Breitenfeld UK Ltd v Harrison & Ors

A company director breaches fiduciary duty where he causes the company to deal with a competing business operated by closely connected persons in circumstances creating a real and sensible possibility of conflict. The duty is objective and is breached even without personal financial benefit, dishonesty or proven disadvantageous pricing. Good faith, fair dealing, possible benefit to the company and opportunities that the company could not itself exploit do not provide a defence. Employees may also breach contractual duties by establishing and operating a competing business while employed, including by diverting work which their employer could have undertaken. Equitable compensation may reflect the benefit obtained by the assisted party, while common-law damages must address the loss suffered by the claimant.

ForgeMet, later renamed Breitenfeld UK Ltd, was a steel stockholding and cutting business. Its managing director, Harold Harrison, assisted his son John Harrison and daughter-in-law Gemma Harrison, both employees, to establish Harrison Special Steels Ltd, a competing business.

Before leaving ForgeMet, the younger Harrisons established HSS, used ForgeMet resources and employment connections, and arranged concealed dealings under which ForgeMet supplied HSS with steel, cutting work and customer opportunities. The claims alleged breach of fiduciary duty, dishonest assistance, breach of contract, conspiracy and conversion. The central issues were the duties owed, whether those duties and contractual obligations were breached, and the appropriate equitable and common-law remedies.

1. Liability of the managing director. Mr Harrison owed duties to ForgeMet under sections 172, 175, 176 and 177 of the Companies Act 2006, alongside the underlying common-law and equitable principles. He breached those duties by assisting in the formation and operation of HSS and by causing ForgeMet to enter conflicted transactions. Applying the objective test stated by Lord Upjohn in Boardman v Phipps [1967] 2 AC 46, there was plainly a real and sensible possibility of conflict, despite Mr Harrison having no direct financial interest in HSS.
2. The absence of dishonesty, fair terms, possible benefit to ForgeMet, or inability of ForgeMet to exploit the opportunities did not provide a defence. The requirements of loyalty and avoidance of conflicts were inflexible, as illustrated by Bray v Ford [1896] AC 44, Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134n and Aberdeen Railway v Blaikie (1854) 1 Macq. 461. Disclosure to an interested person who was not the person to whom the duty was owed was insufficient.
3. Dishonest assistance and contract. John and Gemma Harrison dishonestly assisted the breaches. The court did not need to resolve the controversy concerning the test for dishonesty because the facts established that they knew the arrangements were improper and concealed them. They also breached express and implied contractual duties of loyalty, best interests, confidentiality and exclusive service. The authority of Re Hampshire Land Co [1896] 2 Ch 743 supported the conclusion that employees cannot use paid working time to advance their own interests or work for a competitor in a way threatening their employer’s business.
4. Torts and remedies. The defendants were parties to a conspiracy to injure by unlawful means and HSS, through its directors, dishonestly assisted the fiduciary breaches and participated in conversion. Mr Harrison was not required to account for personal profit, but equitable compensation of £90,500 was appropriate by reference to the benefit obtained by HSS and the springboard advantage created. Common-law damages were assessed at £59,000 for conspiracy, £38,500 for breach of contract and £20,500 for conversion, with ForgeMet required to elect between equitable and common-law remedies.

Not stated in the judgment.