Category Archives: Confidentiality

Agreeing injunctions is for teuchters

rangersIP Draughts won’t claim this as a full blog posting. The subject – clauses in which parties agree that an injunction may be obtained for breach of a confidentiality obligation – has been discussed in detail already in an earlier blog article. That earlier article is the most popular there has been on this blog, with over 26,000 viewings.

One of IP Draughts’ hobby horses (hmm… says Mr Pettifog, with unusual restraint) is that these clauses are largely pointless in the English courts, as the judge will not be interested in being told how to apply his discretion on the granting of an injunction.

What music it was, then, to IP Draughts’ eyes, to see the following statement by Mr Justice Peter Smith in a case reported last week. The case was partly about confidentiality undertakings given by the owner of Glasgow Rangers Football Club in favour of the owner of Newcastle United Football Club. A lot of balls, then. Although the judge was not being asked to interpret the undertakings, he couldn’t resist commenting as described them, pointing out that they were unilateral and that no consideration seemed to have been given for them. This stream-of-consciousness approach seems typical of Peter Smith J. What particularly caught IP Draughts’ eye was the following observation:

  • Paragraph 2 has an express statement that the Undertakers agree “that monetary damages may not be adequate compensation…. and accordingly any member of the SD Group shall be entitled to seek equitable relief including interdict, injunction and specific performance in the event of any actual or threatened breach to the provisions of this letter.”
  • I pause to observe that that self serving clause cannot in my view be used to override the principles which the courts apply when asked to grant such relief.

It is tempting to say, I told you so. But Mr Justice Peter Smith has a long record of shooting from the hip. It would have been better if a more mainstream judge had said this. But as the bard of Dartford said, you can’t always get what you want, but you get what you need.


Filed under Confidentiality, Contract drafting

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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Filed under &Law Updates, Confidentiality

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…


Filed under Confidentiality

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.


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).


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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