The recent High Court case of Lonmar Global Risks Limited v West
& Others is a salutary tale for insurance brokers faced with
one of their teams moving to a direct competitor.
The three defendant employees worked for Lonmar until mid-2009
when, with others, they left; each was summarily dismissed by
Lonmar on the basis that they had, by their conduct, committed a
repudiatory breach of their employment contract. This conduct
included soliciting clients and other employees of Lonmar and
taking steps to move work and employees away from Lonmar, largely
to a direct competitor, Tyser, to which the three employees
subsequently moved.
Lonmar claimed damages of approximately £2.5 million against
the three employees for breach of contract and breach of fiduciary
duty and against the three employees and Tyser for inducing
breaches of contract and conspiracy. The judge concluded that
Lonmar had not suffered any loss arising from the employees' or
Tyser's actions and that there had been no conspiracy on their
part.
At trial, some breaches were found and others were admitted. They
were held to have entitled Lonmar to dismiss two of the three
defendant employees. However, the breaches did not entitle Lonmar
to damages. The judge stated that, despite the level of wrongdoing,
there was no evidence that any of it had resulted in Lonmar losing
any particular client or any particular piece of work or any money
in respect of which it might be entitled to compensation.
The claims for breach of fiduciary duty were unsuccessful. Although
fiduciary duties can arise out of the contractual obligations of an
employee, the relationship of employer/employee does not, of
itself, give rise to such duties and no such duty was established
in this case. The judge considered the duty of fidelity to which
employees are subject, but did not consider that this incorporated
an obligation on an employee to report to his employer his own
wrongdoing or the wrongdoing of other employees.
On the facts, the judge had doubts as to whether Tyser had intended
to procure any breaches of contract. The judge noted that inducing
a breach of contract is a tort that requires a claimant to prove
not just wrongful interference with contractual relations but also
damage in consequence of the relevant breach. The judge found that
none of the breaches relied upon by Lonmar had any proved
damage.
This case is significant for employers facing the departure of
teams to competitors as it emphasises how important it is to
properly formulate claims and establish clear loss. Lonmar's
failure to establish a quantifiable loss meant that it failed to
recover any financial compensation. And the sting in the tail was
that notwithstanding the breaches by the employees Lonmar was
ordered to pay all their costs.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 03/12/2010.
