Cheshire Estate & Legal Limited v Thomas Oliver Blanchfield & Ors

Preparatory steps taken by a director towards a competing business are neither automatically lawful nor automatically a breach of fiduciary duty. The question is fact-sensitive. An irrevocable intention to compete does not, without more, make every preparatory step unlawful. The court must assess the nature and extent of the conduct, whether it creates a conflict or affects the director’s ability to serve the company, and whether there is actual or threatened competition or diversion of opportunities. An appellate court should respect a trial judge’s evaluation unless there is a recognised basis for intervention, including a plainly wrong finding. A liability appeal will not ordinarily be remitted for damages where no arguable loss or entitlement to injunctive relief is shown.

Two directors of a company providing legal services resigned and gave notice under their consultancy agreements. Before resigning, they took preparatory steps towards establishing a competing law firm, including incorporating a company, seeking insurance and regulatory approval, and approaching funders. The company alleged breaches of fiduciary and statutory duties, breach of contract, and conspiracy. It sought injunctions, damages and an account.

After an expedited trial, the High Court dismissed all elements of the claim. The company appealed. By the hearing, it no longer sought injunctive relief and could not identify an arguable case of loss. The central issues were whether the preparatory conduct crossed the fact-sensitive boundary into breach and whether any basis existed to disturb the consequential findings.

The Court of Appeal unanimously dismissed the appeal.

1. Relief and loss. The restrictive covenant was lawful and enforceable, but there was no evidence that the respondents had solicited CEL’s clients or threatened to do so. An injunction protecting confidential information was also unjustified because the respondents had surrendered, or no longer had access to, any relevant material and were unlikely to use it. The claimed springboard advantage was ephemeral and short-lived. There was no evidence of trading, lost clients or affected workflows. The Judge was therefore entitled to refuse injunctive relief.
2. Fiduciary principles. The starting point was the director’s duty to act in good faith in the company’s best interests and to avoid conflicts of interest, as explained through Item Software (UK) Ltd v Fassihi [2004] EWCA Civ 1244 and Shepherds Investments Ltd v Walters [2006] EWHC 836 (Ch), [2007] 2 BCLC 202. Whether preparatory steps towards competition breach that duty is highly fact-sensitive. The court preferred the approach in Shepherds Investments to any rigid rule that an irrevocable intention to compete automatically makes preparatory steps unlawful. The approach in British Midland Tool Ltd v Midland International Tooling Ltd [2003] EWHC 466 (Ch) was read more narrowly, and the dictum in Berryland Books Ltd v BK Books Ltd [2009] EWHC 1877 (Ch) was too dogmatic.
3. Application. The Judge’s findings were open to him. The respondents did not intend to trade until after their notice period, had no clients, funding, premises or staff, and had not clearly decided what services to offer. Their venture might not have proceeded before regulatory approval. They resigned shortly after the SRA’s minded-to-approve notification and continued to serve CEL faithfully. Their dealings with Deminor created no real possibility of conflict on the findings, particularly given CEL’s exclusive arrangement with another funder.
4. Appellate review and damages. The factual conclusions could not be challenged by selecting isolated evidence; CEL had to show that an important finding was plainly wrong: Volpi v Volpi [2022] EWCA Civ 464. Even if technical breaches had been established, CEL had advanced no arguable recoverable loss. Contractual payments for services rendered were not damages, and unpublicised conduct could not support the alleged reputational loss. Remission for a damages assessment was therefore inappropriate.

1. Court of Appeal (Civil Division): On 5 November 2024, unanimously dismissed CEL’s appeal.
2. High Court of Justice, Business and Property Courts in Manchester: HH Judge Bever dismissed the claims after an expedited trial, following a reserved judgment dated 29 June 2023 and an order dated 31 July 2023.