The Court of Appeal (CoA) was faced with the question as to whether a director can be personally liable for a breach of confidence in relation to information he or she did not use personally.
Background:
Kieran Corrigan & Co Ltd. (KCL) is an Irish company which provides accountancy and tax advice. In 2012 and 2013, Mr. Corrigan and Mr. Sherry developed a proposal for a tax-saving structure using a UK limited liability partnership (LLP). To market it, Mr. Sherry suggested two tax advisers to Mr. Corrigan – Mr. Slattery and Mr. Johnson – who were working for OneE Group Limited.
Confidential information regarding the scheme was shared with OneE Group Ltd. and Mr. Timol who was a director and shareholder of OneE Group. The scheme was explained in some detail at a meeting, including key technical information. There was some discussion in 2014 of the prospect of a joint venture between KCL and OneE Group. Instead, Mr. Slattery and Mr. Johnson developed a tax structure for OneE Group which also involved the use of a UK LLP in conjunction with subcontractor R&D reliefs, a structure which was subsequently marketed by OneE Group.
KCL contended that Mr. Timol was personally liable for a breach of confidence due to his prior approval of the marketing of the tax planning scheme. The High Court Judge found that Mr. Timol was not liable because he was not directly involved in the development of the scheme and did not know that the scheme was developed using KCL’s confidential information.
KCL was awarded damages of £3.48 million against Mr. Slattery, Mr. Johnson and OneE Group Limited. This action only regarded Mr. Timol.
Decision:
Despite the lack of clarity in the Judge’s reasoning, the CoA agreed with the decision. The CoA rejected the claimant’s argument that the interpretation of liability should be strict. The Judges found that the director was a commercial rather than a technical director and did not personally use the confidential information. Instead, he had unwittingly authorised its use by the company. Thus there can be no misuse of information if the person does not know or have any reasonable suspicion that the scheme uses confidential information inappropriately.
Following the Supreme Court’s decision in Lifestyle Equities, Mr. Timol could not be held liable as an accessory to the breach of confidence committed by his co-defendants, and this second ground for appeal was therefore not pursued.
The claimants however succeeded on the third ground, as further evidence was uncovered since the trial which demonstrated that the director may have had more knowledge than was originally found by the courts, resulting in the CoA ordering a retrial on this aspect.
Implications:
Following this ruling, it is now unequivocally clear that liability for a breach of confidence is not necessarily strictly interpreted. If a director had no knowledge or reasonable suspicion that confidential information was being used, they cannot be said to have personally misused that information.
The case illustrates the complexity surrounding the personal liability of directors in breach of confidence claims and the need to demonstrate knowledge about the misuse of confidential information. It also highlights that, when new evidence comes to light, courts could request a retrial of part of the case if it could potentially change the outcome. However, it is up to the Court to admit such new evidence.