Obligations of confidence – updated guidance from the Court of Appeal

Blog | Intellectual Property
Published: 15th March 2022
Area: Corporate & Commercial

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Following a recent series of cases, the Court of Appeal has provided further guidance on equitable obligations of confidence.

What are equitable obligations of confidence?

Obligations of confidence can arise in a number of different ways.  They can be imposed expressly by contract, for example through NDAs and contracts of employment, or they can be implied, either because of the circumstances of the disclosure or because of a special relationship between the parties, for example an employee’s duty of fidelity and good faith.

The law will also impose an equitable obligation of confidence where a person receives information which they know or ought to know should be regarded as confidential ¹

A case in question – the background

In October 2020, in The Racing Partnership Limited (TRP) (1) Arena Leisure Limited & others v Sports Information Services Limited (SIS), the Court of Appeal considered whether an equitable obligation of confidence was owed by SIS to TRP in relation to the distribution of horse racing data.

SIS had previously held the rights to collect and distribute live horse racing data collated at various race courses to off-course bookmakers for fixed odds betting services.  Those rights had expired at the end of 2016 and had been acquired by TRP, while the rights to supply similar data for pool betting services continued to be held by The Tote.

The data in question included factual information relating to the courses and the relevant races, for example, the weather conditions, the state of the course, non-runners, changes of jockeys, the “off” and any stewards enquiries.

TRP alleged that, in breach of an equitable obligation of confidence, SIS had distributed horse racing data which it had received from The Tote under an agreement between SIS and the Tote.

At trial, it became clear that when SIS was negotiating the agreement with The Tote, SIS had expressed some concerns and it had made inquiries and had received assurances from The Tote regarding use of the data which it collected.  In addition to those assurances, SIS also insisted on including a warranty in the agreement under which The Tote warranted that it could provide the data in issue.

The outcome

At trial, SIS was found to have misused confidential information and it appealed the decision.

On appeal, the majority of the Court of Appeal found that individually the horse racing data was not confidential, since much of it could be accessed through live television.  Conversely, the Court of Appeal found that when viewed as a compilation of racing data, it could be confidential, however the compilation had been made by The Tote and so any value or control belonged to The Tote.

The Court of Appeal also considered whether the data had nevertheless been provided to SIS in circumstances which carried with it an obligation of confidence.

Lord Justice Lewison concluded that the judge at the original trial shouldn’t have focussed on what the correct legal analysis may be but should have instead focussed on what a reasonable person would be expected to understand.

The starting point for considering what a reasonable person would have understood should have been the warranty and the assurances that had been given.  Only then should it have been considered whether SIS should have second guessed the truth of such a warranty.

Lewison L.J. concluded that the correct question to be answered was …should SIS have realised that The Tote was bound by an obligation of confidence even though there was no contractual restriction on its ability to disseminate information which it had collected and compiled itself.

Further guidance was provided by Lord Justice Philips who concluded that when a reasonable person receives information from a reputable counterparty under warranty, that person is not put on notice that the information is supplied in breach of a duty of confidence unless there are sufficient indications to the contrary.

Contrary to the decisions of Lewison L.J. and Philips L.J., in the dissenting judgment given by Lord Justice Arnold, he concluded that secrecy was a necessary criterion for confidentiality and what was relevant was the data’s inaccessibility during a transmission delay (typically seven seconds) before the data was available on television.

Arnold L.J. also agreed with the trial judge who at trial had concluded that an obligation of confidentiality had been imparted because a reasonable person in The Tote’s position would have:

  1. known the steps taken by the race courses to preserve the confidentiality of the data for fixed odds betting purposes;

  2. appreciated that it had acquired the data for pool betting purposes; and

  3. appreciated that the information was acquired in circumstances importing an obligation of confidence and couldn’t be used for fixed betting purposes.

Key points to takeaway

The area of confidential information and sport is clearly a valuable one particularly where bookmakers offer live or ‘in-play’ betting (e.g. which team or player will score next).

There was no doubt that the compilation of horse racing data could constitute confidential information despite it arising in the full view of members of the public and despite it only having commercial value for a very short time.

Perhaps what was most surprising were the views of Phillips L.J. which suggest that in the context of equitable obligations of confidence, it may now be reasonable for a third party recipient to rely on contractual assurances, which are given by a discloser as to the legality of a data source, unless it can be shown it was not reasonable to rely on them.   This is despite the fact that the third party recipient would be able to rely on the warranty in the event that the assurances were misplaced.

What does seem likely is that because the Court of Appeal was split, it is unlikely to be the last word on the issue.

Case 2 – the background

In 2021, the Court of Appeal was again asked to consider equitable obligations of confidence in the case of Travel Counsellors v Trailfinders Limited.

Trailfinders is a national travel agent with 37 branches in the UK and Ireland employing over 700 sales consultants.

Travel Counsellors (TCL) is a competitor of Trailfinders and uses a franchise model with franchisee travel consultants.

In 2016, four sales consultants employed by Trailfinders left to join TCL.  Trailfinders alleged that when the individuals left, they took names, contact details and other information about their clients which was stored in Trailfinders’ computer system and that after they had left, they had accessed another Trailfinders computer system to obtain further client information.

A successful claim was brought against the four individuals for breach of implied terms in their contracts of employment and breach of equitable obligations of confidence owed to Trailfinders.

Additionally, Trailfinders successfully brought a claim against TCL for breach of an equitable obligation of confidence.

At the trial, the judge had found that:

  1. TCL didn’t supply new franchisees with potential customers.   Instead, travel consultants were expected to and positively encouraged to bring their customer contact list with them.  There was no warning that doing so may amount to a misuse of confidential information.

  2. TCL had added the Trailfinders client information to their own computer system.  This was quite extensive and for one of the individuals, it amounted to over 300 contacts.

  3. A reasonable person in the position of TCL’s CEO and other persons of significance within TCL would have been aware that at least part of the contact information brought by the individuals was likely to have been copied from Trailfinders’ customer data.  Furthermore, those persons at TCL knew or ought to have known that Trailfinders reasonably regarded the information as confidential.

  4. TCL consequently received the information subject to an equitable obligation of confidence and it was in breach of that obligation because it used the information for the benefit of its business.

TCL appealed the first instance decision, principally on the ground that the judge applied the wrong legal test in holding that TCL owed an equitable obligation of confidence to Trailfinders in connection with the information received from the individual defendants.

TCL relied on the fact that the judge hadn’t found that the individuals had given any indication to TCL that they’d copied the data and TCL asserted that (i) an equitable obligation of confidence would only arise if the recipient knew or had notice that the information was confidential, and (ii) whether the recipient had notice should be objectively assessed by reference to a reasonable person standing in the position of the recipient.

Lord Justice Arnold, who gave the main judgment, did not agree with this approach.  He concluded that where the circumstances were such that it is brought to the attention of a recipient that that the information, or some of it, maybe confidential to another, then the reasonable person’s response may be to make enquiries.  Whether they would make enquiries and if so what enquiries, would inevitably depend on the context and the facts.

Arnold L.J. did also not agree with TCL’s submission that nothing less than blind-eye knowledge that the information was confidential was enough because blind-eye knowledge is to be equated with actual knowledge, and is subjective.

Arnold L.J. explained that if a recipient was aware that some of the information was likely to be confidential, a reasonable person in TCL’s position would make enquiries.  In accordance with The Racing Partnership decision it is also relevant to consider what, if any, enquiries a reasonable person would make.

Applying this to the facts, Arnold L.J. concluded that the individuals could not have carried all of the data in their heads.  This therefore made it probable that they had copied at least some if it from Trailfinders.  Consequently, TCL should have been on notice that at least some of the information was likely to be confidential.

Furthermore, TCL should have warned the individuals not to bring any of Trailfinders’ confidential information and had not asked whether they had done so.  Had TCL made those enquiries and had the individuals told the truth, TCL would have discovered that some of the information came from Trailfinders.

Key points to takeaway

This case is a clear warning to businesses who receive information from a competitor that on receipt of the information, the business should take a step back and consider its status.

In a scenario where there is potential for a business to receive confidential information, it should:

  1. discourage employees from using information where that information has been taken from a competitor’s business without consent; and

  2. if any information is disclosed to the business, it’s incumbent on the business to make reasonable enquires as to whether any of the information is confidential and if it is, not to use it.

As a consequence of these decisions in combination with previous case law, there are a number of issues which should be considered when assessing whether an equitable obligation of confidence may arise:

  • Whether confidential information is disclosed in breach of an obligation of confidence and the recipient knows, or has notice, that that is the case;

  • Whether confidential information is acquired or received without having been disclosed in breach of confidence and the recipient knows or has notice that the information is confidential;

  • Notice is to be objectively assessed by reference to a reasonable person in the recipient's position;

  • Notice is to be objectively assessed by reference to a reasonable person in the recipient's position;

  • If a reasonable person has notice that the information, or some of it, may be confidential to another, their response may be to make enquiries. Whether they would actually make enquiries, and if so what enquiries, inevitably depends on the context and the facts; and

  • If the reasonable person would make enquiries, but the recipient of the information doesn’t do so, then an obligation of confidentiality will arise.

¹ Campbell v NGN Ltd 2004 

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