In the recent case of Kieran Corrigan & Co Limited v Timol the Court of Appeal considered a director's liability for breach of confidence. The appeal focused on whether a director could be held personally accountable for authorising the marketing of a tax planning structure that was, unknowingly to him, developed using confidential information obtained from a third party.
The Court of Appeal upheld the High Court judgment but ordered a retrial as further information had come to light which was not previously disclosed and showed that the director was familiar with the technical details of the tax planning scheme.
Background
The claimant, Kieran Corrigan & Co Limited (KCL), argued a director should be liable if they authorise acts that misappropriate confidential information, even if they were unaware of the breach.
The defendant, Mr Timol, was a director and minority shareholder at OneE Group Limited, and also involved in a pharmaceutical company, Nemaura Pharma Ltd.
KCL developed a tax-saving structure in collaboration with an English tax barrister, Mr Sherry, in 2012-13. This structure aimed to provide corporate investors with enhanced tax allowances for subcontractor R&D relief through a UK LLP. After finalising the structure, KCL introduced it to OneE Group's directors, Mr Slattery and Mr Johnson. An NDA was signed between KCL and OneE Group to allow confidential discussions regarding the structure's technical and commercial details, including a possible joint venture. The joint venture plans did not materialise and instead, Mr Slattery and Mr Johnson developed a similar structure using confidential information obtained from KCL and introduced it into a new investment opportunity for Nemaura Pharma Ltd. This structure was presented to investors at a conference in October 2014, disclosed to insurers and other legal advisors and had raised substantial capital by 2018.
KCL filed a claim in 2020 alleging breach of confidence, procuring the breach of NDA, and unlawful means conspiracy against OneE Group, Mr Slattery, Mr Johnson, and Mr Timol.
The High Court judgment
The original judgment was delivered by High Court Judge Jonathan Hilliard KC, sitting as Deputy High Court Judge, who ruled that Mr Timol was not liable for breach of confidence. The reasoning was that Mr Timol had not been involved in the development of the tax planning structure and had only authorised its marketing by focusing on its commercial viability. He had not known that confidential information from KCL had been used in the design of the structure.
Judge Hillard considered the requirements for breach of confidence under Coco v Clark:
- Information much have the necessary quality of confidence
- Information must have been imparted in circumstances importing an obligation of confidence
- There must have been an unauthorised use of that information to the detriment of the person communicating it.
The High Court found that Mr Slattery and Mr Johnson had misused KCL's confidential information in developing the Nemaura structure, and they were found liable for breach of confidence. The court made various findings against the directors such that they had: disclosed the information at the October 2014 conference, to insurers and to other advisors, and developed the Nemaura structure and conducted fundraising using the information. The court also ruled that Mr Slattery, Mr Johnson and the OneE Group were liable for unlawful means conspiracy and procuring the breach of contract. A later quantum hearing awarded KCL the sum of £3.48 million in damages.
However, Mr Timol was found not to have used or been involved in the unauthorised use of KCL's confidential information. The court determined that his role was primarily commercial and he had unwittingly approved the use of the information without being aware of its misuse.
Grounds of appeal
The case was appealed on three main grounds:
- Knowledge of confidential information: The appellant argued that Mr Timol, having attended the initial meeting had personally received the confidential information and so should have been aware of its use, even if he didn't directly understand that the Nemaura structure was based on it.
- Joint liability: The appellant contested the High Court's finding that Mr Timol was not jointly liable with Mr Slattery for the breach of confidence. This argument was undermined by the Supreme Court's ruling in Lifestyle Equities v Ahmed, which clarified that knowledge is required knowledge of the tort being committed for an accessory to be found liable, so this ground of appeal was not pursued further.
- New evidence and procedural irregularity: The appellant claimed that Mr Timol knew more or ought to have known more about the technical details of the Nemaura structure than had been presented during the trial, and that this information should have influenced the decision. The appellant also raised concerns about procedural irregularity and the handling of evidence.
Court of Appeal's consideration
The Court of Appeal's judgment focused particularly on the third ground of appeal. It acknowledged that Mr Timol had received confidential information during the meeting but had not personally used it to develop the tax structure. He was unwittingly signing off the use by the defendant company of confidential information that had been used by Mr Slattery and Mr Johnson to develop the Nemaura structure. The judgment emphasised that for a director to be liable for breach of confidence, there must be clear evidence of personal involvement in the misuse of confidential information. In this case, Mr Timol was not found to have done so to make a finding of primary liability for breach of confidence.
Retrial
The Court also considered the new documents discovered during the quantum stage of proceedings. These included emails suggesting that Mr Timol may have known more about the structure than was initially disclosed. As a result, the court allowed these new documents to be admitted and ordered a retrial to fully consider the new evidence.
Comment
The judgment provides important guidance on the circumstances under which a director may be held liable for breach of confidence. It clarifies that while knowledge of the misuse of confidential information may not always result in liability, a director must have some involvement in the breach to be personally accountable. This case serves as a reminder that directors, even those who are not directly involved in the development or misuse of confidential information, can still be held accountable if their actions indirectly contribute to a breach. Companies and their directors should remain vigilant around the handling and use of confidential information that comes into their possession.
The decision is also a reminder of the importance of full and thorough document searches and disclosure during litigation, particularly where emails may reveal a director's deeper knowledge of the situation.
We await to see how the retrial Judge will decide this case and whether he or she will find Mr Timol liable, now with the benefit of further evidence.
“ There was no dispute that Mr. Timol had personally received confidential information at the meeting on 4 February 2014: see the Judgment at [264]. The emphasis should have been placed on the fact that in signing off the Nemaura structure, Mr. Timol was not using the information that he had been given at the 4 February 2014 meeting. He was unwittingly signing off the use by the defendant company of confidential information that had been used by Mr. Slattery and Mr. Johnson to develop the Nemaura structure. For the reasons that I have given, that is not enough to found primary liability for breach of confidence, and the fact that the Judge may not have expressed himself as clearly as he might is not, of itself, a basis for this court to interfere. ”
