The claimant, a manufacturer of filter tubes, employed the defendant as a director. He gave notice to leave, but during his notice period, he was contacted by a customer who informed him of a meeting between that customer and the company at which the company had informed them of an impending price increase and that supplies would be discontinued. The defendant told the customer that he was leaving, and said he would be able to supply them himself. He began to prepare his business, buying in stock and taking on former and current employees of the claimant. The claimant now alleged breach of his fiduciary duties as director, of acting in conflict of interest, and of his duties of faithfulness as an employee.
Held: The mere intention to set up a competing business whilst employed as a director was not a breach of fiduciary duty, and nor did he have a duty to disclose that intention. Though general preparation were not a breach of his duty of fidelity as an employee, the taking of an order from a customer, and the taking on of an employee did each amount to such a breach.
There was no misues of confidential information. Although the new business used similar fibre mixes, the defendant’s own skill could account for his preparation of them without misuse of the claimant’s confidential information.
Falconer J said: ‘In my judgment an intention by a director of a company to set up business in competition with the company after his directorship has ceased is not to be regarded as a conflicting interest within the context of the principle, having regard to the rules of public policy as to restraint of trade, nor is the taking of preliminary steps to investigate or forward that intention so long as there is no actual competitive activity, such as, for instance, competitive tendering or actual trading, while he remains a director.’
 FSR 385
England and Wales
Cited – Robb v Green 1895
An employee intending to enter business for himself may prepare for that step, provided he does not breach terms of his contract of employment or breach the confidence reposed in him by his employers. The duty may be breached by an employee . .
Cited – Bell v Lever Brothers Ltd HL 15-Dec-1931
Contract – Mutual Mistake Test
Bell was director and chairman of Niger, a subsidiary of Lever Brothers Ltd who dismissed him, offering and paying pounds 30,000 compensation. Lever then discovered that Mr Bell had made secret profits at the expense of Niger for which he could have . .
See Also – Balston Ltd v Headline Filters Ltd and Another 1987
The second defendant, whilst still during his notice period to leave employment by the plaintiff, began to make arrangements to start his own competing business, and solicited future business from a customer of the plaintiff. The plaintiff sought an . .
Cited – Island Export Finance v Umunna ChD 1986
The defendant director had resigned from the plaintiff company from dissatisfaction with its progress. He later received an order from the company’s former customer. The court considered the continuing duties of a company director after the . .
Cited – Helmet Integrated Systems Ltd v Tunnard and others CA 15-Dec-2006
Whilst employed by the claimants as a salesman, the defendant came to want to develop his idea for a modular helmet suitable for fire-fighters and others. He took certain steps including showing the proposal confidentially to a competitor, and then . .
Cited – Whitmar Publications Ltd v Gamage and Others ChD 4-Jul-2013
Whitmar claimed damages for breach of contract; an account of profits; damages for breach of fiduciary duty and/or for infringement of its Database Rights under the Copyright and Rights in Database Regulations 1997; and for a permanent injunction . .
Lists of cited by and citing cases may be incomplete.
Updated: 18 May 2022; Ref: scu.442530