Breach of Confidence Good Faith and the Database Right

Breach Health and Case Management Ltd v Physiotherapy Network Ltd [2018] provides some much needed clarity and guidance on the law on breach of confidence, the meaning of contractual obligations to act in ‘good faith’, and the practical application of the EU Database Rights.

The Facts

The Claimant, Health and Case Management Ltd (HCML) is a company that manages referrals to physiotherapy clinics on behalf of insurers.

The Defendant, The Physiotherapy Network Limited (TPNL) refers patients to physiotherapy clinics in its network.

In 2010, HCML and TPNL entered into an agreement whereby HCML referred patients to TPNL and TPNL then placed the patients with a local physiotherapist clinic within its network.

The agreement contained the following key provisions (for the purpose of this article):

1. Clause 2.3 anticipated that HCML would refer circa 700 referrals per month to TPNL;
2. Clause 3.1 required HCML to act in good faith towards TPNL at all times; and
3. Clause 14.1 required HCML and TPNL to keep information obtained from each other under or in connection with the agreement confidential and not to disclose any of the information to any third party without prior written consent.

In 2011, HCML started to build its own network of physiotherapy clinics without TPNL’s knowledge. In early 2012, HCML requested information from TPNL’s database of clinics purporting that it wanted to “to develop a geographical pricing model” for one of its insurers. On this basis TPNL provided the information, however from 2012 to 2014 referrals to TPNL started to decline before completely ceasing in 2014.

HCML initially issued a claim seeking a declaration for clarification purposes that it had not acted in breach of contract or in breach of confidence; however TPNL counter claimed and alleged that HCML was in breach of contract, breach of confidentiality, breach of good faith, and breached TPNL’s database rights.

The Decision

1. Breach of Contract

The Court held that HCML was not in breach of the contract for failing to provide 700 referrals per month to TPNL as the wording of clause 2.3 which included “anticipates” and “circa” failed to establish a binding commitment to a specific number of referrals.

2. Breach of confidentiality

The Court found that HCML was not in breach of its confidentiality obligation under clause 14.1 as the wording of the clause restricted the disclosure of the confidential information but not the use of the confidential information.

3. Breach of good faith

The Court found that HCML was in breach of its obligation under clause 3.1 to act in good faith towards TPNL on the basis that it had given a dishonest reason for requesting information from TPNL.  The Court considered that HCML failed to adhere to the spirit of the contract, to observe reasonable commercial standards of fair dealing, to be faithful to the agreed common purpose and to act consistently with the justified expectations of the parties. The Court also felt that HCML had acted in an underhand and exploitative manner by setting up a rival business actively diverting referrals way from TPNL while continuing to reap the benefits from their existing commercial relationship with TPNL.

4. Infringement of database rights

The Court held that HCML had infringed TPNL’s rights under the EU Database Directive (97/9/EC) on the basis that the Court was satisfied that the maintenance of the database was sufficient, qualitatively and/or quantitatively, to represent a “substantial investment”, such that there was a “rolling” unique right in respect of it.

Having established the right, the Court further held that the right had been infringed as each of the identified uses of the TPNL Database constituted an extraction of a substantial part of it, and that such extraction was not consensual because HCML was dishonest about the reason for the extraction.

Commentary

This case provides useful guidance on how the courts determine whether parties have acted in good faith i.e. whether they have adhered to the spirit of the relevant agreement, observed reasonable commercial standards of fair dealing, whether they were faithful to a common purpose and whether they acted consistently with the parties’ justified expectations.

This decision also emphasises the importance of careful attention to the drafting of obligations and confidentiality clauses highlighting the distinction between ‘misuse’ and ‘disclosure’ of confidential information. The obligation clauses should accurately reflect both parties’ intentions and provide appropriate remedies if these obligations are not met. TPNL was rescued from the insufficient wording of the confidential information clause by the express good faith clause.

Further the case serves as a practical example of the application of EU database rights and a reminder that using deception to acquire one’s data will more than likely be a breach of good faith.