The Gazette 1975

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 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 enter into any service contract. Business Boom due to defendants

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 14