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Insights / News
The Court of Appeal has handed down judgment in Cheshire Estate & Legal Limited v Blanchfield & Anor [2024] EWCA Civ 1317, an important case about what fiduciaries can do when preparing to compete with their principal in the future. The Court of Appeal dismissed the appeal of the appellant claimant law firm CEL against the judgment of the High Court finding that former directors of CEL were not in breach of fiduciary or statutory duty when taking steps to set up a competitor. David E Grant KC and Gus Baker represented the successful defendants/respondent directors.
CEL argued that preparatory actions taken by the directors—such as registering a company and securing a trading name, scouting for premises, opening a bank account and contacting funders breached the directors’ fiduciary, statutory and contractual duties. The trial judge found that the directors’ actions were preparatory steps before competition and had not “crossed the line”, or otherwise put them in a position of conflict, so as to amount to a breach of their fiduciary duties.
The Court clarified that it is not automatically a breach of directors’ statutory or fiduciary duties (or employees’ duties of fidelity) to take preparatory steps towards competing with his or her principal, even whilst remaining a director. The Court of Appeal disapproved as being too dogmatic the dictum of HHJ Hodge KC in Berryland Books Ltd v BK Books Ltd [2009] EWHC 1877 (Ch), that it was always unlawful for an employee to, during his employment, take “steps necessary to establish a competing business so that it is “up and running” or “ready to go” as soon as the employee leaves his employment”.
Instead, Phillips LJ (with whom Lewison LJ and Snowden LJ agreed) held at [25] that: “whether preparatory actions, short of active competition, are consistent with a director’s fiduciary duty to the company is highly fact sensitive in every case, and that even an irrevocable intention to compete does not necessarily mean that merely preparatory steps are unlawful.”
The decision also confirms the difficulty in challenging factual findings on appeal and the fact that the court of appeal is concerned primarily with orders and its reluctance to entertain appeals which are in reality concerned with costs orders.
Read the full judgment of the case here.
David E Grant KC and Gus Baker are regularly instructed in cases involving breaches of restrictive covenants and disputes about fiduciary/employee competition and taking confidential information.
David E Grant KC TEP is a chancery and commercial practitioner with specialist expertise in pensions, trusts, will and estates, professional negligence, fraud and asset recovery, financial services, insolvency and employment.
He has extensive advocacy experience in courts and tribunals up to the European Court of Justice. He has been instructed as an English law expert in proceedings in the US and Canada. He has also attended numerous mediations and round table meetings in a wide variety of cases. David is happy as sole advocate or leading a counsel team and enjoys the process of working with his instructing solicitors, lay clients, experts and other interested parties.
To find out more about David, contact Matt Sale on +44 (0)20 7427 4910 or Lexie Johnson on + 44 (0) 207 427 0801.
Gus’ practice focuses on employment, pensions, commercial litigation (including arbitration) and professional negligence disputes arising from his core practice areas. Gus has a broad commercial disputes practice which often have an international dimension. He is frequently instructed in high-value commercial disputes ranging from breach of contract, fraud, misrepresentation, business, insolvency, finance, joint venture, shareholder, and matters involving force majeure and illegality across multiple sectors.
To find out more about Gus, contact Nick Levett +44 (0)20 7427 4908 or Mark Gardner +44 (0)20 7427 490.
News 6 Nov, 2024
Call: 1999 Silk: 2022
Call: 2015
