Need For Reasonable Enquiries Upon Receipt Of Potentially Confidential Information

• Published date: 26 April 2021
• Subject Matter: Litigation, Mediation & Arbitration, Trials & Appeals & Compensation
• Law Firm: Reynolds Porter Chamberlain
• Author: Ms Carolin Mester and Chris Ross

The Court of Appeal recently held that a recipient of information will be bound by a duty of confidentiality if it was reasonable for them to have made enquiries as to the confidential nature of the information and they failed to do so (Travel Counsellors Ltd v Trailfinders Ltd [2021] EWCA Civ 38).

Background

Travel Counsellors Limited (TCL) appealed against a High Court decision that found it had acted in breach of its equitable obligation of confidence by obtaining and misusing a rival company's client information.

In 2016, a group of sales consultants left Trailfinders to join a competitor, TCL, which operates as a franchise. Trailfinders claimed that some of its former employees had taken clients' names and contact details from its computer system and disclosed them to TCL, in breach of implied terms in their contracts of employment and in breach of equitable obligations of confidence owed to Trailfinders. Trailfinders also argued that TCL acted in breach of an equitable obligation of confidence by adding that client information to its own computer system for use by Trailfinders' former employees in their new roles at TCL.

High Court decision

The High Court held that the individual defendants in the case (who were Trailfinders' former employees), had acted in breach of their contracts of employment with Trailfinders and that the individual defendants and TCL had each acted in breach of an equitable obligation of confidence.

TCL had encouraged new franchisees to bring their existing customer contact list with them and did not warn them about any risk of breach of confidence in doing so. TCL had added client information brought by Trailfinders' former employees to its own computer system. The judge held that at least part of that information was likely to have been copied from Trailfinders' customer database and that TCL knew or ought to have known that Trailfinders would have regarded the information as confidential. TCL had used client contact information that a reasonable person in a position of seniority at TCL would have been aware was likely to have been copied from Trailfinders' customer database and would reasonably have been regarded by Trailfinders as confidential.

Court of Appeal judgment

TCL appealed to the Court of Appeal. TCL's most significant ground of appeal was that the High Court judge applied the wrong legal test in holding that TCL owed an equitable obligation of confidence to Trailfinders in respect of the confidential information...