Directors’ liability for breach of confidence

There has been a spate of cases recently concerning the liability of directors in tort for the wrongful acts of others. On 18 October 2024, the Court of Appeal considered this issue in the context of a claim for breach of confidence. In another blow to claimants trying to fix directors with liability, the Court of Appeal unequivocally held that liability for a breach of confidence is not strict.

Background

The case is Kieran Corrigan & Co Ltd -v- Timol [2024] EWCA Civ 1233. The confidential information in question concerned a tax scheme shared with a company (One E Group Ltd) of which Mr Timol is a director and a shareholder. Mr Timol himself was present at a meeting when the claimant explained its scheme to him and two other individuals working for the company.

At the High Court trial, the judge found that the two other individuals had used the information supplied by the claimant to work up a tax scheme then deployed by the company several months later. Compensation to the claimant was later assessed at nearly £3.5 million awarded against One E Group Ltd and the two other individuals.

Mr Timol’s involvement was to approve the launch and marketing of the scheme by the company. However, on the evidence before the trial judge, Mr Timol was found to have had no understanding of the detailed workings of the scheme or that it involved any information derived from the claimant. Accordingly, the judge decided he could not be held personally liable for breach of confidence.

Appeal

The claimant appealed, arguing that it did not matter that Mr Timol did not know that the claimant’s confidential information was being used in the scheme. Liability should be strict: once confidential information is received by a person in confidence, if that person subsequently authorises acts that involve the misuse of that information by others, liability cannot be avoided because they do not know that the information is being misused.

The Court of Appeal rejected the claimant’s argument. They accepted that the judge’s reasoning was not altogether clear. However, they agreed with the decision the judge had reached, clarifying that the real reason Mr Timol could not be liable was that if he did not know, or there was no reasonable suspicion in his own mind, that the scheme used the claimant’s confidential information, then he could not be said to have misused that information himself when approving the marketing of the scheme.

In addition, following the recent Supreme Court decision in Lifestyle Equities (see our earlier article here), it was conceded by the claimant that Mr Timol could not be held liable as an accessory to the breach of confidence committed by his co-defendants. That second ground of appeal was therefore not pursued.

Unfortunately for Mr Timol, the question of his personal liability is not yet fully settled. The claimant succeeded on its third ground of appeal. After the High Court trial, further evidence was discovered indicating that Mr Timol might have understood more about the scheme than had emerged at the trial. In light of this, exceptionally the Court of Appeal agreed with the claimant that the question of Mr Timol’s knowledge should be re-tried by the High Court, preferably before the same judge who made the first instance ruling.

The full judgment of the Court of Appeal is here.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, October 2024