The recent Court of Appeal decision in Travel Counsellors Ltd v Trailfinders Ltd [2021] EWCA Civ 38 has confirmed that equitable duties of confidentiality will protect a competitor’s confidential information from being misused by a business which has received the confidential information via a third party (in this case potential new employees).

The decision is of interest because prior to its consideration by the Court, there had been very little authority on whether the competitor was owed a duty of confidentiality by the business or whether that duty resided only in those who had taken the confidential information or trade secret and given it to the business. The judgment is a warning that businesses should think twice before using a competitor’s information disclosed to them.

Background

Trailfinders (the Claimant), a travel agency, brought an action against rival company, Travel Counsellors. The Claimant alleged that Travel Counsellors had used confidential information supplied to it by ex-employees of the Claimant and therefore this use breached the equitable duty of confidentiality owed to the Claimant.

The High Court decision

The High Court confirmed that the equitable duty of confidence exists in this situation. It will protect information from unauthorised disclosure when either the recipient of the information is told by the discloser that the information is confidential, or the recipient ought to have reasonably understood from the circumstances in which it received the information that it is confidential.

The High Court found Travel Counsellors had breached the equitable obligation of confidence it owed to the Claimant. The High Court noted that, when looking at the types of information supplied to Travel Counsellors, Travel Counsellors would have maintained that its own equivalent information was confidential. Therefore, Travel Counsellors would, or at least should have known, that the information given to it by the ex-employees of the Claimant was confidential to the Claimant and would reasonably have thought it was confidential.

Court of Appeal judgment

Travel Counsellors appealed to the Court of Appeal.

In its decision, the Court of Appeal clarified certain fundamental principles relating to the equitable obligations of confidentiality in this particular situation, namely that:

  1. The recipient of confidential information must either have been told that the information was confidential or should have known it was confidential. Whether or not the recipient should have known it was confidential, is determined by a “reasonable person in the recipient’s position”.
  2. If on the facts, a reasonable person was to make enquiries as to whether the information was confidential, but the recipient of the information does not, then there will be an equitable duty of confidentiality.

The Court concluded that it is not essential that the defendant knew the information was confidential or intentionally turned a blind eye to whether the information was confidential, as the lack of any reasonable enquiries may be sufficient to breach the equitable duty of confidence.

As a result the Court of Appeal dismissed the appeal and held that Travel Counsellors must have appreciated that the information given to it was likely to be confidential or should have made enquiries to find out if the information was indeed confidential.

Interestingly, the Judge in the High Court proceedings considered the applicability of the Trade Secrets Directive (Directive 2016/943) and noted that the case fell squarely within the definition of Article (4) of the Directive, i.e. the use or disclosure of a trade secret shall be considered unlawful when the recipient knew or ought to have known in the circumstances that the trade secret had been obtained unlawfully or, in breach of any contractual duty or, any other duty to limit the use of the trade secret. However, the Court of Appeal did not examine the applicability of the Directive any further in this case as the events happened before the Directive was implemented.

What is the impact of this case?

This case is a clear warning to businesses who receive information which relates to a competitor’s that on receipt of the information, the business should take a step back and consider the status of the information. In any event, the, business should:

  1. Discourage employees from using information where that information has been taken from a competitor’s business without that business’s consent; and
  2. If any information is disclosed to the business, it is incumbent on the business to make reasonable enquires as to whether any of the information is confidential and if it is, not to use it.