Confidential Information - The Appeal in Travel Counsellors Ltd v Trailfinders Ltd

Royal Courts of Justice

Jane Lambert

Court of Appeal (Lord Justice Lewison, Lady Justice Asplin and Lord Justice Arnold) Travel Counsellors Ltd v Trailfinders Ltd [2021] EWCA Civ 38 (19 Jan 2021)

This was an appeal by Travel Counsellors Ltd ("TCL") against the judgment of His Honour Judge Hacon in Trailfinders Ltd v Travel Counsellors Ltd and others [2020] EWHC 591 (IPEC) (12 March 2020) that Andrew La Gette and David Bishop, the second and fifth defendants had both acted in breach of their contracts of employment and in breach of equitable obligations of confidence to Trailfinders Ltd and that TCL had acted in breach of an equitable obligation of confidence.  I discussed the case in Trade Secrets - Trailfinders Ltd v Travel Counsellors Ltd. and Others on 20 March 2021.

It is not clear from the transcripts of either the appeal or the trial whether it was the trial judge or a Lord Justice who gave the company permission to appeal.  It is also worth noting that neither Mr La Gette nor Mr Bishop took any part in the appeal.  The appeal came on before Lord Justice Lewison, Lady Justice Asplin and Lord Justice Arnold on 13 Jan 2021.  In Travel Counsellors Ltd v Trailfinders Ltd [2021] EWCA Civ 38, which was handed down on 19 Jan 2021, the Court of Appeal dismissed the company's appeal.

Lord Justice Arnold, who delivered the main judgment with which the Lord Justice Lewison and Lady Justice Asplin agreed. summarized the trial judge's main findings and conclusions between paras [7] and [11] of the transcript.  As I discussed Judge Hacon's judgment in some detail in my case note it is unnecessary to do so again.   TCL appealed on the following grounds which Lord Justice Arnold summarized at para [12] of his judgment:

"i) Ground 1 is that the judge applied the wrong legal test in holding that TCL owed an obligation of confidence to Trailfinders in respect of confidential information received by TCL from Mr La Gette and Mr Bishop.
ii) Ground 2 is that the judge's approach to the question of what TCL ought to have understood about the information provided to it by Mr La Gette and Mr Bishop was wrong and inconsistent with his own conclusions on other issues.
iii) Ground 3 is that the judge erred in holding TCL liable for breach of confidence despite making no findings that TCL had misused any confidential information."

The learned Lord Justice said at [13]:

"It should be noted before proceeding further that there is no challenge to the judge's conclusion that some of the information disclosed by Mr La Gette and Mr Bishop to TCL was information confidential to Trailfinders. Nor is any issue raised concerning the distinction between confidential information which forms part of an ex-employee's own skill, experience and knowledge and confidential information which amounts to a trade secret of the former employer."

Addressing the first ground, Lord Justice Arnold said at para [14]:

"In order for an equitable obligation of confidence to arise, confidential information must have been communicated in circumstances importing such an obligation."

It was common ground that the appropriate test was the one that the learned Lord Justice had formulated at para [223] of Primary Group (UK) Ltd and others v The Royal Bank of Scotland Plc and another [2014] 2 All ER (Comm) 1121, [2014] EWHC 1082 (Ch), [2014] RPC 26 which was subsequently approved by the Court of Appeal in Matalia v Warwickshire County Council  [2017] EWCA Civ 991, [2017] ELR 428, [2017] ECC 25:

"It follows from the statements of principle I have quoted above that an equitable obligation of confidence will arise not only where confidential information is disclosed in breach of an obligation of confidence (which may itself be contractual or equitable) and the recipient knows, or has notice, that that is the case, but also where confidential information is acquired or received without having been disclosed in breach of confidence and the acquirer or recipient knows, or has notice, that the information is confidential. Either way, whether a person has notice is to be objectively assessed by reference to a reasonable person standing in the position of the recipient."

Lord Justice Arnold noted that Judge Hacon had applied that test.  TCL's criticism was that the judge had not correctly applied that test to the facts.

In order to consider that submission in context, Lord Justice Arnold considered some of the facts that Judge Hacon had considered to be relevant to TCL's state of mind at the relevant time.  These included a brochure that TCL distributed to potential recruits that contained the following:

"If you're coming from a travel background already, feel free to bring your old customer contact list along with you. We'll add them to your Contact Centre ready for your first day – a great start to a rewarding career running your own travel business." 

TCL was aware that Mr La Gette was uneasy from the following phone call to one of TCL's employees:

"I mean, I've been, I'm a good, decent person, I promise you, but I've been taking what I need to take at the moment. I've got my, I'm only interested in my clients, I'm not tapping up other people but I've got my details and I've been keeping email trails clear and stuff cos I'm aware they may be looking. It's all so exciting. It's like being a spy.
I feel dreadful, you know, I do not like it. And I'm not, I'm not going to, people get to know me over time and I'm not saying, you know, I'm perfect this, perfect that but I just, it does feel a bit, you do feel a bit sort of, you question yourself I think. Am I being a bit underhand here, but at the end of the day I'm only taking contacts."

Mr La Gette subsequently sent TCL a list of over 200 contacts to TCL which the trial judge considered to be too numerous to have been memorized. 

It was at this point that TCL alleged that Judge Hacon had erred.  It submitted that an equitable obligation of confidence would only arise if the recipient of information knew or had notice that the information was confidential, and whether the recipient had notice was to be objectively assessed by reference to a reasonable person standing in the position of the recipient. It was not enough, he submitted, that a reasonable person would make enquiries as to whether the information received by him, or some of it, was confidential.

Lord Justice Arnold rejected that submission. He said at [28]:

"Accordingly, in my judgment, if the circumstances are such as to bring it to the notice of a reasonable person in the position of the recipient that the information, or some of it, may be confidential to another, then the reasonable person's response may be to make enquiries. Whether the reasonable person would make enquiries, and if so what enquiries, is inevitably context- and fact-dependent. If the reasonable person would make enquiries, but the recipient abstains from doing so, then an obligation of confidentiality will arise."

In that regard, TCL had submitted that nothing less than blind-eye knowledge that the information was confidential would suffice.  The learned Lord Justice disagreed: 

"Blind-eye knowledge is to be equated with actual knowledge, and is subjective. Whether a person has notice is an objective question to be assessed by reference to the standards of the reasonable person."

His lordship then considered each of the criticisms of Judge Hacon's judgment.   

The first was "that it was not sufficient that a reasonable person in the position of TCL would have been aware that "at least part of" the information received from Mr La Gette and Mr Bishop was (likely to be) confidential".  Lord Justice Arnold did not accept that on the ground that there was no reason why an obligation of confidence should only arise where the recipient was on notice that all the information received was likely to be confidential.

The second criticism was that it was not sufficient that a reasonable person in the position of TCL would have been aware that (some of) the information received from Mr La Gette and Mr Bishop was "likely" to be confidential. The learned Lord Justice rejected that contention too at [31]:

"If aware that some of the information was likely to be confidential, a reasonable person in TCL's position would make enquiries. TCL did not do so. If it had done so, and Mr La Gette and Mr Bishop had told TCL the truth about the sources of the information, TCL would have discovered that some of the information disclosed to it by Mr La Gette and Mr Bishop came from Trailfinders' client database and hence was confidential to Trailfinders."

TCL's third criticism was that the judge's finding in the first sentence of [131] did not amount to a finding that a reasonable person in TCL's position would have been aware that the information was confidential to Trailfinders. That submission was based on selective quotation. In fact, the judge had said later in the same paragraph that:

"[s]uch persons knew or ought to have known that Trailfinders would regard the information as confidential".

Moreover, he went on in [132] to hold that "TCL ought to have known that they were in receipt of information which Trailfinders reasonably regarded as confidential".

The fourth criticism was that Judge Hacon's finding at para [131] of his judgment 

"In my view a reasonable person in the position of Mr Byrne or other people of sufficient significance in TCL's operations would have been aware that at least part of the contact information brought to TCL by Mr La Gette and Mr Bishop was likely to have been copied from Trailfinders' customer data"

was unsupported by the finding that there was too much information for it to have been carried by Mr La Gette and Mr Bishop to have carried it away in their heads.  Lord Justice Arnold disposed of this argument on several grounds:

"First, it is an attack on the judge's finding of fact, which TCL does not have permission to appeal, rather than on the legal test applied by him. Secondly, I do not think it is a fair reading of the judgment to conclude that the finding in the first sentence was solely based on the second sentence. On the contrary, I consider that it was also based on the other findings made by the judge which I have set out in paragraphs 16-21 above. Thirdly, I agree with the judge that the quantity of client information disclosed by Mr La Gette and Mr Bishop to TCL was a factor which supported the conclusion that TCL was on notice that at least some of the information was likely to be confidential to Trailfinders. Take the List, which consisted of the titles, first names, surnames, in some cases addresses, email addresses and telephone numbers of 313 individuals. As the judge said, TCL must have appreciated that Mr La Gette could not have carried all that information in his head, which made it probable that he had copied at least some of it from Trailfinders' client database (as was in fact the case). Yet, consistently with its invitation to potential franchisees to bring their old customer contact lists with them, TCL neither warned Mr La Gette not to bring any of Trailfinders' confidential information, nor asked him whether he had done so or even what the source or sources of the List was or were."

TCL's fifth criticism was as follows:

"........ the judge had recorded at [78] that in closing Trailfinders had "relied only on acts admitted by Mr La Gette, although it maintained the position that there were likely to have been other, similar acts in breach of confidence". The judge only made findings in respect of the acts admitted by Mr La Gette, and did not find that Mr La Gette had committed any other acts in breach of confidence. Furthermore, the judge accepted Mr La Gette's evidence as to what he had done. Counsel for TCL then pointed out that it was Mr La Gette's evidence that the only client information he had copied from Superfacts [Trailfinder's database] was the telephone numbers of five to eight clients, whereas the discussion between Mr La Gette and Ms Thompson showed that the important information was the clients' email addresses. Moreover, he submitted that, as discussed below, TCL's only relevant act of misuse of confidential information was the sending of marketing circulars to clients by email."

Lord Justice Arnold rejected that criticism as another attack on the judge's findings of fact rather than his legal analysis, but it did not undermine his conclusions. The fact remained that TCL had received a large quantity of client information from Mr La Gette in circumstances which put it on notice that some of the information was likely to be confidential to Trailfinders

The last criticism was that sales consultants started to leave Trailfinders for TCL in 2015 and by the time Mr La Gette left at least 20 had left, yet Trailfinders had not made any complaint to TCL about the misuse of confidential information by the time Mr La Gette and Mr Bishop joined TCL.  TCL submitted that there was no reason for TCL to believe that Trailfinders had any concern about this matter.  That submission turned out to be incorrect because Trailfinders had already sent a letter before claim to TCL before Mr La Gette and Mr Bishop left its employment.

The second ground of appeal was alleged inconsistency between the judge's conclusion and his finding at para [90] that:

"By itself, the existence of clients which were common to both Trailfinders and TCL proved nothing. It could mean that names were passed by Mr La Gette and/or Bishop to TCL in breach of confidence, or alternatively that the identities of overlap clients of TCL were within the experience and skills of Mr La Gette or Mr Bishop, or had been acquired from publicly available sources."

Lord Justice Arnold rejected that argument at [38]:

"The key words in the passage quoted above are "By itself". As the judge explained, the Overlap Data were produced by Trailfinders during the course of the proceedings i.e. around three years after the material time. Moreover, the judge went on to consider and make findings as to what TCL knew or ought to have known about the client information it received from Mr La Gette and Mr Bishop at that time, which led him to the findings he set out in [131]-[132]. There is no inconsistency between those findings and what he said at [90]."

The last ground of appeal was not pursued as formulated though TCL seems to have raised issues as to whether the confidential information was used only by Mr La Gette or by Mr La Gette, Mr Bishop and everyone else as TCL and whether Trailfinders had suffered any detriment as a result of TCL's wrongdoing.  Lord Justice Arnold said that those issues should be left to an inquiry as to damages.

Lord Justice Arnold remarked at para [25] that there was surprisingly little authority which directly addressed the question of when a party who receives information from a third party that may or may not be confidential to another party becomes bound by an equitable obligation to that party.  This judgment provides very clear authority on that issue.  For that reason, personnel managers should take note of this case and develop protocols for recruiting competitors' employees.

In my previous case note, I wrote:

This is the first case that I have seen in which the Trade Secrets Directive (Directive (EU) 2016/943 of 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure (OJ 15.6.2016 L 157/1) has been considered by an English judge. I have written quite a lot about that Directive and I have always taken the view that it creates new rights and obligations while leaving the law of confidence more or less intact (see Jane Lambert The Trade Secrets Directive 7 July 2020 NIPC Law).

In Trailfinders Ltd v Travel Counsellors Ltd and others [2020] EWHC 591 His Honour Judge Hacon quoted in full the first 7 articles of the Directive. Citing the Explanatory Note to The Trade Secrets (Enforcement, etc.) Regulations 2018 SI 2018 No 597 which opined that the laws of the UK already complied with arts 6, 7 and 16, His Honour observed:

'It is therefore to be assumed that the substantive principles governing the protection of confidential information under English law, including that afforded by terms implied into contracts of employment and by equitable obligations of confidence, are unaffected by the Directive.'

He added:

'However, the Directive shines an occasional light on those principles'.

Of course, as Judge Hacon has observed in his judgments on other directives, it is the opinion of the Court of Justice of the European Union and not that of the implementing member states' governments that counts - at least for the duration of the implementation period. Even after that ends, the judgments of that court and indeed the courts of the 27 remaining member states will probably continue to be of high persuasive authority on the interpretation of this and other directives unless and until Parliament decides otherwise.

Save for a few interjections here and there, that was the sum total of the judge's observations on the Directive. In all fairness, unless a right or defence deriving from the legislation had been pleaded, that was probably all he could say."

At para [6] of his judgment, Lord Justice Arnold made clear that the Directive did not apply to these proceedings since the events occurred before the Directive came into force.

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