A recent Court of Appeal decision illustrates the court’s approach to the protection of confidential information, emphasising that the question of a party’s entitlement to use material obtained in breach of confidence must be determined before that party can rely on the material in support of separate claims, not at the same time or afterwards: DSM SFG Group Holdings Ltd v Kelly [2019] EWCA Civ 2256.

The court overturned a High Court decision which would have released the defendant from undertakings not to use covertly recorded material except for the purpose of defending the breach of confidence claim against him, in return for less stringent undertakings permitting the use of the material in order to bring claims against the claimants and third parties. In the Court of Appeal’s view, allowing the use of the material in this way, before the defendant’s right to do so was established, would be inequitable and had the potential for injustice.

The decision will be welcome to parties seeking to prevent unauthorised use of their confidential material. It suggests that, pending determination of whether an injunction should be granted, the defendant will not be permitted to use the material except in order to defend the proceedings.

Hussein Mithani, an associate in our disputes team, considers the decision further below.

Background

Mr Kelly, the defendant, sold his interest in various businesses to the claimants for approximately £23 million. However, he became concerned that there was something wrong with the sale and planted recording devices in the claimants’ in-house solicitor’s office. He managed to record 40 hours of confidential conversations, many of which were privileged.

The claimants subsequently discovered the recording devices, sought injunctive relief, and brought a claim for harassment and breach of confidence. Mr Kelly gave undertakings in February 2019 in relation to these recordings, including that: (i) he would not make any use of the recordings (except for the purpose of defending the present claim) until trial; and (ii) he would retain solicitors and counsel to defend the claim who were not instructed by him on any other matter which concerned the claimants.

In May 2019 Mr Kelly applied to be released from the undertakings, in return for new undertakings which would also allow him to use the information in the recordings to support broader claims in relation to the sale of the business in 2017.

Shortly after this application was made, the parties agreed that independent counsel would be appointed to review the recordings in which the claimants asserted privilege, and any non-privileged material would be disclosed into a confidentiality ring. This review was conducted and the privileged material identified.

The High Court allowed Mr Kelly’s application and made an order allowing him to give revised undertakings, which meant he could make use of the recordings for the purpose of bringing any counterclaim or any related action, and could also instruct solicitors and counsel of his choosing (though they would be subject to the terms of the confidentiality ring).

In the judge’s view, if the undertakings were not modified then Mr Kelly would be unjustly hampered in properly mounting his defence and considering the claim fully, including the extent to which it gave rise to counterclaims or cross-claims or related third party claims. The judge considered that the review by independent counsel resulting in identification of the privileged material in the recordings was a material change of circumstances and a factor that supported modifying the undertakings. The judge was satisfied that the court could effectively manage the trial in a way that was fair to both parties, including providing appropriate relief to the claimants if it found in the claimants’ favour on the breach of confidence claim.

The claimants appealed.

Decision

The Court of Appeal allowed the appeal and ordered that Mr Kelly’s original undertakings should be restored. Simon LJ delivered the leading judgment, with Davis LJ delivering a short concurring judgment.

Simon LJ noted that the principles to be applied regarding the protection of confidential information are well established, and can be summarised by reference to Lord Ashburton v Pape [1913] 2 Ch 469:

The principle upon which the Court of Chancery has acted for many years has been to restrain the publication of confidential information improperly or surreptitiously obtained or of information imparted in confidence which ought not to be divulged. Injunctions have been granted to give effectual relief…. The fact, however, that a document… is admissible in evidence [in other proceedings] is no answer to the demand of the lawful owner for the delivery up of the document…

The starting point was therefore that Mr Kelly should not have been allowed to use the contents of the recordings. Although he had raised in argument possible legitimate uses of the material, the court had not yet made a decision regarding his entitlement to use the recordings, other than by way of defence to the claim (which it had been common ground from the outset was permitted).

Simon LJ referred to the New South Wales Supreme Court case of British American Tobacco Australia Ltd v Peter Gordon [2007] NSWSC 230, which the High Court judge had declined to follow as it was not binding on him and, he said, the factual matrix was quite different from the present case. Simon LJ agreed that the circumstances were different, but said that the Australian judgment had set out a clear and principled approach: the issue of the confidentiality of documents should be resolved before their contents are relied upon, not at the same time or afterwards. The effect of the judge’s order was the reverse: it meant Mr Kelly could deploy the confidential information to advance separate claims before he had established the right to do so.

In the Court of Appeal’s judgment, this was not permissible; it would be inequitable and had the potential for injustice.

Although it was not necessary to consider the question in light of the court’s conclusion outlined above, Simon LJ noted that the court has an inherent jurisdiction to release a party from an undertaking that has been given. However, the discretion should only be exercised where circumstances have arisen which were not circumstances intended to be covered by the undertaking or which ought to have been foreseen at the time. Here, the review from independent counsel was expected, and so there was no justification for modifying the undertaking.

Finally, the Court of Appeal disagreed with the High Court’s view that the claimants’ position could be protected through effective case management at trial. Davis LJ noted that allowing modification of the undertakings would potentially have greatly added to the complexity of the trial.