A breach of confidence? Travel consultants jet off to competitors with client data

28th June 2021

Everyone is dreaming of a summer holiday despite the ever-changing government guidance on travel due to Covid-19 restrictions, but have holiday makers ever considered how their personal data is shared and whether travel companies have obligations regarding this information?

In January 2021, the Court of Appeal decided whether the Intellectual Property Enterprise Court (IPEC) was correct to find that Travel Counsellors Limited (TCL) breached its implied duty of confidence to Trailfinders Limited (TL) when it received the client lists of Trailfinders from employees who were moving from TL to TCL.

This blog discusses the case of Travel Counsellors Limited v Trailfinders Limited [2021] EWCA Civ 38 and what is all too often becoming a headache for employers whose staff move onto pastures new, particularly in the fast moving and changing labour market in 2021. It also serves as a warning shot for employers who take on those employees from their competitors and gives some guidance as to best practice in those circumstances.

Background

TL and TCL are competitors within the travel industry, in which client relationships are highly important to the success of a business and future sales revenue.

In 2016, a number of travel consultants moved from TL to TCL, taking client details with them so that they could continue to liaise with those clients in their new role. TCL had expected the consultants to bring their old customer contact lists with them, having not provided any of its own contacts to their newly hired employees.

Court proceedings

HHJ Hacon, sitting in the IPEC, concluded that: the information amounted to trade secrets; TCL ought to have known it was in receipt of information which TL reasonably regarded as confidential and, as such; TCL had owed to TL an equitable obligation of confidence.

It followed that TCL was in breach of this obligation because it used the information for the benefit of its business. TCL had stored the information in its computer system and used it to send marketing emails to clients.

The test for whether an equitable obligation of confidence arises was confirmed in Matalia v Warwickshire County Council [2017] EWCA Civ 991 as follows:

"…an equitable obligation of confidence will arise not only where confidential information is disclosed in breach of an obligation of confidence (which may itself be contractual or equitable) and the recipient knows, or has notice, that that is the case, but also where confidential information is acquired or received without having been disclosed in breach of confidence and the acquirer or recipient knows, or has notice, that the information is confidential. Either way, whether a person has notice is to be objectively assessed by reference to a reasonable person standing in the position of the recipient.” [Our emphasis added].

TCL appealed HHJ Hacon’s decision at the Court of Appeal on three grounds:

  1. The judge applied the wrong legal test in holding that TCL owed an equitable obligation of confidence;
  2. The judge’s approach as to what TCL ought to have understood about the information provided to it was “wrong and inconsistent”; and
  3. The judge mistakenly held TCL liable for breach of confidence despite making no findings that TCL had misused any confidential information.

 The Court of Appeal unanimously dismissed the appeal on all grounds, in that:

  1. The judge was correct to apply this test;
  2. The judge was not wrong, nor inconsistent; and
  3. The extent of the misuse of confidential information is an issue related to quantifying damages, rather than liability – hence, as this stage of the claim relates to assessing liability (not quantum), the judge had not made a mistake.

With regards to ground 1, the Court of Appeal went further. In applying the “reasonable person” test to whether the acquirer or recipient of confidential information “has notice” that the information is confidential, the Court of Appeal said that a reasonable person may make enquiries as to the confidential nature of information when presented with such information. This is key for employers who take on staff from competitors.

In the circumstances, the Court of Appeal found that TCL should have enquired about the confidentiality of the client contact lists of their new travel consultants. However, it did not do so. As a result, TCL breached its duty of confidence to TL.

What this means to you

In 2021 and beyond, businesses who may have new employees join and bring potentially confidential information with them should heed the warnings of this case – in particular, these businesses may be obliged to enquire about the confidentiality of information received in these circumstances.

Equally, businesses who may have had key employees move to a competitor should be aware of their rights in circumstances where the competitor may owe an obligation of confidentiality in respect of that business’s trade secrets.

In addition, employees moving to a competitor of their ex-employer should be careful in what (if anything) they are lawfully able to bring with them and review their employment contract for post-termination clauses (known as restrictive covenants) that may continue to bind you beyond the length of your employment contract.

JMW’s London Intellectual Property and Employment teams advise a range of clients on related issues and have a wealth of experience in bringing and defending such cases at court.

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Michael Rimola is a Trainee Solicitor located in Londonin our Trainee Solicitors department

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