It is not uncommon for organisations to require someone to enter into a “non-disclosure agreement” before handing over confidential information to them. These agreements contain an express contractual duty of confidentiality designed to ensure the confidential information is not released to any third party. Similar covenants are often contained in other commercial documents.
It is often assumed that these covenants automatically provide effective protection. However, if the confidential information is released to a third party in breach of these obligations, what compensation can be recovered by the claimant? This was one of the points recently considered by Mr Justice Arnold in the case of Primary Group (UK) Limited and Others v Royal Bank of Scotland and Direct Line Insurance Group [2014] EWHC 1082 (Ch).
Background
The claimants had provided confidential financial information to the Royal Bank of Scotland (“RBS”). RBS disclosed this information to Direct Line without the claimant’s permission. The claimant sued RBS and Direct Line for compensation. There were arguments as to whether or not there was an express contractual duty of confidentiality and as to whether an equitable duty arose. The judge found that there had been a contractual duty of confidence and that RBS was in breach and therefore came to the point of having to assess the compensation that was recoverable by the claimant.
He referred back to the review of the law that he had made in the case of Force India Formula One Team Limited v Malaysia Racing Team Sdn Bhd [2012] EWHC 616 (Ch) in which he summarised the principles for assessment of damages as follows.
The overriding principle is that the damages are compensatory.
The primary basis for the assessment is to consider what sum would have been arrived at in negotiations between the parties had each been making reasonable use of their respective bargaining positions, bearing in mind the information available to the parties and the commercial context at the time that notional negotiation should have taken place.
The fact that one or both parties would not in practice have agreed to make a deal is irrelevant.
As a general rule, the assessment is to be made at the date of the breach.
Where there has been nothing like an actual negotiation between the parties, it is reasonable for the court to look at the eventual outcome and to consider whether or not that is a useful guide to what the parties would have thought at the time of the hypothetical bargain.
- The court can take into account other relevant factors, and, in particular, delay on the part of the claimant in asserting its rights.
Applying those factors to the current case, the judge concluded that the claimant had no realistic prospect of recovering a substantial sum by way of damages. He refused to order any further enquiry in that respect. On the other hand, he considered that the claimant was entitled to some compensation on the basis that the confidentiality covenant had value for the claimant and that something should be paid for its relaxation. However, despite the extent of the confidential information that had been unlawfully disclosed, the court concluded that the correct level of compensation was just £5,000.
Summary
The case is a reminder of the problems faced by a claimant in circumstances where confidential information has been released in breach of covenants.
In certain circumstances it is possible to obtain an injunction to prevent the use of that confidential information. This is a “damage limitation” exercise.
Where the damage has already been done it can pursue a claim to recover compensation for any actual loss it can prove it has suffered. However, that exercise is not always straightforward. In the absence of any evidence to show actual loss, it is clear that the amount of compensation that would be recoverable will be relatively low would certainly not justify the costs of pursuing a claim.