Confidential Information: Liability for Mere Possession

The tort of breach of confidence hitherto protected against a tortfeasor wrongfully gaining from the unauthorised use and/or disclosure of confidential information. With the recent decision of the Singapore Court of Appeal in I-Admin v Hong Ying Ting, the tort now protects against the wrongful loss of the confidential character of such information. A tortfeasor may now be liable by mere possession of the confidential information, even if he/she does not make unauthorised use and/or disclosure of the same.

Introduction: Breach of Confidence

Confidential information is not in the public domain and includes inter alia details of a company’s business operations, customer lists, and trade secrets (such as a method or technique of manufacture which is often a function of the company’s value proposition and gives its business an advantage over other competitors).¹Helpful examples of what constitutes confidential information can be gleaned from the website of the Intellectual Property Office of Singapore (IPOS). Intellectual Property Office of Singapore website <https://www.ipos.gov.sg/understanding-innovation-ip/other-ips/confidential-information-trade-secrets> (accessed 11 April 2020)

Following the recent decision of the Court of Appeal in I-Admin (Singapore) Pte Ltd v Hong Ying Ting and others [2020] SGCA 32 (I-Admin), the mere possession of confidential information may now be sufficient to hold a malefactor liable for breach of the equitable obligation of confidence.²Documents, information or material which have been disclosed to persons under a legal or moral obligation of confidence so that such persons are not entitled to make use of the information acquired for their own purpose, or disclose the same to other persons. Halsbury’s Laws of Singapore vol 13(3) (Butterworths Asia, 2017) at para 160.340 This is so even in circumstances where such information has neither been used, disclosed to the public, nor caused any financial detriment to the progenitor of such information.

This article discusses the reasons for this departure from the traditional approach in Coco v AN Clark (Engineers) Ltd [1969] RPC 41 (EWHC) (Coco v AN Clar”), where a defendant must be shown to have wrongfully profited from use of the confidential information before such breach is actionable; and the practical ramifications of this change in the law.

Relevant Facts and Background

I-Admin (Singapore) Pte Ltd (the Appellant) developed and sold software for managing corporate payroll (Payroll Systems) and human resource information (HRIS). The First and Second Respondents were the Appellant’s former employees until they set-up, and left to run, Nice Payroll Pte Ltd (the Third Respondent).³The Appellant did not pursue its claims against the Fourth Respondent on appeal; see I-Admin at (6) They were also directors of the Third Respondent. The Third Respondent similarly marketed Payroll Systems and HRIS services in markets that substantially overlapped with the geographical scope of the Appellant’s services.

A number of Appellant’s materials were discovered on the First Respondent’s laptop and Third Respondent’s server. The First and Second Respondents had also circulated some of these materials via e-mail. The Respondents had even attempted to delete some of these materials just before the Appellant executed an Anton Piller order (APO) at the premises of the Third Respondent.

The Appellant sued the Respondents alleging inter alia copyright infringement and breach of confidence, on account of the Respondents’ alleged use of the Appellant’s material⁴The Appellant’s allegedly infringed materials included: (a) Source codes for the Payroll Systems and HRIS; (b) Databases and other materials constituting the technical; infrastructure supporting the Payroll Systems and HRIS; (c) Business development and client-related materials; (d) Materials related to its operations, such as documents setting out internal guidelines and policies: I-Admin at (14) to develop the Third Respondent’s business. The Appellant failed at trial on both causes of action. The High Court found that whilst the Respondents owed obligations of confidence to the Appellant, the Respondents had not made use of the Appellant’s confidential information in the relevant sense.⁵I-Admin (Singapore) Pte Ltd v Hong Ying Ting and others (2017) SGHC 127 at (107)

The Modified Approach: Protecting the Confidential Character of Information

On appeal, the Appellant succeed in the breach of confidence action.⁶See I-Admin at (64), (80) The Court of Appeal held that once a plaintiff shows that (i) the information in question “has the necessary quality of confidence about it”; and (ii) has been “imparted in circumstances importing an obligation of confidence” and/or been accessed without a plaintiff’s knowledge or consent, breach of confidence is presumed (the Modified Approach).⁷See I-Admin at (61)

This represents a departure from the traditional position in Coco v AN Clark at p 47 where, in addition to the twin abovementioned requirements, a plaintiff also had to show that the defendant in fact made unauthorised use of the confidential information to the detriment of the plaintiff (the Traditional Approach).⁸Clearlab SG Pte Ltd v Ting Chong Chai and others (2015) 1 SLR 163 (HC) at (64)

Now, once a plaintiff has established presumed breach of confidence under the Modified Approach, the burden falls on the defendant to show that his conscience was not negatively affected despite his/her possession and/or use of the confidential information.⁹See I-Admin at (61), (64) Unless the defendant can displace the presumption of breach, the plaintiff is entitled to equitable relief.

The Traditional Approach in Coco v AN Clark specifically protected a plaintiff’s interest in preventing wrongful gain from its confidential information.¹⁰See I-Admin at (50) The remedies available include injunctions, delivery up, as well as monetary remedies to compensate the plaintiff and disgorge the defendant of the benefits of wrongful use of the former’s confidential information.¹¹See I-Admin at (56)

However, even if a defendant does not use confidential information which he acquired surreptitiously, the plaintiff already suffers a wrongful loss due to the erosion of the confidential character of the latter’s information. The Traditional Approach elides this aspect of a plaintiff’s interest. Such mere possession without use of the information and consequential detriment to a plaintiff would not have been an actionable breach under the Coco v AN Clark approach.¹²See I-Admin at (54)

The Modified Approach ameliorates this lacuna in the breach of confidence framework by instead emphasising a plaintiff’s wrongful loss interest in avoiding unnecessary diminution to the confidentiality of his information, and reduces undue focus on the wrongful gain interest.¹³See I-Admin at (53), (55), (58), (61)

Practical Impact of the Modified Approach

Whereas an increasingly digitised world has facilitated the rapid and convenient flow of information, it has made protected information that much more vulnerable to abuse. The decision in I-Admin strengthens the protection afforded to owners of confidential information. As the Honourable Sundaresh Menon CJ eruditely notes:¹⁴See I-Admin at (4)

“… it is now significantly more challenging to guard against the wrongful copying, abuse and exploitation of protected information … the legal framework that has hitherto prevailed does not adequately safeguard the interests of those who own confidential information.”

[emphasis added]

During the development and testing phase, innovators often disclose confidential information to strategic partners ahead of filing for patent grants over their inventions. If one such partner were to make unauthorised disclosure of the confidential information to an unauthorised third-party, under the Traditional Approach, the plaintiff could face an uphill challenge restraining the third-party from further disclosure of the information until the latter actually used the information.

This protection comes too late. In a highly-interconnected and digitalised world, no injunction will be able to entirely eradicate the spread of the information and restore its confidential character once it has been publicly disclosed. This could have disastrous financial consequences as it could preclude the plaintiff from obtaining patent protection for his invention as such information would arguably now be prior art which anticipates the invention. The Modified Approach avoids this perverse situation by allowing the plaintiff to proactively seek remedies against the third-party even if it is merely in unauthorised possession of such information, but has not disclosed it further yet.

The Modified Approach is also sensible from an evidential perspective. Indeed, confidential information may be furtively copied from plaintiffs without their knowledge. By the time such wrongdoing finds the light of day, plaintiffs may lack the necessary evidence to prosecute a viable claim in breach of confidence. Instead, the defendants would be “comparatively better positioned to account for their suspected wrongdoing” by being put to proof to displace a presumption of breach where they are found to be in possession of confidential information.¹⁵See I-Admin at (55), (62)

Conclusion

Therefore, in circumstances where a defendant knows and/or ought to have known that the relevant materials were cloaked with an obligation of confidentiality; and yet he appropriates such materials for himself without the plaintiff’s consent, a defendant’s conscience is no doubt ineluctably dinted such that he may be said to have committed an actionable breach of his obligation of confidentiality by undermining the plaintiff’s wrongful loss interest.

This was precisely the outcome on appeal in I-Admin, where the Court of Appeal eventually held that (i) the Respondents’ possession, circulation and reference to the Appellant’s confidential information without the latter’s consent was a prima facie breach of their obligation of confidence; and (ii) the Respondents proffered no evidence to displace the presumption that their conscience was tainted by their own acts.¹⁶See I-Admin at (63)

Accordingly, the Court awarded equitable damages to the Appellant on account of the time and trouble that the Respondents saved in developing the Third Respondent’s software and business material by using the Appellant’s confidential information as a “spring board” to create their own intellectual property.¹⁷See I-Admin at (79)

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