ON APPEAL FROM THE QUEEN'S BENCH DIVISION
SIR RAYMOND JACK
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE LLOYD
| JEREMY MICHAEL RANSON
|- and -
|CUSTOMER SYSTEMS PLC
MR M GRIFFITHS QC & MS A SANDER (instructed by Pinsent Masons) for the Respondent
Hearing dates : 14 & 15 June 2012
Crown Copyright ©
Lord Justice Lewison:
The background facts
In the course of your work you may be exposed to information of a confidential nature belonging to Customer Systems Ltd, its customers and its business partners. You agree to keep this information confidential. Should you cease to be employed by Customer Systems Ltd, you agree to maintain this confidentiality thereafter.
…normal business hours are 9am to 5.30 pm….. . ..you may sometimes be required to work additional hours for which overtime will not be paid.
You may not undertake any other employment whilst employed by Customer Systems Ltd without the prior written consent of Customer Systems Ltd.
This Offer Letter and Terms of employment together constitute the entire agreement between you and Customer Systems Ltd. Any prior arrangements and understandings are superseded by this agreement."
"'My first signed order has arrived. It is only for 10 days but I start on Monday. Also shook hands on my third deal last night."
The judge's conclusions
"75. I do not consider that Mr Ranson was in breach of his duty in connection with the second and third 'business plans'. He was entitled to plan a competing business. He had no fixed intention as to his future until after he had given in his notice. I find that his intention when he gave in his notice was not firmly fixed but was moving in the direction of doing contracting work with the idea of developing that into a full consultancy as and when the opportunity arose. By the time he was in discussion with Mr Clothier that was the route he had decided upon.
76. In anticipation of Mr Clothier's move to Diageo Mr Scattergood and Mr Ranson had had lunch with him the previous December and then or soon after it had been agreed with Mr Clothier that CS, no doubt - as it was then thought - through Mr Ranson, would get in touch with him after he had been at Diageo for four weeks to see what opportunities there were. But what happened was that sooner than that Mr Clothier and Mr Ranson were discussing opportunities for Mr Ranson and Praesto. Mr Ranson's case is that the work which was the subject of the order was offered to him and that it was not available for CS. Mr Andrew Stafford QC submitted that diversion of the work from CS to Praesto was crucial. But Mr Ranson was the man with whom Mr Clothier dealt at CS. Mr Ranson could not properly use his relationship as he did without informing CS: his duty as divisional manager in charge of a high proportion of sales was to inform CS and let them decide. It does not assist Mr Ranson that his sales duties were reducing as Mr Offland took over or that Diageo was not within his 'territory'. Mr Ranson's position is here not materially distinct from that of the director defendant in Towers.
77. I am satisfied that the situation with Mr Clothier was one in which fiduciary duties arose. They were broken when Mr Ranson did not inform CS of the opportunity for which he obtained an order, and of the opening with which Mr Clothier provided Mr Ranson on 20 February. He was also thereby in breach of his contractual duty of loyalty. That could be put more simply that it was his duty as someone employed to pursue sales to report these opportunities because of his self-interest in them.
78. If Mr Ranson had performed his duty in connection with these opportunities, what would he have been obliged to report to CS? The fact that he was looking at the opportunities might well have told CS sufficient about his intentions after he had left. I do not, however, consider that he was obliged to inform CS expressly that he was thinking of developing a fully competing business.
79. Mr Ranson's dinner with Mr Boardman was two nights before he left CS. Nonetheless it is the fact that he used the occasion to canvass Mr Boardman for work in competition with CS, and that he was then still employed by CS with the duties I have referred to. For the reasons I have stated in relation to his dealings with Mr Clothier, he was in breach of his contractual & fiduciary duties in canvassing Mr Boardman and in not informing CS of what he was doing.
80. It was a breach of Mr Ranson's contractual duty of loyalty and good faith for him to transfer the business contacts from his company mobile phone for the purpose of using them in the business of Praesto. Having wrongly extracted them, he was under a fiduciary duty not to use them for any purpose contrary to CS's interests. I find that the likelihood is that in breach of that duty he used some of the numbers in the business of Praesto. The evidence does not enable me to be more specific.
81. Mr Ranson was similarly in breach of his duty by copying the invoices, the time sheets and order confirmations. In further breach he used them to provide forms for Praesto."
Directors and employees
"The phrase "fiduciary duties" is a dangerous one, giving rise to a mistaken assumption that all fiduciaries owe the same duties in all circumstances. That is not the case."
The role of the contract
"The existence and scope of these duties depends upon the terms on which they are acting."
"That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction."
"…the essence of the employment relationship is not typically fiduciary at all. Its purpose is not to place the employee in a position where he is obliged to pursue his employer's interests at the expense of his own. The relationship is a contractual one and the powers imposed on the employee are conferred by the employer himself. The employee's freedom of action is regulated by the contract, the scope of his powers is determined by the terms (express or implied) of the contract, and as a consequence the employer can exercise (or at least he can place himself in a position where he has the opportunity to exercise) considerable control over the employee's decision making powers. This is not to say that fiduciary duties cannot arise out of the employment relationship itself. But they arise not as a result of the mere fact that there is an employment relationship. Rather they result from the fact that within a particular contractual relationship there are specific contractual obligations which the employee has undertaken which have placed him in a situation where equity imposes these rigorous duties in addition to the contractual obligations. Where this occurs, the scope of the fiduciary obligations both arises out of, and is circumscribed by, the contractual terms; it is circumscribed because equity cannot alter the terms of the contract validly undertaken."
The contractual duty of fidelity
"… that during the continuance of his employment he will act in his employers' interests and not use the time for which he is paid by the employers in furthering his own interests."
"For myself I prefer the more general implication stated thus by A. L. Smith LJ: "I think that it is a necessary implication which must be engrafted on such a contract that the servant undertakes to serve his master with good faith and fidelity. That is what was said in the case of Lamb v Evans, and I entirely agree with it." The Lord Justice then asked himself whether the defendant in Robb v Green acted with good faith and fidelity. The same question has to be answered in the present case. In dealing with it certain considerations should not be left out of sight. First, after the employment terminates, the servant may, in the absence of special stipulation, canvass the customers of the late employer, and further he may send a circular to every customer. On the other hand, it has been held that while the servant is in the employment of the master he is not justified in making a list of the master's customers, and he can be restrained, as he was in Robb v Green, from making such a list, or if he has made one, he will be ordered to give it up. But it is to be noted that in Robb v Green the defendant was not restrained from sending out circulars to customers whose names he could remember. Another thing to be borne in mind is that although the servant is not entitled to make use of information which he has obtained in confidence in his master's service he is entitled to make use of the knowledge and skill which he acquired while in that service, including knowledge and skill directly obtained from the master in teaching him his business. It follows, in my opinion, that the servant may, while in the employment of the master, be as agreeable, attentive and skilful as it is in his power to be to others with the ultimate view of obtaining the benefit of the customers' friendly feelings when he calls upon them if and when he sets up business for himself. That is, of course, where there is no valid restrictive clause preventing him doing so."
"While the employee remains in the employment of the employer the obligations are included in the implied term which imposes a duty of good faith or fidelity on the employee. For the purposes of the present appeal it is not necessary to consider the precise limits of this implied term, but it may be noted: (a) that the extent of the duty of good faith will vary according to the nature of the contract (see Vokes Ltd v Heather, 62 RPC 135); (b) that the duty of good faith will be broken if an employee makes or copies a list of the customers of the employer for use after his employment ends or deliberately memorises such a list, even though, except in special circumstances, there is no general restriction on an ex-employee canvassing or doing business with customers of his former employer: see Robb v Green  2 QB 315 and Wessex Dairies Ltd v Smith  2 KB 80."
"Trust and confidence"
"without reasonable and proper cause, conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of confidence and trust between employer and employee."
See Malik v BCCI  AC 20, 45.
"The applicants do not rely on a term implied in fact. They do not therefore rely on an individualised term to be implied from the particular provisions of their employment contracts considered against their specific contextual setting. Instead they rely on a standardised term implied by law, that is, on a term which is said to be an incident of all contracts of employment: Scally v Southern Health and Social Services Board  1 AC 294, 307B. Such implied terms operate as default rules. The parties are free to exclude or modify them. But it is common ground that in the present case the particular terms of the contracts of employment of the two applicants could not affect an implied obligation of mutual trust and confidence….
There was some debate at the hearing about the possible interaction of the implied obligation of confidence and trust with other more specific terms implied by law. It is true that the implied term adds little to the employee's implied obligations to serve his employer loyally and not to act contrary to his employer's interests. The major importance of the implied duty of trust and confidence lies in its impact on the obligations of the employer… and the implied obligation as formulated is apt to cover the great diversity of situations in which a balance has to be struck between an employer's interest in managing his business as he sees fit and the employee's interest in not being unfairly and improperly exploited." (Emphasis added)
"This submission loses sight of the particular nature of the implied obligation of mutual trust and confidence. It is not a term implied in fact. It is an overarching obligation implied by law as an incident of the contract of employment. It can also be described as a legal duty imposed by law: Treitel, The Law of Contract, p 190. It requires at least express words or a necessary implication to displace it or to cut down its scope. Prima facie it must be read consistently with the express terms of the contract. This emerges from the seminal judgment of Sir Nicolas Browne-Wilkinson V-C in Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd  1 WLR 589. It related to an employer's express contractual right to refuse amendments under a pension scheme. The Vice-Chancellor held that the employer's express rights were subject to the implied obligation that they should not be exercised so as to destroy or seriously damage the relationship of trust and confidence between the company and its employees and former employees. The employer's blanket refusal was unlawful. The decision did not involve trust law and the employer was not treated as a fiduciary. It was decided on principles of contract law. Sir Nicolas Browne-Wilkinson V-C described the implied obligation of trust and confidence as "the implied obligation of good faith". It could also be described as an employer's obligation of fair dealing." (Emphasis added)
The difference between the contractual duty of fidelity and the duties of a fiduciary
"An employee owes an obligation of loyalty to his employer but he will not necessarily owe that exclusive obligation of loyalty, to act in his employer's interest and not in his own, which is the hallmark of any fiduciary duty owed by an employee to his employer. The distinguishing mark of the obligation of a fiduciary, in the context of employment, is not merely that the employee owes a duty of loyalty but of single-minded or exclusive loyalty."
"In my opinion the crucial question is whether Dr Fishel was under a specific duty to secure the work abroad for the university. It is not relevant that his fiduciary duty may have been engaged in other circumstances… The question, however, is whether it was engaged in these particular circumstances. I do not think that it was. He was under no contractual obligation to seek to obtain work abroad of this nature on behalf of the university, nor in my opinion could he have been contractually obliged to do the work abroad that he did. … In similar vein, the university also relied upon a passage in Dr. P. D. Finn's book Fiduciary Obligations, p 236, para. 547, where he says: "The important matter is whether or not that opportunity relates to a transaction falling within the scope of the business or venture." The university then says that since research and treatment was the core business of Nurture, it was an opportunity which should have been made available to the university. However, those words were made in the context of considering the scope of the fiduciary obligation as it applies to partners and joint venturers. Such persons are undertaking to share the work which falls within the scope of the partner or joint venture. The same principle cannot simply be treated as being automatically applicable in the very different context of the employment relationship. The employee does not in general promise to give his employer the benefit of every opportunity falling within the scope of its business." (Emphasis added)
A duty to report?
"…there is no general duty to report a fellow-servant's misconduct or breach of contract; whether there is such a duty depends on the contract and on the terms of employment of the particular servant. He may be so placed in the hierarchy as to have a duty to report either the misconduct of his superior, … or the misconduct of his inferiors, as in this case." (Emphasis added)
"… the employee's duty of loyalty and good faith obliged Dr Fishel to inform the university that he was being paid for his outside work. The argument then is that, had the university been aware of the opportunity to do outside work, it would have sought to do it itself."
"In my view the premise is wrong. I do not think that as a general principle an employee is bound to inform his employer if and when he is doing outside work in breach of his contract."
"… the well established rule in Bell v Lever Brothers Ltd  AC 161 that employees are not obliged to disclose their own past misconduct or breaches of contract."
"… the duties of a director are in general higher than those imposed by law on an employee. This is because a director is not simply a senior manager of company. He is a fiduciary and with his fellow directors he is responsible for the success of the company's business."
"For my part, I do not consider that it is correct to infer from the cases to which I have referred that a fiduciary owes a separate and independent duty to disclose his own misconduct to his principal or more generally information of relevance and concern to it. So to hold would lead to a proliferation of duties and arguments about their breadth. I prefer to base my conclusion in this case on the fundamental duty to which a director is subject, that is the duty to act in what he in good faith considers to be the best interests of his company."
"42 I accept that if Mr Tunnard had learned that a competitor of HISL proposed to develop a helmet which was a rival to the F600 produced by HISL and was in the process of preparing a preliminary concept of such a helmet, he was under an obligation to report that information. Such activity, even though it consists merely of preparation and even though such a concept might never be developed, would be information properly described as "competitor activity" within the meaning of the job specification.
43 I am also prepared to accept that a "competitor" within the meaning of the job specification might include a third party which had never previously competed but proposed to do so.
44 I also accept that Mr Tunnard would be under an obligation to deploy such information exclusively in the interests of his employer. It would not be open to him to pass on that information to someone else for the benefit of that other person, nor would he be permitted to use such information for his own benefit without being in breach of his duty of fidelity to HISL. I am even, with some diffidence, prepared to accept that if Mr Tunnard used information about such activity either for the benefit of someone other than HISL or for his own benefit he would be in breach of a fiduciary obligation.
45 I am prepared to go thus far because HISL would have no control over how Mr Tunnard deployed what he had learned as a salesman, and would be dependent upon him to pass on the information. Were it not so, the employee could pick or choose what he did or did not pass on. Thus HISL would be vulnerable to any misuse of such information, the dissemination of which was outside the employer's control. Such vulnerability is what Lord Millett described (op cit 219) as a "defining characteristic" of a fiduciary relationship. To obtain and then divert the benefits of such information seems to me closely analogous to the condemned activities of the director, Fassihi."
"The reason why Mr Tunnard did not breach any fiduciary obligation was because his own preparatory activity could not legitimately be described as "competitor activity" in the context of his employment as a salesman and his right to prepare for competition once he had left employment as a salesman."
The judge's analysis
The terms of the contract
"...the parties did not intend the letters to be the sole record of their agreement but intended that it should be contained partly in the letters, partly in oral exchanges at the interview or elsewhere and partly left to evolve by conduct as time went on. This would not be untypical of agreements by which people are engaged to do work, whether as employees or otherwise."
"This freedom to compete, once an employee has left, unrestrained by any enforceable covenant, carries with it a freedom to prepare for future activities, which the employee plans to undertake, once he has left. In Robb v Green … Hawkins J concluded that a manager who had copied a list of customers was liable in damages for breach of an implied term not to use such information to the detriment of his employer. But he observed, in words echoed frequently thereafter, that each case would depend upon its own circumstances and there will be cases where an employee may legitimately canvass, issue circulars, have a place of business ready and hire employees."
"It does not assist Mr Ranson that his sales duties were reducing as Mr Offland took over or that Diageo was not within his 'territory'." (Emphasis added)
Mr Clothier and Diageo
i) Mr Clothier was not just a CS contact, he was also a personal friend of Mr Ranson (§ 40);
ii) Mr Clothier knew that Mr Ranson was leaving CS and recommended Mr Ranson to Mr Bruhin even before he made contact with Mr Ranson (§ 42);
iii) Mr Ranson did not initiate the contact with Mr Clothier: Mr Clothier did (§ 43);
iv) The information that Mr Ranson gave Mr Clothier related to his future activities after he left CS;
v) Mr Clothier arranged Mr Ranson's introduction to Mr Bruhin. Mr Bruhin was impressed and one factor in that was that (unlike CS) Praesto was an independent company with no tie to Siebel (§ 43);
vi) Although the work order was signed on 25 February 2009 (two days before Mr Ranson left) it was for work to begin after his departure;
vii) Diageo was not an existing customer of CS and was not on Mr Ranson's "patch". It was therefore no part of his job for CS to pursue any opportunity with Diageo;
viii) Mr Scattergood knew that Mr Clothier had moved from Reckitt Benckiser to Diageo, so he knew that there was a potential business opportunity to attract Diageo as a customer of CS;
ix) But there is no finding that he (or anyone else within CS) contacted Mr Clothier after Mr Ranson's departure, even though such contact had been envisaged at the Windsor lunch.
i) Mr Boardman was well-known to CS as an important contact. Mr Ranson had been his point of contact within CS, but his handover notes to Mr Offland stressed that Mr Boardman was a "key contact";
ii) When the dinner took place Mr Boardman already knew that Mr Ranson was leaving CS (§ 45);
iii) A reason for the dinner was "to pave the way" to obtaining future work from AstraZeneca after Mr Ranson's departure, but nothing specific was discussed and no promises were made. However, Mr Boardman did say that he would help Mr Ranson find work (§ 45);
iv) There was no further contact until after Mr Ranson had left CS;
v) When in March 2009 Mr Ranson did put in a proposal for some work from AstraZeneca, nothing came of it;
vi) CS continued to count AstraZeneca among its customers and to supply services to it for a further six months; but the relationship collapsed for reasons unrelated to Mr Ranson or Praesto.
Lord Justice Lloyd:
Lord Justice Pill: