When is an employee in breach of the duties of fidelity, trust and confidence?

In the recent case of Argus Media Limited v Mr Mounir Halim [2019] EWHC 42 (QB) the High Court has provided helpful guidance as to the type of behaviour and factors the Court will consider when finding an employee to be in breach of the duties of fidelity, trust and confidence.

Facts

Argus is a price reporting agency. Dr Halim was the Business Development Manager in Argus' fertiliser business for 4 years.

Argus alleged that Dr Halim formed a price reporting agency named Afriqom to compete with its fertiliser business and that he did so in breach of: the express and implied terms of Dr Halim's employment contract, duties of fidelity, trust and confidence. Argus also alleged that Dr Halim set up Afriqom by misusing Argus' confidential information, soliciting dealing and competing in breach of his restrictive covenants.

What amounts to competition?

Mr Halim's case was that his business did not compete with Argus. Justice Freedman disagreed. 

Relying on Morris-Garner v One Step (Support) Ltd, Justice Freedman found that "it suffices if the products are similar or sufficiently comparable." He acknowledged that, "every case is fact specific: in each case, a broad brush approach is appropriate."

Justice Freedman considered the following factors as relevant in reaching his conclusion:

• Not only were both businesses Price Reporting Agencies, but they both provided price reporting information for the same kind of products in the same market.
• There was a direct overlap between the two businesses with Argus and Afriqom frequently reporting on the same trades / tenders and providing information that was the same or highly similar.
• Clients would be interested in the same or similar price assessments and Argus and Afriqom would compete to provide those assessments.
• There was a "very significant degree" of overlap with the customers targeted by both companies.

When is there a breach of the duties of good faith and fidelity?

Justice Freedman found Mr Halim to be in breach of his duties of fidelity and confidence in light of the following factors:

• Mr Halim started actively promoting Afriqom's business during his employment. He set up a company, obtained investment, launched a website and prepared a report and marketing brochure.
• Dr Halim transferred from his Argus account to his iCloud account a large amount of Argus documents. Justice Freeman found that the spike in transfers coincided with the steps taken to form and obtain investment for Afriqom. He made an inference that the iCloud account was intended for the purpose of storing information for use of the Afriqom business and rejected Dr Halim's explanation that transfers were made due to him working from home. Justice Freeman concluded that there were specific documents where on the balance of probabilities, the purpose of the transfer was to assist Afriqom's business.
• There were substantial similarities between the content of Afriqom and Argus reports which Justice Feedman found was indicative of Dr Halim misusing documents which he had emailed to himself.
• Mr Halim's disclosure was wholly inadequate leading Justice Freeman to conclude that the extent of the shortcoming was so great that it was, in part at least, due to his intention to conceal his activities from Argus. 
• Mr Halim undertook work for Afriqom during his garden leave which went beyond mere preparatory acts, or were preparatory, but inconsistent with the duty of fidelity.
• Justice Freeman accepted that Dr Halim sought to consolidate his relationship with Argus key contacts and clients, for the benefit of Afriqom prior to his employment ending.

Key take away points – confidential information

In cases such as this one, employee leavers can be extremely sophisticated in the way in which they take and misuse confidential information belonging to their employer, in order to set up and work for competing businesses. 

Leavers often use a range of media to extract the information such as hardware devices, web based email accounts, cloud storage facilities and portable storage devices.  This means that finding evidence of wrong doing can be tricky as leavers seek to cover their tracks by deleting key material and wiping original devices 

This particular case sends a clear message to leavers, that the Court is willing to consider all facts, evidence and circumstances of the case as a whole and draw inferences as to what amounts to competition and unlawful conduct. The Court will also make a finding that inadequate disclosure by leavers is an attempt to conceal.

The tough stance taken by the Court is a welcome development for employers looking to protect their business and confidential information. It confirms that, in the event of employee breach, taking urgent action against the former employee and/or its new employer can ensure that any unlawful competition is stopped in its tracks and damage limited so far as possible.

Argus Media Limited v Mr Mounir Halim

For further information about methods of protection against unlawful employee conduct and competition, please contact our business protection team, on the contact details below.