What is Confidential Information?
Confidential information has no defined meaning, and there is no one test to determine whether the information will import an obligation of confidence (Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967]). Instead, one must consider a variety of criteria to determine whether a duty of confidentiality arises in relation to information (Coco v A N Clark (Engineers) Ltd [1969]).
As a starting point, confidential information has commercial value and is not obvious, trivial, or would be reasonably apparent to someone skilled in a particular field. Further, the information should generally not be available in the public domain.
Bennett J in CA, Inc. v ISI Pty Limited [2012] FCA 35 at [365] stated:
“To be confidential, information must be capable of being given the attribute or quality of confidence; that is, it must be something which is not within the public knowledge (Saltman Engineering Co Ltd v Campbell Engineering Co Ltd [1963] 3 All ER 413 at 415). However, that something has been disclosed in a limited manner does not rob it of its confidentiality, even if the dissemination was via mass media or the internet. It is a question of degree in each case. The expression “relative secrecy” has been used to describe this concept (see e.g. Franchi v Franchi [1967] RPC 149 at 153; Australian Medic-Care Co Ltd v Hamilton Pharmaceutical Pty Ltd (2009) 261 ALR 501 at [633] per Finn J).”
Further, confidential information may be specified in contracts, including employment agreements, non-disclosure agreements, sale agreements, and numerous other agreements.
Related: Confidentiality and Employees – the Biggest Risks
Common examples of confidential information include business processes, financial information, customer and supplier databases, methods of manufacture, technical drawings and data, computer code, ingredients, formulas, calculation methods, and customer lists.
The Duty of Confidence
A duty of confidence may arise under common law (including in contract and equity) and under legislation. Section 183 of the Corporations Act 2001 (Cth) stipulates that directors, officers, and employees must not improperly use the information to gain an advantage for themselves or someone else or cause detriment to the corporation.
That legislative duty continues after the person stops being an officer or employee of the corporation.
Further, employees are subject to the duty of good faith at common law, which includes the duty not to disclose confidential information to unauthorised third parties (Robb v. Green [1895]).
Confidentiality may also arise due to the nature of the parties’ relationship or by reason of the subject matter and the circumstances in which the subject matter was communicated.
The equitable duty of confidence can still exist where there is no written agreement.
While the equitable duty of confidence can co-exist with contractual rights, allowing a plaintiff may commence an action for breach of contract and breach of confidence, a remedy may only be sought under one or the other.
I will thoroughly analyse the legal authority for beach of confidence in the equitable jurisdiction in the ‘Equitable Cause of Action for Breach of Confidence’ section below.
However, firstly, I would like to address two questions that often arise when discussing confidentiality:
- What is a Trade Secret?
- Is Confidential Information a form of Intellectual Property?
What is a Trade Secret?
Most states in the United States have various trade secrets legislation based on a national model. In contrast, the term’ trade secret’ does not have a legal definition in Australia. Gowans J stated in Ansell Rubber Co Pty Ltd v Allied Rubber Industries Pty Ltd [1967]) that:
“An exact definition of a trade secret is not possible.”
However, despite the term’s use as part of the English language to imply a level of secrecy (GlaxoSmithKline v Ritchie [2008]), ‘trade secret’ has been used in judgments in certain circumstances and to varying degrees, including in Printers & Finishers Ltd v Holloway (No. 2) [1965]):
“…as a separate part of the employee’s stock knowledge which a man of ordinary honesty and intelligence would recognise to be the property of his old employer, and not his own to do as he likes with”
and in Del Casale & Ors. v. Artedomus:
“The notion of a trade secret is sometimes used to indicate whether an obligation of confidence exists.
Therefore, it is safe to say in Australia that the term’ trade secret’ may describe or indicate a degree of sensitivity in relation to certain confidential information but is not something other than confidential information.
Is Confidential Information a form of Intellectual Property?
Many people, including some lawyers, incorrectly believe Confidential Information is intellectual property. However, Australia’s laws do not provide proprietary rights in Confidential Information, unlike other jurisdictions.
Gummow J, in Smith Kline & French Laboratories v Department of Community Services & Health [1990] FCA 206; 17 IPR 545 at [166] stated:
It seems clear enough that knowledge per se is not proprietary in character.
Further, the very nature of intellectual property is public. For example, trade marks, patents, and designs are on public registers, and copyright in artwork and literary works are primarily published in the public domain. In contrast, one must hold confidential information in relative secrecy to afford legal protection.
Based on the above reasoning, arguing that confidential information is a form of Intellectual Property is misconceived. Avoid conflating IP and confidential information in non-disclosure agreements and other contracts.
Equitable Cause of Action for Breach of Confidence
The equitable jurisdiction for breach of confidence was first applied in Australia in Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984). Since then, the Australian courts have followed the English courts.
For example, Coco v AN Clark (Engineers) Ltd (1968) 1A IPR 587 has been followed in Australia. In that case, Megarry J found the following three elements must be satisfied to establish a breach of confidence:
- The information must have the necessary quality of confidence about it;
- The information must have been conveyed in circumstances imparting an obligation of confidence and
- There must be unauthorised use of that information to the plaintiff’s detriment.
Since that case, the law has evolved significantly. For example, with respect to the third element, Freeburn J in Thales Australia Limited v Madritsch KG & Anor [2022] QCA 205 stated (in a footnote) that it is unclear whether detriment is an essential part and referred to the discussion in Bently and Sherman, Intellectual Property Law 2nd edition at 1035 [2.2.3].
Freeburn J’s judgment is consistent with a 2010 judgment of Optus Networks Pty Ltd v Telstra Corp Ltd [2010] FCAFC 21; (2010) 265 ALR 281 (Optus). Following the decision in Smith Kline & French Laboratories, Optus set out the following four elements to establish an equitable breach of confidence:
- The information in question must be identified with specificity.
- The information must have the necessary quality of confidence.
- The information must have been received (by the recipient) in the circumstances imparting an obligation of confidence, and
- There must be an actual or threatened misuse of the information without the confider’s consent.
Let’s look at other case authorities that support each of those elements, with the exception of the last point, which is axiomatic.
The information must be identified with specificity.
The High Court case of O’Brien v Komesaroff [1982] HCA 33 – 150 CLR 310 is an authority that one must specify confidential information to afford protection.
In that case, Mr. Komesaroff, a solicitor, claimed confidentiality over documents containing information on tax minimisation strategies involving structuring unit trusts. Mr. Komesaroff claimed that O’Brien, an accountant, breached copyright and his duty of confidence by using that information to benefit his clients.
While the court ruled that Komesaroff breached copyright, the court also ruled that O’Brien did not breach confidentiality.
The court found that:
The contents of the trust deed and articles of association were matters of common knowledge, and only the improvements made by Komesaroff could potentially give rise to a claim for breach of confidence;
- Komesaroff did not specify which information was confidential in his pleadings, and
- Unlike legal, technical and scientific knowledge, commercialising such information is impossible.
On that basis, O’Brien did not breach a duty of confidentiality.
This judgment also touched on the issue of using equity to protect a tax avoidance scheme, which the court deemed had an anti-social purpose. This case seems to apply equitable doctrine: “he who comes to equity must do so with clean hands”.
The information must have the necessary quality of confidence.
In Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317, Kirby J listed the following factors that help determine whether information may be considered confidential:
- The extent to which the information is known outside the business.
- The extent to which the trade secret was known by employees and others involved in the plaintiff’s business.
- The extent of measures taken to guard the secrecy of the information.
- The value of the information to the plaintiffs and their competitors.
- The amount of effort or money expended by the plaintiffs in developing the information.
- The ease or difficulty with which the information could be properly acquired or duplicated by others.
- Whether it was made known to the employee that the material was by the employer as confidential.
- The usages and practices of the industry support the assertions of confidentiality.
- The employee has been permitted to share the information only because of their seniority or high responsibility.
- That the owner believes these things to be accurate and that belief is reasonable.
- The greater the extent to which an employee habitually handles the “confidential” material, the greater the obligation of the confidentiality imposed.
- That the information can be readily identified.
In an important decision, Hodgson JA, in Del Casale v Artedomus (Aust) (2007) NSWCA 172 , referring to the elements above in Wright v Gasweld, stated:
“In my opinion, the stronger these factors are in any particular case, the more likely it is that the particular information will be treated as a trade secret that the ex-employee is not entitled to use or divulge…”
The information must have been received in circumstances imparting an obligation of confidence.
This element considers the circumstances under which information was disclosed and the parties’ relationship. For example, Megarry J, in Coco v AN Clark (Engineers) Ltd [1969] RPC 41, stated:
“It seems to me that if the circumstances are such that any reasonable man standing in the shoes of the recipient of the information would have realised that upon reasonable grounds the information was being given to him in confidence, then this should suffice to impose upon him the equitable obligation of confidence.
In particular, where information of commercial or industrial value is given on a business-like basis and with some avowed common object in mind, such as a joint venture or the manufacture of articles by one party or the other, I would regard the recipient as carrying a heavy burden if he seeks to repel the contention that he was bound by an obligation of confidence …
I doubt whether equity would intervene unless the circumstances are of sufficient gravity; equity ought not be invoked merely to protect trivial tittle-tattle, however confidential.”
Remedies
Injunction: This court order requires a person to do something (mandatory injunctions) or refrain from doing something (prohibitive injunctions).
Specific performance: This order requires a person to perform a contractual obligation under a contract when damages are not an adequate remedy for a contractual breach.
Restitution: This court order requires a person to return any property or money they wrongfully obtained from another person. This remedy is to restore the parties to their original position before the wrong occurred.
Equitable compensation: This remedy requires a defendant to pay the plaintiff for a person’s loss, often due to the defendant’s breach of a fiduciary duty or trust.
Constructive trust: The courts may find the existence of this legal relationship if a person holds another person’s property for their benefit. This remedy is often used for a breach where there is a trust or fiduciary relationship.
Account of profits: The court awards this remedy where the defendant gains a benefit following their breach of a duty of confidence.
Delivery up: As the name suggests, this remedy requires the defendant to return the property to the plaintiff.
Damages: Damages are a contractual remedy that compensates the plaintiff for damage caused by the defendant. Subject to any contract between the parties, a claim for damages may include future economic loss that the defendant’s breach causes, such as loss of opportunity. Although equitable damages are possible, that discussion is beyond the scope of this article.