Commercial Court rules that disclosure in litigation does not alter duty of confidence owed by former employees

The Commercial Court has held that the duty of confidence owed by two ex-employees is not extinguished by their ex-employer's disclosure of confidential documents to a counterparty in the course of litigation. As a result, the ex-employees could not provide any information as witnesses which would breach their confidentiality obligations: Porton Capital Technology Funds v 3M UK Holdings Limited [2010] EWHC 114 (Comm).

Key points:

• There is no property in a witness, so a party to litigation is free to seek evidence from anyone it chooses, including the employees or ex-employees of the other party.
• The employee/ex-employee is under no obligation to assist the other party.
• He may be compellable to give evidence at trial, but if he has not provided a statement the party will not know what evidence he will give.
• If he is prepared to assist, then he may be shown documents disclosed in the litigation, as the receiving party is entitled to use them for the purposes of the action.
• He remains subject however to any duties of confidentiality on him.  He may not lawfully give, and the other party may not lawfully seek, information which it would be a breach of duty for him to provide.

Background

The claimants (Porton) owned shares in a company, Acolyte. Acolyte's main product was an MRSA detection device (the product). The defendants (3M) purchased the entire issued share capital in Acolyte under a Sale and Purchase Agreement (SPA). As part of the SPA, 3M undertook to develop and market the product, and agreed to pay the shareholders an "earn out", which included revenue from the sale of the product.

Porton brought a claim for damages for the amount it would have received under the "earn out" had the product been properly developed and marketed. 3M counter-claimed for damages for Porton's unreasonable refusal to allow 3M to cease developing and marketing the product (which required Porton's approval, not to be unreasonably withheld). In the course of the proceedings, Porton approached two ex-employees of Acolyte and 3M for information about the development and marketing of the product. 3M later gave disclosure of confidential documents relating to the development and marketing of the product.

The key witnesses – free to give evidence or caught by confidentiality covenants?

The two key potential witnesses had previously worked for Acolyte and 3M and had specific knowledge of the marketing and development of the product. They were both bound regarding 3M's development and marketing of the product by post-employment confidentiality covenants. Porton alleged that as a result of 3M's disclosure, it became privy to any confidential information relating to the issues in the proceedings, such that the potential witnesses could answer questions without being in breach of any duty of confidentiality.

Porton applied to the court principally for an order that information relating to the matters in dispute was not confidential as between the parties for the purposes of the proceedings, and that the two (and any other relevant) ex-employees could therefore provide information to Porton's lawyers without breaching their confidentiality obligations.

Porton argued that once disclosure of confidential documents had taken place, any confidentiality as between the disclosing and receiving party, for the purposes of the proceedings, was lost. 3M countered that such an order would either require an impossible prediction (that Porton's lawyers could speak to the ex-employees without them breaching their duty), or it would require the court to order that whatever the ex-employees said they were not in breach of their obligations (which it did not have the power to do).

Porton also argued that without any waiver of the confidentiality obligations, 3M would have unfettered access to the ex-employees whereas Porton would not. Porton submitted that leaving matters to trial (where the ex-employees could be called by Porton to give evidence) produced an "unacceptable dilemma" in that Porton would have no prior knowledge of what evidence they may give. This, Porton alleged, would mean that the parties would be on a wholly unequal footing contrary to the overriding objective in the Civil Procedure Rules.

Application for a Confidentiality Club

3M also applied for an order that a confidentiality club be established (ie, that all disclosed documents should be treated as confidential and only circulated to an agreed list of persons who had signed a confidentiality undertaking). The two ex-employees were to be included in the list. Porton agreed but cross-applied to the court for an order that the confidentiality obligations of the two (and any other relevant) ex-employees should be waived for the purpose of the proceedings, as a condition of the granting of the confidentiality club.

Decision

Christopher Clarke J held that the effect of disclosure did not in any way alter a duty of confidence owed by an employee/ex-employee. The judge explained that the receiving party could use the confidential documents for the purpose of the action, and show them to potential witnesses, but the witnesses remained bound by their duty of confidentiality (and indeed may not be able to answer some questions as a result). Disclosure did not, therefore, release potential witnesses from their duty of confidentiality to the disclosing party so far as any information relating to the issues in the action was concerned. In the judge's view, it was illogical for any release from a duty of confidentiality to be dependent on disclosure having taken place. The court also ruled that the objective of ensuring that the parties were "on an equal footing" should not ordinarily require that obligations of confidentiality be overridden. The obligation of the court was to deal with matters "justly" and this sat ill with ordering an individual to be absolved of a legal duty of confidence.

As regards the confidentiality club application, the court granted 3M's application for the establishment of a confidentiality club, as the judge was persuaded that there was likely to be a substantial body of confidential information in the disclosure. He ordered that potential factual and expert witnesses should be included in the club (despite Porton's concerns that this would reveal to 3M who they had approached as potential experts). He did not consider that the application should not be used to procure a waiver of confidentiality obligations, and as such Porton's request that the confidentiality obligations of the two (and any other relevant) ex-employees be waived as a condition of the confidentiality club was refused.

Comment

The case raises important questions of principle as to if and how access to a witness may be restricted on confidentiality grounds and whether disclosure impacts on confidentiality agreements. It is not unusual for key information to be in the possession of the other party's employees and ex-employees so the decision is of general interest.

This case affirms the efficacy of confidentiality covenants, and provides reassurance to employers that, even if they become involved in litigation and are forced to disclose confidential documents, their ex-employees will nevertheless be unable to reveal their trade secrets or other confidential information.

Conversely, the decision highlights the difficulties for those wishing to obtain evidence from employees and agents (both current and former), in advance of trial.