Breach of Confidence, Good Faith and the Database Right

The High Court recently had reason to consider the law on breach of confidence, the meaning of contractual obligations to act in ‘good faith’, and the practical application of the database right.

Facts

The Physiotherapy Network (‘TPN’) had a nationwide network of physiotherapy clinics, and received introduction fees from referrals to clinics in its network. Health and Case Management Limited (‘HCML’) managed referrals to physiotherapy clinics for insurance companies.

In 2011, TPN and HCML entered into a services agreement, whereby HCML referred patients to TPN for fees. Clause 3.1 provided “HCML shall act in good faith towards TPN at all times”. Clause 14.1 stated that HCML and TPN would keep confidential all information of the other party obtained under or in connection with the agreement and would not “disclose any of that information to any third party without the prior written consent of the other”.

In 2011, HCML began a project to build its own network of physiotherapy clinics. In February 2012, HCML asked TPN for information from its database of clinics (the ‘TPN Database’), indicating that it wanted the information in order to develop a geographic pricing model. TPN provided the information. From late 2012 until 2014, the number of referrals made by HCML to TPN reduced and then dried up completely. TPN claimed (in fact, counterclaimed) that HCML had used its TPN Database to recruit clinics to its own network.

Breach of Confidence   

When considering the claim for breach of confidence, the Judge paid close regard to the obligation of confidence created by the agreement. Clause 14.1 did not restrict use of confidential information, but rather restricted its disclosure. However, the pleaded case – and the substance of the complaint – had been directed at the former. Nicklin J therefore held that there had been no breach of clause 14.1 ([100]-[101]).

The Judge in any event went on to consider whether the information in the TPN Database would have been confidential. The Judge applied the authorities on whether material could be said to have the quality of confidence, even though some or all of the information was in the public domain – in particular Thomas Marshall v Guinle [1979] Ch 227 and Crowson Fabrics v Rider [2008] FSR 17 ([102]-[105]). He held that the list of physiotherapy clinics in the TPN Database would not have had the necessary quality of confidence. However, the data about the number of referrals made to each clinic was different – this information was not publicly available. 

Good Faith

TPN also alleged that HCML had breached the express contractual requirement to act in good faith. At [108], the Judge summarised the current law on the proper interpretation of good faith clauses. The Judge also expressed the view that, unless a party had acted in bad faith, he could not be in breach of the duty of good faith.

HCML’s response focused on the context of the agreement: it argued, for example, that the agreement did not contain a ‘no compete’ clause ([112]). It also argued that a good faith clause (however broadly construed) could not be read as requiring HCML to keep TPN informed of the detail of its own commercial strategy ([117]).

The Judge, however, took a much broader view of the obligation imposed by clause 3.1. Noting that HCML had given a dishonest reason for requesting the data and had used that data to divert referrals likely to have gone to TPN ([124]-[126]), he held that “HCML failed to adhere to the spirit of the contract, to observe reasonable commercial standards of fair dealing and to be faithful to the agreed common purpose and to act consistently with the justified expectations of the parties” (at [128]). This easily passed the threshold of a breach of clause 3.1 ([129]).

Database Right

The claim for infringement of the database right (European Parliament and Council Directive 96/9/EC (the ‘Database Directive’)) appears to have been something of an afterthought in this case (at [64]).

As to whether the database right subsisted in the TPN Database, one of HCML’s objections was that the database had been compiled before the Database Directive was in force, and only updated since. However, even absent specific evidence of the costs of keeping the database up to date, the Judge was satisfied the maintenance of the TPN Database by TPN was sufficient, qualitatively and/or quantitatively, to represent a “substantial investment”, such that there was a “rolling” sui generis right in respect of it ([92]).

Second, as to whether that database right had been infringed, HCML stated that TPN had consented to the single ‘extraction’ in uploading a spreadsheet into its database, and otherwise the use by HCML of the TPN Database was “mere consultation” (at [96]). The Judge rejected this defence, and held that each of the identified uses of the TPN Database constituted an extraction of a substantial part of it, and that such extraction was not consensual (because the explanation for its use was untrue) ([97]-[99]). Accordingly, TPN’s claim succeeded.

Conclusion

This case provides a useful example of the application of difficult legal questions that arise in the context of breach of confidence and database right claims. Perhaps the most significant aspect of the judgment is the substantial teeth that the Court was willing to give to a broad and generalised ‘good faith’ clause; this developing approach of the common law may see such contractual obligations being adopted and relied upon more in the future.

The full judgment can be read here.