The two defendants in Gamatronic v Hamilton had been managing directors and employees of Gamatronic, as well as 49% shareholders. In early 2012, they left, ending their directorships and selling their shares, and became directors at a competitor, Vox, later that year.
Gamatronic alleged that the defendants had, since October 2010, acted in serious breach of their fiduciary and contractual duties by secretly helping to set up Vox. They asked the High Court to order them to repay their Gamatronic salaries and the proceeds of their shares. They also asked for "an account of profits" for their Vox salaries, on the basis that Vox was given a "head start" by the defendants' financial support and work.
The Court concluded that most of what the defendants had been doing was "preparatory steps" and didn’t give rise to any breach of duty. Insofar as some meetings may have encroached on working hours at Gamatronic, there was little to suggest that the defendants were neglecting their duties as a result. There were no significant absences from work.
However, a trip to Denver to see the Vox founders in February 2011 was a turning point, largely because of steps taken to conceal it from their employer. The defendants were entitled to continue with preparatory commercial discussions, but not to take substantial time off work under false pretences. And after that, the breaches of duty "gained pace", demonstrating an irrevocable intention to be part of the Vox business. The defendants bought shares in nominee names; approached customers on behalf of Vox; held themselves out as Vox directors and involved themselves in operational matters. These were actions potentially contrary to the best interests of their employer and therefore in breach of the defendants' fiduciary duties.
Nevertheless, the Court found that the employer was not entitled to recover any of the amounts claimed. Whilst there were breaches of duty, the amount of time spent on Vox-related matters was quite limited. The defendants continued diligently with their day-to-day management duties at Gamatronic and brought in a substantial proportion of the company's turnover. Gamatronic had the benefit of considerable valuable work from the defendants and for that they were entitled to keep their salaries.
As for the Vox salary/profits:
- The salaries didn’t start until December 2012, nine months after their directorships (and therefore their breaches of duty) ended. So the necessary link between the breach and the profits simply wasn’t there.
- The idea for Vox had come from its founders. They were already established operators in the field and had their own business, with some infrastructure. Vox wasn’t dependent on the defendants' financial injection to get off the ground; it had already started trading.
- The defendants' investment was for a small amount which was unlikely to have accelerated Vox's business to any significant extent. If there was a head start, it would only have been a matter of days or weeks.