Many business owners lie awake at night worrying that senior employees may leave to set up rival operations, taking clients and confidential information with them. Such conduct is, however, highly likely to be unlawful and, as one case showed, specialist lawyers can very swiftly take steps to nip it in the bud.
The case concerned a share purchase agreement (SPA), by which a consultancy group acquired the entire issued share capital of a rival company for over £6.4 million. As part of the deal, two of the company’s founders entered into service agreements and stayed on as executive directors.
The company launched proceedings after both men subsequently left its employ and incorporated a new business which operated in an identical field. It alleged that they had joined in a common design to injure its business by unlawful means. They were said to have induced three of the company’s former employees to breach their contracts and to have breached the terms of the SPA and the service agreements. The competitor was accused of inducing those breaches.
After a preliminary hearing, the High Court found that the company had established a powerful and compelling case that the competitor was involved in a major exercise designed to divert away its customers by illegal means. Although the two men had sought to distance themselves from any such activities, the Court noted that they were the competitor’s founding directors. There was a serious issue to be tried as to the true extent of their knowledge of what was going on.
The Court made orders requiring the men and the competitor to preserve evidence that might be relevant to the case and to deliver up any hard-copy documents in their possession, custody or control which belonged to the company or which contained information confidential to the company. Directions were given for a further hearing at which the company would seek more extensive relief.