The Court of Appeal recently upheld a decision that cleared two former directors of a law firm of breaching their duties in preparing to establish a rival firm.
In a recent ruling, the Court of Appeal reinforced an earlier decision that two former directors of a law firm did not breach their fiduciary duties while preparing to launch a competing firm. The judgement, delivered by Lord Justice Phillips, supported the initial findings of His Honour Judge Bever, who concluded that the actions of the directors remained within legal boundaries.
The individuals in question, Tom Blanchfield, former finance director, and Mark Montaldo, ex-head of litigation at CEL Solicitors in Liverpool, had intended to set up a new law firm. They resigned from CEL in January 2023 after several months of planning, which included activities such as registering a business name, creating a corporate entity, and applying for necessary legal authorisations.
Lord Justice Phillips noted that the steps taken by Blanchfield and Montaldo were purely preparatory. These actions were set to culminate in a business launch only six months post-resignation, contingent on the completion of necessary regulatory approvals by the Solicitors Regulation Authority (SRA), which only showed tentative approval in early January 2023. Meanwhile, both directors continued to fulfill their roles at CEL without evidence of conflict or misconduct.
The appeal case brought forward by CEL Solicitors alleged that there was a potential conflict of interest, especially concerning interactions with the litigation funder, Deminor. However, the court observed that CEL had an exclusive contract with another funder, and no substantial violation of duty was found. Lord Justice Phillips considered the claim of conflict of interest weak, as Deminor was not restricted from engaging with both CEL and the prospective new firm.
Additionally, CEL’s attempt to seek damages based on these preparatory actions was questioned by the court. The argument for financial loss or damage was found lacking, with indications that the motive behind the appeal largely revolved around contesting the order related to legal costs.
Ultimately, this case underscores the meticulous legal framework surrounding fiduciary duties within the professional environment, highlighting the difference between preparatory work and active business operations.
The decision by the Court of Appeal confirms that the preparatory measures taken by the former directors were lawful, setting a precedent for similar cases in professional sectors where fiduciary duties are in question.
