Gavin Foggo comments on the case of QBE Management Services (UK) Ltd v Dykmore & Others

March 30, 2012

Background

In the recent case of QBE Management Services (UK) Ltd v Dykmore & Others [2012] EWHC 80 (QB) the High Court granted springboard relief to an employer after it emerged that, prior to resigning, a group of employees had hatched a calculated plan to “rip the heart out of” QBE’s marine insurance division and to set up a rival business.

The Defendants were all senior members of QBE’s marine insurance division, a key specialist player in the marine insurance market. The Claimants claimed that the Defendants had formulated a plan which showed substantial unlawful conduct by the:

(1) wide scale solicitation of other QBE employees to join the new venture;

(2) substantial misuse of confidential information belonging to QBE to assist the new venture;

(3) solicitation of QBE’s broker customers;

(4) failure to disclose any of these activities to QBE’s management.

The plan was formulated whilst the Defendants were still employed by QBE and using the knowledge of the QBE’s marine insurance division they had gained during their employment. They developed a “twin track” approach by which they prepared a detailed business plan to persuade prospective backers to put up security and capital for the new venture, using confidential information belonging to QBE to give weight to the plan and eventually securing financial backing for the project from the Fourth Defendant. Simultaneously, they drew up a “shopping list” of employees they wished to take with them, securing the agreement of a further eight of QBE’s employees to join the venture.

The Court’s decision

On 27 January 2012, the High Court granted springboard relief until 28 April 2012 (the latest date upon which the Defendants’ restrictive covenants to QBE would expire). Springboard relief is an injunction restraining the Defendants from using the advantages which they had secured through their unlawful activities with the purpose of competing with the Claimant and using the Claimant’s confidential information to do so. The Court considered that damages would not be an adequate remedy for the harm which had and would be done to QBE’s business by the Defendants’ actions.

The Fourth Defendant, PRO Insurance Solutions Ltd, who provided the finance for the project and who would ultimately employ those participating in it, was found liable for inducing numerous breaches of contract by the individual Defendants.

QBE was also awarded approximately £300,000 in damages for pay rises and bonuses which were paid out to retain staff who would otherwise have left to join the Defendants’ venture, and temporary staff to replace those who had actually left.

How the decision was reached

The Court acknowledged the importance of contemporaneous documents in helping it to reach its decision.

It was clear from the Defendants’ disclosure that they had appreciated that their actions in seeking to poach business and staff from QBE, and using QBE’s commercial information to secure financial backing, were unlawful. The disclosure showed that the Defendants had sought to cover their tracks by using pay as you go mobiles (referred to as “bat phones”) and their wives’ email addresses to communicate. They had acknowledged in emails between them that a risk of litigation existed following the set up of the new business (initially referred to as “Project Phoenix”). However, as the Honourable Mr Justice Haddon-Cave noted in his judgment, the Defendants had failed to appreciate that their communications would be caught by the wide ranging disclosure they would be required to make as part of that litigation.

Much of the disclosure consisted of contemporaneous email exchanges between the Defendants. The Court noted that it was clear that the Defendants had not appreciated that “their candid exchanges would see the light of day.” In witness evidence, the Court universally preferred the evidence of the Claimants to that of the Defendants who sought to explain away their actions. The Court concluded that “It is clear that having resigned and burnt their boats, the Defendants’ main witnesses gave evidence to suit their case. They had no answer, however, to the version of events that emerged clearly from the contemporaneous documents.” Their explanations were “colourful but risible.”

Comment

This is thought to be the first time which the Courts have granted springboard relief as final relief for breaches of fiduciary duty and employees’ duties of fidelity.

The decision demonstrates that springboard relief can be a vitally important tool for claimant employers to protect their business against the unlawful activities of members of staff committed before their resignations in circumstances where a team move is planned, and to ensure that they comply with the restrictive covenants contained in their employment contracts.

It also acts as a lesson for those acquiring a team of employees from elsewhere that simply not asking questions about the activities of those they are to employ may not be enough to protect them from claims for inducing others to breach their contracts of employment.


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