299: Receiving client information from a competitor – Breach of confidence?

In Travel Counsellors Ltd v Trailfinders Ltd, the Court of Appeal considered whether the equitable duty of confidence will protect a competitor’s confidential information from being misused by a business which received that information from new employees.

Several employees left Trailfinders in order to work as franchisees for a competitor, Travel Counsellors Ltd (TCL). They took confidential information including names, contact details and other information relating to Trailfinders’ clients, which were then added to TCL’s system. TCL encouraged new franchisees to bring their own clients with them but did not warn of the risks of doing so.

Trailfinders brought a claim alleging that its confidential client information had been used for TCL’s own benefit, thereby breaching the equitable duty of confidentiality owed by TCL to Trailfinders.

The High Court, and now the Court of Appeal, ruled that TCL had breached the equitable duty of confidence owed to Trailfinders. The Court of Appeal helpfully confirmed the scope of this duty:

• the recipient of the information must either have been told that the information was confidential or should have known it was confidential, as determined by a reasonable person in their position; and
• if, on the facts, a reasonable person would have made enquiries as to whether the information was confidential, but the recipient had not, then there will also be an equitable duty of confidentiality.

In this case, the Court of Appeal held that TCL must have appreciated that the client information given to it by its competitor’s former employees was likely to be confidential, particularly as it included a list of over 300 client contacts. TCL had not asked for information about the precise source of the information, or the extent to which Trailfinders would reasonably have regarded it as confidential and had therefore breached its equitable obligation of confidence to Trailfinders. In separate proceedings, the employees were also held to be in breach of their express and implied duties of confidentiality.

This case confirms that employers owe a duty of confidence in relation to confidential information brought by new employees. When businesses receive information relating to a competitor, before using it the status of that information must be assessed by making reasonable enquiries as to whether it is confidential. If information has been taken from a competitor without consent, it should not be used for the new employer’s benefit.