Directors: breach of duty and conspiracy

In the case of British Midland Tool Ltd v. Midland International Tooling Ltd (2003 ALL ER (D) 174.) the High Court has held a number of full time working directors of a private company liable to pay substantial damages running into hundreds of thousands of pounds when they went into competition with their old company after resigning. The facts were that a number of directors hatched the plan to go into competition while they were still working for the company. One of them then retired, but the others continued as directors for a while longer before resigning themselves and immediately activating the new business. The judge held that implementation of the directors' plan necessarily involved a breach of fiduciary duty by those individuals who remained, for the time being, directors of the claimant. The judge held that it was established law that a director's duty to act so as to promote the best interests of the company prima facie included a duty on his part to inform the company of any activity, actual or threatened, which might damage those interests, even where that involved telling tales on his co-directors. The directors were therefore liable for the tort of conspiracy.

The decision would seem to make it easier for companies to take effective legal action against a group of directors who hatch a plan to go into competition before they have quit. Even though this decision should have a deterrent effect on directors who might be minded to quit and set up on their own, it is still no substitute for having appropriate restrictive covenants in the contracts of key worker-directors and key employees.