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Recent Irish Cases
Fogarty Advertising Ltd. awarded £21,700 damages
against former employees for total loss of business
On November 26, 1973, Mr. Justice Gibson, in the
High Court in Belfast, awarded £21,700 to the Belfast
subsidiary of the Dublin-based Fogarty Advertising
Ltd., against three of the subsiary's former employees.
These employees had left the company, taking the
clients with them, to form their own advertising
agency in Belfast. The judgment will be of consider-
able interest, not only to the advertising industry, in
which formation of new companies that attract the
clients of their founders' previous employers is not
uncommon; but also to all other business where
employees may leave to start competition with their
former employers.
Giving his judgment, Justice Gibson said: The plain-
tiff company is now a mere shell having enjoyed a brief
year of very profitable trading after its incorporation.
It is the extinction of its active life which has
occasioned these proceedings.
The origins of the company are that in 1967 Fogarty
Advertising Ltd., a company incorporated in the Re-
public of Ireland, opened a branch in Belfast to carry
on its business in Northern Ireland as an advertising
and marketing agency. The first defendant, Miss Rals-
ton, was employed from the outset as the local
manager and each year the scope of operations and
profitability of the branch increased. This entailed the
employment of additional staff from time to time in-
cluding Mr. Mitchell, the second defendant, who was
engaged in 1970 or 1971.
By 1972 the business of the branch had grown to
such a size that it was decided to float a separate
company. On 27 June 1972 a meeting was held between
the parties.
It was unanimously agreed that a private company
to be called "A.F. Associates Ltd." should be formed
to take over the control and operation of the Northern
Ireland branch of Fogarty Advertising Ltd. including
all its assets and liabilities and that it should be put
into operation as from 1 July 1972. On July 1 a service
agreement was executed purportedly between A.F.
Associates Ltd. and Miss Ralston, but in fact the
company was not incorporated until July 5.
In the course of its trading after incorporation there
arose from time to time differences between Mr.
Fogarty, who had the controlling interest in the com-
pany, and Miss Ralston and Mr. Mitchell as to their
remuneration and conditions of employment, but these
were not sufficient to deter Mr. Mitchell from entering
into a service agreement with the company on 28
November 1972 and a general increase in salary was
negotiated in December, which included both these
defendants. In February 1973 Mr. Bingham, the third
defendant, also joined the company, but he did not
enter into any service contract.
Business Boom due to defendants
There is no doubt that the boom in the business
which the company enjoyed and the increasing profits
which it and the earlier branch earned were due almost
entirely to the energy and enterprise of the defendants
and particularly Miss Ralston and they felt increas-
ingly that they should receive a greater share of the
fruits of their labour. I think there was some justifica-
tion for their sense of grievance, but they had no
detailed knowledge of the financial side of the business.
They did not, perhaps, appreciate that Mr. Fogarty
also was receiving less than one might regard as his
reasonable entitlement. He had invested £20,000 capital
in the business and had received no interest in return
on it. The rapid expansion of the business had each
year produced an equivalent growth in the credit
which had to be extended to customers so that the
business, though flourishing, was always in a situation
of current financial stringency. The growing discontent
of the defendants was not, however, fully communi-
cated to Mr. Fogarty, whose visits to Belfast gradually
decreased in frequency as his confidence in the ability
of the local management increased.
On 26 July 1973 Mr. Fogarty paid one of his routine
visits to Belfast. Miss Ralston had prepared for his
consideration a list of salary increases for virtually the
entire staff of the company. Those he accepted in full
and it was further arranged that the increases should
become operative on August 3.
Defendants hoped to buy business by means of credit
facilities
Meantime, unknown to him, the defendants had been
investigating an alternative way of bettering their posi-
tion. With a view to buying control of the company or
its business and goodwill they sought financial backing
and had been able to obtain credit facilities to the
extent of £20,000. Immediately following the meeting
with Mr. Fogarty, Miss Ralston, speaking on behalf of
all three defendants, informed the staff that the
defendants were thinking of leaving the company, that
they hoped to buy the business, but if this failed that
they proposed to resign and start their own agency.
They offered to take over the entire staff at the in-
creased wages just negotiated. To allay fears or resolve
doubts, the proposal was later put in writing in the
form of a letter dated July 31, addressed to each
member of the staff and signed by Miss Ralston, but
headed "R.M.B. Advertising" (these being the initials
of the defendants — Ralston, Mitchell and Bingham.
Its terms also are illuminating and are as follows :
"R.M.B. Advertising,
(Registered Office)
8 Donegall Square North,
Belfast 1.
July 31st, 1973.
Dear
,
Due to our policy disagreements with the shareholders
of A.F. Associates Limited, Mr. Bingham, Mr. Mitchell
and myself have decided to resign from the company.
It is our intention to offer our resignations on Wednes-
day, August 1st, to Mr. Aubrey Fogarty.
We intend to form a new advertising agency called
R.M.B. Advertising and details of the shareholding and
capitalisation have been explained to you.
We must stress that your present employment is with
A.F. Associates Limited and while the effective manage-
ment of the company in Belfast has been conducted
by myself as managing director and Mike Mitchell as
director, the company is, in fact, owned by Mr. Aubrey
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