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11th May 2018

In good faith

While companies are busy preparing for the GDPR, a recent High Court decision (1) highlighting the importance of protecting confidential databases serves as a reminder that it should not be their sole focus, says Thrings partner David Patterson.

HCML entered into a written Services Agreement with TPN in relation to referrals to physiotherapy clinics on behalf of insurance companies’ insured. It included clauses confirming that HCML would make “anticipated” referrals per month to TPN, and that HCML would “… act in good faith towards TPN at all times”. Further, both parties agreed to keep all information obtained under or in connection with the Services Agreement confidential.

Following the commencement of the Services Agreement, HCML made referrals to TPN. However, within a period of a few years, the referrals ceased completely. Why? HCML, in fact, built its own network of physiotherapy clinics. TPN contended in the subsequent litigation between the parties that the creation of HCML’s network was a breach of the Services Agreement.

At the time HCML had been working on setting up its own network, HCML had by “coincidence” requested information from the TPN database. The judge at trial did not accept HCML’s reasons for requesting the information, and was satisfied that HCML requested and used the information provided by TPN to assist with the setting up of its own network.

In light of this, the judge determined a number of issues as to liability. In particular, the judge decided that HCML was not in breach by failing to make a certain number of referrals per month. The use of the word “anticipates” meant there was no binding commitment. The clause in dispute was not ambiguous. The judge commented that the clause could have defined a certain number of referrals per month instead of the actual wording “… HCML anticipates making circa. 700 referrals per month to TPN, and volume discounts from time to time for this level of referrals”.

The Services Agreement included a clause restricting disclosure of confidential information but failed to restrict the use of the data. The judge determined there was no breach of the relevant clause, although there had been some disclosure. The real issue was the use of the TPN database, which was not restricted by the Services Agreement.

However, the judge was satisfied that a database right subsisted in the TPN database, and that HMCL had infringed the same. Further, on the basis that HCML had requested TPN’s data and gave a dishonest reason for the request, the judge was satisfied that HCML had failed to act in good faith.

In summary, TPN’s claim for breach of the “non-disclosure” clause failed. TPN was rescued by the findings that its database right had been infringed and that HCML had failed to act in good faith. Otherwise, TPN’s case in relation to the misuse of its data would not have succeeded.

This case is a stark reminder to businesses holding valuable databases to ensure confidentiality provisions are clearly drafted to restrict the disclosure and use of confidential information.

For further commentary on this case, or for help and advice on dispute resolution issues, please contact David Patterson in Thrings’ Disputes team.

(1) HCML v PNL [2018] EWHC 869 (QB)

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