Item Software (UK) Ltd v Fassihi
| Jurisdiction | England & Wales |
| Judgment Date | 30 September 2004 |
| Neutral Citation | [2004] EWCA Civ 1244 |
| Date | 30 September 2004 |
| Court | Court of Appeal (Civil Division) |
Employment - Contract of employment - Fiduciary duty - Salaried director attempting to divert company's business to own company summarily dismissed - Salary paid monthly in arrears - Whether director under duty to disclose own misconduct to company - Whether entitled to proportion of salary up to mid-month date of dismissal -
The defendant was a salaried director of the claimant company, which distributed software products. He was paid monthly in arrears. When the claimant was renegotiating its contract with its main customer the defendant secretly approached the customer, proposing to divert the contract to a company that he had established for his own benefit. In the event, the negotiations failed and the customer terminated its contract with the claimant. The claimant discovered the defendant's misconduct, and he was summarily dismissed on 26 June 2000. The claimant brought proceedings against the defendant for compensation alleging that he was in breach of duty as a director and employee in seeking to divert the claimant's contract to his own company. The defendant counterclaimed, inter alia, for arrears of salary for the period 1 to 26 June 2000, pursuant to section 2 of the Apportionment Act 1870F1. The claimant's claim failed in so far as the judge found that the failure of the negotiations had not been caused by the defendant's misconduct, but succeeded on a further allegation that the defendant was in breach of duty in failing to disclose his own wrongdoing to the claimant. The judge dismissed the defendant's counterclaim for payment of salary, holding that the 1870 Act did not apply.
On appeal by the defendant—
Held, (1) dismissing the appeal in relation to breach of duty, that a director of a company was subject to a fundamental duty of loyalty requiring him to act in what he, in good faith, considered to be the best interests of the company; and that, as, on the facts, there was no basis on which the defendant could reasonably have concluded that it was not in the claimant's interests to know of his breach of duty, he could not fulfil his duty of loyalty except by telling the claimant about his setting up a new company to acquire the contract for himself (post, paras 41, 44, 84, 124).
(2) Allowing the appeal in relation to the claim for salary, that, on the face of it, the Apportionment Act 1870 provided that a proportional part of salary could be claimed, and section 2 clearly contemplated that the right to payment might have been lost before the contractual date for payment had arrived; and that, accordingly, unless the parties had stipulated otherwise, under section 2 the salary of an employee whose employment terminated during a pay period was to be apportioned and paid in respect of the period actually worked, though payment only became due and payable at the end of the relevant pay period (post, paras 71, 74, 82, 91, 116, 117, 124).
The following cases are referred to in the judgment:
Barings plc, In re (No 5) [
Bell v Lever Bros Ltd [
Bhullar v Bhullar
Boston Deep Sea Fishing and Ice Co v Ansell (
Capron v Capron (
Central De Kaap Gold Mines, In re (
Crown Dilmun v Sutton
El Ajou v Dollar Land Holdings plc [
Hampshire Land Co, In re [
Harris v Foote's Bus Service Ltd (
Healey v SA Française Rubastic [
Horcal Ltd v Gatland [
Houghton (JC) & Co v Nothard Lowe & Wills Ltd [
Industrial Development Consultants Ltd v Cooley [
Inman v Ackroyd & Best Ltd [
Lee v McDonald (
London and Northern Bank, In re, McConnell's Claim [
Mahmud v Bank of Credit and Commerce International SA [
Meinhard v Salmon (
Miles v Wakefield Metropolitan District Council [
Moriarty v Regent's Garage and Engineering Co Ltd [
Mutual Life Insurance Co of New York v Rank Organisation Ltd [
Porter (William) & Co Ltd, ln re [
Powdrill v Watson [
Regal (Hastings) Ltd v Gulliver (Note) [
Sim v Rotherham Metropolitan Borough Council [
Sybron Corpn v Rochem Ltd [
Tesco Stores Ltd v Pook
Treacy v Corcoran (
Wallace v Ross (
Winkworth v Edward Baron Development Co Ltd [
The following additional cases were cited in argument:
Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Good Luck) [
British Midland Tool Ltd v Midland International Tooling Ltd
Guinness plc v Saunders [
Neary v Dean of Westminster [
University of Nottingham v Fishel [
van Gestel v Cann
The following cases, though not cited in argument, were referred to in the skeleton arguments:
Aberdeen Railway Co v Blaikie Bros (
Arab Bank plc v Zurich Insurance Co [
Belmont Finance Corpn Ltd v Williams Furniture Ltd [
Cave v Cave (
Fitzroy Bessemer Steel Co Ltd, In re (
Group Josi Re (formerly Groupe Josi Réassurance SA) v Walbrook Insurance Co Ltd [
Hivac Ltd v Park Royal Scientific Instruments Ltd [
Imperial Mercantile Gredit Association v Coleman (
Neptune (Vehicle Washing Equipment) Ltd v Fitzgerald [
New Zealand Netherlands Society “Oranje” Inc v Kuys [
Payne (David) & Co Ltd, In re [
PCW Syndicates v PCW Reinsurers [
Sharpe v Foy (
APPEAL from Mr Nicholas Strauss QC sitting as a deputy judge of the High Court
The claimant, Item Software Ltd (UK) Ltd, brought an action against the first defendant, Kouroush Fassihi, inter alia, for breach of his duty as a director and employee of the claimant, and the first defendant counterclaimed, inter alia, for payment of his salary up to the date of his summary dismissal on 26 June 2000 although payment would not have been due until 30 June. The judge held that the defendant was in breach of duty for failing to disclose his own misconduct, and directed an inquiry as to damages, and that the defendant was not entitled to recover a proportion of his salary.
The first defendant appealed against the judge's finding that he was in breach of a duty to disclose his own misconduct to the claimant and against the judge's dismissal of his claim for a proportion of his salary referable to 1 to 26 June 2000, pursuant to sections 2 and 5 of the Apportionment Act 1870. The grounds of appeal were that the judge erred in law in (1) holding that the first defendant's misconduct in seeking to divert the claimant's contract with Isograph Ltd to his own company gave rise to a duty to disclose it when it occurred; and (2) failing to hold that under the Apportionment Act 1870 the first defendant's salary accrued from day to day, thereby entitling him to receive a proportionate part of his salary for June 2000 referable the period from 1 to 26 June.
The facts are stated in the judgment of Arden LJ.
Nigel Dougherty for the defendant.
Ben Quiney for the claimant.
30 September. The following judgments were handed down.
ARDEN LJ
1 This is an appeal with the permission of the judge from the judgment of Mr Nicholas Strauss QC (sitting as a deputy High Court judge) [
2 Both these questions of law are important, and it is perhaps surprising that the law is unclear.
Background, the judgment of Mr Nicholas Strauss QC and some of the earlier authorities3 The trial before the judge was a trial on liability only. It is not necessary to...
To continue reading
Request your trial
-
Manoudakis v Easygroup Holdings Ltd
...94 In relation to the duty of disclosure to which I have already referred, I should say that reliance was placed on the case of Item Software UK Limited v Fassihi (2004) BCC 994, but I think that that is a long way from this case. I find that since the use of the credit card was authorised ......
-
Brandeaux Advisers (UK) Ltd and Others v Chadwick
...But in a decision which is binding on me the authorities were comprehensively analysed. I refer to the judgment of Arden LJ in Item Software (UK) Ltd v Fassihi [2005] ICR 450, with which the other members of the court agreed. It was there held that a director was under a duty as a fiduciary......
-
GHLM Trading Ltd v Anil Kumar Maroo and Others
...192 Recent authority establishes that it can be incumbent on a director to reveal his own wrongdoing. The leading case is Item Software (UK) Ltd v Fassihi [2004] EWCA Civ 1244, [2005] 2 BCLC 91. In Item Software (UK) Ltd v Fassihi, Arden LJ (with whom Mummery LJ and Holman J expressed agre......
-
Stobart Group Ltd v William Andrew Tinkler
...the Objective. The alleged breach of this duty in relation to expenses is no longer pursued. 392 In Item Software (UK) Ltd v Fassihi [2005] ICR 450, at [41], Arden LJ said: “The duty is expressed in these very general terms, but that is one of its strengths: it focuses on principle, not on ......
-
Employee Competition: Recent Cases
...Collins J); British Midland Tool Ltd v Midland International Tooling Ltd [2003] 2 BCLC 523 (Hart J); Item Software (UK) Ltd v Fassihi [2005] ICR 450, [2004] IRLR 928 (CA); Shepherds Investments Ltd v Walters[2007] IRLR 110 (Etherton J); Helmet Integrated Systems Ltd v Tunnard [2007] IRLR 12......
-
UNAUTHORISED FIDUCIARY GAINS AND THE CONSTRUCTIVE TRUST
...207 CLR 165; and P&V Industries Pty Ltd v Porto[2006] VSC 131. Although the recent English case of Item Software (UK) Ltd v Fassihi[2004] BCC 994 appears to suggest otherwise, the debate is mainly confined to the duty of disclosure. 59 Prevention of Corruption Act (Cap 241, 1993 Rev Ed) s 5......
-
SELF-DEALING AND NO-PROFIT RULES: COMPANIES ACT 2016
...65 See Castlereagh Motels Ltd v Davies-Roe (1996) 67 SR (NSW) 279 discussed at paras 42–43 below. 66 In Item Software (UK) Ltd v Fassihi [2005] 2 BCLC 91, it was held that although a fiduciary had no separate and independent duty to make disclosure of his misconduct, he could not discharge ......
-
RECONFIGURING THE NO CONFLICT RULE
...Relationships (Finn ed) (Law Book Co, 1987) at pp 150–151, who criticises this approach as too broad and onerous and too ambiguous. 25[2005] 2 BCLC 91, especially at [40]–[41] and [63]–[68]. 26 See also Crown Dilmun v SuttonUNK[2004] 1 BCLC 468 at [181]; British Midland Tool Ltd v Midland I......
-
THE RATIONALISATION OF DIRECTORS’ DUTIES IN SINGAPORE
...“The Fiduciary Principle” in Equity, Fiduciaries and Trusts (T G Youdan ed) (Carswell, 1989), but see now Item Software (UK) Ltd v Fassihi[2005] ICR 450. See also Bristol and West Building Society v Mothew[1996] 4 All ER 698, noted H Tjio, “Duty of Care and Damages in Banking Cases”[1997] J......