Duchy Farm Kennels Ltd v Steels (Rev 1)

A confidentiality clause in an employment settlement agreement is not ordinarily a condition merely because it requires information to be kept strictly confidential, appears in a professionally drafted agreement, or is commercially desirable. Its status depends on the parties’ objective intention at the time of contracting and whether necessary implication makes it a condition. A generic clause in a standard settlement will usually be an intermediate term. Breach of such a term releases the innocent party from further performance only if, viewed objectively, it amounts to a repudiatory breach. A minor disclosure causing no material commercial harm will not ordinarily satisfy that test. Parties can address uncertainty expressly by providing for repayment, defining the term as a condition, or seeking injunctive relief.

The respondent settled Employment Tribunal claims against his former employer through an ACAS-assisted COT3 agreement. The appellant agreed to pay £15,500 by weekly instalments. The agreement contained a confidentiality clause.

After paying part of the settlement, the appellant stopped making instalment payments, alleging that the respondent had disclosed the settlement and its amount to a third party. The County Court proceedings under section 19A of the Employment Tribunals Act 1996 led to an application for a declaration that the outstanding sums were not recoverable under the general law of contract.

HHJ Wall found a breach of confidentiality but held that the clause was an intermediate term and that the breach was not repudiatory. The appellant appealed, raising whether the clause was a condition or whether the breach otherwise discharged the obligation to pay.

1. Appeal dismissed. The appellant remained obliged to pay the outstanding instalments under the COT3 agreement.
2. There are two possible routes by which breach of the confidentiality clause could have discharged the payment obligation: the clause might be a condition, or, if it were an intermediate term, the breach might be repudiatory. Renunciation was treated as another way of analysing the repudiatory-breach issue. The respondent’s subjective intention was irrelevant, and the status of the term had to be assessed without hindsight.
3. A term is a condition only where the contract expressly or, by necessary implication in all the circumstances, gives it that status. Relevant considerations include the contract’s structure, the relationship between the term and the agreement as a whole, the likely consequences of breach, the adequacy of damages, and whether treating the term as a condition produces a reasonable result. The guidance in C21 London Estates v Maurice Macneill Iona Ltd was helpful and was applied.
4. Clause 9 was not a condition. It was ancillary to the principal bargain, which involved settlement of the Employment Tribunal claims in return for payment. The clause was generic, the use of the word “strictly” was insufficient, and the involvement of lawyers and ACAS did not alter its status. Treating every disclosure, however minor, as automatically forfeiting the remaining settlement would produce an unreasonable result. More sensitive cases might justify a different conclusion, particularly where the agreement expressly stated that confidentiality was a condition.
5. The breach was not repudiatory. The objective test was whether a reasonable person in the position of the innocent party would regard the conduct as clearly showing an intention to abandon and altogether refuse to perform the contract. The disclosure created no material commercial embarrassment, the risk of copy-cat claims was remote, and any proved financial loss could have been compensated by damages. The respondent’s obligation to pay therefore continued.
6. Parties can address the practical difficulties of enforcing confidentiality obligations by providing expressly for repayment or another contractual consequence, defining confidentiality as a condition, or seeking an injunction where appropriate.

• High Court (Queen's Bench Division): Mr Justice Cavanagh dismissed the appeal from the judgment of HHJ Wall, handed down on 17 January 2020. HHJ Wall had refused the appellant’s application for a declaration under section 19A(4) of the Employment Tribunals Act 1996.
• Lower court: HHJ Wall found that the respondent had breached the confidentiality clause but that the clause was an intermediate term and the breach was not repudiatory.