Camberley Group Plc & Ors. v Paul Foster & Ors.

An employee who knowingly causes company funds to be paid against false invoices commits misconduct capable of justifying summary dismissal. A settlement warranty stating that no such circumstances exist may operate as a condition of the employer’s liability to make both notice and ex gratia payments.

The tort of inducing breach of contract requires a contract, breach, procurement or inducement, knowledge of the relevant term and actual realisation that the conduct will cause breach. Preparation for competition is permissible, but active competition during employment, including diverting customers, may breach duties of fidelity and support liability for inducing breach.

Damages must be proved. Investigation costs may be recoverable where reasonably incurred, but disproportionate surveillance and internal management time are not necessarily compensable.

The claimants, companies in a family-owned manufacturing group, sued three former employees. The claims included repayment under a settlement agreement, breach of contract, inducing breach of contract, conspiracy and unjust enrichment.

The first defendant had warranted in a settlement agreement that he was unaware of circumstances amounting to a material breach justifying summary dismissal. The claimants alleged that he had arranged for personal expenditure to be concealed through false invoices.

The claimants also alleged that the first and second defendants had jointly planned a competing business while the second defendant remained employed, worked on the plan during working hours and approached a customer of the group. Claims were also made concerning allegedly exaggerated wage claims by the third defendant.

The central issues were whether the warranty was breached and enforceable, whether the elements of inducing breach of contract were established, and what losses were proved.

1. Warranty claim. The first defendant dishonestly caused false invoices to be submitted for personal expenditure. The directors’ loan account was the established mechanism for personal expenditure, and he knew that disguised invoices would be rejected by the accounts department. His conduct amounted to a material breach of employment justifying summary dismissal.
2. The warranty was a condition of the settlement agreement. On its proper construction, the employer’s reliance on the warranty applied to the agreement as a whole, including payment in lieu of notice and the ex gratia payment. The approach in Collidge v Freeport was applied: sums paid under a settlement containing an equivalent condition were prima facie returnable if the warranty was untrue.
3. Clause 9.2 was a primary obligation, so the law of penalties was not engaged. Alternatively, it protected the employer’s legitimate interest in avoiding payment under a settlement obtained in circumstances that would have justified summary dismissal and was not exorbitant, extravagant or unconscionable within the approach in Cavendish Square Holding BV v Makdessi.
4. The first claimant recovered £97,449.03 under the settlement warranty, together with £20,050 for false invoices paid at its request. The second claimant recovered £9,214. Legal fees incurred in entering into the settlement were not recoverable on the pleaded breach of warranty claim.
5. Inducing breach. The second defendant remained employed by CLL, but his contract required him to act as BML’s general manager and he owed BML duties of loyalty and fidelity. The court applied the five-stage test summarised in Aerostar Maintenance International Ltd v Wilson and consistent with OBG Ltd v Allan. The business plan, work undertaken during working hours, customer approach and related conduct established contract, breach, inducement, knowledge and intention.
6. Preparation to compete is permissible, but the defendants had crossed the line into active competition. Liability was established, although loss of the customer was not proved. Reasonable data-recovery costs were recoverable, but excessive surveillance and internal investigation time were not. The second defendant was ordered to pay £6,500.
7. The mileage claim failed. The claim for exaggerated trimming hours succeeded against both the second and third defendants in the sum of £15,486.93.