HENRY WILLIAMS LIMITED v STEVEN ADRIAN COTTON & Anor

Directors must disclose information and opportunities relevant to their company and must not exploit them while holding office. That duty applies even where the company might ultimately have been unable to exploit the opportunity itself. A director who secretly prepares to join a competing business, diverts confidential information or assists a competitor before resignation may breach fiduciary and contractual duties. Conspiracy may be established where unlawful means are used with an intention to cause loss, even if protecting the conspirators’ own interests is also a purpose. A nominee company that knowingly conceals a director’s beneficial interest may be liable for dishonest assistance, conspiracy and knowing receipt. An employer may access material on its own computer systems under applicable workplace policies where the access serves a legitimate business or disciplinary purpose.

The claimant, a manufacturer and former UK distributor of railway treadles, brought two related liability claims against its former directors, Steven Cotton and Alan Herron, Rubicon Consultants Limited, and associated parties. The claims alleged breaches of fiduciary and contractual duties, misuse of confidential information, conspiracy, dishonest assistance and knowing receipt.

The dispute arose after the treadle manufacturer decided to bring UK distribution in-house through SNIC Rail UK Limited. While still directors and employees, Mr Cotton and Mr Herron discussed employment with SNIC, assisted its preparations, concealed those arrangements and were alleged to have diverted confidential information and a major customer order. The court determined liability only; the claimant was to elect between an account of profits and equitable compensation or damages.

1. Liability established. The claimant proved its liability case against the defendants. The court found that Mr Cotton and Mr Herron owed statutory and fiduciary duties as directors, together with contractual duties of good faith and fidelity.
2. Both directors passed confidential information to SNIC. Mr Cotton sent the claimant’s price comparison document to himself and used or intended to use it to enable SNIC to undercut the claimant. Both directors were involved in passing information concerning the Babcock order. Mr Herron also caused a treadle gauge head with French lettering to be made and took it to assist SNIC.
3. Neither director was shown to have made the decision for SNIC to terminate the claimant’s distributorship. Nevertheless, their secret negotiations, acceptance of employment and preparatory steps breached their fiduciary duties and contractual obligations. They deliberately placed their interests in conflict with the claimant’s interests and prevented the claimant from realistically negotiating with SNIC. The loss of the business would probably have occurred eventually, but not as soon without their conduct.
4. Mr Cotton was significantly involved in incorporating SNIC UK, arranging its nominee shareholding, attempting to secure premises and assisting its web design. Those acts materially accelerated SNIC UK’s operation while he remained a director and employee and therefore breached his fiduciary and contractual duties. He also breached contractual confidentiality, non-competition and non-solicitation obligations.
5. Mr Cotton and Mr Herron conspired to prevent negotiations between the claimant and SNIC. Rubicon dishonestly assisted and conspired with Mr Cotton by holding his shares through a nominee arrangement designed to conceal his beneficial ownership. Rubicon was also liable for knowing receipt, and the claimant was entitled to a declaration that it held the shares on trust for the claimant.
6. The claimant did not commit a repudiatory breach by accessing emails and documents on Mr Cotton’s work computer. Its policies permitted access for legitimate operational and disciplinary purposes. The claim was proved on liability, with the claimant to elect its remedy and further directions to follow.