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Home | Court confirms consultant's breach of confidence

Court confirms consultant's breach of confidence

13 August 2009

The Chancery Division of the High Court has ruled in favour of the Vestergaard Group of Companies after defendants - including two ex-employees and a consultant - went to work for a competing company to develop rival products.

Facts

Claimant Vestergaard makes and sells insecticidal mosquito nets. Defendants Bestnet Europe Limited and others set up in competition with the claimant to develop a similar product.

Vestergaard claimed that in developing the competing product the defendants’ misused information on a confidential database, and which contained technical trade secrets.

The court ruled that the consultant was in breach of his duty of confidence to Vestergaard, and the judge confirmed that even if there was no express term in his contract with Vestergaard, it was an implied term of the contract that he would keep information – in particular that on the database – confidential.

Reasons behind the ruling were:

• The consultant was hired to develop new products for Vestergaard and paid an hourly rate and all expenses.
• Whilst he may have been given considerable freedom by Vestergaard, he was subject to Vestergaard’s direction through the product development committee and director of development. The judge held that the consultant’s status was akin to that of a senior employee, even though he was not employed by Vestergaard and did not work full-time.
• Although the consultant carried out some development work himself, much was done by Vestergaard employees or other personnel.
• Vestergaard paid for the raw materials used in the development work.
• Most of the information recorded in the database was advice paid for by Vestergaard or results-generated tests paid for by Vestergaard.
• Vestergaard paid for the compilation of the database itself.
• It cannot have been intended that the consultant would be able to exploit the information contained in the database or indeed any other information created as a result of his working with Vestergaard for his own benefit either during or after the termination of his relationship with Vestergaard. Nor can it have been intended that the consultant would licence third parties to do so.
• The judge confirmed that this is not a situation in which an exclusive licence would suffice.  Vestergaard needed to be able to both exploit the information without restriction and be able to enforce its rights against others. 

The judge concluded that even if there had been no contract between the consultant and Vestergaard, the consultant would remain subject to an equitable obligation to keep the information confidential to Vestergaard. 

Interestingly, the judge considered the consultant’s position was analogous to that of an employee, and that the obligation of confidentiality continued even after the consultant’s relationship with Vestergaard had ended. 

Accordingly, the Court of Appeal’s guidance as set out in Faccenda Chicken Limited v Fowler was applicable. The consultant would be entitled to use for his own benefit and indeed that of third parties, information which formed part of his general skill, knowledge and experience including the general skill, knowledge and experience he gained during the course of his work for Vestergaard after the termination of his relationship. However, he was not entitled to use any of Vestergaard’s trade secrets. 

After confirming that the defendants were liable for misuse of confidential information, the judge decided that injunctive relief was appropriate. Vestergaard had established misuse of its trade secrets and confidential information, and there was a clear risk that further use or disclosure of the information would occur if an injunction was not granted. 

What it means

The ruling is important news for employers seeking to restrain ex-employees or consultants from using their confidential information and trade secrets.

The judgment effectively allows employers to prevent ex-employees and consultants from using their confidential information even if there was no contract between the parties or indeed any express confidentiality provisions. In certain circumstances, the ruling allows employers (in certain circumstances) to treat the consultant’s duty of confidentiality as being analogous to that of an employee. 

What should you do?

• It is still important to ensure your contracts deal with confidentiality obligations.
• You should ensure you have in place appropriate policies and procedures for the creation, development and protection of confidential information generally, and with regard to your employees and consultants.

© Shoosmiths. This page is for general information: it is not legal advice. Please read our full terms and conditions for details of the disclaimers and exclusions which apply.

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Anastasia Fowle

Partner
T: 03700 86 8314
I: +44 (0)1908 48 8314
E: anastasia.fowle@shoosmiths.co.uk