Monday, April 22, 2013

Event Announcement: 6th NLSIR Symposium on Commercial Arbitration


The National Law School of India Review (NLSIR) - the flagship journal of the National Law School of India University (NLSIU), Bangalore is pleased to announce the VIth NLSIR Symposium on “Mapping the Future of Commercial Arbitration in India” scheduled to be held on May 18 and 19, 2013 at the NLSIU campus. The last three years have witnessed dynamic shifts in the law and practice of Arbitration in India. While there have been steps in the right direction, an unwieldy system continues to weigh down practitioners. Four years after first delving into the nuances of commercial arbitration in India, the Symposium hopes to assess the development of Arbitration law over the last few years.
Confirmed speakers for the symposium include renowned legal luminaries such as Hon’ble Mr. Justice (Retd.) S U Kamdar (Former Justice, Bombay High Court), Mr. Anirudh Krishnan (Advocate, Madras High Court), Mr. Ashwin Shanker (Advocate, Bombay High Court) Mr. Aditya Sondhi (Advocate, Karnataka High Court), Mr. Ajay Thomas (Registrar, London Court of International Arbitration, India), Mr. Vivekananda N. (Head (South Asia) & Counsel, Singapore International Arbitration Centre), Mr. Nangavaram Rajah (Nani Palkhivala Arbitration Centre), Mr. Promod Nair (Partner, J Sagar Associates), Mr. Shreyas Jayasimha (Partner, AZB & Partners), amongst others.
This year, the discussions will be divided into four panels:
Session I: The Implications of BALCO on Arbitration Practice  
(Forenoon, May 18, 2013, Saturday)
Session II: Revisiting the Expansive Role of the Indian Judiciary and its Implications
(Afternoon, May 18, 2013, Saturday)
Session III: Determining the Governing Law of the Arbitration Agreement – Arsanovia and Beyond
(Forenoon, May 19, 2013, Sunday)
Session IV: The Way Forward: A Call for Institutional Arbitration?
(Afternoon, May 19, 2013, Sunday)
Registration fee for those who make an advance payment/bank transfer is Rs. 500 for students and Rs. 1000 for others. All those interested are requested to register at:https://docs.google.com/forms/d/1hXthITsHurIQBClJAkZkiKWdbjkXoKJ4MFRSI0VgGfU/viewform
The registration fee for those who register at the venue is Rs. 750 for students and Rs. 1250 for others.
For more details including the concept note and future updates please visit: http://www.nlsir.in/symposium.html.
For regular updates, also see our Facebook page: http://www.facebook.com/nlsir?fref=ts.
For further information, please contact Ashwita Ambast (Chief Editor): +91-9986478265; Sahil Kher (Deputy Chief Editor): +91-9739265715 or email us at mail.nlsir@gmail.com.

Tuesday, October 9, 2012

Book Notice: Intellectual Property Rights: Infringement and Remedies

Mr. Ananth Padmanabhan, an Advocate practicing at the Madras Bar and a guest contributor to this blog, has authored a book, Intellectual Property Rights: Infringement and Remedies, which has been published by Lexis Nexis. The table of contents (seen on the Lexis webpage) indicates the thorough scope of the book. We will carry a more detailed review shortly.

Monday, October 8, 2012

Section 45 of the Arbitration and Conciliation Act: A Recent Dvelopment


The Hon’ble Supreme Court in Chloro Controls India Pvt. Ltd. v. Severn Trent Water Purification Inc.  (“Chloro Controls”) was called upon to answer important questions of law pertaining to section 45 of the Arbitration and Conciliation Act, 1996. The facts of the case concerned a joint venture agreement (“the principal agreement”) between an American company (Capital Controls (Delaware) Company Inc.), an Indian company (Chloro Controls India Pvt. Ltd.) and the director of the Indian company (Mr. M.B. Kocha). The principal agreement also provided for several ancillary agreements to be entered into between the Indian company, the group of companies to which the American Company belonged (the Severn Trent Group) and the director of the Indian company, amongst others. While the principal agreement contained an arbitration clause, some of the ancillary agreements did not. Further, not all the respondents in the original suit were parties to the arbitration agreement. The primary issue that arose was whether all the parties to the suit could be referred for arbitration under section 45 of the Act.
Section 45 of the Act reads as follows:
“Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.”
The portions underlined above are absent in section 8 of the Act. Thus, a bare perusal of the two provisions suggests that the nature of enquiry relating to an application under section 8 is different from that under section 45 of the Act. This distinction is crucial to determine the scope of observations made by the Court in Chloro Controls.
The Court, speaking through Swatanter Kumar J., framed the following four questions of law in this case:

  1. What is the ambit and scope of Section 45 of the Arbitration and Conciliation Act, 1996?
  2. Whether the principles enunciated in the case of Sukanya Holdings Pvt. Limited v. Jayesh H. Pandya is the correct exposition of law?
  3. Whether in a case where multiple agreements are signed between different parties and where some contain an arbitration clause and others don't and further the parties are not identically common in proceedings before the Court (in a suit) and the arbitration agreement, a reference of disputes as a whole or in part can be made to the arbitral tribunal, more particularly, where the parties to an action are claiming under or through a party to the arbitration agreement?
  4. Whether bifurcation or splitting of parties or causes of action would be permissible, in absence of any specific provision for the same, in the 1996 Act?

Scope of Enquiry in an Application Filed Under Section 45 of the Arbitration and Conciliation Act:
Before referring a matter for arbitration under section 45 of the Act, the Court must come to a conclusion that the arbitration agreement is not “null and void, inoperative or incapable of being performed”. In the event that the Court concludes that the agreement is indeed null and void, inoperative or incapable of being performed and rejects the application for arbitration, the order is appealable under section 50(1)(a) of the Act. However, if the Court comes to a conclusion to the contrary and refers the matter for arbitration, an issue that arises is whether the validity of the arbitration agreement can again be challenged before the arbitral tribunal on any of the grounds of invalidity mentioned in section 45.
The Court in Chloro Controls held that arbitral tribunal cannot review the decision arrived at by the Court on the validity of the arbitration agreement. In order to arrive at this conclusion, the Court relied heavily on S.B.P. & Co. v. Patel Engineering, where it was held that the decision of the Chief Justice or his designate on the validity of the arbitration agreement under section 11(6) of the Act is final and cannot be reviewed by the arbitral tribunal. Further, analysing the judgment in Shin-Etsu Chemical Co. v. Aksh Optifibre Ltd., the Court held that the issue of finality of a decision under section 45 was not answered in that case. However, the Court did not appreciate the fact that Shin-Etsu conclusively held (by a majority of 2:1 with Sabharwal J. dissenting) that in an application filed under section 45 of the Act, the Court is only required to enter into a prima facie enquiry as regards the validity of the arbitration agreement. In particular, if on such prima facie enquiry, the arbitration agreement is found to be valid, the Court is bound to refer the matter for arbitration. Thus, although admittedly the question of whether an arbitral tribunal can review a decision made by a Court under section 45 was not answered in Shin-Etsu, the scope of the enquiry under section 45 was conclusively determined.
On the basis of this reading of Shin-Etsu, it is evident that there is a difference in the scope of enquiry under section 11 and that under section 45 of the Act. According to the Court in Patel Engineering and several other cases that followed it, the Chief Justice of his designate is required to conduct a detailed enquiry as regards the validity of the arbitration agreement before the appointment of an arbitrator, as opposed to the prima facie enquiry to be conducted under section 45. In the light of this stark contrast between the scope of enquiry under the two provisions, it is respectfully submitted that the Court in Chloro Controls wrongfully relied on Patel Engineering to ascribe finality to the issue of validity of an arbitration agreement as determined by a court under section 45.
Correctness of the decision in Sukanya Holdings and the law on bifurcation of cause of action:
The Court clarified that the decision in Sukanya Holdings was not to be considered as that case arose under section 8 of the Act, and not under section 45. It also stated that unlike the facts in Sukanya Holdings where the subject-matter of the suit was broader than the subject-matter of the arbitration agreement, the present case involved a principal agreement and some ancillary agreements with a composite transaction between the same parties or parties covered by section 45.
Even though the validity of the decision in Sukanya Holdings was not in consideration in Chloro Controls, it is submitted that the Court’s reasoning is in consonance with the principles laid down in Sukanya Holdings. A brief outline of the principles in Sukanya Holdings would be of assistance here. The Court there held that a matter could not be referred for arbitration under section 8 if: 1) all the parties to the suit are not parties to the arbitration agreement or 2) the entire subject-matter of the suit is not subject to the arbitration agreement. The rationale was that a situation where multiple forums come to conflicting decisions on the same issue is undesirable. Thus, all the issues ought to be adjudicated upon by the same forum.
Now, let’s examine the reasons for which the Court in Chloro Controls held that all the parties in that case may be referred for arbitration of the entire dispute. As regards the subject-matter, the Court relied on the broad wording of the arbitration clause (especially the words ‘under and in connection with’) to hold that the agreement was comprehensive enough to include all disputes relating to the principal as well as the ancillary agreements. As regards the parties, the Court held that the fact that not all the parties were signatories to all agreements was insignificant because of the distinct nature of the transaction and the relationship between the various parties. The Court expressly stated even in such exceptional situations, non-signatory parties could be referred for arbitration if and only if they fell within the ambit of “any person claiming through or under him” in section 45 (para 95).
Thus, the test adopted by the Court was whether applying the broad wording of section 45, the issue could be decided in its entirety by the arbitral tribunal. It noted: “Even if different forums are provided, recourse to one of them which is capable of resolving all their issues should be preferred over a refusal of reference to arbitration.”
Thus, it is submitted that the law on bifurcation of cause of action is the same for both section 8 and section 45.


Thursday, August 23, 2012

Recent AAR Rulings


Some recent reports have pointed out that the Authority for Authority for Advance Rulings has once again sanctified the “Mauritius route”.  While the law since Azadi Bachao Andolan’s case has upheld the sanctity of a tax residency certificate, the Revenue has not given up its efforts to find the “hidden reality” or “true facts”.  The Revenue has also met with some success in its attempts, before the High Court (Aditya Birla Nuvo) and also the AAR (for example, see Re Groupe Industrial Marcel Dassault). Two recent rulings of the AAR – while on facts ruling in favour of assessee – do not really forestall the Revenue’s attempt to go behind a TRC.

In the case of Dynamic India Fund (AAR 1016/2010 dated 18th July, 2012), it was contended that sale of shares in an Indian company by a company having a Mauritius TRC was not taxable in India.  The Revenue’s objections were that the use of the Mauritius Company was for evading tax.  Further, only 2 directors were from Mauritius, and three were from India.  These objections were rejected not by a straight forward reference to the TRC, but because “there is no adequate (factual material to support this contention (that control vests in a non-Mauritius jurisdiction).”  

Another ruling is in the case of Moody’s Analytic (AAR 1186 to 1189/2011 dated 31st July 2012). In this case, the Revenue contended that the beneficial owner of shareholding was in Jersey, and not Mauritius. Accordingly, Mauritius treaty benefits were not permissible. Additionally, the Revenue argued that management and control of seller companies did not lay in Mauritius.  It was argued that the decision of the Supreme Court in Vodafone has modified the ratio on the decision in Azadi Bachao Andolan.  The AAR answered this contention not by rejecting it outright as a matter of principle, but only on the facts. The AAR held, “… on the conclusiveness of a tax residency certificate, it cannot be said that it has been shown that the effective management of the companies is not from where their Board of Directors function.  Normally, the management of a company vests in its Board of Directors as authorized by the General Body.  The role of Rishi Khosla highlighted by the Revenue is in respect of the sale transactions undertaken and in pushing them through. It does not appear to be a role in connection with the running of the businesses of the companies concerned.  It is not shown that the management of the companies in Mauritius in general, is not with a Board of Directors of those companies sitting in Mauritius Khosla is a resident.  Even if one were to take the Business Advisory Agreement relied on by the applicants with a pinch of salt, it cannot be said that the role played by Rishi Khosla in these transactions establish that the management and control of the Mauritian companies is with Rishi Khosla.  It is therefore not possible to accept the contention of learned counsel for the Revenue that by applying the place of management test, the seller companies could be held to be non-Mauritian companies…”

The AAR then held, “There may be some substance in the argument of the learned counsel that this Authority has to consider only the negative, namely that the control of the companies is not in Mauritius and it is not necessary for this Authority to find positively that the control and management is with Rishi Khosla, before coming to a conclusion that the applicants are not entitled to claim the benefit of the India-Mauritius DTAC.  But on the available fact, the presumption that the control and management of the companies rest with the Board of Directors cannot be said to have been rebutted by sufficient or cogent material  I overrule the arguments in this behalf….” In other words, a TRC creates at best a rebuttable presumption, and is not conclusive. On the aspect that beneficial ownership of shares was in Jersey and not in Mauritius, the AAR rejected the argument clearly: “As things now stand, in such cases the theory of beneficial ownership has not prevailed over the apparent legal ownership.  Company law also recognized the recorded owner of the shares and not’ the person on whose behalf it may have been held (even if, possible).  I am, therefore, satisfied that this attempt of counsel for the Revenue must also fail.” In this background, the issues were answered in favour of the assessee.

Thus, while the importance of a TRC must be acknowledged, it is still not clear whether a TRC is absolutely conclusive.  The rulings of the AAR would suggest that it is not. To what extent Vodafone has affected the correctness of the decision in Azadi on this point is a matter which will require further judicial examination, particularly in light of the arguments of the Revenue before the AAR in these two cases.

Another recent ruling of the AAR – not on the same issue – is that in Re Castleton Investment Ltd. The AAR has questioned the correctness of a number of its previous rulings (including Re Dana Corp and re Timken): this will be further considered in a subsequent post.

Tuesday, July 17, 2012

Agency: Ostensible Authority and Estoppel


The Privy Council in Kelly v. Fraser, [2012] UKPC 25, recently revisited the issue of whether an agent can be said to have ostensible authority on the basis of his own representations.

Mr. Fraser, the Respondent, became the CEO of Island Life Insurance Company on 1st February, 2000, and shortly after that became a member of the Salaried Staff Pension Plan (“SSP”) of the company. The SSP was operated under a trust deed, which vested the management of the plan to trustees. The trustees delegated day-to-day administration to the employee benefits division of the company. Mr. Fraser was initially employed by another company, and had contributed to that company’s pension scheme. He discussed with Mr. Masters, the Vice-President of Island Life’s employee benefits division, the possibility of a transfer of the accrued value of his entitlement from the other company’s scheme to SSP. Under SSP’s trust deed, such transfer was to be carried out “in a manner and on the terms and conditions determined by the trustees in their sole discretion… but if in the judgment of the trustees this is impractical, inadvisable or inexpedient, the benefits and amounts accrued to the contributor shall remain in the said other company pension plan…” A letter requesting approval for the transfer was sent to the trustees, but evidently, no further action was taken on the letter. It was admitted that the trustees were not aware of the application/letter. Subsequently, in December 2000, Mr. Masters wrote the Mr. Fraser, confirming that “the Trustees… have transferred…” the accrued benefits to the SSP. In reality the trustees had not. Subsequently, the SSP was to be wound up, and the issue arose as to whether Mr. Fraser’s entitlement to the corpus should be calculated on the basis of his ordinary contributions alone, or on the basis of the ordinary contributions plus the accrued benefits.

The short point was whether Mr. Master’s representation could act as an estoppel against the Trustees from subsequently denying that the transfer had occurred. It was admitted that only the Trustees had the authority to approve the transfer: Mr. Masters had no such authority. Equally, it was admitted that Mr. Masters had no actual authority to inform Mr. Fraser that everything was in order if it was not. The question therefore was whether Mr. Masters had the ostensible authority to tell Mr. Fraser that whatever steps needed to be taken to carry out the transaction had been duly performed, although he had no authority (actual or ostensible) to take those steps himself.

The trustees relied on certain observations of Goff LJ (confirmed by Lord Keith in the House of Lords) in Armagas v. Mundogas, [1986] AC 717 to the effect that English law does not accept the general proposition that ostensible authority of an agent to communicate agreement by his principal to a particular transaction is different from ostensible authority to enter into that particular transaction. In other words, Armagas suggests that ostensible authority to communicate agreement is conceptually similar to ostensible authority to enter into the agreement: so if there is no authority to agree, there is no ostensible authority to communicate agreement either. There were some views to the contrary: First Energy v. Hungarian International Benk, [1993] 2 Lloyd’s Rep 194, Egyptian International v. Soplex, [1985] 2 Lloyd’s Rep 36.  In First Energy, Evans LJ said that there is “no requirement that the authority to communicate decisions should be commensurate with the authority to enter into a transaction…”

After considering these cases in Kelly v. Fraser, Lord Sumption explained the position thus: “An agent cannot be said to have authority solely on the basis that he has held himself out as having it. It is, however, perfectly possible for the proper authorities of a company (or, for that matter, any other principal) to organise its affairs in such a way that subordinates who would not have authority to approve a transaction are nevertheless held out by those authorities as the persons who are to communicate to outsiders the fact that it has been approved by those who are authorised to approve it or that some particular agent has been duly authorised to approve it…Armagas was explained as turning on its “complex and extraordinary facts”: in particular, the third party knew that the agent had no authority to do the specific act, which the agent held himself out as having the authority to do. Armagas was therefore treated as a case where the third party has been put on notice, and that case “is not authority for the broader proposition that a person without authority of any kind to enter into a transaction cannot as a matter of law occupy a position in which he has ostensible authority to tell a third party that the proper person has authorised it…

By way of analogy, Lord Sumption pointed out that a company secretary does not have the actual authority which the Board of Directors has, but the secretary does have ostensible authority “by virtue of his functions” to communicate what the board has decided. The analogy is interesting: and gives rise to an additional debate. Is ‘authority by virtue of his functions’ another manner of saying ‘usual authority’ – and if that is so, is that better regarded as implied actual authority rather than ostensible authority? In Kelly’s case, it was admitted that there was no actual authority (whether express or implied) to communicate as they did – the point was solely pertaining to ostensible authority. Be that as it may, the Privy Council seems to have confirmed that there may be situations where an agent has the authority to communicate the acceptance of an agreement although he has no authority to agree. That communication may in turn give rise to an estoppel as against the principal.

This conclusion, reconciling Armagas and First Energy, has also found acceptance in other common law jurisdictions. Interested readers may refer to the judgment of Chan Sek Keong CJ in Skandinaviska Enskilda v. Asia Pacific Breweries, [2011] 3 SLR 540. Kelly v. Solari also has interesting observations on the issue of what constitutes “detrimental reliance” for the purpose of creating an estoppel: the Privy Council clarified that “the detriment need not be financially quantifiable, let alone quantified, provided that it is substantial and such as to make it unjust for the representor to resile. A common form of detriment, possibly the commonest of all, is that as a result of his reliance on the representation, the representee has lost an opportunity to protect his interests by taking some alternative course of action. It is well established that the loss of such an opportunity may be a sufficient detriment if there were alternative courses available which offered a real prospect of benefit, notwithstanding that the prospect was contingent and uncertain…” The advice of the Privy Council in Kelly is available on BAILII, and can be accessed here.

Sunday, April 29, 2012

Call for Submissions: Indian Journal of Arbitration Law

The following is a call for submissions by the Indian Journal of Arbitration Law:


The Indian Journal of Arbitration Law is a biannual, student reviewed e-journal launched by the Centre for Advanced Research and Training in Arbitration Law of National Law University, Jodhpur.
National Law University, Jodhpur, one of the premier national law institutions in India, is taking successful initiatives for the promotion of areas related to the specialized fields of law. To strengthen the promotion of knowledge, research and legal interaction in the subject of arbitration law, it has established the Centre for Advanced Research and Training in Arbitration Law. The Indian Journal of Arbitration Law is the one such initiative of this centre towards the development of this expert legal arena.   
The Journal strives to inculcate the prevalent theories in the field of arbitration with their practical relevance. The editorial board seeks to achieve this feat by including contributions from individuals with varied expertise of practicing arbitration and by focusing on developing trends. In this regard, the board would give due emphasis to the rich thought processes of students of law, who bring to the forefront the innovative academic research currently underway in most law schools all over the world. Inclusion of changing regional trends will play a vital part in understanding the scope and extant of this discipline and would therefore find due importance in the Journal.
The Indian Journal on Arbitration is pleased to announce its inaugural edition, which is to be published in July this year.
The theme for the inaugural edition would be: India's tryst with Arbitration: Are we heading in the right direction?”
The Board of Editors cordially invites original, unpublished submissions for publication in the following categories:
·         Articles
·         Notes
·         Comments
·         Book Reviews

For details regarding publishing policy and guidelines please visit http://nlujodhpur.ac.in/call_for_papers.php
Manuscripts may be submitted via email.
In case of any further queries, please contact the editors at: editor.cartal@nlujodhpur.ac.in

Last Date for Submissions: 15 June, 2012

Friday, April 27, 2012

NLSIR Symposium on Mergers and Acquisitions


The National Law School of India Review (NLSIR) - the flagship journal of the National Law School of India University, Bangalore is pleased to announce the V NLSIR Symposium on "Corporate Mergers and Acquisitions in India: Recent Regulatory Changes" scheduled to be held on May 5 and 6, 2012 at the National Law School campus, Bangalore. Confirmed speakers for the symposium include renowned legal luminaries such as Hon’ble Mr. Justice V. Ramasubramanian (Judge, Madras High Court), Mr. Dhanendra Kumar (Former Chairman, Competition Commission of India), Mr. Uday Holla (Senior Counsel, Karnataka High Court), Mr. Nishith Desai (Nishith Desai Associates), Mr. V. Umakanth (Assistant Professor, National University of Singapore), Mr. Sandip Bhagat, Mr. Rajat Sethi (Partners, SNR), Mr. Somasekhar Sundaresan (Partner, J Sagar Associates), Mr. Ajay Vohra (Managing Partner, Vaish Associates), and Mr. K. Swaminathan (Director - Direct Tax and Transfer Pricing Litigation, Delloitte Haskins and Sells), amongst others.

This year, the discussions will be divided into four panels:

Session I: The Competition Regime Governing Transaction of Business in Combinations 
(Forenoon, May 5, 2012, Saturday)

Session II: Takeover Regulation in India: Liberalisation with Caution
(Afternoon, May 5, 2012, Saturday)

Session III: Cross-border Mergers and India’s Taxation Regime
(Forenoon, May 6, 2012, Sunday)

Session IV: Companies Bill, 2011: Indian Company Law at the Cross-roads
(Afternoon, May 6, 2012, Sunday)

Registration fee for the symposium is Rs. 500 for students and Rs. 1500 for others.

For more details including the concept note, program schedule and online registration, please visit:  http://www.nlsir.in/symposium.html.

For regular updates, also see our Facebook page: http://www.facebook.com/NationalLawSchoolOfIndiaReviewSymposium2012?ref=ts.

For further information, please contact Krishnaprasad K.V. (Chief Editor): +91-9916589670; Ashwita Ambast (Deputy Chief Editor):  +91-9986478265 or email us at mail.nlsir@gmail.com.

Monday, February 13, 2012

"Team Poaching" and Springboard Relief


The law relating to “team poaching” has come up for consideration in the past few years before the Courts. Typically, in such cases (where employees move en masse to a competitor) Courts are concerned with balancing the freedom of employees to leave employment and set up new ventures with the duty of fidelity owed to employers. Typically, the more senior the employer, the more onerous the duties he owes to his employer. If the employee concerned is also a director, questions of fiduciary duties, the no conflict/no profit rules etc. may also arise. Particularly in cases of team moves, Courts are also concerned to ensure that employees leaving en masse in a planned manner does not result in the new venture getting an unfair competitive lead over the employer. These issues were elaborately discussed at first instance recently in QBE Management v. Dymoke, [2012] EWHC 80 (QB). Justice Haddon-Cave summarized the law in this relation as follows (see para 169 onwards):

“(1) It is indisputable that an employee owes his employer a contractual duty of ‘fidelity’, but how far it extends will depend on the facts of each case (per Lord Green MR in Hivac v Park Royal [1946] Ch 169 at 174).
(2) The more senior the staff the greater the degree of loyalty, fidelity and diligence required (per Openshaw J. in UBS Wealth Management (UK) Ltd v Vestra Wealth LLP [2008] IRLR 965 at paragraph [10]).
(3) The first task of the court is to identify the nature of the employee’s obligations of fidelity and then to decide whether the employee’s activities are in breach (per Moses L.J. in Helmet Integrated Systems v Tunnard [2007] IRLR 126 at paragraph [32]).
(4) The mere fact that activities are described by an employee as ‘preparatory’ to competition does not mean that they are legitimate (per Moses L.J. I Helmet Integrated Systems v. Tunnard [2007] IRLR 126 at paragraph [28]).
(5) It is a breach of the duty of fidelity for an employee to recruit or solicit another employee to act in competition (see British Midland Tool v Midland International Tooling Ltd [2003] 2 BCLC 523).
(6) Attempts by senior employees to solicit more junior staff constitutes particularly serious misconduct (Sybron Corp v. Rochem Ltd [1984] Ch 112).
(7) It is a breach of the duty of fidelity for an employee to misuse confidential information belonging to his employer (see Faccenda Chicken Ltd v Fowler[1987] Ch 117).
(8) The court should ask whether the activities in which the employee is engaged affect his ability to serve his employer faithfully and honestly and to the best of his abilities (see Shepherds Investments Ltd v. Walters [2007] IRLR 110 at paragraph [131]).”

This general discussion of the duty of employees was supplemented by the following propositions, particular to “team moves” or “team poaching” (see para 170 onwards):

“In the context of 'team moves' or 'team poaching', four recent cases provide useful guidance and illustrations of what may constitute illegitimate conduct… In Shepherd Investments Ltd and Anr v Walters & another [2006] EWHC 836 (Ch), Etherton J. held that when former directors and employees set up a competing business, diverting business opportunities and misusing confidential information, they had acted in breach, not only of their fiduciary obligations, but also their implied obligation of fidelity, from the moment that they procured the services of attorneys in the Cayman Islands to set up the rival business. On the facts of that case, Etherton J, held that a former employee was also in breach of obligations as a fiduciary, whether or not he was to be regarded as a director, and that he was in breach of his duty of fidelity… In UBS Wealth Management v. Vestra Wealth LLP (supra) Openshaw J. said at paragraph 24: "I cannot accept that employees, in particular senior managers, can keep silent when they know of planned poaching raids upon the company's existing staff or client base and when these are encouraged and facilitated from within the company itself, the more so when they are themselves party to these plots and plans. It seems to me that that would be an obvious breach of their duties of loyalty and fidelity to [their employer]". In Kynixia v. Hynes [2008] EWHC 1495 Wyn Williams J. said at paragraph 283: "I simply do not see how one can be acting as a loyal employee when one knows that three senior employees (including oneself) may transfer their allegiance to a group of companies which includes a competitor and yet not only fail to divulge that knowledge but also say things which would have the effect of positively misleading the employer about that possibility." In Tullett Prebon plc v. BCG Brokers LP [2010] IRLR 648 Jack J. said at paragraphs 68-69: "[A] desk head must not do anything to assist the recruitment of his desk... Where a desk head decides that he is in favour of the recruitment of his desk and thereafter assists the recruitment in such small or large ways as may arise, he is in plain breach of his duty: he has crossed the line between observing his duty to his employer and acting in the interest of his employer's rival." The position as regards mutual soliciting by employees is usefully summarised as follows in Goulding on Employee Competition (2nd Edition) at paragraphs [2.164] to [2.166]: "Discussions between employees as to proposed concerted competitive activity will rarely if ever be acceptable, given the near-inevitable damage to the employer as a result of such concerted activity. It remains possible that a discussion between close friends at a similar level within the business as to the potential of working together in the future would give rise to no breach. In such circumstances, neither employee would be soliciting the other and neither would be encouraging the other to terminate their employment with the employer. However, as set out in the British Midland Tool case, once an irrevocable intention to compete is formed, resignation and disclosure of the intention is probably the only certain means of avoiding a breach.”…

What is also particularly interesting about this decision is that the Court found that the non-compete covenants in the employment contracts were not enforceable (see para 237): however, the Court in any case granted injunctive “springboard” relief to prevent the employees from gaining an unfair competitive advantage. This is an interesting point, and I am unaware of an Indian Court refusing to enforce contractual restrictive covenants (say, because of s. 27 of the Contract Act; but then substantially giving the same relief on other grounds). Another interesting point which comes up is this: to what extent is the duty of “fidelity” similar to a fiduciary duty? Justice Haddon-Cave approvingly refers to the following passage from Nottingham University v Fishel[2000] ICR 1461:

“... in determining whether a fiduciary relationship arises in the context of an employment relationship, it is necessary to identify with care the particular duties undertaken by the employee, and to ask whether in all the circumstances he has placed himself in a position where he must act solely in the interests of his employer.

A more detailed discussion will follow subsequently.

Tuesday, February 7, 2012

New decision of Presumption of Resulting trust and Presumption of Advancement



An extremely interesting discussion of the role of the “presumption of resulting trust” and the “presumption of advancement” is found in the decision of the Supreme Court of Western Australia (per Edelman J.) in Anderson v. McPherson (No. 2), [2012] WASC 19, available on AustLII here. Interested readers are referred to the discussion from paragraph 87 onwards.