When an employee or director owes fiduciary duties over and above contractual ones, and what follows from breach. University of Nottingham v Fishel; Item Software (UK) Ltd v Fassihi.
Employment; disclosure of own misconduct; mistake. Executives who had secretly speculated in cocoa on their own account received substantial severance payments; the employer, discovering the misconduct that would have justified summary dismissal, sought to unwind the agreements. The House of Lords held an ordinary employee is under no general duty to disclose his own misconduct: a contract of employment is not uberrimae fidei. Also the leading authority on common mistake in contract. Contrast the fiduciary director's position under Item Software v Fassihi, as confirmed in Saxon Woods v Costa.
Directors' duties; business judgment. Directors exercising a discretion must act bona fide in what they consider, not what a court may consider, is in the interests of the company, and not for any collateral purpose. The classic statement of the subjective approach to directors' business judgment, now read subject to Saxon Woods v Costa: the deference attaches to the judgment itself, not to covert or disloyal conduct in pursuit of it.
Ch 117 - Contract; confidentiality; trade secrets are protected post-employment, but general skill and knowledge are not.
Fiduciary duties; definition. Millett LJ's classic exposition: a fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence, and the distinguishing obligation of a fiduciary is the obligation of loyalty. Not every breach of duty by a fiduciary is a breach of fiduciary duty: duties of care and skill are not fiduciary in character. The foundation of the fidelity/loyalty distinction relied on in employment cases such as Fishel and Ranson.
Employment; fiduciary duties. An employment relationship is not of itself fiduciary. Elias J: it is necessary to identify with care the particular duties undertaken by the employee and to ask whether in all the circumstances he has placed himself in a position where he must act solely in the interests of his employer. The university's scientific director breached a specific fiduciary duty only in respect of directing junior embryologists he controlled to work abroad for his own benefit; his own undisclosed outside work was a matter of contract, not fiduciary obligation. The leading authority on the threshold question for fiduciary claims against employees.
Directors' duties; subjective test. The question whether a director acted in breach of the duty to act in the company's best interests is whether he honestly believed that his act or omission was in the interests of the company; the issue is his state of mind, not whether the court would have reached the same view. Applied by the trial judge in Saxon Woods v Costa; the Supreme Court confirmed the test governs the merits of a business decision but does not shield covert or deceptive conduct in its execution.
Directors' duties; disclosure of own misconduct. A director who diverted a commercial opportunity while advising his employer in negotiations was in breach of duty by failing to disclose his own wrongdoing. Arden LJ held there is no separate free-standing duty of disclosure: the obligation is an aspect of the fundamental duty of loyalty, the duty to act in what the director in good faith considers to be the best interests of the company. Expressly approved by the Supreme Court in Saxon Woods v Costa. Contrast the position of the ordinary employee under Bell v Lever Brothers.
Directors' duties; competing venture; preparatory steps. Directors and a senior employee who took steps to establish a competing fund while still in post were in breach of fiduciary duty. Etherton J: in the context of a director's own acts to promote a competing business, the breach of fiduciary duty is to carry out the impermissible acts of promotion without first disclosing the intention to do them and obtaining permission. The touchstone is the duty of loyalty (following Item Software v Fassihi). Approved by the Supreme Court in Saxon Woods v Costa. The leading first-instance analysis of when preparatory steps cross the line in team move litigation.
Employment; fiduciary duties; preparing to compete. The Court of Appeal reversed a finding that a senior employee owed director-style fiduciary duties. An employee's duties are derived from the contract of employment; seniority alone does not import the single-minded loyalty of a fiduciary, and the duty of fidelity is not the same as a fiduciary duty of loyalty (applying Fishel and Mothew). Absent a relevant contractual or fiduciary obligation, an employee is not obliged to disclose his own plans to compete after termination.
Dishonesty; objective test. The test of dishonesty is objective: the fact-finder ascertains the defendant's actual (subjective) state of knowledge or belief as to the facts, then determines whether his conduct was dishonest by the standards of ordinary decent people. There is no additional requirement that the defendant appreciated that his conduct was dishonest (departing from the second limb of Ghosh). In Saxon Woods v Costa the Supreme Court held that where a fiduciary duty of loyalty applies, that duty supplies the analytical framework and the Ivey elaboration is unnecessary.
Directors' duties; good faith; s.172(1) Companies Act 2006. The Supreme Court held that the requirement of good faith in s.172(1) governs a director's conduct, not merely his state of mind. A director who covertly subverts a strategy resolved upon by the board, concealing his course of action and misleading his fellow directors, acts in bad faith towards the company notwithstanding a genuine belief that he is serving its best interests. Respect for business judgment (Re Smith and Fawcett; Regentcrest) attaches to the merits of a decision, not the manner of its covert pursuit. Where a fiduciary duty of loyalty applies, the duty itself supplies the analytical framework and elaboration by reference to Ivey dishonesty is unnecessary. Expressly approves Item Software v Fassihi and Shepherds Investments v Walters on disclosure as an aspect of the loyalty duty.