The High Court has upheld a breach of confidence claim against a consultant who acted for one company and then passed on information to a rival company set up by the first company's ex-employees.
To be protected as confidential, information must be confidential in nature (i.e. not public), disclosed in circumstances imparting a duty of confidence and there must ultimately be a breach of confidence that causes detriment to the disclosing party. Usually there is an implied duty of confidence on an employee in relation to his/her employer's confidential information and trade secrets but this decision illustrates that consultants and other advisers in situations analogous to employment can similarly be caught.
This case involved two rival manufacturers of mosquito nets. The first company V had developed a polyester mosquito net with an insecticide impregnated into it (Permanet). A rival company, B, developed another insecticidal net under the name Net Protect.
A consultant Dr S had originally been engaged by V to develop net products; in this case there was no written consultancy agreement, which would usually expressly govern issues such as use of confidential material. V alleged that Net Protect had been developed using confidential information relating to the development of Permanet. Information about V's net products had been contained in a database, which recorded development work including formulation data and test results.
After resigning from his role with V, Dr S then worked with two ex-employees of V (now employed at B) to develop Net Protect.
V commenced proceedings in the UK for breach of confidence against B. Dr S was initially a defendant but was removed from proceedings due to some issues over duplicate proceedings in other jurisdictions.
The High Court concluded that on the evidence it was a term of Dr S' oral contract with V that he would keep information arising out of his development work for them confidential and that any rights to products developed during the course of his work for V would belong to it as his paymaster. Other factors that were relevant were:
1. Dr S being paid an early rate on all his expenses to act as consultant;
2. The fact that Dr S was subject to direction through V's director and product development committee (giving him status equivalent to a senior employee);
3. Although Dr S was nominally providing the development work, much of it was done by V's own employees or by other contractors;
4. Most of the information recorded in V's database was paid for by V or results generated by tests paid for them. The compilation of the database itself was also paid for by V; and
5. V needed to be in a position to exploit the information without restriction and to enforce rights against others including Dr S.