Gamatronic (UK) Ltd & Anor v Hamilton & Anor

A director may take genuine preparatory steps towards future competition, but the description “preparatory” is not determinative. Whether conduct breaches fiduciary duty is fact-sensitive. The court must assess objectively whether the activities create a conflict with the company’s interests, while allowing reasonable freedom to compete after departure.

Businesses compete where they supply sufficiently comparable goods or services in the same area, or where there is a realistic prospect of doing so. A fiduciary who fails to disclose involvement in a competing business may be liable for breach, but salary forfeiture requires proportionality and a reasonable relationship between the breach and the remuneration claimed.

Rescission ordinarily requires mutual restoration. A claimant cannot obtain repayment while retaining property transferred under a simple money-for-property transaction.

The claimants, suppliers of uninterruptible power supplies, sued two former directors, employees and shareholders. They alleged that the defendants had helped establish and operate Vox Ratio Ltd, a competing business, while still owing duties to Gamatronic UK. Claims were also brought for salary repayment, Vox profits, rescission of a share purchase agreement, expenses and sums paid to HMRC in respect of the defendants’ tax liabilities.

The defendants relied on permissible preparation, waiver, a contractual release, statutory relief, and the practical impossibility of restoring the parties after rescission. The central issues were whether Vox competed with Gamatronic UK, whether the defendants’ conduct breached their duties, and what remedies followed.

1. Competition. Applying the approach in Morris-Garner v One Step (Support) Ltd [2016] EWCA Civ 180, the court held that Vox and Gamatronic UK supplied sufficiently comparable UPS products and related services in the same UK market. Their products were not identical, but there was actual overlap and a realistic prospect of wider overlap. Vox was therefore a competitor or potential competitor.
2. Breach. Most discussions and planning in late 2010 were permissible preparation. Mr Hamilton nevertheless breached his duties by helping create Vox’s price lists. The Denver trip involved a breach because substantial time was taken under misleading pretences. The beneficial acquisition of Vox shares created a conflict. Subsequent approaches to customers, use of Vox’s services, holding himself out as a Vox director, and active involvement in Vox’s operations also breached fiduciary and employment duties. Competition was assessed objectively; subjective denial of competition did not avoid liability.
3. Remedies. Salary forfeiture was refused. The breaches affected only part of the long employment relationship, the defendants continued to provide valuable work, and the claimed salaries lacked a reasonable relationship to the breaches. Claims for Vox salaries, Vox profits, contractual salary damages and restitutionary damages also failed.
4. Rescission. The release in the SPA did not release employment-related claims. The defendants had failed to disclose breaches, so rescission was potentially available, but mutual restoration was required. Since the claimants would not return the shares, rescission was refused or treated as withdrawn. Claims for expenses and restitution of HMRC payments also failed. Judgment was therefore for the defendants on the monetary and rescission claims, subject to the findings of breach.