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Confidentiality Obligation Enforced to Protect Trade Secrets

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Jason Rix

PSL Counsel

London

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12 March 2014

In the case of Personnel Hygiene Services Ltd & ors v Rentokil Initial UK Ltd (t/a Initial Medical Services) & anr [2014] EWCA Civ 29, 29 January 2014, the Court of Appeal held that a judge had been entitled to find that a duty of confidentiality, which was expressly provided for by a previous confidentiality agreement, continued during and after a subcontract was entered into even though the subcontract did not expressly police the use of confidential information.

The judge's final injunction was upheld. This decision demonstrates that, if a party can establish that information is truly confidential, then it is likely to benefit from wide protection.

Background
In early 2007, UK Hygiene entered into negotiations with a Rentokil company (trading as Initial Medical Services, Initial) with a view to subcontracting hazardous waste bin services. In order to assess whether this relationship would work, UK Hygiene entered into a confidentiality agreement with Initial under which customers details could be exchanged. The terms of this Agreement described the purpose for which the information was being exchanged and stated that these terms should continue to apply whether or not the parties concluded a subcontracting arrangement. The parties duly entered into a subcontracting arrangement.

In 2011 Personnel Hygiene Services (PHS) bought UK Hygiene. PHS terminated the subcontracting arrangement preferring to deal directly with the ultimate customers. Initial considered that it was entitled to contact the customers to inform them of the PHS acquisition and that Initial's services were going to end. A number of Initial's sales staff embarked on a campaign of contacting UK Hygiene's customers using confidential information about those customers stored on UK Hygiene's database, and which had in part been obtained during the 2007 negotiations but also contained information about new customers. PHS sought and obtained an interim injunction and, after a speedy trial, also obtained a final limited temporal injunction restraining the use of the confidential customer information. This was an appeal against the judge's decision. The appeal did not challenge the judge's finding that the customer list and service requirements were confidential.

Did the obligation of confidentiality expire?
As a result of the manner in which Initial chose to argue its case, the court had to consider whether the obligation of confidentiality expired after the purpose of assessing the possibility of a future business relationship had been determined. Rimer LJ held that it did not. A proper reading of the term in question meant that the obligation continued (both in respect of existing and new customers). Moreover, by virtue of the dictum in Saltman v Campbell [1948] 65 RPC 203, the obligation could also be implied: "If two parties make a contract, under which one of them obtains for the purpose of the contract or in connection with it some confidential matter, even though the contract is silent on the matter of confidence the law will imply an obligation to treat that confidential matter in a confidential way, as one of the implied terms of the contract; but the obligation to respect confidence is not limited to cases where the parties are in a contractual relationship."

Was the obligation an unreasonable restraint of trade?
If the obligation of confidentiality did not expire, the next issue the Court had to consider was whether any obligation relating to existing and new customers operated as an unreasonable restraint of trade and was therefore void. Initial referred to a recent case, Caterpillar v Huesca de Crean [2012] EWCA Civ 156, wherein the Court of Appeal had held that the jurisdiction recognised in Bolkiah v KPMG [1998] UKHL 52, to grant "barring-out" relief (ie an order not to have any dealing with certain customers), did not extend to the relationship between an employer and a former employee. The court in Caterpillar held that barring-out relief could only ever be granted to an employer against a former employee (if at all) in the most exceptional circumstances. Initial was trying to use the Caterpillar case to argue that what PHS was seeking was effectively barring-out relief and should not be granted since by analogy the present circumstances were not sufficiently exceptional.

Rimer LJ held that the limitation in the Caterpillar was confined to "barring-out" which would not be implied in the absence of an express and reasonable covenant. The question of implying an obligation to maintain the confidentiality was a different one and it was proper to imply a term on the present facts. It was perfectly possible for Initial to maintain the confidentiality of the customer information whilst identifying and approaching customers using publicly available sources and it's own independent analysis of who those customers might be and what they might want. In other words the duty to maintain confidentiality did not operate as a barring-out order because Initial could still approach the customers provided it did not use the confidential information in doing so. Lewison LJ (who also gave judgment in Caterpillar) noted the essential disagreement in Caterpillar between the majority (of which he was one) and Maurice Kay LJ who was in the minority was whether based on the facts there was any real risk that the claimant's confidential information would be misused. The implication was that in the present case there was no such doubt or disagreement, ie there was a real risk that the information would be misused.

PHS was therefore entitled to its injunction.

Comment: This case, in itself, is not ground breaking but serves as a useful demonstration that where the information in question is confidential and there is a real risk of its misuse the protection available is extensive. It is also worth remembering, though it would not have worked on these facts, that practical and technical protection of confidential information is frequently as, if not more, useful that relying on strict legal rights. For example, only making available a single hard copy of the confidential information to named persons or using password and other electronic protection.
We are seeing an increasing number of disputes and queries relating to confidential information. Moreover, on 28 November 2013 the European Commission adopted a proposed Directive on the protection of trade secrets and confidential business information, aimed at providing a minimum standard of protection across the European Union.

Further information
This case summary is part of the Allen & Overy Litigation Review, a monthly update on interesting new cases and legislation in commercial dispute resolution. For more information please contact Sarah Garvey sarah.garvey@allenovery.com, or tel +44 20 3088 3710.