Hampson: Heavy investment in fraud offering
A Liverpool law firm has failed in a claim that two former directors used confidential information in an effort to set up a new practice in unlawful competition with it.
The High Court also discharged interim injunctions granted to CEL Solicitors against former finance director Tom Blanchfield and solicitor Mark Montaldo, ex-head of litigation.
CEL is a large consumer claims firm owned by Jessica Hampson. Her husband and co-director, Paul Hampson, previously ran now-defunct personal injury giant Hampson Hughes (later known as HH Law).
Both defendants resigned in January 2023 with a view to setting up a firm called MTCC, which did not actually happen. CEL sued essentially over their alleged misuse of confidential information.
The case focused on CEL’s fraud practice, particularly targeted at victims of online fraud, which it said it had spent more than £3m to develop and that it was the market leader – a claim His Honour Judge Bever did not accept.
Sitting as a High Court judge in Manchester, he did not find that CEL’s fraud offering – nor the way it was marketed online – to be unique.
He ruled that it was in fact “straightforward and technically uncomplicated, that it did not require specialist legal expertise and that it did not require anything more than a basic understanding of the legal principles and procedural steps involved”.
HHJ Bever added: “In the circumstances, I do not find that there was anything unique or indeed truly confidential about CEL’s offering which would justify contractual protection.”
Though he had “no reason to doubt that CEL has a marked presence in the market”, the fraud market was “potentially vast”, participation in it “does not require any specialist knowledge”, there were other firms active and it was accessible to new entrants.
He added: “It is not a secret market – CEL has spent £2m advertising its services.”
Mr Blanchfield in particular took “a number of preliminary steps” to set up MTCC whilst working for CEL, such as instructing a web designer, registering a domain name, approaching professional indemnity insurance brokers and creating business plans.
Though MTCC was incorporated in August 2022, it was only at the turn of the year, when the Solicitors Regulation Authority indicated that the application for a new firm would be approved, that the pair decided definitively to go ahead with it.
“The defendants were in no sense ready to trade,” HHJ Bever said. “They had no clients, no staff, and no premises. They were not advertising for new work. They had not traded. They clearly intended to work their notice periods, in the event that they went ahead with their new business venture.”
The majority of the actions taken “do not cross the line and constitute a breach of their fiduciary/statutory duties”.
They were in contact with Deminor, a funder that had lost out to Augusta to provide CEL with £40m of funding, and it was willing to provide £1m to back the new firm.
The judge held – in a “rather more finely balanced” decision – there was not a “real possibility of conflict” arising from this and “would not have affected their ability to serve CEL faithfully and honestly and to the best of their abilities”.
The judge went on to find that the restrictive covenants in the pair’s contracts either did not apply – they did not try to solicit CEL’s clients or staff, for example – or were too widely drawn to protect CEL’s legitimate business interests, such as in relation to using confidential information.
The definition of this went “well beyond trade secrets and information of equivalent confidentiality” – and the information the defendants had did not amount to this anyway.
As a result, Mr Blanchfield and Mr Montaldo were not in breach of statutory duty or contract, and were not guilty of an unlawful means conspiracy, and there was no basis for injunctive relief.
The judge noted that the pair as well as members of the fraud team had to sign non-disclosure agreements (NDAs).
“I find that, on the balance of probabilities, the purpose of arranging for members of staff to sign NDAs was to discourage them from competing with CEL, rather than to safeguard information or processes which were truly sensitive or confidential.
“In this respect, I bear in mind the inequality of bargaining power and financial resources between the signatories of the NDAs and CEL.
“It can reasonably be supposed that the defendants were amongst the better placed signatories to defend a claim such as this. More junior staff would presumably not be in a position to do so.”
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