In an article first published by Thomson Reuters, Managing Associate, Annabel Mackay, considers the recent High Court decision in Arthur J Gallagher (UK) Ltd and Ors v Alexandre Skriptchenko and Ors where an employer obtained a mandatory injunction for deletion of confidential information.
Most financial services employers have detailed confidentiality provisions in their employment contracts which provide for the return of any confidential information retained by former employees in breach of contract.
In the light of the ease with which information can be copied, stored and uploaded to file sharing sites, in recent years these clauses have expanded to include additional provisions which require employees to confirm that they have deleted any electronic copies.
With the advent of Bring Your Own Device policies, some employers have gone even further and added provisions whereby employees agree to provide passwords and access to such devices in order for the employer to supervise deletion of any company confidential information.
However, these contractual provisions will only go so far and depend on co-operation on the part of the former employee. Annabel Mackay considers the recent case of Arthur J Gallagher (UK) Ltd and Ors v Alexandre Skriptchenko and Ors where an employer obtained a mandatory injunction for deletion of confidential information.
The claimants, various companies in the Arthur Gallagher group, had already obtained an order for delivery-up of documents which had been taken by a former employee and uploaded to their new employer's electronic platform. The defendants, Mr Skriptchenko and his new employer, Portsoken Limited, disclosed more than 4,000 documents pursuant to the delivery-up order and admitted that the documentation had been used to contact clients and to pitch for work.
The documentation produced by the defendants in compliance with the first order affected two aspects of the claimants' business; the broking of insurance to property professionals and to recruitment consultants. The claimants concluded that further steps were necessary to protect their confidential information pending a full trial.
They applied for an order for the defendants' electronic devices and databases to be searched and imaged and for any confidential information held on such devices to be destroyed.
In anticipation of the concerns that would be raised by the defendants, it was proposed that two copies of the images would be retained so that material deleted from the devices would be preserved. There was also a procedure for inspection of the images and the resolution of any disagreements as to the status of search term results.
The claimants would not see disputed items and the devices would be delivered to the defendants' IT expert rather than their own experts.
The claimants argued that their application was not controversial as "we live in an age when information is held and communicated in electronic form". They were able to point to existing authorities for imaging and inspection but there was no authority for an interim order for deletion of confidential information held on the devices.
The claimants relied on Paul Goulding QC's "Employee Competition" textbook, which referred to the fact that such interim orders were made. The defendants resisted the claimants' application because of the costs associated with appointing a forensic IT expert to carry out the imaging and apply the search terms and the disruption that this would cause to their business. The claimants' application for deletion of confidential material was also described as "invasive, unprecedented and unnecessary".
The court acknowledged that when determining any application for mandatory interim relief they needed to decide which course of action carried the least risk of injustice if it was found to be wrong at a full trial. The case law on this type of application recognised that positive steps taken at an interlocutory stage could carry a greater risk than preserving the status quo.
The court therefore needed to have a high degree of assurance that the claimants would establish their breach of confidence claim at the full hearing.
As the defendants had already admitted that they had taken and misused confidential information, the court was able to resolve the issue in the claimants' favour. The defendants' email exchanges revealed that they were using the claimants' confidential information to adjust their prices and approach clients in the knowledge that this was wrong.
A key email from Portsoken's chairman to another director stated: "I don't think that you can formally put these in any presentation as we would obviously be breaching confidentiality but would suggest that we keep in our back pocket to show on a nudge nudge, wink wink basis to interested parties."
The court explored whether a lesser option would be effective, such as the defendants searching their devices themselves, but noted that there had been a "high degree of subterfuge".
The claimants were entitled to protect their confidential information and the defendants were not entitled to retain or to use it. The court was "not satisfied that the defendants [could] be trusted to seek out and delete such material themselves were they to retain it deliberately or inadvertently".
When considering whether the "balance of convenience" favoured the grant of an interim order, the court noted the strength of the claimants' case, the fact that damages would not be an adequate remedy for the defendants' breach of contract and the claimants' ability to honour the cross-undertaking as to damages if they did not succeed at the full hearing.
In terms of practical steps, the claimants had already conceded that the devices would be delivered to the defendants' forensic IT expert who would conduct searches of the devices and provide the list to the defendants. Images of the devices would be taken and two copies retained in order to ensure that a record was kept of the devices in their original state.
Where there was a disagreement as to whether items on the list were confidential, such items would be removed from the list in the event that the expert agreed that they were out of scope of the order. If the expert disagreed, those items would be retained and dispute resolution procedures applied.
When making an application of this nature, it is important that such safeguards are put in place to address legitimate concerns on the part of defendants regarding their own confidential information and that of third parties. In Warm Zones v Thurley, another case dealing with imaging and inspection, the court noted that such concerns were entirely proper and had to be addressed. In that case, a forensic expert would be responsible for imaging the defendants' computers and the image would be passed to an independent solicitor for inspection.
Employers will therefore welcome this decision which mirrors the increasingly common requirement for any confidential information held on personal computers and other electronic devices to be deleted on termination of employment. Although the arrangement outlined in the Arthur Gallagher case was used in practice, there was no authority on this point.
The High Court's decision therefore provides reassurance that such orders will be granted in the appropriate case. This case was particularly striking for the volume of information obtained in breach of contract and the seniority of those involved in its misuse.
When making an application for such an order, employers should have regard to the tests will be applied to determine whether this course carries the least risk of injustice. They should also anticipate objections by putting forward practical safeguards to preserve the integrity of the original material and resolve any disagreements about whether it is truly confidential.