Neil Leslie Humphrey & Anor v Paul Craig Bennet & Anor
[2023] EWCA Civ 1433
Cheshire Estate & Legal Limited v Thomas Oliver Blanchfield & Ors
5 November 2024
[2024] EWCA Civ 1317
Court of Appeal
Two directors left a law firm to start their own. The old firm sued, saying they'd started planning their new business too early. The court said the directors hadn't done anything wrong because they hadn't actually started competing with the old firm before leaving, and the old firm hadn't lost any money.
Key Facts
- •Mr Blanchfield and Mr Montaldo (respondents) resigned as directors of Cheshire Estate & Legal Limited (CEL), a solicitors firm.
- •Respondents gave six months' notice for consultancy agreements.
- •Respondents were placed on gardening leave for three months.
- •CEL discovered respondents took preparatory steps to establish a competing firm, 'Complex Claims', months before resigning.
- •These steps included registering a trading name, incorporating a company (MTCC), seeking insurance, creating a website, and opening bank accounts.
- •CEL sued respondents for breach of fiduciary duties, breach of contract, and conspiracy.
- •The High Court dismissed CEL's claims, finding respondents' actions didn't breach their duties.
- •CEL appealed, but later conceded to no longer seeking injunctive relief.
Legal Principles
Fiduciary duty of directors to act in good faith in the best interests of the company and not to place themselves in a position of conflict.
Shepherds Investments Ltd v Walters [2006] EWHC 836 (Ch), [2007] 2 BCLC 202; Item Software (UK) Ltd v Fassihi [2004] EWCA Civ 1244, [2005] 2 BCLC 91; British Midland Tool Ltd v Midland International Tooling Ltd [2003] EWHC 466 (Ch), [2003] 2 BCLC 523
Whether preparatory steps for a competing business constitute a breach of duty is fact-sensitive. Merely deciding to compete or discussing it is permissible; actively soliciting clients or trading is not.
Shepherds Investments Ltd v Walters; Berryland Books Ltd v BK Books Ltd [2009] EWHC 1877 (Ch)
A director must resign as soon as their intention to compete is irrevocable, otherwise disclosure to the company is required.
British Midland Tool Ltd v Midland International Tooling Ltd
Outcomes
Appeal dismissed.
The Court of Appeal upheld the High Court's decision that the respondents did not breach their fiduciary duties. The preparatory steps were not deemed to have crossed the line into unlawful conduct, given the timing, the lack of actual competition, and the respondents' continued faithful service to CEL.
CEL's claim for injunctive relief failed.
The Court found that even if technical breaches had occurred, CEL would not have been entitled to injunctive relief due to the limited duration of any advantage gained by the respondents, the absence of evidence of client loss or workflow disruption, and the lack of solicitation of existing clients.
CEL's claim for damages failed.
CEL failed to demonstrate any arguable case of damage caused by the respondents' actions. Claims based on fees paid under a mistake and reputational damage were deemed unsustainable.
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