Arvan Handa v Aran Handa & Ors

A contractual confidentiality exception permitting disclosure made in good faith for the advancement of a company’s business is construed narrowly. It permits disclosure necessary for the company’s day-to-day business, but does not generally permit a shareholder to disclose confidential information to another person merely because disclosure might indirectly benefit the company. Where the proposed disclosure is speculative and the recipient is involved in contentious litigation with the company, the exception will not ordinarily apply. Alternatively, under the American Cyanamid principles, the court must compare the likely prejudice to each side. A real risk that confidential information will disadvantage the company may outweigh the shareholder’s loss of advice from a non-professional adviser.

The judgment concerned two interim applications arising from a dispute within a family-owned hotel business. The claimant sought documents from the company under a consent order and clauses 4.1 and 4.2 of a shareholders’ agreement. The company accepted that he was generally entitled to the documents, but required an undertaking preventing disclosure of confidential information to his son, who was involved in disputes and litigation with the company.

The company sought to vary or discharge the relevant undertaking in the consent order. The central issues were whether clause 18.1.3 of the shareholders’ agreement permitted disclosure to the son for the purpose of obtaining advice intended to benefit the company and, if so, whether interim relief should nevertheless be refused.

1. Contractual right to disclose. The claimant’s rights under the consent order were coterminous with his rights under clauses 4.1 and 4.2 of the shareholders’ agreement, subject to the confidentiality provisions in clause 18. Clause 18.1.3 permitted disclosure where confidential information relating to a group company was disclosed in good faith for the advancement of that company’s business.
2. The exception could not be construed so widely that it neutralised the confidentiality obligations. Its primary purpose was to permit the parties to conduct the company’s day-to-day business. It did not permit disclosure whenever, in the shareholder’s opinion, there was some prospect that the disclosure might benefit the company. Disclosure to a competitor in the hope of obtaining an advantageous offer illustrated the limits of the exception.
3. The claimant’s stated purpose was to obtain advice from his son about how to benefit the company. Any benefit was speculative and at least one stage removed from actually benefiting the company. The claimant therefore had no right under the shareholders’ agreement or consent order to disclose the information for those purposes.
4. Interim relief. Even if clause 18.1.3 were capable of the wider interpretation advanced by the claimant, the requirements of American Cyanamid were satisfied only in favour of the company’s position. There was a serious question to be tried, and damages would not adequately compensate either side for the relevant loss.
5. In assessing the balance of convenience, the claimant’s inability to obtain advice from his son was limited because he could obtain professional legal or accountancy advice. By contrast, there was a real prospect that disclosure would disadvantage the company in the existing litigious atmosphere. An undertaking not to use the information in litigation did not remove the risk that knowledge of the information would affect the son’s conduct, since it would be difficult to unknow what he had learned.
6. The claimant’s application for an interim order was refused. Any specific disclosure order should broadly follow the company’s proposed form and include a restriction on sharing confidential information with the claimant’s son. Costs were left for discussion.

First-instance decision. The judgment does not state any prior appellate history.