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Directors' duty of confidentiality and the return of confidential information
The High Court has held in the recent case of Eurasian Natural Resources Corporation Ltd v Judge  EWHC 3556 (QB) that a director is not subject to an implied term requiring the delivery up of confidential documents after the termination of his appointment. Moreover, the judge found no legal authority or other evidence that would suggest that such a requirement would be the norm for directorships. The judge stressed the difficulty that directors would have in complying with such a duty, especially for individuals who take on multiple directorships. The potential ramifications of this judgement may lead to companies reviewing and re-considering the current terms of their directors’ service contracts and letters of appointment.
Eurasian concerned the non-executive director (“NED”) of a natural resources company that was a public company listed on the LSE until it de-listed in November 2013. As well as the NED’s statutory duties under the Companies Act 2006, his letter of appointment set out express duties which largely mirrored those statutory duties. His letter of appointment also provided that all information acquired during his directorship was confidential and should not be disclosed to third parties or used for any reason other than in the interests of the company, either during the directorship or following termination, but did not contain an express term requiring him to deliver up confidential information.
The company became concerned that confidential information was being leaked to third party sources, in particular the press. The NED went on to meet with a journalist and may have discussed confidential details of the company. Subsequently, an email sent by the NED was leaked to the press, although the NED denies that it was he who leaked the email. Meanwhile, the company was being investigated by the Serious Fraud Office (the “SFO”).
At the June 2013 annual general meeting of the company, the NED was not invited to stand for re-election and was told that the company was terminating his appointment immediately on the grounds that he had leaked confidential information. The company informed the NED of the arrangements for the termination of his appointment and required:
- the immediate delivery of any documents incorporating confidential information;
- an undertaking not to use or disclose confidential information going forward; and
- the provision of written details to the company about any confidential information or documents already disclosed to a third party.
The NED contacted the SFO via his solicitor asking what should be done with material he held which the company had asked to be returned – the SFO stated that the material should not be returned to the company.
The company commenced proceedings against the NED, alleging that there was an implied term in the NED’s contract that he would deliver up all confidential information to the company within a reasonable time of termination of his directorship or on demand. The company argued that such a term was required to give “business efficacy” to the contract or to reflect the “obvious, although unexpressed, intentions of the parties.”
The judge held that there were no grounds for finding that the NED was subject to an implied term requiring the delivery up of confidential documents after the termination of his appointment. The judge considered that, had it been the “obvious, although unexpressed, intentions of the parties,” it would have been incorporated into the letter of appointment. The judge stressed that there may be difficulties for an individual in complying with this duty, especially for those individuals who take on multiple directorships, and that it is difficult to see how “business efficacy” would be so achieved. The judge also rejected the argument that there was a wider obligation of confidence arising from the NED’s fiduciary duties.
This decision highlights to companies that any terms that they require in a director’s service contract, such as an express obligation to deliver up confidential information following the cessation of the director’s appointment, should be incorporated expressly into the service contract as they may not be able to rely on an implied term. For individual directors that do not have such an express clause in their contract, it opens the door for them to question any requirement to deliver up confidential information following the termination of their directorship where it would be onerous to do so.
For more information, please contact Pippa dos Santos.