UK: Court of Appeal emphasises fact-sensitive nature of breach of fiduciary duty cases based on preparations to compete

In Cheshire Estate & Legal Ltd v Blanchfield the Court of Appeal has ruled that it will not always be a breach of fidelity (for an employee) or fiduciary duty (for a director) to take preparatory steps, without informing their current employer, which are sufficient to establish a competing business ready to go as soon as the individual leaves their employment;  this is the case even if the individual has formed a settled intention to compete.  The Court's decision emphasises that cases are highly fact-sensitive and it will be difficult to challenge findings of fact on appeal. 

In this case directors of a law firm had taken preparatory steps to set up a new firm over a period of five months, including registering a trade name, incorporating the company, seeking insurance, setting up a website and bank account, applying for SRA approval and entering discussions with litigation funders.  The Court of Appeal considered that there was no error in the judge's decision that there had not been any breach of fiduciary duty in failing to report the tentative plans to the employer.  The plans to compete were not set in stone prior to receiving notification of the SRA's intention to approve registration (at which point the individuals resigned) and there were no clients, funding, premises, staff, or business strategy in place.  The judge was entitled to conclude on the facts that the steps taken would not have prevented the individuals remaining in post had the SRA denied approval and did not affect their ability to faithfully serve the employer. 

Notably in this case the employer was unable to establish breach of confidentiality, conspiracy or breach of non-deal or non-solicit covenants;  in other cases these (or non-compete covenants) may provide a remedy.