Cheshire Estate & Legal Ltd v Blanchfield & Ors

Factual and Procedural Background

On 10 January 2023, two directors ("the Respondents") of Company A, a corporate firm specialising in financial mis-selling and fraud claims, resigned and gave six months' notice terminating their consultancy agreements. Shortly thereafter, they were placed on gardening leave for three months. Company A discovered that the Respondents had taken preparatory steps, beginning several months before their resignations, to establish a competing business, including registering a trading name, incorporating a new company (Company B), seeking professional indemnity insurance, setting up a website, opening bank accounts, applying for regulatory approval, and engaging with litigation funders, some of whom had prior dealings with Company A.

On 1 February 2023, Company A commenced proceedings alleging breaches of fiduciary duties, breach of contract, and conspiracy by the Respondents and Company B. Company A sought injunctive relief, an account of profits or equitable compensation, and damages. Interim injunctions were granted pending an expedited trial, which was held in April 2023. The trial judge dismissed Company A's claims, holding that the Respondents' preparatory steps did not breach fiduciary duties or restrictive covenants, and that injunctive relief was not warranted. Company A appealed, focusing on overturning findings of liability to pursue damages, having abandoned claims for injunctive relief due to the passage of time.

Legal Issues Presented

1. Whether the Respondents breached their fiduciary duties by taking preparatory steps towards establishing a competing business prior to resigning.
2. Whether the Respondents breached contractual restrictive covenants in their consultancy agreements.
3. Whether Company A was entitled to injunctive relief, including springboard injunctions and protection of confidential information.
4. Whether the trial judge erred in his factual findings and legal conclusions regarding liability and entitlement to relief.
5. Whether the appeal should succeed to allow Company A to pursue damages despite abandoning injunctive relief.

Arguments of the Parties

Appellant's Arguments

• The Respondents acted beyond legitimate preparatory conduct by secretly setting up a competing business, thereby breaching fiduciary duties.
• The Respondents’ dealings with a litigation funder (Deminor), who was a potential alternative funder to Company A, created a conflict of interest.
• The Respondents’ actions were secretive and underhand, including transferring Company A documents, evidencing breach of duty.
• The trial judge erred in his factual findings, particularly regarding the date the Respondents formed an irrevocable intention to compete.
• Despite conceding no injunctive relief was sought, Company A argued for remittance to assess damages and an opportunity to reformulate loss claims.

Respondents' Arguments

• The preparatory steps taken were lawful and did not constitute a breach of fiduciary or contractual duties as they were taken before an irrevocable intention to compete was formed.
• The Respondents did not solicit clients or use confidential information to Company A's detriment.
• The dealings with the funder Deminor did not create a real conflict as Company A had an exclusive arrangement with another funder, and Deminor could have worked with both parties.
• The trial judge’s factual findings were supported by the evidence, including the timing of the Respondents’ intentions and the nature of their preparatory conduct.
• There was no arguable case of loss or damage to justify injunctive relief or an award of damages.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Shepherds Investments Ltd v Walters [2006] EWHC 836 (Ch), [2007] 2 BCLC 202	Framework for assessing when preparatory steps to compete breach fiduciary duties; fact-sensitive inquiry into when preparatory acts become unlawful.	Guided the court's fact-sensitive approach to determine that preparatory steps taken by the Respondents fell within permissible conduct.
Item Software (UK) Ltd v Fassihi [2004] EWCA Civ 1244, [2005] 2 BCLC 91	Directors’ fiduciary duty to act in good faith, disclose wrongdoing, and avoid conflicts of interest.	Supported the principle that directors must not place themselves in conflicting positions and must disclose breaches; distinguished facts here.
Balston Ltd v Headline Filters Ltd [1990] FSR 385	Public policy permitting directors to investigate competing business intentions without immediate disclosure or breach.	Considered but effectively discounted in light of later authorities; court preferred a more nuanced approach.
British Midland Tool Ltd v Midland International Tooling Ltd [2003] EWHC 466 (Ch), [2003] 2 BCLC 523	Directors must resign once intention to compete is irrevocable and disclose preparatory steps; fiduciary duties continue until resignation.	Supported the view that irrevocable intention plus preparatory steps may breach duties; applied to assess timing of Respondents’ intentions.
Roger Bullivant v Ellis [1987] ICR 464	Springboard injunctions to prevent wrongdoers exploiting head start obtained by unlawful acts.	Referenced in rejecting springboard injunction as the Respondents’ advantage was ephemeral and limited.
QBE v Dymoke [2012] EWHC 80 (QB)	Limits on springboard injunctions where advantage is short-term or ephemeral.	Supported refusal of springboard relief due to limited duration of any advantage.
Volpi v Volpi [2022] EWCA Civ 464	Standard for challenging factual findings on appeal: must show findings are plainly wrong.	Applied to uphold trial judge’s factual findings on Respondents’ intentions and conduct.
CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704	Directors’ fiduciary duties end upon resignation; resignation does not justify breach of duty prior to resignation.	Referenced to explain that directors remain fiduciaries until resignation and must not exploit opportunities or information.
Berryland Books Ltd v BK Books Ltd [2009] EWHC 1877 (Ch)	Employee unlawfully taking preparatory steps to set up competing business while still employed.	Considered but court preferred a less dogmatic, fact-sensitive approach for directors’ duties.

Court's Reasoning and Analysis

The court conducted a detailed, fact-sensitive analysis of whether the Respondents breached fiduciary and statutory duties by taking preparatory steps to establish a competing business before resignation. The court applied established legal principles emphasizing that a director's fiduciary duty requires acting in good faith and avoiding conflicts of interest, but recognized that preparatory conduct short of actual competition may be permissible.

The trial judge found that the Respondents did not form an irrevocable intention to compete until mid to late December 2022 or early January 2023, shortly before resignation, and that most preparatory steps were taken before this settled intention. The Respondents had no clients, funding, premises, or staff at the time of resignation, and their conduct did not impair their ability to serve Company A faithfully during their notice period.

The court rejected the argument that dealings with a litigation funder created a conflict of interest, noting Company A’s exclusive funding arrangements and lack of evidence that the funder could not work with both parties. The court upheld the trial judge’s findings as supported by evidence and not plainly wrong.

Regarding injunctive relief, the court agreed with the trial judge that the restrictive covenant was enforceable but no evidence showed solicitation of Company A’s clients. The Respondents no longer had access to confidential information, negating the basis for an injunction. The claim for springboard relief was rejected because any advantage gained was ephemeral and short term, and no trading or client loss had occurred.

The court also noted that Company A failed to advance an arguable case of loss or damage, undermining the rationale for damages or injunctive relief. Attempts to introduce new heads of loss were unsupported by evidence or formal pleadings, making remittance for damages assessment inappropriate.

Holding and Implications

The court DISMISSED THE APPEAL.

The Respondents were found not to have breached their fiduciary or contractual duties by taking preparatory steps to establish a competing business prior to resignation. No injunctive relief was warranted given the absence of solicitation, use of confidential information, or demonstrable loss. The decision confirms the principle that preparatory conduct, short of actual competition and taken before an irrevocable intention to compete is formed, may be lawful and not constitute a breach of fiduciary duty. The ruling reinforces the fact-sensitive nature of such inquiries and affirms the trial judge’s detailed factual findings. No new precedent was established, and the direct effect is that Company A cannot pursue damages or injunctive relief based on the conduct in question.