Breach of confidence – Damages — Account of profits – Claimants alleging breach of contract and breach of confidence in respect of business opportunity proposed to defendants — Whether claimants entitled to choose remedy — Whether claimants entitled to account of profits – Claim allowed in part
The claimants identified an opportunity to purchase a pawnbroking business (H&T) and proposed that they should be part of the new management team after H&T’s acquisition by a venture capital (private equity) company. They chose the first defendant as their preferred potential acquirer and entered into contracts with the defendants committing their proposal to writing. The defendants acquired H&T without the participation of the claimants, who contended that the defendants had unlawfully proceeded without including them.
The claimants brought a claim against the defendants for damages for breach of contract and breach of confidence. They argued, inter alia, that with regard to their claim based on breach of confidence, they could choose between claiming compensation assessed by reference to the loss of the notional transaction to buy the release from their rights and claiming an account of profits. In the alternative, if the court had the power to control the choice between those forms of relief, an account of profits was appropriate and should be ordered.
Held: The claim was allowed in part.
The first defendant had breached the contract when it acquired H&T without including the claimants in the transaction. The defendants had used information concerning the business opportunity in breach of confidence owed by each of them to the claimants. The extent of those obligations was the same as the extent of the relevant contractual obligations of the first defendant regarding the use of the information as set out in the contracts.
The appropriate remedy for breach of contract and breach of confidence was an award of damages assessed by reference to the notional reasonable price that the defendants should have paid to buy the release from the rights of the claimants under the contracts and in respect of the relevant confidential information, so as to enable them to acquire H&T without involving the claimants.
It had long been recognised that, in some circumstances, in respect of a claim based on breach of confidence, a claimant could not choose an account of profits remedy. Instead, it might be confined to an award of damages, assessed by reference to the value of a notional reasonable agreement to buy the release of its rights. Recent developments in the law and wider considerations of justice reinforced that approach and the courts had articulated underlying principles governing the remedies available in any given case: Peter Pan Manufacturing Corporation v Corsets Silhouette Ltd [1964] 1 WLR 96, Siddell v Vickers (1892) 9 RPC 152, Seager v Copydex Ltd [1967] 1 WLR 923, Attorney-General v Blake [2001] 1 AC 268, and Ruxley Electronics & Construction Ltd v Forsyth [1996] AC 344 considered.
In the light of Blake, if the infringement of a proprietary right was not involved and there was nothing to indicate that the defendant should not have been entitled to adopt a commercial approach in deciding how to behave with regard to that right, the appropriate remedy would be an award of damages assessed by reference to a reasonable buy-out fee rather than an account of profits. The law would control the choice between those remedies, having regard to the need to strike a fair balance between the interests of the parties at the remedial stage, rather than leaving it to the claimant’s discretion.
Seager showed that even in respect of confidential information akin to a patent, the law would not necessarily afford protection to the claimant extending to an account of profits, especially if one moved further away from confidential information in a form resembling classic intellectual property rights towards forms of obligation in respect of confidential information more akin to personal obligations in contract and tort. That was the correct approach in the instant case. It produced a coherent picture regarding the extent of protection afforded by the law, moving from lesser protection in the context of an ordinary commercial situation to greater protection where the relationship was of a fiduciary nature, rather than too readily comparing the two.
The claims that the first defendant had acted in breach of fiduciary duty and that the defendants were obliged to account to the claimants for the profits that they made from the acquisition and sale of the companies were dismissed.
Guy Newey QC and Hugh Norbury (instructed by Kris Sen Solicitors) appeared for the claimants; Richard Jones QC and David Holloway (instructed by Eversheds LLP, of Leeds) appeared for the defendants.
Eileen O’Grady, barrister
