Construction of confidentiality clauses: commercial agreements and employment contracts distinguished

Summary: The Court of Appeal - dismissing the appeal in Force India Formula One Team Ltd -v- Aerolab SRL and another [2013] EWCA Civ 780 - confirmed that courts should be very slow to intervene in respect of a confidentiality clause which has been drafted carefully to balance the parties' rights and obligations. Also, where confidential information becomes bound up in an individual employee's own skills, experience and knowledge, a distinction can still be made between information and personal experience - and where the "information" can be traced to a particular source it can potentially amount to confidential information capable of protection.

Background: On 3 April 2008, the parties entered into a contract, supposedly on an exclusive basis, under which Aerolab would perform development services for Force India's Formula 1 racing team. On 3 August 2008, Aerolab started work for Team Lotus, which it argued it was entitled to do following its acceptance of Force India's repudiatory breach. At first instance it was held that Aerolab was in breach of its contract as it had copied confidential material belonging to Force India - although the award of damages was only €25,000 which was less than the unpaid fees owed to Aerolab by Force India. Force India appealed.

Confidentiality - look at the wording, but keep context in mind. The contract included a confidentiality clause with a very broad definition of "Information" (not limited to trade secrets, or indeed to information not in the public domain) which Aerolab was obliged to keep confidential. There were what the Court of Appeal described as "safeguards": disclosure was permitted only with Force India's prior written approval; where the information was already in the public domain; or where the information was already known by Aerolab or developed by their employees independently. It seemed clear that the parties had carefully balanced their respective rights and obligations under the clause and this, in Lewison LJ's views, "...is the sort of case in which the court should be very slow to substitute its own perception of what is reasonable for that of the parties to the contract". However, the judge had hardly referred to the words of the clause. He had also discussed employment contracts in some depth, whereas this was a commercial agreement negotiated between commercial parties of equal bargaining power at arms' length. A final point made by the Court of Appeal was that the court's focus should be on the clause's meaning during the relationship, not post-termination.

"Memorable" information may still be confidential. At first instance, one of the judge's main concerns was that the clause should not unduly restrict the ability of Aerolab's employees to make use of their skill and knowledge, even where it had been enhanced by information acquired in the course of working on the Force India project. However, this approach shed no light on the key question of what the confidentiality clause actually meant. In the Court of Appeal's analysis of the position of Aerolab's employees, it was important to distinguish between the general skill and experience of an employee, and particular pieces of knowledge which could be traced back to confidential information. The clause in question was concerned with Information, as defined, and not skill or experience; and primarily with information in tangible form (consistent with the requirement to destroy it when the contract ended). A sensible approach in interpreting this clause would be to draw a distinction between something which could be traced to a particular source and something which had become so completely merged in the mind of an employee that it was impossible to identify its origin. The judge was wrong to take the view that any item which was "memorable" was part of the employee's skill, knowledge and experience. "An identified piece of confidential information does not cease to be confidential simply because it is memorable." However, he had been right as to quantum, as he had assessed damages on the basis of the benefit which Aerolab had obtained from the misuse of the information, namely a time saving in producing a model for Lotus. There was no claim that Force India had suffered any actual loss.

Please click on the links below for the other articles in the February 2010 commercial contracts newsletter:

• No exemplary damages awarded for breach of confidence
• Exclusion and limitation clauses in professional services contracts held reasonable under UCTA
• Payment on contractual termination "not a penalty"
• Delay: make sure your contract provides a remedy
• Repudiatory breach and the importance of context when assessing impact
• Commercial Agents Regulations: meaning of "continuing authority to negotiate"