The fiduciary duties of a director, which require the director to avoid his or her own interests conflicting with those of the company, were recently codified in the Companies Act 2006 and now the High Court, in Thermascan Ltd v Norman, has considered the extent of those duties.
The defendant had resigned as director of Company T and left to work for a competitor, where he started canvassing customers of Company T offering them lower prices than those quoted by Company T in the past. There had been a non-solicitation covenant in his contract with Company T but it only lasted for six months after the termination of his contract and, by the time the claim against him reached the High Court, that time had already expired.
Company T argued that his fiduciary duties remained and that it was still entitled to an injunction to restrain him from breaching those duties.
The wording of s.170(2) of the 2006 Act makes it clear that 'a person who ceases to be a director continues to be subject to the duty (to avoid conflicts of interest) as regards the exploitation of any property, information or opportunity of which he became aware at a time when he was a director'.
However, in this case, the judge considered that the evidence showed that the business the defendant was soliciting had not been a 'maturing business opportunity' for Company T at the time of his resignation, but rather a 'mere hope' and so the balance of convenience lay in favour of allowing the defendant to compete.
Points to note –
- The fiduciary duties in the 2006 Act replace the common law directors' duties and apply automatically and without having to be written into the director's service agreement. Companies may, as in this case, seek to rely on them where express covenants were either not taken or have expired.
- Express covenants will always be stronger than implied duties but the onus is on the company to satisfy the court that such covenants are reasonable in extent and duration. For this reason they will always be limited to a fixed period after termination of the director's service agreement. However, this also means that the company must move fast if it wishes to obtain a court order to enforce them before they expire. Urgent and expert legal advice will always be needed.
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