Vestergaard Frandsen A/S (now called MVF 3 ApS) and others v Bestnet Europe Limited and others

Breach of confidence is founded on conscience. A person who has neither acquired a claimant’s trade secrets nor knows that they are being misused is not ordinarily liable as a primary or secondary wrongdoer. A knowing recipient cannot escape liability merely because later use was unconscious.

Secondary liability normally requires actual or blind-eye knowledge. Mere risk-taking is insufficient without relevant dishonesty. For common-design liability, each participant must share every feature that makes the design wrongful; where misuse of confidence depends on knowledge, participation in the commercial venture alone does not suffice.

An employment contract should not be read or supplemented to impose strict liability for unknowingly assisting another’s misuse where its express confidentiality clause is narrower. A recipient initially unaware of confidentiality may become bound once notified, and prospective relief may then be available.

Vestergaard developed and owned trade secrets used to manufacture long-lasting insecticidal bednets. Mrs Sig, a former sales and marketing employee, established a competing business with Mr Larsen and Dr Skovmand. Dr Skovmand used Vestergaard’s confidential information to develop the competing product.

Arnold J found that Mrs Sig had never accessed the relevant database or learned its trade secrets. She also remained honestly unaware that the competing product had been developed through their misuse. Nevertheless, his second judgment, [2009] EWHC 1456 (Ch), held her liable for breach of her contractual obligation of confidence, following findings made in [2009] EWHC 657 (Ch).

The Court of Appeal reversed the finding against Mrs Sig in [2011] EWCA Civ 424. Vestergaard appealed on the grounds that she was liable under her employment contract, as a participant in a common design, or because of her involvement in the competing businesses. The central issue was whether liability could arise although she neither possessed the trade secrets nor knew that they had been misused.

1. Disposition. Per Lord Neuberger, with whom Lord Clarke, Lord Sumption, Lord Reed and Lord Carnwath agreed, the appeal was dismissed. Mrs Sig was not liable for misuse of Vestergaard’s confidential information.

2. Breach of confidence is ultimately based on conscience. The classic claim concerns confidential information used inconsistently with its nature by a recipient who agreed, knew or ought to have appreciated that it was confidential. Mrs Sig had neither acquired the relevant trade secrets nor known that they were being used. Seager v Copydex Ltd [1967] 1 WLR 923 did not impose strict liability on a non-recipient. It established that, once information had knowingly been received in confidence, unconsciousness of its later use did not excuse the recipient.

3. A person assisting the primary recipient’s misuse will normally require actual or blind-eye knowledge that confidential information is being abused. The analysis of dishonesty in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 was applicable. There was no finding that Mrs Sig had been dishonest or recklessly disregarded Vestergaard’s rights. Merely taking a commercial risk was insufficient.

4. The express confidentiality clause did not apply because the relevant information was neither related to Mrs Sig’s employment nor acquired by her during it. No term could be implied making her strictly liable for unknowingly assisting another person’s misuse. Such a term would contradict the narrower express clause, was unnecessary for commercial efficacy, was almost penal, and failed the established requirements of obviousness and reasonableness.

5. Common design may apply to misuse of confidential information. A participant must, however, share every feature of the design that makes it wrongful. Since knowledge or the relevant state of mind forms part of misuse of confidence, Mrs Sig’s ignorance prevented joint liability. Unilever Plc v Gillette (UK) Ltd [1989] RPC 583 was distinguishable because patent infringement is a strict-liability wrong for which the infringer’s knowledge is irrelevant.

6. Lancashire Fires Ltd v S A Lyons & Co Ltd [1996] FSR 629 did not justify damages for losses occurring while Mrs Sig remained honestly unaware of the misuse. That case concerned an injunction, and expressly reserved financial relief for further argument. A recipient who initially fails reasonably to appreciate confidentiality may become bound once informed or otherwise made aware of it, so prospective restraint may then be appropriate.

7. The result maintained a fair balance between protecting trade secrets and avoiding unreasonable restraints upon honest competition by former employees. Imposing liability on a former employee who had neither learned the secrets nor appreciated their use would be oppressive and inconsistent with principle.

• United Kingdom Supreme Court: In [2013] UKSC 31, the court unanimously dismissed Vestergaard’s appeal and upheld the Court of Appeal’s decision concerning Mrs Sig.
• Court of Appeal: In [2011] EWCA Civ 424, the court reversed Arnold J’s conclusion that Mrs Sig was liable for breach of confidence. It upheld the first-instance judgments on the other appealed points.
• High Court, Chancery Division: Arnold J made the principal factual and legal findings in [2009] EWHC 657 (Ch). Following a further remedies hearing, he held in [2009] EWHC 1456 (Ch) that Mrs Sig was liable for breach of her contractual obligation of confidence.