A global insurance broker that sued a departed executive over an undisclosed client exit notice recovered nothing when the High Court dismissed its claim.
Gallagher Benefit Services Management Company acquired a boutique employee-benefits brokerage in April 2022. The business sold for £12,375,000, with an earnout worth up to £5,199,250 tied to revenue targets. Its founder stayed on as chief executive of the acquired business under a two-year employment contract.
Fifteen months later the parties agreed an early exit. Gallagher paid £3.65 million to settle the earnout in full, and the founder left. Weeks afterwards, a junior employee told Gallagher what it had not previously known: the acquired firm's largest client, worth about £419,000 a year, had served notice to terminate in January 2023. The founder had not reported it.
Gallagher sued. It argued that, had it known of the notice, it would have settled the earnout for around £1.8 million rather than £3.65 million, and it claimed the difference. It advanced four grounds: breach of the employment contract, breach of fiduciary duty, breach of a warranty in the settlement agreement, and fraudulent misrepresentation.
The reporting duties were central. The employment contract required the founder to "promptly report any competitive threat" to the business, and the settlement agreement included a warranty that there were no undisclosed matters that might have affected Gallagher's decision to enter into it.
Mr Justice Ritchie found the founder had breached the employment contract and that warranty. After negotiating a further year of income from the client in January 2023, he should have told Gallagher about the notice, and did not.
The claim nonetheless failed on causation and loss. The judge found the founder, who had grown revenue by 30 to 40 per cent in the first year, would not have accepted a settlement of around £1.8 million. He would have stayed on and earned his full £5,199,250 earnout, which meant the early £3.65 million deal had in fact saved Gallagher money. With no net loss established, no damages followed, and the breach-of-contract claim was dismissed.
The remaining claims were dismissed outright. The judge held that the founder's negotiating messages contained no false statement about future revenue, and that Gallagher - which never asked whether any client had given notice, and did not require a warranty on the point in the exit deal - had not been misled. He also held that the founder, as an employee of the parent rather than a director of it, owed Gallagher no fiduciary duty.
The judge also found that Gallagher's efforts to retain the client after the founder's departure had been inadequate and, had the issue been necessary to decide, would have amounted to a failure to mitigate.
The founder's counterclaim for the balance of the lost earnout was also dismissed, barred by the deed that closed the deal.
