Category Archives: Confidentiality

A book you can keep under your hat

Untitled-1Nestling in IP Draughts’ inbox this morning was an email from Law Society Publishing, inviting him to purchase the recently published, third edition, of a book, Drafting Confidentiality Agreements. Written by some lawyers called Anderson and Warner, apparently.

It is a small book, so it may fit under your hat, or in your loved one’s Christmas stocking.

Details here.

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Excite and offend a reasonable man’s conscience

for whom the bell tollsQuiz question: pair the following quotations with the correct source:

1. Never send to know for whom the bell tolls: it tolls for thee.

2. I would not make windows into men’s souls.

3. It would plainly excite and offend a reasonable man’s conscience.

A. Ascribed to Queen Elizabeth I in relation to religious conformity, but actually a variation of a comment in a letter written by Francis Walsingham in 1590.

B. Part of a court judgment by Mr Justice Hildyard in the English High Court in 2014, on the subject of confidentiality agreements.

C. Part of a Prose Meditation by John Donne, written in 1624.

Answer: 1C, 2A, 3B.

At least, IP Draughts assumes that Mr Justice Hildyard made up the phrase at item 3, rather than quoting from someone else. No indication of a quotation is given in the case, CF Partners (UK) Llp v Barclays Bank Plc & Anor [2014] EWHC 3049. The judgment was published on 24 September 2014.

The issue that the judge was discussing when he came up with this sonorous phrase was whether a person could be simultaneously bound by a contractual duty of confidentiality and an equitable duty of confidentiality, and whether the equitable duty might be broader than the contractual one, eg by lasting longer than the contractual one. Some of his comments on this aspect appear around paragraph 130 of the judgment, and include the following text:

 

Contractual obligations and equitable duties may co-exist: the one does not necessarily trump, exclude or extinguish the other…

However, where the parties have specified the information to be treated as confidential and/or the extent and duration of the obligations in respect of it, the court will not ordinarily superimpose additional or more extensive equitable obligations…

Nevertheless, that does not preclude wider equitable duties of confidence in circumstances that are not ordinary. For example, as it seems to me, a circumstance could arise where the obligations of the parties in respect of information with the quality of confidentiality are not clearly prescribed or governed by the contractual terms but where the use of certain information would plainly excite and offend a reasonable man’s conscience. In such circumstances, as it seems to me, an equitable duty not to use the information having that quality would be recognised, even if that went further than the definition, duration or restraint prescribed by the contract.

If you want to stop misuse of confidential information, hire this chap

If you want to stop misuse of confidential information, hire this chap

This is an interesting clarification of how contractual and equitable duties of confidence might run in parallel. Later in the judgment (eg see paragraph 1308(3)) the judge decides that certain one year and two year contractual limits on the duration of confidentiality obligations did not apply to the equitable duties. But the case should not, in IP Draughts’ view, be used as a comforting thought when one cannot persuade the other party in negotiations to agree to a suitably long period of confidentiality. Rather, this is a safety valve for extreme situations, as decided by one High Court judge. See earlier posts on this blog about the terms and term of confidentiality agreements.

The case itself is an unbelievably long saga about whether Barclays Bank misused confidential information about a proposed financial transaction, breached exclusivity obligations, jumped over Chinese walls, and generally behaved in the way described in a report by Antony Salz (a former senior partner of Freshfields) on Barclays’ business practices as “institutional cleverness, taken with …edginess and a strong desire to win …which was identified as characteristic and productive of less than ideal outcomes”. The trial lasted for 34 days and the judgment extends to 1310 numbered paragraphs plus appendices. The judge reports that Barclays’ legal costs were in the region of £10 million, and that the case was “litigation on a grand scale”.

Readers who wish to understand the confidentiality aspects of the case may wish to focus on paragraph 877 onwards.

The message that IP Draughts takes from this case is not to trust people in financial institutions where large amounts of money are at stake, no matter how many compliance policies and compliance officers the institution may have. But you knew that anyway…

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Disclosing business secrets to share purchasers

lea and perrinsSweet, sour, salty and savoury. Balancing these basic flavours can result in delicious food. A combination of the flavours can be found in natural foods such as tomatoes (well, if you add some salt, as many people do with tomatoes) and Parmesan cheese, and in manufactured products such as Lea & Perrins’ Worcester Sauce.

Balancing the flavours of a High Court judgment can produce similar effects in the mind, if not in the taste buds. The recent case of Richmond Pharmacology Limited v Chester Overseas Limited and others [2014] EWHC 2692 (Ch) illustrates the point.

The case concerned confidential information relating to the business of the claimant, a Clinical Research Organisation (CRO) that specialises in conducting Phase I clinical trials. The defendants included the Levine brothers, who were investors and who controlled a minority shareholding in the claimant company. The Levine brothers were also non-executive directors of the claimant. The first defendant, an offshore company, was that minority shareholder. The main questions before the court were:

(a) were the defendants in breach of confidentiality obligations to the claimant, when they disclosed information about the claimant to potential purchasers of their shares; and

(b) if they were in breach, did the breach cause the claimant any loss?

The background to the case can be summarised as follows:

  1. In 2002, the first defendant subscribed for a 44% shareholding in the claimant. The remaining 56% was owned by the three founders, who ran the company. The parties signed a shareholders agreement. The Levine brothers joined the Board of Directors.
  2. In 2008, the Levines fell out with the founders over a business issue, not related to the present dispute.
  3. In 2009, the Levines appointed a company, known as NWCF, to act as a broker/adviser to sell their shares.
  4. Initially, they tried to sell their shares to the founders, ie by means of a management buyout (MBO). When that proved to be unsuccessful, they asked NWCF to contact unrelated third parties who might want to purchase their shares.
  5. NWCF disclosed non-public information about the claimant (obtained from the Levines) to prospective purchasers under the terms of written confidentiality obligations.

The shareholders’ agreement included conventional confidentiality obligations on the first defendant to prohibit it from disclosing information about the claimant to others. The judge concluded that the Levine brothers owed similar obligations of confidentiality to the company.

The shareholders agreement also included conventional terms that allowed a shareholder to sell their shares to a third party, subject to certain pre-emption rights in favour of the other shareholders.

doctor

Brian Doctor QC of Fountain Court Chambers (note fountain in background)

In court, the defendants’ counsel Brian Doctor QC presented a persuasive commercial argument for why the defendants were not in breach of confidence. In order to sell one’s shares to a third party, it would be necessary to disclose information to them about the company. Therefore the confidentiality obligation should be interpreted as an obligation to disclose information only to trustworthy potential purchasers who had entered into appropriate confidentiality obligations. If there was no right to disclose this information, the right to sell the shares to third parties would be “entirely illusory”.

The judge did not accept this argument. The terms of the confidentiality obligations were clear and did not allow disclosure to a potential purchaser. He considered that any purchaser would want to hold discussions with the founders before investing, and therefore the shareholders would need to agree a sales process. If they couldn’t agree on a sales process, the deadlock provisions of the shareholders’ agreement could be invoked. Therefore it was not necessary to depart from the ordinary meaning of the words used in the confidentiality agreement, and to interpret it in the way that Mr Doctor proposed. The judge’s interpretation of the confidentiality obligations was consistent with commercial commonsense.

This sour conclusion (from the defendants’ perspective) was then balanced by the judge’s sweet view on the amount of loss that the claimant had suffered.

The judge considered that there were two ways in which loss might have been suffered:

(a) if the disclosed information cast doubt about the financial stability of the claimant, or the commitment of the founders to the business, or its ability to operate from its key hospital sites, this might have deterred potential customers from placing contracts with the claimant; and

(b) if the disclosed information concerned the claimant’s customers, pricing or terms of business, which might have been used by competitors to win business from the claimant.

The claimants did not produce convincing evidence of either of these alternatives, and therefore, in the judge’s view, the claimant had not suffered any loss. The Levines were conscious of the risk that marketing the shares might damage the claimant’s business and “took considerable care to avoid any such damage occurring”.

one poundFinally, the written judgment records the judge’s provisional view, subject to hearing submissions from counsel, that the proper order to make was to award nominal damages of £1 against the first defendant, and to dismiss the claims against the Levines.

Some salt and spice are added to the judgment by the judge’s comments on the reliability of the witnesses’ evidence (he seems to have preferred the Levines over the founders).

Comments

Several points interest IP Draughts in this judgment:

  1. The judge was not prepared to stretch the interpretation of the confidentiality obligation in the way that the defendants’ counsel proposed. Stick to the natural meaning of the words used. If it doesn’t say that you can disclose the information to prospective purchasers of your shares, you are not permitted to do this.
  2. And yet, at a commercial level, Brian Doctor QC was right: if you can’t disclose information to a prospective purchaser, how can you sell your shares? IP Draughts is not entirely convinced by the commerciality of the argument that the shareholders are supposed to agree a sales process and, if they can’t, the deadlock provisions of the shareholders’ agreement can be invoked. This seems like after-the-event rationalisation.
  3. It is sometimes tempting to treat the question of breach of contract as the primary issue, with the question of the amount of damages as something to be calculated at a later point. This judgment reminds us that the two issues run in parallel and, except for the question of legal costs (which are usually borne by the loser), neither is more important than the other.

IP Draughts has previously commented on this blog about the practice of business people when negotiating corporate transactions. Due diligence packs are typically prepared, which enable the purchaser to view and assess the company’s assets. Those assets may include contracts (eg a licence agreement or a clinical trial agreement between the target company and a hospital or CRO), and the contracts may include strict confidentiality obligations that prohibit their disclosure to third parties. There is not usually an exception for disclosure to potential purchasers of the business. In IP Draughts’ experience, parties sometimes include contracts of this kind in due diligence packs, despite the confidentiality restrictions set out in the contracts. In practical terms, this may be necessary for the corporate transaction to happen, and the disclosure may not cause the other contracting party any loss, particularly if the the selling party is careful about its process. Nevertheless, it has long seemed to IP Draughts that there is a strong element of “skating on thin ice” about such arrangements.

jourdanThe other issue that this case raises in IP Draughts’ mind is also one that he has raised before on this blog. It is the practice of the courts, when allocating cases to judges, to ask deputy judges to hear cases that involve the interpretation of contracts. The judge in this case was a practising barrister, Stephen Jourdan QC, sitting as a Deputy High Court judge. In IP Draughts’ view he did a competent job, even though IP Draughts doesn’t entirely agree with his reasoning.

Other examples in recent years that IP Draughts recalls, where a significant case on contractual interpretation was decided by a deputy judge at first instance, include the case of Rhodia vHuntsman (Julian Flaux QC, later a High Court judge; meaning of reasonable endeavours) and Oxonica v Neuftec (Peter Prescott QC; upheld on appeal; interpretation of a definition of Licensed Product in a licence agreement).

Why do the courts sometimes give important questions of contractual interpretation to deputy judges and not to proper (ie full-time) judges? Is it because:

  1. Most judges have little professional experience of drafting and negotiating commercial contracts, and therefore there is no real advantage in giving such a case to a full-time judge. This is unlikely to be an acknowledged reason (!)
  2. Such cases are not considered particularly significant by the judge in charge of the list, as they are considered to raise few questions of public importance. Contracts are mostly private matters for the parties. Therefore they can be delegated to a deputy judge. In IP Draughts’ view, the present case has some public importance in the context of parties’ obligations in mergers and acquisitions, which are a significant part of the commercial life of the country.
  3. Such cases are easy to manage and decide, and therefore suitable for deputy judges. Sometimes the deputy judge is being assessed for his or her suitability for promotion to a full-time role (as happened in the case of Julian Flaux and could well happen to Stephen Jourdan) and cases of this kind are good tests of judicial calibre.

In the interests of transparency, it would be good if a listing judge (past or present) would comment on this issue.

 

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New legal superhero (or supervillain) is born: the Motivated Intruder

The man on the Clapham omnibus should not be confused with Hector the Tax Inspector

The man on the Clapham omnibus should not be confused with Hector the Tax Inspector

English law is full of fantastical creatures.  Pride of place goes to the Reasonable Man who is, by all accounts, an ordinary and prudent person, who is bowler-hatted and most commonly found on the Clapham omnibus.

He gets everywhere (he has cousins on the Bondi tram and the Shau Kei Wan tram).  He is free from over-apprehension and from over-confidence.  He provides a neutral standard that assists the bemused lawyer to assess whether or not any particular act is negligent.

Contract lawyers know the Officious Bystander well.  He occasionally interrupts proceedings to suggest terms for inclusion in contracts which are so obvious that they can be implied and do not need to be stated.

The Man on the Bondi Tram retired in 1960.  Mr Pettifog remembers him well.

The Man on the Bondi Tram retired in 1960.

There is the Informed User who is something more than a consumer, knowing a fair bit about the existing design corpus but who is most definitely not an expert in the field.  He helps us to establish the boundaries of individual character in registered designs.  Or there is his close friend from the world of patents, the Person Skilled In The Art (aka the Nerd With No Imagination).  He is widely read in his field but has no imagination.  If he wouldn’t have thought of it, an invention satisfies the requirement of novelty necessary for the grant of a patent.

Less impressive is the Moron In A Hurry.  If two items are so different that they would not confuse even the Moron In A Hurry then there is no confusion and no passing off or trade mark infringement.

IP Draughts confesses that he had not heard of the Man on the Shau Kei Wan Tram

IP Draughts confesses that he had not heard of the Shau Kei Wan Tram

There is now another character to add to the fold: the Motivated Intruder.

The Information Commissioner’s Office highlighted his existence in November 2012, although some sightings date back to 2008.  He (or quite possibly she) has been quietly permeating the vexed topic of effective anonymisation.  This is more interesting than it sounds and currently matters a great deal to academic researchers although I predict it will soon matter just as much to insurance companies.

Old Etonian classics scholar, and Mayor of London, emonstrates the correct use of an omnibus

Old Etonian classics scholar, and Mayor of London, demonstrates the correct use of the masculine dative plural of “omnis”

Under UK law, information about a living and identifiable person can only be processed in accordance with the terms of the Data Protection Act.  To generalise, if you don’t have the individual’s consent (informed and freely given), you can’t use their data.  This is an issue for researchers keen to use the huge repository of data collected by the National Health Service (NHS).  The NHS holds a treasure trove of useful information but it was collected for clinical care purposes, not for research.  Obtaining individual consent permitting personal data to be used for research purposes just isn’t practical.  Cue much gnashing of academic teeth at the wasted opportunity.  But there is hope.  If the data is anonymous, it does not qualify as personal data and the restrictions of the Data Protection Act fall away.

Consent is not necessary in order to perform the act of anonymising personal data.  However, the question that now looms is just how anonymous information has to be to ensure that it is no longer classed as personal data.  The Data Protection Act is concerned with the likelihood of re-identification rather than with the possibility.  It boils down to needing to know whether any given method of anonymisation renders the information so secure that it is not reasonably likely that individuals, even individuals with rare medical conditions living in sparsely populated regions, will be re-identified.

20140318 Ta-DahHow can the researcher be confident that the data has been effectively anonymised and therefore is not personal data?  Enter the Motivated Intruder.

This character has no prior knowledge but wants to identify an individual from an anonymised dataset.  The Motivated Intruder is competent, has access to resources such as the internet and public documents, and, will take all reasonable steps to try to re-identify an individual from the anonymised dataset.  But the Motivated Intruder does not have specialist skills and will not break the law.  He sits somewhere between the inexpert member of the public and the skilled specialist.  If the statistical method used would defeat the Motivated Intruder then the data can be treated as anonymous and used with confidence by the researcher.

Unfortunately, the Motivated Intruder is still a youngster.  There are few examples of his work.  In some cases, it has been enough to defeat the Motivated Intruder to redact certain aspects of the dataset such as the dates and locations of medical incidents.  In others the likelihood of identification was low enough that statistical information relating to same sex adoption and (in a separate case) to school entrance exams was effectively anonymised and could be released.  In another case, the raw data from a clinical trial could not be effectively anonymised and therefore should not be released.  There are questions that remain to be answered: just how hard will the Motivated Intruder try?  What sort of information does the Motivated Intruder care most about?  How much embarrassment or anxiety can the individual who is identified be expected to tolerate?

An earlier sighting

As with the Loch Ness Monster, we need a clearer picture…

As time goes on and the Motivated Intruder is cited (sighted… geddit? Unfortunately, yes. Ed) more often so we will have a clearer picture and so researchers can proceed with greater confidence.

In fact, the Motivated Intruder has the potential to play a starring role in an information debate coming to your screens in the very near future.  The care.data project has been put on ice because of growing public concern that anonymised health data could find its way into the hands of unscrupulous insurance companies who would promptly and easily re-identify it and use it to push our premiums up.  Time to call for the Motivated Intruder to restore public confidence?  Or is it too late for that?  The Motivated Intruder focuses on the likelihood of re-identification.  Public opinion might well be focussed on the possibility of re-identification.

PS IP Draughts is curious to know if there are any other fictional legal characters, not mentioned above, in readers’ jurisdictions.  He wonders whether the woman on the Edinburgh tram could be a candidate. Please let us know via this blog’s comments.

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