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Employees' duties and the importance of loss in litigation

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The case of Lonmar Global Risks Limited v West & others involved a claim by Lonmar Global Risks Limited ("Lonmar") against Tyser Limited ("Tyser"), a competitor in the international intermediary broking market, and three employees who (with various others) had left Lonmar to join Tyser.

 

Two of these employees, Mr West and Mr Niel Mee, were what is known as "producers", whose key role was to obtain and retain business from international insurance broker on behalf of their employers. The claim against the third employee, Mr Karpus, a broker/technician, formed a much smaller part of the overall claim.

The High Court found that both Mr West and Mr Niel Mee had breached the express terms of their employment contracts with Lonmar and their implied duties of fidelity as employees. This involved introducing clients to Tyser, endeavouring to solicit the business of clients for the benefit of Tyser and (in Mr West’s case) diverting business enquiries to Tyser while employed by Lonmar. The Court held that the producers and Tyser had not conspired together to divert work or to poach other employees of Lonmar’s. The Court also found that Mr Niel Mee did not solicit any of the team of employees that worked with him to leave Lonmar for Tyser. In the case of all but one of those employees, he did not consider that he needed them, and in the case of the one employee he did want to join him at Tyser, Mr Niel Mee was (as it turned out rightly) confident that his loyalty to Mr Niel Mee was such that this employee was almost certain to follow him to whatever new employer he chose.

Despite the findings against Messrs West and Niel Mee, the High Court held that no damages were payable by them to Lonmar. Some key factors influencing this decision were:

1.    In this particular industry there are often strong relationships between producers and their clients, so that if a producer moves from one broking house to another there is a tendency for most clients to follow them. This was illustrated by the fact that Messrs West and Niel Mee’s respective clients that followed them to Tyser had been brought by them to Lonmar (although the Court recognised that Lonmar was right to regard these clients as its own and had a legitimate interest in seeking to prevent employees from soliciting the clients to leave its business).

2.    Even without any solicitation by the employees, it was almost inevitable that their clients would ultimately have followed them once they moved to the new broker.

3.    Lonmar seemed to have decided that it was not worth the cost or effort of trying to retain the clients that went to Tyser, which suggested that it was well aware of the general tendency of clients to follow producers.

4.    In the case of one client, the immediate reason Lonmar had lost its business was because it had not been able to renew insurance cover by a key date.

5.    So because Lonmar stood no realistic prospect of retaining the clients’ business once the producers left, it could not show that any loss had flowed from the breaches of contract by those producers during their employment.

Other important points to note are that Lonmar dismissed both producers for gross misconduct and without notice (lawfully in the Court’s view) and the Court was satisfied that they had abided by their post-termination restrictive covenants not to handle the business of these clients themselves for 12 months after they left Lonmar’s employment.

The facts of this case are very specific and have led to quite an unusual judgment. Of more general application are the Court’s observations that, despite the extent of their potential influence over clients, neither producer had any management responsibilities or board level involvement and therefore could not be held to have fiduciary duties. That being the case, the Court held that their duties of fidelity as employees did not extend to being obliged to disclose their own or other employees’ misconduct (and that the case of Kynixia Limited v Hynes could be distinguished because the employee in that case had positively misled her employer about her and her fellow employees’ intentions).

Bob Fahy is an associate in the Employment Team at law firm Matthew Arnold and  Baldwin.