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KB-2025-0001228 - [2025] EWHC 2897 (KB)
Fecha: 06-Nov-2025
B. Legal Framework
B.Legal Framework
There is little dispute between the parties as to the relevant legal framework.
Under the SA, the Claimants rely upon the following positive obligations:
‘[Mr Friend] shall be responsible for setting and directing the strategic direction of the Group [and] will be involved in the relationship management of the Group's key customers’ (Clause 4.1);
‘[Mr Friend] undertakes to disclose promptly to the Board anything of which he becomes aware or in which he becomes involved which affects adversely or is likely to affect adversely the business, interests or reputation of any Group Company” (Clause 4.2).
The Claimants also rely upon the following prohibitions within the SA, the existence of which is not in issue. Mr Friend was required, for a period of 12 months from the Termination Date, not to:
‘so as to compete (or to compete in the future) with the Company or any Relevant Group Company canvass, solicit or approach or cause to be canvassed, solicited or approached any Relevant Customer for the supply or provision of Relevant Products or Services or endeavour to do so’ (Clause 18.1.1);
‘so as to compete (or to compete in the future) with the Company or any Relevant Group Company deal or contract with any Relevant Customer in relation to the supply or provision of any Relevant Products or Services, or endeavour to do so’ (Clause 18.1.2);
‘do or attempt to do anything which causes or may cause a Relevant Customer to cease or reduce materially its dealings or intended dealings with the Company or Relevant Group Company or alter its terms of business with and to the detriment of the Company and/or other Relevant Group Company’ (Clause 18.1.3);
‘so as to compete (or to compete in the future) with the Company or any Relevant Group Company canvass, solicit or approach or cause to be canvassed, solicited or approached any Prospective Customer for the supply or provision of Relevant Products or Services or endeavour to do so’ (Clause 18.1.4);
‘so as to compete (or to compete in the future) with the Company or any Relevant Group Company deal or contract with any Prospective Customer in relation to the supply or provision of any Relevant Products or Services, or endeavour to do so’ (Clause 18.1.5);
‘be employed, or otherwise work for or provide technical, commercial or professional services or advice to, any other business (whether conducted on its own or as part of a wider entity) which supplies or provides (or intends to supply or provide) Relevant Products or Services in competition with the Company or any Relevant Group Company with which the Executive was materially engaged or involved, or for which he was responsible, during the Relevant Period’(Clause 18.1.8);
‘use or seek to register, in connection with any business, any name, internet domain name (URL), social media account or other device which includes the name or device of the Company or any Group Company, any identical or similar sign or any sign or name previously used by the Company or any Group Company or at any time after the Termination Date represent themselves as connected with the Company or any Group Company in any capacity’ (Clause 18.1.12);
‘either during his employment (including without limitation any period of absence or of exclusion pursuant to clause 22.1) or after its termination (without limit in time) make use of, or encourage or permit the use of any Confidential Information for any purposes other than those of the Company and for the benefit of the Company or any Group Company and shall take all reasonable steps without incurring personal cost to prevent the publication or disclosure of any Confidential Information’ (Clause 19.1).
In terms of the powers of the Board of the Second Claimant, the Claimants also rely upon:
During employment, the Board ‘may at any time require the Executive to cease performing and exercising all or any of such duties, functions or powers’ (Clause 4.4) and;
After notice of termination has been given, the Board may ‘require [Mr Friend] to carry out specified duties for the Company or any Group Company or to carry out no duties’ and ‘instruct the Executive not to directly or indirectly communicate orally or in writing with suppliers, customers, officers, employees, shareholders, agents or representatives of the Company or any Group Company (other than purely social contact)’(Clause 22.2).
There is no dispute that, in addition, a duty of loyalty and fidelity, and a duty of trust and confidence, were implied into the SA as a matter of law.
Pursuant to the IA, Mr Friend undertook so long as he is employed or engaged by the Friend Group not to:
‘carry on or be engaged, concerned or interested in, or provide technical, commercial, professional or other advice to a Key Competitor’ (Clause 10.1.1(a));
‘carry on or be engaged, concerned or interested in, or provided technical, commercial, professional or other advice to, any other business which supplies products or services in competition (directly or indirectly) with the business of the Group, which is not a Key Competitor’ (Clause 10.1.1(b));
‘in competition with the Group, solicit or accept any order, enquiry or business in respect of any products or services competitive with those manufactured and/or supplied by the Group’ (Clause 10.1.1(d));
‘at any time, do or say anything which is, or which could reasonably be foreseen to be, harmful to the reputation or goodwill of any Group Company’ (Clause 10.2.2);
‘use or disclose to any person Confidential Information he has or acquires and will make every effort to prevent the use or disclosure of Confidential Information’ (Clause 11.4).
Similarly, it is common ground that Mr Friend owed duties as a director of both Claimants under the Companies Act 2006 (“CA 2006”) and Companies (Jersey) Law 1991 (“CL 1991”)), and in equity. There is no material difference between the duties owed under Jersey and English law for the purposes of the matters in dispute. The breaches of duty alleged relate to what are in English law sections 172, 174 and 175 of the CA 2006, set out below:
‘(1) A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to—
the likely consequences of any decision in the long term,
the interests of the company's employees,
the need to foster the company's business relationships with suppliers, customers and others,
the impact of the company's operations on the community and the environment,
the desirability of the company maintaining a reputation for high standards of business conduct, and
the need to act fairly as between members of the company….’
Section 174:
‘(1) A director of a company must exercise reasonable care, skill and diligence.
This means the care, skill and diligence that would be exercised by a reasonably diligent person with—
the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company, and
the general knowledge, skill and experience that the director has.’
Section 175:
‘(1) A director of a company must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company.
This applies in particular to the exploitation of any property, information or opportunity (and it is immaterial whether the company could take advantage of the property, information or opportunity).’
On the basis of the various authorities relied upon by the parties, the following principles can be distilled as applicable to considering the question of compliance with the s.172 duty to promote the success of the company in good faith (‘the Duty to Promote’):
The duty is to be assessed subjectively. The issue is as to the state of the director’s mind. The question is whether the fiduciary honestly believed his actions to be in the best interests of the company, and not whether objectively it was so in the opinion of the Court: Regentcrest plc v Cohen[2001] BCC 494 at [120];
A director will not be in breach if he honestly held an unreasonable or even mistaken belief as to what was in the company’s best interests:Extrasure Travel Insurances Limited v Scattergood [2003] 1 B.C.L.C. 598 at [88]-[89];
The fact that a director is duty-bound to promote the success of the company does not preclude them from simultaneously promoting their own interests, absent any conflict (see Hirsche v Sims [1894] A.C. 654 at 660-661) or the interests of another company (see Charterbridge Corporation Ltd v Lloyds Bank Ltd [1970] Ch. 62 at p74-75);
The duty may encompass a duty to disclose one’s own breach of duty: Item Software (UK) Ltd v Fassihi [2004] EWCA Civ 1244, [2005] BCC 994 at [41]-[44]. The duty is to be seen through the lens of the overarching duty and would, also, be judged subjectively as described above;
Good faith reliance upon advice will be a relevant and important factor to be taken into account in considering compliance with the duty to promote the success of the company, even if that advice is wrong. See Re Vining Sparks UK Ltd [2019] EWHC 2885 (Ch) at [192(d)] and [184]-[191]; Wessely v White [2019] B.C.C. 289 at [44]; Green v Walkling[2008] B.C.C. 256, at [36]-[37].
The s.174 duty to ‘exercise reasonable care skill and diligence’ (‘the Reasonable Care Duty’) is one which requires the court to ask “whether it has been established that no reasonably competent director could have made the judgment” made: Roberts v Frohlich [2011] EWHC (Ch) 257; [2012] B.C.C. 407 at [108]. The descriptions of this duty in the authorities make clear that the threshold is a high one. In Overend & Gurney Company v Gibb (1871-72) L.R. 5 H.L. 480, the question was whether the directors “were cognisant of circumstances of such a character, so plain, so manifest, and so simple of appreciation, that no men with any ordinary degree of prudence, acting on their own behalf, would have entered into such a transaction as they entered into?” This has since been described as, “establishing the irreducible objective standard of the reasonably ordinary businessman” (Sharp v Blank [2019] EWHC 3096 (Ch) at [622]).
As to the s.175 duty to avoid conflicts of interests (‘the Conflict Duty’), the authorities give rise to the following guiding principles:
A company is entitled to the undivided loyalty of the director to the company;
The duty is strict. It applies not only where there clearly is a conflict between duty and interest, but also where the fiduciary’s personal interest “possibly may conflict” with his duty (see Keech v Sandford(1726) 25 ER 223; Bhullar v Bhullar [2003] EWCA Civ 424, [2003] BCC 711 at [27]; Snell’s Equity, 35th ed at 7-022);
The test is objective. The existence of the potential for conflict is to be ascertained by asking “whether a reasonable man, looking at the relevant facts, would think that there was a real, sensible possibility of conflict” (see Breitenfeld UK Ltd v Harrison & Ors[2015] EWHC 399 (Ch) at [60(f)]);
It follows that the honesty or otherwise of the fiduciary is irrelevant. A breach of fiduciary duty “may be attended with perfect good faith” (see Snell’s Equity at 7-023);
Where an opportunity is likely to be commercially attractive to a company, the director is under a duty to bring it to the attention of the company, regardless of whether the company had the means to exploit it. The director cannot be left to make the decision as to whether he is allowed to help himself to its benefit (see Re Allied Business & Financial Consultants Ltd[2009] EWCA Civ 751, [2009] BCC 822 at [55] and Bhullar v Bhullarat [40]). If a director obtains the opportunity for himself, he will be liable to the company for breach of duty regardless of the fact that he acted in good faith or that the company could not, or would not, take advantage of the opportunity (see Towers v Premier Waste Management Ltd [2012] B.C.C. 72 (CA) at [10]).
Mr Oudkerk KC, for the Claimants, advanced a principle following from the latter cases, and relying on Ward Evans v Fox [2001] EWCA Civ 1243, that where a potentially competitive business is established, the fact that it may be dormant is irrelevant. This overstates the position: the dormant nature of the business, may very well (as Ward Evans demonstrated) not be determinative of an absence of conflict; equally, as is clear from Shepherds Investments Ltd v Walters [2007] 2 B.C.L.C. 202, a director may nevertheless take certain preparatory steps to compete consistently with their duties to the company of which they are a director. The question will be acutely fact sensitive. As Etherton J said in Shepherd Investments, ‘[i]t is the wide range of activity and decision-making between the two ends of the spectrum which will be fact sensitive in every case.’