reasonably necessary.

The claimant, formerly BSW Limited, sued a former director, former employees, a former contractor and Balltec in relation to the establishment of Balltec as a competing subsea engineering business. It alleged conspiracy to injure by unlawful means, breaches of fiduciary duty and contract, inducement of breach, dishonest assistance, copyright infringement and fraud on the court.

The trial concerned liability only. Earlier pre-action disclosure proceedings had been dismissed, and the claimant also sought to set aside that order on the ground that it had been obtained by fraudulent evidence. The central issues were whether the defendants had combined with the requisite intention, whether particular competitive acts breached fiduciary or contractual duties, and whether the claims were barred by limitation.

1. Conspiracy. A combination may be tacit and inferred from overt acts, but coincident events, conversation, speculation and planning are insufficient without a settled course or concerted action. A conspiracy to compete is not itself unlawful. The claimant had established a combination between Mr Emmett, Mr Brown and Mr Halstead by the time competitive bids were submitted for the Dalia, Kizomba and Simian/Sapphire work. They intended their new business to obtain the work and thereby deprive BSW of it. Applying [2008] 1 AC 1 and [1980] 1 All ER 393, the requisite intention was established because they knew that the competitive conduct would injure BSW and knew the facts making the conduct unlawful.
2. Fiduciary duties. Mr Emmett and Mr Brown remained subject to fiduciary duties while they remained directors, although those duties operated in the context of what BSW required them to do and what they knew BSW was doing. Mr Emmett’s duties had not reduced to vanishing point. The duty to report a threat formed part of the wider duty of loyalty and was not a separate free-standing duty. The point at which preparation for competition became unlawful depended on all the circumstances.
3. Mr Emmett breached fiduciary duty by using BSW’s financial position to secure Mr Halstead’s support and by making premature bids while still a director. Mr Brown was in breach to the same extent and had misused confidential BSW material. Their breaches supplied unlawful means for the conspiracy. Mr Taylor, Mr Benson and Mr Bacon were not co-conspirators. Their individual contractual breaches did not result from concerted action.
4. Contract and restraint of trade. Mr Emmett breached contractual confidentiality and delivery-up obligations by retaining and using BSW drawings and confidential models. Mr Brown breached corresponding obligations by using confidential material. Mr Emmett induced that breach. Mr Bacon breached his implicit contractual obligation by using BSW copyright and confidential material in preparing the Kizomba drawings. The broad non-solicitation and non-competition covenants were unenforceable restraints of trade. A contractual assertion that they were fair and reasonable could not replace the court’s assessment.
5. Secondary liability and fraud. There was no general tort of inducing breach of fiduciary duty. Secondary liability for assistance in a breach of fiduciary duty required dishonest assistance, which was not proved against Mr Bacon. Concealment and the use of service companies did not, without more, establish fraud. The evidence did not show that Mr Emmett had fraudulently obtained the order dismissing the pre-action disclosure application.
6. Relief and limitation. The claimant established loss in relation to the premature bids and the induced use of confidential material. The contractual and tort claims were generally subject to limitation, but the claims concerning retained confidential material and the Kizomba drawings were not time-barred because the relevant facts could not reasonably have been discovered earlier. All other claims were dismissed. Relief and the attribution of liability to Balltec were adjourned to a further hearing.

This was a first-instance trial of liability issues in the High Court. The judgment also considered earlier pre-action disclosure proceedings, which had been dismissed by Patten J, and the claimant’s application to set aside that order for alleged fraud.