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Recent Case Law - A Directors Duty Of Confidentiality

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A director’s duty of confidentiality can be expressed in a contract of employment or implied by law. Section 172 Companies Act 2006 states that a director is under a duty to avoid conflicts of interest, in particular the exploitation of any property, information or opportunity. In addition to this, a non-contractual duty of confidentiality may be imposed by equity whenever a director receives information he knows or ought to know is to be regarded as confidential.

In the case of Eurasian Natural Resources Corporation Ltd v Judge [2014] EWHC 3556 (QB) a former director (the “Defendant”) of Eurasian Natural Resources Corporation Ltd (the “Claimant”) was pursued for breach of confidentiality. The Defendant had a letter of appointment which included a confidentiality clause stating that all information acquired should not be disclosed to third parties or used for any reason other than in the interests of the Claimant, either during the Defendant’s appointment or following termination. It was alleged that the Defendant had leaked confidential information during and after his time as a director. The Claimant sought relief by way of return of confidential information which had been circulated to the Defendant (also known as delivery up) and an injunction to prevent the Defendant from divulging confidential information. The Defendant then applied to Court for the claim to be struck out on the basis that it had no reasonable prospects of success. The Claimant argued that delivery up was an implied term of the contract, although not expressly included, and was necessary to give business efficacy.

The judge noted that:

  1. as the Defendant would receive a large number of documents in hard copy and electronic format there would be difficulties in complying with delivery up, especially for those individuals who take on multiple directorships;
  2. it is particularly difficult where, as in this case, the company documents are sent to a number of e-mail addresses, some personal to the director and others maintained by private and publicly listed companies with which the director is associated; and
  3. it is difficult to see how business efficacy would be achieved by an implied term of delivery up as it would potentially involve a considerable amount of work.

The claim for delivery up was struck out purely because it was not an express term of the Defendant’s contract of appointment. The judge did not believe that there was no reasonable prospect of success for an injunction and this would be for a jury to decide having heard the evidence (presumably given the allegations of fraud). The judge however commented that injunctive relief could also include delivery up.

How can a company protect its confidential information?

This implied duty of confidentiality provides limited protection to a company and can be enhanced by express terms included within a directors’ contract. These can increase or clarify the obligations under the implied duty of confidentiality and provide a company additional protection where necessary. Where confidentiality is likely to be a material factor a company should consider including the following terms in the contract of employment for certainty:

  1. the extent of the directors’ duty of confidentiality during his/her appointment;
  2. how long the director is bound by the duty of confidentiality once he/she cease to be a director; and
  3. the requirement for delivery up of confidential information upon termination of the director’s appointment.

A company should also have clear policies on confidentiality which are easily accessible by its employees. When drafting the policies a company should remember that its directors and senior employees will be subject to higher duties of confidentiality. A company should also ensure that confidential information is only released where necessary and limit the number of recipients of such information.

"This information has been prepared for the clients and contacts of hlw Keeble Hawson Solicitors.  The information and opinions expressed are not comprehensive and do not purport to give nor do they constitute professional advice. For further information please contact Michael Cantwell or Saiema Sarwar.”

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