A few things you may not have known about the law relating to confidential information

April 2015

Rating system:

Reading time (1-10 minutes): 4

Sophistication level (1 (idiot) – 10 (expert)): 7

Entertainment value (1 (turgid) – 10 (side-splitting)): 4

Background:

People often ask me to put together confidentiality agreements/non-disclosure agreements (NDAs) for them. I wrote rather a good Ten Top FAQs about confidentiality some time ago. A recent case is a good example of how the courts can apply the law. Would you have guessed the decision?

Case:

CF Partners (UK) LLP (CFP) was thinking about buying another company (target company, T). CFP went to Barclays looking for a loan and advice. Through an intermediary, CFP provided Barclays with confidential information which showed the potential value of T and the potential opportunities to exploit this. Barclays as part of its standard practice entered into an NDA with the intermediary (NB: not with CFP itself). At the end of the day, CFP didn’t buy T. But later, Barclays did, and later again Barclays sold T for a large profit. CFP sued Barclays for breach of confidentiality.

So: Barclays hadn’t signed an NDA with CFP. CFP had decided not to buy T. CFP therefore hadn’t lost anything as a result of Barclays later buying and selling T. Would the court rule that Barclays:

1/ owed any confidentiality obligations to CFP?

2/ had breached them, and

3/ had to pay damages even though CFP hadn’t suffered a loss?

Decision:

The court ruled as follows:

1/ Yes. It didn’t matter that there wasn’t an NDA between Barclays and CFP. You don’t need an NDA in order for someone to owe another a confidentiality obligation.  The law automatically imposes a duty of confidence whenever someone receives information which he knows or ought to know is fairly and reasonably to be regarded as confidential. It’s the law of equity rather than the law of contract.

2/ Yes. It didn’t matter that CFP itself had no further use for the information. The important thing was that Barclays had used the information.

3/ Yes. It didn’t matter that CFP hadn’t suffered a loss. The court used the ‘Wrotham Park’ approach of calculating damages by deciding what hypothetical price Barclays might have reasonably paid for using the confidential information. The court has to work out this figure based on the facts at the time, ie just before the breach of the confidentiality obligation, rather than applying hindsight (eg based on the profit Barclays eventually made when it sold T). A pretty hard calculation, as you might imagine.  But the court has quite a lot of flexibility as to how it applies the various factors it can take into account. The court decided on a figure of 10m Euros. I doubt very much it would have awarded 10m Euros if Barclays had ended up selling T at a loss.

Observation:

This wasn’t the kind of case where the discloser was in the business of exploiting the kind of information it disclosed, so in calculating the amount of damages Barclays had to pay the court couldn’t just look at what profit Barclays made (and which CFP could have made) as a result of taking this information ‘away’ from CFP; or at what licence fee or notional licence fee Barclays might have fairly paid CFP for the use of its confidential information. In these kinds of cases the court’s calculations can get very detailed and complicated. A recent case (Vestergaard Frandsen A/S v Bestnet Europe Ltd and others [2014] EWHC) involving different types of mosquito nets is a good example, being particularly complicated as it involved the infringer selling products which were made only indirectly from formulae/processes which involved the misuse of confidential information. But it’s far too detailed for me to describe in a short article!

Advice:

· If you are thinking of giving someone information which you think is confidential, tell them in writing that it’s confidential before you send it. It can be useful evidence. You don’t need to have an NDA drawn up and signed, although it does no harm and can be useful, for example in clearly setting out what you are allowing the recipient to do with the information.

· Likewise if you are receiving information you need to think about whether it is confidential, and if it is you should be careful not to disclose it to anyone else or to use it for your own purposes. Even if the giver of the information no longer needs it. If in doubt, ask permission.

Case: CF Partners (UK) LLP v Barclays Bank PLC [2014] EWHC