Summary

The Supreme Court recently held, in the long-running case of Vestergaard Frandsen A/S v Bestnet Europe Limited, that there can be no liability for misuse of confidential information unless that information has been acquired together with reasonable knowledge of its confidentiality.

The Supreme Court also provided useful guidance on the limits of invoking liability on the grounds of common design and on the extent to which terms of confidentiality will be implied into a contract. The case emphasised the need to balance confidentiality with the right of individuals to compete with their former employers.

The facts

The claimant, Vestergaard Frandsen A/S (Vestergaard), develops, manufactures and markets mosquito nets which are specially formulated with insecticide. Two of the defendants (Mrs Sig and Mr Larsen) were ex-employees of Vestergaard and were contractually obliged to maintain the confidentiality of Vestergaard’s trade secrets. A biologist, Dr Skovmand, though not a party to these proceedings, had worked for Vestergaard on the development of the mosquito nets, and had access to information regarding their make-up.

In 2004 Mrs Sig and Mr Larsen left their posts at Vestergaard, and, setting up a new company and employing the services of Dr Skovmand, went into direct competition with their old employer. The defendants’ mosquito nets went on sale in 2006; Vestergaard issued proceedings for breach of confidence in early 2007.

History of the dispute

In the High Court, Arnold J found that Dr Skovmand’s conduct constituted breach of confidence and that Mrs Sig was also jointly liable for Dr Skovmand’s acts because (a) her contract of employment would be subject to an implied term preventing her from misusing the confidential information after termination of her employment and (b) that a person can be liable for breach of confidence even if they are not conscious of the fact that what they are doing amounts to misuse of confidential information (following Seager v Copydex Ltd).

In the Court of Appeal, Jacob LJ found that because Mrs Sig had herself neither acquired nor used the confidential information, and was not aware that Dr Skovmand had done so, she could not be liable for breach of confidence. In addition, Jacob LJ contested Arnold J’s conclusion that Mrs Sig could be subject to an implied term imposing strict liability, as there was “no business reason to imply a term of that harsh extent”. Vestergaard appealed Jacob LJ’s findings to the Supreme Court.

The decision

The Supreme Court dismissed Vestergaard’s appeal and held that Mrs Sig’s conduct could not amount to a breach of confidence in relation to the confidential information. The court agreed with Jacob LJ in considering the imposition of a “penal” implied term into Mrs Sig’s contract of employment “unnecessary to give the… contract commercial effect”. Referring to the case of Coco v A N Clark, the Supreme Court then observed that breach of confidence “is based ultimately on conscience” and that in order for her conscience to have been affected, Mrs Sig “must have agreed, or must know, that the information is confidential”. This was not, on the facts, found to be the case: Mrs Sig was “honestly unaware” of Dr Skovmand’s misuse of Vestergaard’s trade secrets, and had not therefore any “blind-eye knowledge” of the misuse.

Comment

The decision is uncontroversial, though the Supreme Court did not say that, in every case, the fact that information was acquired without knowledge that it was confidential will be sufficient to escape liability. In this instance the court considered Mrs Sig’s testimony to be an honest account of her state of mind. The court’s concluding remarks – regarding the need to strike an acceptable balance between the protection of confidential information and people’s freedom to compete with their ex-employers – show a willingness to ensure that entrepreneurial activity is promoted, particularly given current economic conditions.