RSW Law Achieves Victory in Restrictive Covenant Injunction Case
In February 2023, Liverpool-based CEL Solicitors brought proceedings against finance director Thomas Blanchfield and solicitor Mark Montaldo following their resignation from CEL. CEL claimed the defendants had breached their contractual and statutory duties, alleging the defendants had misused confidential information and had taken steps to compete unlawfully with CEL, with a view to establishing a new law firm in the form of MTCC. MTCC was incorporated on 22 August 2022. The defendants resigned from CEL on 10 January 2023. CEL sought injunctive and other relief against the defendants. RSW Law represented the first defendant Thomas Blanchfield.
There was an expedited hearing in April 2023 and judgment was given by His Honour Judge Bever on 27 July 2023, in which he dismissed the claims for breach of contract, breach of statutory duty, unlawful means conspiracy and injunctive relief against MTCC.
Taking steps to set up a new business
The judge found that Mr Blanchfield had taken a number of preliminary steps whilst still working for CEL including creating business plans, registering a domain name, engaging a website designer, drafting confidentiality agreements, taking steps to procure indemnity insurance, advancing an application to the SRA and forwarding CEL documents to his personal email address. The judge found that the second defendant Mr Montaldo was aware in broad terms of the steps that were being taken.
However, the judge went on to find that the majority of the defendants’ actions in starting a new business, ‘do not cross the line’ into a breach of their fiduciary/statutory duties. There were no allegations that the defendants had begun to trade elsewhere or to solicit CEL’s clients and no suggestion they were trying to lure CEL’s employees.
Confidentiality clauses and restrictive covenants
In their Consultancy Agreements the defendants agreed to keep confidential the “confidential information” without limit of time. The confidential information was defined as “trade secrets, and other information which CEL regards as confidential including all “knowledge and information relating to clients or customers, prospective clients or customers, businesses, organisations, finances, processes, specifications and technology”.
The judge found that these were too widely drafted to form the basis of a claim (with a reminder that an express term cannot make something confidential that isn’t confidential). The judge also found that the clause in the NDA, which was slightly different, was arguably even wider and both went well beyond trade secrets and information of equivalent confidentiality and were therefore unenforceable.
The judge found that CEL had also failed to demonstrate that any of the information available was sufficiently confidential in any event and that the work CEL undertook was straightforward and not specialised, not requiring anything more than a basic understanding of the legal principles involved. He added that the methods adopted by CEL to target prospective clients would have been “accessible to people with a knowledge and understanding of internet searches”.
Finally, in considering the restrictive covenant in question in detail, the judge held that the covenant was too wide in its scope in a number of ways. This included the provision to prevent the defendants from employing or engaging by or entering into a commercial relationship with any person who employs, engages or intends to employ or engage any such CEL staff and the clause prohibiting the defendant from “causing, encouraging or assisting any consultant, director, employee or worker of CEL to leave its service or do anything to breach their Consultancy Agreement”.
A number of witness statements produced on behalf of CEL were cause for concern. One was by an expert but presented as a witness statement, and the judge found that it failed to comply with Practice Direction 57AC of the Civil Procedure Rules. Although the judge was not required to make a decision about its admissibility, he found that “CEL would have required permission to adduce his evidence, in accordance with Part 35.4 of the Civil Procedure Rules. I anticipate that I would have been very unlikely to have granted such permission.”
Two further statements were found to have contained identical, or nearly identical, content and the judge held that this non-compliance with Practice Direction 57AC, not only had the potential to impact the credibility of a witness but might be relevant as to costs at a later stage.
This is an important case for employers and employees alike given the myriad of issues before the Court, it is a timely reminder that issues such as breaches of contract (statutory/fiduciary); the enforceability of restrictive covenants, and what amounts to confidential information, remain to a large extent reliant on the drafting of documents and are invariably fact sensitive.
Finally, the case which was heard as an expedited trial can be viewed as a showcase for timely justice, amid the well-publicised expanding backlog of cases leading to substantive delays in the UK’s civil courts, it was well managed.
Our client said of the outcome:
‘My professional career and livelihood were on the line but Nighat Sahi, Partner at RSW Law my legal firm, showed a dogged determination and defended my position fiercely, whilst giving me sound advice about the strengths and weaknesses of my position’.
The full Judgment can be found here:
Nighat acted for the First Defendant. Contact her for more information:
DD: 0203 988 0173
Mobile: 07368 126857
The legal content provided by RSW Law Limited is for information purposes only and should not be relied on in any specific case without legal or other professional advice.
Copyright is owned by RSW Law Limited and all rights in such copyright are reserved. Material is not to be reproduced in whole or in part without prior written consent.