
The Court of Appeal has ordered a retrial where evidence came to light that a company's director was copied into emails and potentially had sight of documents which could have flagged to him a possible misuse of third party confidential information by his company's employees.
The case raises the question on whether these actions (and any other activities which may come to light during further cross-examination) will mean the director is liable for breach of confidence, alongside his company and two employees.
The case
A claim for misuse of confidential information (amongst other grounds) was instigated by Kieran Corrigan & Co Ltd (KCC) against OneE Group Ltd (OEG), two of OEG's employees and a director of OEG.
KCC and OEG are tax planning providers. KCC developed a new tax saving product which it wanted to take to market and, in exploring this, KCC arranged a meeting with OEG to discuss the possibility of a joint venture. In the meeting with OEG, at which the two employees and the director were present, KCC provided details of its new planned tax saving product. Ultimately, no deal resulted from the meeting.
Some time later, OEG began to market a tax saving product which utilised a similar process to that shared by KCC at the meeting. At the initial liability trial, the High Court found that OEG's product was based on KCC's confidential information and not independently conceived, so OEG and the two employees were held liable for breach of confidence.
Documents and witness evidence at the initial liability trial in the High Court suggested that the director had only been involved in so far as signing off on the marketing of the product. His primary role was to assess whether a product would have commercial viability, rather than any analysis of the inner workings or mechanisms of the product – as was supported by the evidence and his testimony. Therefore, the director was deemed to have not been aware that KCC's confidential information had been used to develop OEG's product, which had been implemented by OEG's employees.
On appeal, in relation to the liability of the director, KCC argued that:
- As the director was present at the meeting and personally received KCC's confidential information, and knew that all involved had acquired the information in confidence from KCC, the director should be personally liable, "his mental state when subsequently giving the go-ahead" for marketing the product was irrelevant, and it should make no difference whether he knew or not that OEG's product was based on KCC's confidential information [1]
- The judge was wrong in the factual finding that the director neither knew, nor ought to have known, that OEG's product had been developed using KCC's confidential information
As to Ground 1, the Court of Appeal determined that both receipt and use of confidential information by the defendant (in this case, the director) is essential to be primarily liable for breach of confidence. However, provided that there is actual use (or misuse) of the confidential information by the defendant, it is not essential that they should appreciate what they are doing amounts to a legal wrong.
Despite KCC's efforts to argue that the director must have brought some technical understanding of OEG's product into his sign-off decision and this would have amounted to "use" of KCC's confidential information, the Court of Appeal disagreed. Based on the High Court's initial finding that the director did not use the confidential information given to him personally at the meeting, and he was "unwittingly signing off the use of confidential information… given to others", KCC's argument could not succeed, and the appeal under Ground 1 was dismissed.
Nevertheless, as to Ground 2 [2], new evidence had emerged during the quantum proceedings (following determination of liability) which identified that the director:
- Was copied into a series of emails in which OEG's employees discussed KCC's complaints about the use of the confidential information, and
- Signed off on marketing materials to be sent to a third party in which the more detailed workings of the product were outlined and explained.
Therefore, the Court of Appeal ordered a retrial on the director's liability to decide whether, in light of the new evidence, the director knew or ought to have known that the actions constituted to a misuse of confidential information.
What does this mean for directors?
Company directors are required under the Companies Act 2006 to promote the success of the company, to exercise independent judgement and to exercise reasonable care, skill and diligence in conducting their duties. But are they required to read every email into which they are copied, or interrogate the conduct of all employees? It would likely be a cumbersome (and frankly unsustainable) task for a director to stay fully informed of the minutiae of work undertaken by their company's employees and, no doubt, the High Court will need to factor the real world practicalities into its decision upon retrial.
The Court of Appeal decision indicates that the scope of the retrial should focus on two key matters: the director's involvement in the process of approving the marketing and implementation of OEG's product, and what the director knew, or ought to have discovered, about the use of KCC's confidential information – particularly following the complaints made by KCC's director.
It may be that, in light of the new evidence, the High Court is willing to find that the director unconsciously made use of KCC's information, even if he was not aware of doing so or, indeed, may find more conclusive proof of knowledge and use.
Although at this stage we do not have a definitive answer as to what knowledge will be deemed by being copied into an email (if any), it does seem apparent that, if an allegation of infringement or misuse becomes known to a director, they should not ignore it and should investigate the matter seriously.
Some simple tips that directors can have in mind include:
- Being aware of when your company engages with third parties under non-disclosure agreements (or know-how licences or other intellectual property licences) – your company could be receiving third party material, and its use should comply with the terms of any such agreement
- Implementing appropriate and regular staff training (at all levels) regarding the proper treatment and use of intellectual property and confidential information, particularly where it is shared by or with third parties
- Being cautious about sharing confidential information with actual or potential competitors and, in particular, clearly separating and segregating each party's confidential information to ensure your company can trace its developments and products back to independently-created materials
- Investigating any complaints or allegations regarding infringement or misuse proportionately, including speaking with relevant employees and reviewing correspondence and documents, as well as seeking legal advice as needed.
Other comments
Directors' liability and knowledge has also been a focus of the Supreme Court, in the decision of Lifestyle Equities CV & Anor v Ahmed & Anor [2024] UKSC 17. Though the full implications of that case are yet to be fully explored, it did establish that a defendant would need to understand the essential features of the commission of a tort (in that case, trade mark infringement) by the primary tortfeasor to be held liable as an accessory.
In this case, it would appear to mean that the director would have needed to know that KCC's information was confidential (which he did) and that OEG's product made use of KCC's confidential information without KCC's permission (which was not established initially on the facts). However, it seems doubtful that KCC will attempt to resurrect this issue at retrial given it relates to accessory liability, where KCC are otherwise attempting to pursue the director for personal liability for the breach.
The case also highlights the importance of, where possible, being guarded against revealing or sharing any confidential information or trade secrets. There is a thin line between balancing a need for sharing certain information (for example, when wanting to draw investment) and protecting confidential information. Where a company's value lies in intangible assets protected by confidentiality, it needs to be wary of revealing it to competitors – accidentally or in a fashion that could be exploited without proper consideration of the sharing party.
In this case, KCC did the right thing by having a non-disclosure agreement in place and pursuing misuse of that confidential information.
If you have concerns on how to approach such scenarios, our team would be happy to provide further guidance and strategies.
[1] KCC originally included another ground of appeal, but it became unsustainable following the Supreme Court's decision in Lifestyle Equities CV & Anor v Ahmed & Anor [2024] UKSC 17, so was not pursued by KCC. See further under Other comments.
[2] Referenced in the judgment as Ground 3.
This article is for general information only and reflects the position at the date of publication. It does not constitute legal advice.