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Clarification of corporate contempt

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29/11/2013

In underlying proceedings to Back Office Ltd v Percival & Others [1], former employees of Back Office who had set up a rival payroll services firm settled claims for breach of fiduciary duty, breach of covenant and unlawful conspiracy. Settlement was achieved by the giving of undertakings that the rival firm, known as Liquidity, and named ex-Back Office employees, would not solicit or deal with certain named Back Office clients before 5 March 2013. In March 2013 Back Office issued corporate contempt proceedings against Liquidity and named individuals for breaches of those undertakings. The contempt case turned on whether it was a necessary element of the test for corporate liability that Liquidity either authorised its employees’ breaches, or failed to take reasonable steps to prevent them.

Mrs Justice Slade undertook a thorough review of relevant authorities and decided, in favour of Back Office, that corporations are strictly liable for the acts of their employees or agents. She found that the individuals in question were acting within the scope of their employment with Liquidity when they contacted prohibited clients and the fact that they had acted in breach of an instruction did not excuse Liquidity from liability for contempt of court.

The case is a clear demonstration of the weight attached to a corporation giving undertakings to the court and shows that, where those undertakings are breached, the court will not let the corporation off lightly.

[1] [2013] EWHC 1385 (QB)

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