Directors’ Duties – Tailor Breached Confidence of the Company He Founded

From the day of their appointment to the day of their departure, directors owe duties of confidence and loyalty to the companies they serve. A tailor found that out to his cost after copying the confidential customer lists of the company he founded with a view to setting up in business on his own.

The tailor was internationally acclaimed for his bespoke and made-to-measure suits. However, his expansion plans went awry and the company through which he traded was placed in administration by a creditor who claimed to be owed over $3.3 million. A purchaser associated with the creditor subsequently bought the company’s business and assets, including goodwill, from the administrators.

The tailor was not subject to any contractual restrictions on his future trade, and was told by the administrators that, although his services as a tailor were no longer required, he was free to pursue his career elsewhere. Crucially, however, he continued in office as a director of the company for about four months after it entered administration.

During that time, he took an electronic copy of the company’s lists of clients and their contact details. He sent them emails, one of which amounted to a blatant attempt to solicit their business. In those circumstances, the purchaser and the creditor (the claimants) took an assignment of causes of action from the administrators and launched proceedings against him.

The tailor readily admitted that he had copied the lists with a view to re-establishing himself in the trade. However, he argued that the lists were his, rather than the company’s, property on the basis that he had independently gathered their contents. Most of his customers knew him through his personal blog and viewed themselves as his, as opposed to the company’s, clients.

In ruling on the matter, however, the High Court found that the lists undoubtedly contained information confidential to the company. By copying and making use of them, the tailor had misused that information and breached the duty of confidence that he owed the company as a director and employee. It was no answer for him to say that he had used the lists merely as a shortcut to assist his memory.

Also finding that the tailor had breached the fiduciary duty of loyalty that he owed the company, the Court noted that his appropriation of the lists to his own use could not be viewed as honest or reasonable. The amount of compensation payable by the tailor to the claimants would be assessed at a further hearing, if not agreed.

The Court, however, noted that the tailor had promised to make no further use of the confidential information and had destroyed the lists in his possession. Given that the claimants’ damages claim was estimated to be worth a maximum of £100,000, the scale of the litigation – which the tailor had characterised as oppressive – appeared wholly out of proportion. Those observations would be relevant when it came to assessing who should pay the substantial legal costs of the proceedings.

White Winston Select Asset Funds LLC & Anr v Mahon & Anr. Case Number: BL-2017-000228