Company founder successfully defends breach of duties claim in the High Court

In Friend Media Technology Systems and another v Jonathan Friend and another [2025] EWHC 2897 (KB), the High Court dismissed a claim that a founder and former director had breached his duties or misused confidential information, following a disagreement with the new private equity owners.

Facts

Jonathan Friend (the "Defendant") was the founder and former director of Friend MTS Limited ("Friend MTS") as well as being a non-executive director and substantial shareholder of Friend Media Technology Systems Limited ("FMTS"), a Jersey-registered parent company (together the "Claimants").

In 2022, a private equity firm made a significant investment into the Claimants, which resulted in the Defendant entering into a Service Agreement and an Investment Agreement with the private equity firm. Divisions soon emerged between the Defendant and the private equity firm's management appointees to the Claimants, and the Defendant was removed as a director of Friend MTS on 22 November 2024.

Allegations

The Claimants alleged that, following his removal, the Defendant engaged in multiple discussions with the Claimants' customers, potential customers, potential partners and competitors, and divulged confidential information, with the aim of competing with the Claimants. The Defendant had also established a company, Friend TP Ltd ("Friend TP"), for this purpose. In doing so, the Claimants alleged the Defendant was in breach of restrictive covenants both under the Service Agreement and Investment Agreement, and in breach of his fiduciary duties as director of Friend MTS (until 22 November 2024) and FMTS (throughout).

By the time the claim reached the court, most of the Claimants' claims had been abandoned, including allegations of breach of confidence and the demand for an account of profits. The only two heads of loss that the Claimants continued to maintain were that the Defendant's alleged actions resulted in a lost opportunity to win back a previous customer in a deal worth £1.8 million, and an alleged missed chance to acquire a rival business valued at £5.42 million.

The Defendant denied the allegations, asserting that he had acted pursuant to his duties under the Service Agreement (prior to its termination) and thereafter his continuing fiduciary duties as a non-executive director of FMTS. The Defendant alleged that the allegations were an attempt on the part of the Claimants to put pressure on him in relation to separate proceedings between them in the Employment Tribunal (regarding various alleged detriments during the Defendant's employment) and in Jersey (relating to unfair prejudice proceedings).

Decision

The judge dismissed the claims in their entirety. It was noted by the judge that the Defendant and his family continued to own a significant shareholding in the Claimants and therefore had an interest in promoting their success. The judge also determined that the suggestion that the Defendant could compete with the Claimants, as a sole trader, was not credible, based on the evidence.

In respect of the lost opportunity to win back a past customer, the judge concluded that, based on the contemporaneous documents, the Defendant had neither contacted nor attempted to contact the previous customer in relation to the provision of services, and that it was clear that there was not in fact any extant commercial opportunity which was in the power of the Defendant to either grant or withhold.

Regarding the allegation that the Claimants had missed the chance to acquire a rival business, the judge determined that the evidence that the Defendant had failed to inform the Claimants of the commercial opportunity was "inadequate." The judge was also "unimpressed" by the evidence provided by the Claimants for the alleged £5.42 million loss suffered, stating that "it is difficult to escape the conclusion that the Claimants' intention was to include a very large (although unjustifiable) 'loss' in the claim against [the Defendant], in the context of their wider dispute."

With regard to Friend TP, it was determined that the company had been incorporated by the Defendant months earlier and remained dormant. The judge acknowledged that while the dormant nature of the business may not be determinative of an absence of conflict, a director may nevertheless take certain preparatory steps to compete consistently with their duties to the company of which they are a director. The case is therefore fact sensitive. In this instance, the judge determined that incorporating Friend TP did not constitute competitive activity and therefore did not breach any of the restrictive covenants.

Overall, the judge criticised the lack of supporting evidence for many of the allegations made by the Claimants, as well as the inconsistent nature of how the claim was presented. In this case the judge assessed the Claimants' losses as being "entirely without foundation". The judge also highlighted that the Claimants could have cleared much of their suspicion of the Defendant if they had made further enquiries of what had been discussed at the time.

Commentary

The judgment illustrates that companies who suspect that a director may not be acting within their duties should adequately investigate the matter to fully ascertain the facts before bringing a claim for breach of duty. The judgment also highlights that companies are expected to adequately evidence their claimed losses, which can potentially be challenging in circumstances where it is alleged that a company has lost an opportunity.

To read the full judgment, please click here.