Trailfinders: Court of Appeal gives guidance on the receipt of competitors’ confidential information

The equitable doctrine of breach of confidence operates to prevent the receiver of confidential information from taking unfair advantage of it. In order to be classified as confidential the three-stage test first set out in Coco v AN Clark (Engineers) Ltd [1968] F.S.R. 415 requires the information to: (i) have a necessary quality of confidence; (ii) be provided in circumstances that give rise to an obligation of confidence; and (iii) be (or threaten to be) used or disclosed in an unauthorised way causing detriment to the information owner.

The second limb of this test was the subject of the recent Court of Appeal decision in Travel Counsellors Limited and Ors v Trailfinders Limited [2021] EWCA Civ 38. This case concerned certain employees from Trailfinders who moved over to a rival travel company, Travel Counsellors Limited (“TCL”). TCL encouraged the employees to bring their client contacts across with them, which the employees did including the clients’ email addresses and telephone numbers. Trailfinders argued that the employees acted in breach of the implied term of confidentiality in their employment contracts and in breach of the equitable duty of confidence. Trailfinders also claimed against TCL for breach of the equitable duty of confidence.

In the first instance, Judge Hacon concluded that both the individuals had acted in breach of their duties in taking the confidential information with them. With respect to TCL, the Judge also concluded that it was in breach of its obligation of confidence because a reasonable person in TCL’s position (or the position of a senior member of TCL) would have known or should have known that part of the information the employees took with them was likely to be copied from customer data and as such would be regarded as confidential by Trailfinders. As TCL used this information for the benefit of its business it was in breach of its obligation of confidence.

TCL appealed this decision on three grounds, with the key ground being that the judge had applied the wrong legal test in finding that TCL owed a duty of confidence.  When looking at this issue, the Court of Appeal (Arnold LJ with whom Asplin LJ and Lewison LJ both agreed) confirmed the objective test applied by Judge Hacon that whether a person knew or ought to have known that the information was confidential is assessed “by reference to a reasonable person standing in the position of the recipient” (at [14]). In addition to this, the Court of Appeal went one step further noting that “if the circumstances are such as to bring it to the notice of a reasonable person in the position of the recipient that the information, or some of it, may be confidential to another, then the reasonable person’s response may be to make enquiries(emphasis added) (at [28]). Arnold LJ concluded that if a reasonable person would have made enquiries but the recipient did not then an obligation of confidentiality will arise. In this case, TCL should have known based on the volume and type of information provided by the employees that some of it would be confidential, especially given that TCL maintained during the trial that its own equivalent information would be confidential. By not making further enquiries as to the source of this data, TCL breached its equitable duty of confidence to Trailfinders. TCL’s other two grounds of appeal were also rejected by the Court of Appeal.

The judgment provides fair warning to any business receiving information from a competitor that the origins of the information should be examined prior to use. Any suspicions that it might be confidential should be taken seriously with appropriate enquiries raised as to the source of the information.