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Recent Case Highlights Need for Clarity on Directors’ Duties of Confidentiality

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A director’s duty of confidentiality might not protect your business as much as you may think, even when included in a contract of employment, and implied contract terms will not necessarily stand up in a civil court action.

This follows a recent case of Eurasian Natural Resources Corporation Ltd v Judge where a judge ruled against a company who pursued a former director for breach of confidentiality.

The director’s letter of appointment included a confidentiality clause stating that no information acquired in the course of the director’s duties should be used or disclosed to third parties for any reason, apart from the company’s benefit, either during employment or afterwards.

The company asked the court to order the return of confidential information it had supplied to its former director, and to bring an injunction banning him from divulging any of it.

The claim for returning the information was struck out purely because the return of confidential material was not an express term of the director’s employment contract. However it was noted that injunctive relief may be pursued by the claimant to protect any information that was confidential.

This recent ruling has consequences for companies, including:

  • An implied duty of confidentiality offers only limited protection;
  • It should be enhanced by express terms in a director’s employment contract;
  • These can boost or clarify obligations under the implied duty of confidentiality; and
  • Where confidentiality is likely to be an important consideration, the following terms should appear in the employment contract:
  1. The extent of the director’s duty of confidentiality during their appointment;
  2. How long the director will be bound by the duty of confidentiality once they stop being a director; and/or
  3. A requirement to return (deliver up) all confidential information when the director’s appointment terminates.

You should have clear confidentiality policies in place and communicate these to all employees, including directors and senior staff who are likely to be privy to the most sensitive information.

If you have any queries about drafting confidentiality clauses or would like to discuss how this ruling may affect your business, please contact Michael Cantwell on 0113 3993457 or email michaelcantwell@hlwkeeblehawson.co.uk.

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