Clearlab SG Pte Ltd v Ting Chong Chai and others [2015] 1 SLR 163: A photo of Clearlab SG Pte Ltd. (Photo credits: Google)

CASE SUMMARY

A common lament of employers is the tendency of unscrupulous employees to “steal” their confidential information as a prelude to leaving the employment and with a view toward starting a competing business. In such a scenario (and putting aside a case where the employment contract contains restrictive covenants circumscribing the employee’s activities post-employment), the law provides employers legal redress in the form of an action for breach of confidence. In order to succeed, the burden is on the employer to establish 3 elements: (a) the information must possess the quality of confidentiality; (b) the information must have been imparted in circumstances importing an obligation of confidence; and (c) there must have been some unauthorised use of that information to the detriment of the party from whom the information originated (see Clearlab SG Pte Ltd v Ting Chong Chai and others [2015] 1 SLR 163 (“Clearlab”) citing Coco v AN Clark (Engineers) Ltd [1969] RPC 41 (“Coco”)).

But what if the employer, whilst able to prove that the employee did unlawfully remove confidential information, is however unable to prove actual use by the ex-employee of the confidential information? Is the court then bound to dismiss the action since it cannot be shown that the employer suffered detriment? That was precisely the employer’s predicament in the captioned case resulting in the High Court Judge dismissing the employer’s claim even though the first 2 elements in Coco were satisfied.

THE CA’S DECISION

The employer appealed. The Court of Appeal (“the CA”) perceptively observed that owing to the digitised society we now live in which makes it “significantly easier to access, copy and disseminate vast amounts of confidential information……almost instantaneously, often without the knowledge of plaintiffs”, “the legal framework [on the law of confidence] that has hitherto prevailed does not adequately safeguard the interests of those who own confidential information.” Thus, in its view, a review of the scope of the law of confidence was timely.

The modified approach

Before detailing the modified approach, we set out the thought process the CA underwent to justify the need to fine-tune this area of the law. 

The CA began by posing this scenario:

There may often be circumstances where defendants wrongfully access or acquire confidential information but do not use or disclose the same. Nevertheless, their actions compromise the confidentiality of the information in question. In such circumstances, why should the courts not have the power to grant relief?

In the CA’s view, this question was to be answered after a consideration of the following matters: (a) what interests are sought to be protected by the cause of action? (b) what is the nature of the threat to these interests? (c) what are the remedies that ought to be made available where the relevant interests have been infringed? We discuss each in turn.

What interests are sought to be protected?

The CA traced the development of the law of confidence and concluded that the law was designed not only to protect a plaintiff’s interest in preventing wrongful gain or profit by the defendant (“wrongful gain interest”) but also to safeguard a plaintiff’s interest to avoid wrongful loss (“wrongful loss interest”).

Traditionally, the emphasis was on the former but a careful reading of the older cases shows that the latter formed part of the intended purpose of the law. The CA was particularly attracted to the observation of Lord Denning MR in Seager v Copydex Ltd [1967] 1 WLR 923 that “[t]he law on this subject …depends on the broad principle of equity that he who has received information in confidence shall not take unfair advantage of it. He must not make use of it to the prejudice of him who gave it without obtaining his consent”.

After scouring other authorities, the CA concluded that:

…there is “a broader, more fundamental, equity-based rationalisation for the protection of confidentiality: an “obligation of conscience is to respect the confidence [of the relevant information], not merely to refrain from causing detriment to the plaintiff.” (Smith Kline & French Laboratories (Australia) Ltd and others v Secretary, Department of Community Services and Health (1990) 17 IPR 545 (“Smith Kline”) at 584). It places defendants under a duty; they are “bound” not to deal with confidential information in a manner that adversely affects their conscience. Depending on the circumstances under which the obligation arises, this duty may extend beyond refraining from acts of unauthorised use or disclosure. The language of “conscience” reflects an interest in “prevent[ing] … a wrong” (Prince Albert at 1179), and protecting plaintiffs from any kind of improper threat to the confidentiality of their information.”

The nature of the threat to the plaintiff’s interest (as described above)

The CA then considered whether a more robust response by the law is warranted. In answering it affirmatively, it said that:

“….The fragility of such confidential information [in view of the digitised society] suggests the need for stronger measures to protect owners from loss. An undue focus on the wrongful gain interest to the exclusion or diminution of the wrongful loss interest, under the current law of confidence, would mean that those measures are lacking.”

The remedies available to the plaintiff

In shaping the appropriate remedy for aggrieved plaintiffs, the CA noted that:

“……..the wrongful loss suffered [by the plaintiffs], meaning the dissipation of the confidential character of the information, does not always immediately translate into monetary terms or quantifiable detriment. The owner of the compromised information may know he has suffered loss but may only be able to speculate as to how, for example, this will negatively affect his business or future operations. This means that even a simple claim for damages will not necessarily succeed. It is clear that there can be significant obstacles in the way of plaintiffs seeking to vindicate their wrongful loss interest, independently of their wrongful gain interest.”

Given that in its view, “the current requirement of unauthorised use and detriment has held back the development of the law by overemphasising the wrongful gain interest at the expense of the wrongful loss interest”, the CA enunciated the modified approach.

What then is the modified approach?

In a nutshell, the modified approach involves a shifting of the burden of proof to the defendant. In the words of the CA (at [61 – [62)]:

“Preserving the first two requirements in Coco, a court should consider whether the information in question “has the necessary quality of confidence about it” and if it has been “imparted in circumstances importing an obligation of confidence”. An obligation of confidence will also be found where confidential information has been accessed or acquired without a plaintiff’s knowledge or consent. Upon the satisfaction of these prerequisites, an action for breach of confidence is presumed. This might be displaced where, for instance, the defendant came across the information by accident or was unaware of its confidential nature or believed there to be a strong public interest in disclosing it. Whatever the explanation, the burden will be on the defendant to prove that its conscience was unaffected. In our view, this modified approach places greater focus on the wrongful loss interest without undermining the protection of the wrongful profit interest.”

A shift in the burden of proof also addresses the practical difficulties faced by owners of confidential information in bringing a claim in confidence. As noted at [55], plaintiffs may often be unaware of the fact that someone has done an act inconsistent with their right of confidentiality. A potential breach could be discovered years after, placing them on an evidential back-foot. Defendants are comparatively better positioned to account for their suspected wrongdoing.

Applying the above to the case before it, the CA found that the action for breach of confidence was made out and overturned the High Court Judge’s decision on this aspect. The CA then turned to address the issue of the appropriate remedy.

The appropriate remedy

The CA began by recognising that injunctions and delivery up orders were already part of the “formidable armoury” available to the plaintiff. That said, it was of the view (at [71]) “an injunction and/or delivery up order are somewhat unsatisfactory remedies by themselves as they do not set right the loss already suffered by virtue of the respondents’ unconscionable conduct.”

Turning then to equitable monetary remedies, the CA noted that it was besieged with problems because (quoting from academic literature on this topic):

“A classic profits-based remedy requiring [the defendant] to disgorge his net monetary gains [from the breach] may be seen to present insurmountable problems of accounting because so much of [the defendant’s] own capital has been intermingled with the information in [the defendant’s] commercial use of it. Alternatively, making allowance for [the defendant’s] own capital might make the award very modest or even nominal. An award of money as equitable compensation for what [the plaintiff has lost] ― so that [the defendant] is obliged to put [the plaintiff] in the position [it] would have been in if the duty of confidence had not been breached ― creates such a wildly counter-factual basis of calculation that a court may rail against it as unduly speculative …”

In light of the aforesaid limitations as to the effectiveness of those remedies, the CA awarded equitable damages to the appellant (to be assessed at a separate hearing) noting that our courts have the power to make such an award by virtue of para 14 of the First Schedule of the Supreme Court of Judicature Act. The concept of equitable damages would involve, among others, a consideration of how much “time and trouble” the respondents saved by making use of the appellant’s confidential information as “a springboard”. While leaving the precise measure of damages to the assessment judge, the CA directed (at [79]) that:

“…..in determining the appropriate award, the Judge ought to consider the additional cost that would have been incurred by the third respondent to create the different elements of its payroll software without any reference to the appellant’s materials. Besides the financial expense the respondents would have incurred to develop these components independently, it may also be relevant to look at the reduction in the time taken to set up the third respondent’s business, allowing it to commence profit-making earlier. Taken together, this would provide a quantifiable impression of the value of the appellant’s information to the respondents.”  

CONCLUDING REMARKS

This decision is welcome for 2 reasons:

  • It makes clear that the court is empowered to order a defendant to pay equitable damages for breach of confidence; and
  • In Clearlab, the learned Lee Seiu Kin J. noted by way of dicta that “the courts have accepted that accessing, acquiring or threatening to abuse … confidential information may also form a breach of confidence.” The CA found this dicta “useful in so far as it recognises the fluidity in the scope of a defendant’s obligation of confidence, in turn reiterating the fact that the wrongful loss interest may be infringed in a variety of situations outside actual use and disclosure.” By its decision, the CA has elevated the dicta into binding precedent.

Incidentally, our Mr Lok Vi Ming SC, Mr Joseph Lee, and Mr Tang Jin Sheng acted for the successful claimants in Clearlab

To read the full judgment, click here.